GCC food service market to reach $24.5 billion by 2018

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Investment firm Al Masah Capital has valued the GCC foodservice market at USD 18.8 billion in 2014 and has predicted a growth rate at CAGR of 6.8% to reach USD 24.5 billion in 2018. Saudi Arabia led the region, with total foodservice sales of USD 8.9 billion, accounting for nearly half of the GCC market. The UAE was the second largest contributor, with total sales of USD 5.3 billion generating 28% share in the region, followed by Kuwait (USD 1.9 billion), Qatar (USD 1.3 billion), Oman (USD 1.1 billion) and Bahrain (USD 0.4 billion). Within the food services sector, fast food segment or Quick Service Restaurants (QSR) has emerged as the largest, accounting for 58.2% (USD 10.9 billion) of the GCC food services market in 2014, followed by Full Service Restaurant (FSR) at 31.5% (USD 5.9 billion) and Café & Bakery segment at 10.3% (USD 1.9 billion).

The Full Service Restaurant market (which includes fine and casual dining) is estimated at around USD 5.9 billion in 2014, nearly half of the QSR market. While the concept of fine dining is still confined to affluent class and has not grown drastically in the last few years, the casual dining segment observed growth with the entry of new brands almost every year. Whereas, chained and specialist coffee shops are growing in popularity. In 2014, the Café & Bakery segment registered an annual billing of USD 1.9 billion, exhibiting strong growth during 2012-14, growing at CAGR of 3.3%.

“Rising population is one of the key drivers of food consumption. The rising flow of tourists to GCC has helped drive demand. As most major foodservices outlets are concentrated in the Tier I and II cities of the GCC countries, the rapid growth in urbanized population is expected to act as a stimulus to the growth in the food service sector. Additionally we have annual food festivals, exhibitions and shopping festivals held in the region that provide a boost for growth. However, given the high dependence on imports, securing a steady supply of food remains a key challenge for the GCC governments. Several steps undertaken by regional governments to improve the food supply are still at a nascent stage and are likely to improve the situation in the long term” said Shailesh Dash, CEO, Al Masah Capital.

Al Masah also reviewed factors affecting accelerated growth within the sector and stated an increase in competition, weak supply chain infrastructure, high rentals in prime commercial properties and shortage of skilled human capital as major issues. Whereas key emerging trends observed were changing consumer palates, influx of global F&B brands and growing demand for takeaway by way of mobile applications and online ordering. Investments and acquisitions were also indicative of a robust growth structure for this industry.

Highlighting Private Equity deals and acquisitions by PE companies in the GCC, the report revealed that PE activities in the foodservices industry gained momentum in the recent years. In January 2015, Saudi Arabia based Bateel International announced a partnership with L Capital Asia, an Asian private equity fund sponsored by LVMH Moet Hennessy. Bateel is a home-grown brand in Saudi Arabia, known for its gourmet quality dates with market presence in 16 countries across Africa, Europe, Asia and the Middle East. In June 2015, Diamond Lifestyle Ltd, the F&B PE fund of Al Masah Capital announced the acquisition of the UAE-based Al Faris Restaurant, which operates the franchise of California-brand Johnny Rockets in the UAE, and holds the development rights in Oman.

Again in June 2015, Audacia Capital, a newly established investment bank licensed and regulated by the Dubai Financial Services Authority (DFSA), acquired a 30% stake in Al Safadi, a chain of casual dining restaurants specializing in traditional Lebanese food, with plans for further expansion in the UAE and the GCC. Whereas in April 2015, the Abraaj Group, a leading investor operating in global growth markets, and TPG, a leading global private investment firm, announced the completion of an investment into Kudu, a Saudi Arabian restaurant group via a portfolio of five brands to span over 290 outlets. The deal is a first in the region for TPG, which manages about USD 65 billion of capital.

Recently in September 2015, The First Investor, the investment banking arm of Barwa Bank Group, acquired a 49% stake in Shater Abbas Restaurants International Group. Established in Qatar in 1998 by Hussain Al Emadi, the Shater Abbas Restaurants concept features a variety of Persian and Gulf contemporary cuisine.

Putting forth facts on acquisitions within the foodservices sector, the report revealed that a total of 15 PE deals took place in the GCC during 2010-15, while GCC F&B groups were involved in 10 deals during the same period. Al Masah reckons that owing to the burgeoning growth in the GCC foodservice sector, several investors have turned their focus towards the industry to bolster its core strengths by building onto established core brands. Notably, UAE was the most attractive destination within F&B Groups, accounting for six of the ten deals during 2010-15.

Al Masah’s report on GCC’s foodservices sector concluded stating that, according to IMF, GCC’s economy is estimated to reach USD 2.0 trillion by 2020, with Saudi Arabia contributing USD 902 billion, followed by the UAE (USD 502 billion), Qatar (USD 269 billion), Kuwait (USD 196 billion), Oman (USD 81 billion), and Bahrain (USD 40 billion).

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