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Sun 1 Apr 2007 06:01 PM

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Canned food holds its ground in Middle East

Canned food sales continue to rise in the Middle East, despite increased competition from promising new formats entering the market.

As one of the best-established categories in the Middle East, canned food continues to surprise producers and retailers with solid sales.

One player that has reported robust growth from some of its canned foods in the region is Gulf Food Industries, which produces the California Garden brand.

Tarek El Dakhakhny, the company's marketing manager said that growth in some bean categories such as foul medammes, or fava beans, has been strong during the past year, with growth of about 11%.

"If you look at the volume growth over the past two years for foul medammes, we're talking about 11% growth, which is significant growth in volume," he says.

"In the fava bean sector, we are the market leader by far. We have around a 65% market share of the overall market share of fava beans in the region, in Egypt, Libya, the GCC and Lebanon," he adds.

Baked beans are a more mature category than foul medammes, but still achieved significant growth, mainly in Saudi Arabia and Bahrain. "Some markets have a very big demand for baked beans such as Bahrain and Saudi Arabia. In the UAE, they are consumed mainly by Europeans," Dakhakhny says.

But to keep these growth levels in proportion, Dakhakhny adds that a category can only really be considered to be growing in the Gulf when the growth rate is above 5%. "Above 5% you can start saying that you have growth. Growth needs to be more than 5% in my opinion to be more than nominal," he says.

"In terms of value, you have to filter in the price inflation because there has been a lot of inflation, particularly in the GCC although not in Saudi Arabia as far as I know. On the GCC level, most of the growth happened in 2005 versus 2004 in the foul medammes sector," he adds. "The price inflations is mainly a result of rapid growth in the regional economies and population."

When this is taken into account, Dakhakhny concedes that on average, growth in the canned food category across the Middle East is quite low. "We are not talking about fast growing categories as far as canned foods are concerned in the GCC. Mature categories do grow. We are not talking about decline," he says. Saudi Arabia and Qatar experienced above average growth in 2005 compared with 2004, he adds.

But while canned foods are generally recognised as mature categories with nominal growth, this also brings some advantages, to established players at least. "It is not all bad," Dakhakhny says.

"Mature categories are low growth categories, but they are also fairly low risk. If you are big in that category it is harder for a competitor to move you."

Part of the reason for the continued growth of canned food, apart from a growing population and economy, is that people are increasingly demanding convenient foods owing to a changing lifestyle.

"People don't have time and are relying more on ready-to-eat products or easy-to-prepare products. There are also more working females and this is all generally helping drive the canned food industry," Dakhakhny says.

But one country that stands out in the MENA region is Egypt. Gulf Food Industries has been promoting some of its products heavily in the country, such as fava beans, which are a staple part of the Egyptian diet. "Egypt is usually a different picture from the rest of the region," Dakhakhny says. "We are the market leader in Egypt with about a 70% share of the market. In this category we are helping to drive the growth."

He added that Egyptians are important customers for Gulf Food Industries because they consume the highest frequency of fava beans in the region. "It is a typical part of the Egyptian cuisine, and is like baked beans for Europeans or for British," he said.

Furthermore, while most markets in the Middle East are mature, Egypt remains a more untapped market, with penetration of canned fava beans still relatively low. "In Egypt, the penetration of canned foul medammes is very low because there are plenty of fresh substitutes from local shops," Dakhakhny says.

Furthermore, Egypt does not grow enough beans to cater for its own demand, and so it imports a significant amount. "You have to put in mind that throughout the past couple of years, especially with oil prices rising, prices have gone up, so perhaps the gap between the imported fresh fava beans and imported canned beans is becoming narrower. Add to that the convenience drive in the population and we have more tendency towards canned food consumption in Egypt." He added that growth of canned foul medammes in Egypt was about 31% between 2005 and 2006.

Demand for convenience products is also leading to a boost in sales of ready-to-eat, value added foods, which offer producers such as Gulf Food Industries potentially higher margins. Most of Gulf Food Industries' sales are split between its plain foul medammes, which have no additives, and the ready-to-eat products, which have to be opened and warmed, then eaten. "In general, we are selling more ready-to-eat products than we have ever sold. Our key ready-to-eat recipes are the Egyptian and the Saudi recipes of peeled foul medammes."

One recent development that is likely to have some effect on the canned food sector is the introduction of beans and other foods in Tetra Pak cartons. These products are also available in a ready-to-eat format and their producers hope to take some market share from equivalent canned foods. However, this type of packaging is unlikely to take much market share from canned goods for a number of years, according to Dekhakhny.

"Generally, in different industries, the speed at which Tetra Pak is overtaking canned products varies from one sector to the other. This is starting to become live in this sector," he says. "It has a perception of convenience but we don't expect this to take over quickly in canned beans in particular, for many reasons; one being that the cost of Tetra Pak could still be higher than cans. If you look at Europe, Tetra Pak has been introduced for a number of years but has not picked up significantly for these foods compared with cans. It is still seen as a niche product on the shelves there. We already have the ring-pull cans so our products are also convenient. However, this is serious competition, and while we are not intimidated by it, we are watching it very carefully."

Shashi Shekar, general manager at KSA-based canned food producer, Luna, which entered the market about 11 years ago, said the company has experienced strong growth in the sale of canned dairy products, such as evaporated milk and condensed milk. He estimates that sales of these products, which account for about 80% of the company's business, are growing by about 4% a year.

One of the drivers of this growth is pricing. Indeed, canned evaporated milk tends to be cheaper than its main rivals of fresh and UHT milk. "Cost is a big factor in ensuring that the market for evaporated milk still exists and continues to grow," Shekar says. He added that the product is also convenient because it has a shelf life of about 12 months.

In terms of canned foods, Shekar agrees that the market is mature, and that to realise growth, producers must invest more in innovations such as value-added, ready-to-eat products. He added that this type of diversification is also important in order to compete with rivals such as food in Tetra-Paks.

"We are geared up only to produce canned foods but we are trying to come with alternates in the sense that as part of our strategy we are trying to get into ready-to-eat meals in cans," he adds.

"We are just trying to ensure that our capacity gets utilised, so it's a case of variation to the existing range of beans."

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