Change in food consumption in GCC offers crucial investment opportunities

238 views
Karl Nader

JEDDAH — The food and beverage sector in the GCC is developing, due to consumers’ changing tastes, increased women participation in the workforce and a government push for healthier diets, according to Strategy&, formerly Booz & Company, part of the PwC network. For food and beverage companies, understanding these trends and how they affect consumer purchases can help unlock growth.

Overall per capita spending in the GCC food sector is leveling off, but consumers are opting for different products. “Consumers in the region are shifting their purchases away from staples and toward more value-added products. These shifts happen in part because consumers are becoming more health-conscious and are willing to spend more for higher-quality, fresh products. Another factor is that the retail landscape is developing because of this trend. As economies advance, there is greater penetration of modern retail trade outlets, such as supermarkets and convenience stores, which can carry a wider range of refrigerated products so that customers have healthier options to choose from”, said Gabriel Chahine, Partner with Strategy& who leads the consumer and retail practice in the Middle East.

Moreover, governments in the region are pushing for healthier eating. For example, the Ministry of Health in Saudi Arabia is already launching awareness campaigns to combat obesity and diabetes. And with the imposition of steep taxes on sugary soft drinks and energy drinks, other countries in the GCC may also launch similar measures to curb obesity and diabetes in the region. Also, as women move into the workforce, families will need more prepared foods, and even prepackaged meals.

As these shifts continue to play out, they will create new opportunities for food companies in the region. To better understand these opportunities, Strategy& analyzed product launches in several relevant countries over the past 10 years. The analysis specifically looked at product categories that showed strong growth and innovation, with a low penetration of private-label offerings. The analysis revealed four promising categories in the GCC over the next 10 to 15 years — snacks, spreads, prepared meals, and ready-to-drink (RTD) beverages — plus one attractive theme that cuts across categories: healthier diets.

Companies seeking to enter the promising categories listed above have two strategic options:

1) They can build their offerings organically. In developed markets, a number of startups have entered these categories and succeeded. However, building innovation capabilities within established organizations can be time-consuming and costly.

2) Alternatively, companies can establish joint ventures with international players to localize some of these innovations and get them onto store shelves in the region. They can also invest in successful startups abroad and then help these firms expand in the GCC. “Regional players are seeking mergers and acquisitions opportunities to expand their portfolios and sustain growth, but there is a lack of viable targets. Now it is possible for companies in the sector to grow by tapping into changes in the way people spend money on food, commented Ahmad Bakri, principal with Strategy&. For example, Al Safi, a leading dairy company in Saudi Arabia, partnered with Danone in 2001 to form Al Safi Danone. The new venture offers a wide range of dairy and juice products based on Danone’s expertise and tailored for local tastes. Today Al Safi Danone has a leading position in the value-added segment in dairy and is the market maker in a number of sub-categories, including drinking yogurt, ready-to-eat desserts, and beverages that combine fruit juice and milk.

“The food and beverage industry in the GCC is at an inflection point. By looking at markets that are further along in their economic development and studying successful product launches in those markets, it is possible to identify the most promising growth opportunities for the region over the next five to 15 years. Those that want to target these categories need to understand consumer preferences in the region, quickly build up the necessary innovation capabilities, and potentially partner with established players in other markets to leverage their expertise,” added Karl Nader, Partner with Strategy&. — SG


238 views