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Food service industry to hit value of $29.3 bn by 2020
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Friday, 01 February, 2019, 08 : 00 AM [IST]
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Shipra Joshi
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Worldwide, the United Arab Emirates is the third-biggest spender on food and beverage, with 60% of consumers visiting a mall just to eat or drink. After London, the UAE ranks second in terms of global brand coverage and home to 56% of the world’s retail brands. With increased presence of food industry products and services in all retail channels, the food service consumption continues to rise.
There is stiff competition between convenience stores and forecourt retailers with traditional food service outlets, whereas less affluent markets, street stalls and kiosks are offering quality and range of products on offer and providing cheaper alternatives with improved modern equipment.
The Gulf food services market is one of the fastest growing markets in the world. The food service market was recorded at $21.5 billion in 2016 and is expected to hit a value of $29.3 billion by 2020. According to Al Masah Capital, the Gulf food service market driven by a growing population and tourism sector, disposable income, and changing dietary habits, is expected to grow at an annual rate of 8%.
Whereas, the F&B market was expected to grow at 7.1% annually to reach $196 billion by 2021, which was at $130 billion (Dh477.1 billion) in 2018. Saudi Arabia will account for more than half of this spending followed by the UAE at 31%.
Key Growth Drivers
Despite the challenging economic scenario and a growing population of the Gulf region, the country's personal income levels have remained strong, which is the biggest support to the food service providers. If we look over the last decade (2006-16), the GCC’s per capita income grew at 1.2% CAGR, inclined down over the last couple of years due to the slowdown in economy on the back of low oil prices, but still, the noticeable part is the region’s rising affluence levels.
This is what is attracting major international as well as local F&B providers to establish and expand their presence in the region. Government is continuously putting efforts toward economic diversification and the rising population of the region is well supported by its oil and wealth, the major growth drivers of food consumption in the GCC.
The population of the Gulf is aged between 15 and 34 years, which is almost 37% of the total population, comprising the young and working that are supporting the market shift in taste for international brands and preference towards convenient and high-quality food services.
Strong investment in the hospitality and tourism sector in the GCC is robust with huge potential for investments from both local and global players. The tourist arrivals in the Gulf region is expected to grow at a CAGR of 5.7% during 2016-2026 according to The World Travel & Tourism Council.
On average, Saudi Arabia and the UAE attract more tourism in the country with more than 30 million tourists annually and accounted for approximately 62% of the total tourist arrivals in the GCC in 2015. By 2020, it is expected that the share of both the countries will rise to approximately 64% of the total GCC tourist arrivals.
Catwalk Cow
The UAE-based Catwalk Cow founded by Palestinian-American Samia Ataya has developed a delicious dessert mix that is free of preservatives, artificial fat and sugar substitutes, colourings, or other additives. It has been expanded to Kuwait, Oman, and Bahrain and has its sights on the rest of the Gulf region with its bold slogan “Bite me!” There are no products like the brand, it is a unique product in the world even has the potential to spread to the global marketplace and it is aware of. The company spent six months outfitting factory and quickly grew from 13 to 70 outlets in 18 months, a trend that will likely continue into the future.
Salad Boutique
Kuwait-based Salad Boutique was founded by three young Kuwaiti entrepreneurs, Ghadeer Khajah, Laila Al-Kandrai, and Mohamed Qabzard in 2009. It is now into Saudi Arabia, Bahrain, and Qatar. It offers health-conscious customers a delicious eatery with generous portions of fresh and innovative salads as a main course. This unique restaurant offers the region something different, redefining cuisine to make healthy food a treat.
BonApp
BonApp launched in January 2018, has 85 eateries in Dubai on board. This new app is allowing restaurants to sell off their excess food at discounted prices. Restaurants with excess pre-packaged foods, unsold meals and freshly-baked products can list their spare produce on the app. The startup makes money by taking a cut of the transaction. Through this app, the user can avail up to 60% discount on the food on the usual retail price and go to collect it in person.
Opportunities for Food Service in the Gulf
Demand for healthy and organic food is rising in the Gulf region because of the growing incidence of lifestyle-related diseases and a high rate of diabetes and obesity. The region has some of the highest rates of obesity, diabetes and cardiovascular diseases in the world. Due to growing awareness about the benefits of healthy food among consumers, and increasing media and government attention on health issues the market for health and wellness food is growing strongly in the Gulf region.
California-based Lemonade recently opened two branches in Dubai, Richy’s offers custom-made salads, while Circle has been expanding its presence offering salads and bagels. While many restaurants have started serving gluten-free food options on their menu, gluten-free foods have become a buzz word in the Gulf region.
With an increasing preference for organic and healthy foods, not only is it available in retail outlets, but even mainstream restaurants have started offering healthy options on their menus, such as salads, whole-wheat dough and organic ingredients. Food trucks and mobile food restaurants are one of the emerging trends as an attractive option for many service providers in the Gulf region now.
Mobile food market has picked up a strong foothold in the market and is gaining wide acceptance in the Gulf region. Food truck businesses in the Gulf region are in a nascent stage and is expected to grow further, as entrepreneurs seek a cheaper way to start restaurants.
Challenges in the Food Service Sector
The Gulf market has been quite resilient in a challenging environment. The Gulf food services market got impacted by changing macroeconomic conditions. The GCC efforts toward diversification continue to benefit the region by positioning the country as a major global tourism and retail destination with a diverse mix of cultures and ethnicities.
According to Euromonitor prediction, consumers in the UAE will prefer eating out for a major part of their weekly meals, giving a strong affinity for out-of-home dining. However, a number of challenges are there, which operators have to fight with including rising competition that puts pressure on both top line and overheads, most evident from rising rents.
Over the years, the major roadblocks that troubled the food service industry development are a shortage of skilled staff, high real estate and manpower costs, and inadequate supply chain infrastructure. The Gulf region massively relies on food imports to suffice its growing consumption demands due to the shortage of arable land and water.
According to the Arab Organization for Agricultural Development (AOAD), GCC’s agricultural imports (including food and non-food items) totalled US$34.2 billion in 2011, while food imports alone totalled to US$27.2 billion. Increasing competition across all segments require more sophisticated strategies for regional players to remain competitive in the near time.
(The author is market research analyst at Craft Driven Market Research. She can be contacted at info@craftdrivenresearch.com)
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