Technavio analysts expect the food retail market in Saudi Arabia to exceed US$54 billion from 2016 to 2020, a CAGR of around 5% by 2020. KSA accounts for around 51% of the total food retail sales in the GCC region.
The report lists cereals, dairy, fruits and vegetables, meat, and other foods as the five major product segments for the food retail market in Saudi Arabia, and outlines four driving factors:
Increasing urbanisation
Urbanisation has led to busier lifestyles, driving people to seek convenience, especially with regard to foods and beverages. The cereals segment will continue its dominance in the market during the
forecast period and is expected to occupy more than 49% of the total
market revenue by 2020, Technavio said. The growing population and surge in urbanisation
are driving the demand for cereals, especially breakfast cereals, among
consumers. Factors such as demand for convenient products that can be consumed on-the-go are
expected to boost the growth of this segment during the forecast period.
It is estimated that by 2025 the rate of urbanisation in Saudi Arabia will be about 88%. In 2014, supermarkets and hypermarkets had a market share of 56.5% in food retail sales, as compared to 45% in 2013, as consumers can provide an outing for families at the same time. An increasing number of entertainment facilities in hypermarkets are improving the shopping experience of customers.
Technavio also shared that there is increasing use of private-label
brands, often seen in Saudi
supermarkets. Saudi Arabian supermarkets and hypermarkets chains import their products
such as cheese products, nuts, fresh fruit, condiments and sauces,
cereals, ketchup, fruit juices, and vegetables from the North American
and European countries. Saudi importers
then repackage products
locally using their label. Private-label brands with Arabic brand names
attract more Saudis and other Arabs in the country, Technavio said.
For instance, one of the largest importers in Saudi Arabia uses the
brand name Al-Alali for its products to appeal to Saudi
nationals.
Visitors to Makkah also indicate that demand for packaged food will see tremendous growth, Technavio adds.
Increasing disposable income
With the recent economic growth of the country, the per capita disposable income of consumers has increased, as a result of which consumers are able to spend more money on high-quality food products at retail outlets. Disposable income has increased from US$20,267 in 2008 to US$25,400 in 2014, leading to a rise in consumer spending on food. It is estimated that consumers in Saudi Arabia spend about 27% of their income on food products.
Increase in number of retail outlets
The number of food retail outlets in Saudi Arabia is expected to increase to 50,000 by 2020. Food retailers are trying to increase their store numbers so as to gain a
larger market share and also access more consumer segments. Food retail outlets in Saudi Arabia carry a wide range of options for consumers such as domestically processed foods, imported specialty food products, and organic food products. The Panda supermarket chain plans to add 10 stores by 2020, to a total of 250. Al Sadhan Supermarkets also plans to increase its number of stores by 18 over the next 10 years.
Foreign direct investment (FDI)
Another important growth driver for food retail in Saudi Arabia is the move by the Saudi Arabia General Investment Authority (SAGIA) to allow foreign investors to have 100% ownership in Saudi retail and wholesale sectors from the present 75%. In September 2015, SAGIA announced that it will lay out the rules and regulations that the foreign investors need to follow in order to invest in the retail and wholesale sector in the country starting in 2016.
“This move will attract foreign players such as Walmart, Tesco, and Sainsbury's to the retail market in Saudi Arabia. It will also help in increasing productivity, efficiency, and economic growth as well as providing training and employment opportunities for young Saudis,” says Arushi Thakur, one of Technavio's lead analysts for food research.
Besides Panda, key vendors in the report include Carrefour, NESTO, Othaim, and Tamimi. Other prominent vendors in the food retail market in Saudi Arabia
include Al Raya Supermarkets, Al Sadhan, Balsharaf
Supermarkets, Bin Dawood Supermarkets, Farm Supermarkets, Lulu
Hypermarket, Manual Hypermarket, Marhaba Supermarkets, Sarawat
Supermarkets, and Star Hypermarkets.Vendors in the market are aiming for better market positions through
competitive pricing, weekly promotional offers, and by offering
advertisement support to the customers, Technavio said.
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