By Louise Oakley
While not the easiest place in the world to operate a successful F&B business, with a surge of investment in infrastructure, a boom in franchised fast food chains and a developing youth market enamoured with modern products, Saudi Arabia is fast becoming a goldmine for the food industry.
As the group Coldplay rightly sang, ‘nobody said it would be easy’, but those F&B companies looking for success in Saudi Arabia have many reasons to be optimistic.
With the public sector investing heavily in infrastructure developments, new malls, hotels and restaurants are popping up everywhere and with this comes a big slice of opportunity for savvy food and catering suppliers.
Al Diyafa — a sister company to Horeca Trade and a food and beverage distribution company dedicated to the foodservice channel in KSA — is a relative new comer to the Saudi market that has already had success. It was established in early 2009 in a partnership with United Group and has already developed brands such as San Pellegrino, Lamb Weston, Pride Cheese, illy Coffee, Monin, and Sweet Streets.
Managing director Hisham Al Jamil says the success of the company is due in part to the figures that make for very good reading for food service providers operating in KSA.
“The F&B market in Saudi is estimated at US $5 billion and is growing at 7-10% per annum,” he explains.
“More than 65,000 foodservice outlets including institutional channels exist in KSA and are growing at a rate of 8% per annum. In terms of value, the ‘education’ channel has a large share (9.4%) compared with most countries due to the young population ratio.”
Street channels — defined as small or low quality eateries — occupy a quarter of the total market, with catering taking up 12% due to the large number of foreign workers, many of whom are provided meals as part of their employment.
In real terms, this latter group alone represents 16,000 individual operators, something companies such as Al Diyafa are looking to supply.
Another company which is capitalising on this surge in development is Saudi Arabia-based Binshihoun, which launched its hospitality arm, Royal Host, in 2006.
Binshihoun, one of KSA’s leading importers for household products since 1955, recognised the growing demand for quality and innovative food products and services in the Kingdom and set up Royal Host to cater to it.
“Due to the growth of demand from our customers — especially those who are dealing in tourism businesses representing hotels, restaurants and wedding halls — we established our new company to supply more than 3000 products selected from the best brands all over the world,” said president Omar Bin Shihoun.
And the good news doesn’t end there, as food services manager and project manager, frozen bread and Viennoiseries, for Sunbulah Group, Nabil Najem explains.
“Everything is changing in Saudi Arabia and people are looking for changes in their life, including their food,” he says.
“The remarkable young generation and the changes in their lifestyle — the population is growing at a rate of 3.5% per annum — means the food and beverage market in Saudi Arabia is very promising. Moreover, the increase in disposable income is leading to wider choice in where and how to eat.”
A further stimulus for demand has been what Najem describes as the “rapid growth of international and local fast food chains and theme restaurants”.
According to the latest figures to come out of the Kingdom, 44.4% of its population is under the age of 15, and it has been this sector that has fuelled the demand of the fast food industry or quick-service restaurants (QSR), particularly international franchises. Saudi Arabia is already playing host to food industry giants such as McDonalds, Burger King, Chilis, TGI Fridays, Fuddruckers and Pizza Hut to mention a few.
Throw in the fact that coffee culture has taken off among the younger generations and the reasons to be optimistic take on a caffeine-charged glow.
“The opening of new coffee shops in shopping malls and the rest of the private sector is helping develop coffee drinking culture — ice drinks and ice coffee varieties like mocha and cappuccino are also experiencing growth and drawing the market trends in beverage consumption from out of the home and into the public,” Najem explains.
While there are restrictions on pork products and alcohol is completely forbidden, demand for commodities such as rice, oil, sugar, milk powder, pasta, fresh vegetables, meat and poultry products are in keeping with other countries in the Middle East.
However, with a young population willing to experience new foods, added value products are leading changes in the industry, particularly products such as frozen bread, frozen meals, pizzas, frozen desserts and Viennoiseries.
While there is good news in abundance for the food industry in Saudi, there are a number of challenges as well — there really is no such thing as a free dinner.
Najem is under no illusion about the difficulties when he says “there are a lot of challenges”.
“Attracting and recruiting a skilled calibre of employee in the industry is the main concern and retaining them is another dilemma,” he says.
Al Jamil adds: “Finding qualified and capable resources sits on the top of the agenda of any current or new business to setup in KSA”.
While he concedes there have been great improvements on this front, he highlights other challenges, including his belief that the foodservice market is still undeveloped compared with other countries; the fact it still lacks the efficiency of distribution and sophistication of distributors and suppliers; and a strong demand for cheap products due to high prices.
“Strict regulations controlling the condition and labelling of food — most notably to meet Halal requirements — and to safeguard quality in the hot climate (are issues),” he adds.
“Furthermore, distribution is relatively complex and inefficient. In many cases there are three levels of distributors (including wholesalers) — when one or two at the most could be used more effectively.”
So while there are numerous hurdles to be negated, on paper it certainly looks like the future for Saudi Arabia’s food-related companies is going to be positive — Al Jamil is certainly confident in this assumption.
“The Foodservice channel will see healthy growth for the next five to seven years with a minimum net growth of 5-7% year-on-year — the government commitment and on-going initiatives are a clear indication to this,” he predicts.
“The future will see many new foodservice concepts coming to the market and will see a boom in the hotel industry to cater to the high demand of quality service hotels.”
Najem shares in this confidence believing the “future for operating in Saudi Arabia is bright”.
However, he adds that in order to take advantage, companies must have a concrete formula to take their share of the spoils.
“While thinking for the long term you need to plan for short and medium terms as well to capture current opportunities at all times,” he explains.
“Changes are anticipated in Saudi Arabia. Regulations on visas are expected to soften and we need to accept and be convinced that change will take time. However, in terms of the food industry, we anticipate growth in new investment in food productions facilities.”
Certainly there is a lot to factor in when considering operating in Saudi Arabia, whether it be securing a franchise for a QSR, supplying a product or launching a food service — and it may take time to see the rewards from the investment.
Yet — with the investment in infrastructure, the large and still growing youth demographic and the gradual steps towards tourism — those companies willing to plan carefully and invest for the long-term could well find expanding in the Kingdom to be a highly profitable venture.For all the latest travel news from the UAE and Gulf countries, follow us on Twitter and Linkedin, like us on Facebook and subscribe to our YouTube page, which is updated daily.