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Saudi Arabian & GCC Beverage Market

Prithviraj YB

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Introduction

The Saudi Arabian food-processing sector has experienced rapid growth in recent years, with a number of local companies reporting strong growth in the recent years. The Saudi government supports the food and drink industry by providing attractive financing and subsidies on selected equipment, and through the imposition of high tariffs on imports that compete with locally-produced equivalents. Important sub-segments in Saudi Arabia’s food processing industry, including meat-processing, dairy, juice and confectionery manufacturing, have developed to such an extent in recent years that they are now meeting the majority of domestic demand.

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GCC countries with neighbors

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Kingdom of Saudi Arabia Total Land Area: 2,250,000 sq km Population (July 08): 28,161,417

(including 18% or 5,576,076 non naturals.

Rapidly increasing. By 2025, Population expected to be 105 million.

Current population growth rate: 1.945% Age Structure: 0-14 Yrs: 38.1% 15-64 Yrs: 59.5% 65 & above: 2.4%

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Contd.

Median age: Total – 21.5 Yrs Male – 22.9 Yrs Female – 19.7 Yrs Birth Rate: 28.83 births / 1000 popln Fertility Rate: 3.89 children / woman Ethnic group: Arabs : 90% Afro Asians : 10% Literacy rate: 78.8% (can read / write) City / Oasis density: 1000 people / sq km Westerners: 100,000

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GCC Overview Countries: Saudi Arabia, UAE, Oman, Bahrain,

Qatar, Kuwait Population: 36.4 million Largest market: Saudi Arabia Second largest market: UAE 76% of UAE population is expatriates-have

wider range of preferences 75% of Saudi population is locals-

homogeneous consumption Future: Saudi will be the largest market; Qatar

& UAE are markets with high potential

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Beverage Consumption in GCC

Saudi Arabia : 65 % UAE : 18% Kuwait : 7% Oman : 6% Bahrain : 2% Qatar : 2%

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Consumption of Beverages in GCC – segment wise

Total beverage consumed in 2007: 15.5 billion litres

Beverage Type Volume (million Lit)• Packed Water : 5321• Hot Tea : 3207• Carbonated soft drinks : 2506• Liquid milk : 1865• Juice Products : 1367• Hot Coffee : 1183• Laban : 538• All other beverages : 620

Source: IMES Research & Estimates

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Beverages and growth

Products Expected CAGR

1. Energy Drinks 8.32. RTD Tea products 7.2

3. Malt Beverages 6.94. Bottled Water 6.7 5. Liquid Milk 6.26. Juice Products 5.57. Carbonated soft drinks 5.28. Laban 4.19. Dilute Drinks 3.010. Tea 1.7

CAGR : Compound Annual Growth Rate

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As per the data, UAE tops in per capita consumption of packed water, while Oman leads in hot tea and Bahrain leads in carbonated soft drinks. Liquid milk, laban and juice products are expected to grow indicating that people prefer to go for naturals more.

‘Other beverages’ mentioned in the table include dilute drinks, malt beverages, iced tea, energy drinks and sports drinks. Dilute drinks, which contain 3-15% fruit content are the most common but have seen general decline over the years.

Energy drinks is small segment but has achieved avg annual growth rate of 52% over 5 years across GCC. Consumption in Kuwait has grown by 84% over the past 5 years. Major players like Red Bull, Power Horse and Bison face competition from new entries.

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Tea is one of the mature products, expected to grow along with population. RTD iced tea is relatively new but one of the stronger growing beverages.

All beverage categories expected to grow at a healthy rate over the next five years, while energy drinks are the faster growers.

Juice Products are expected to grow at faster rate than carbonated soft drinks.

Hot tea and dilute drinks are expected to grow at extremely slow rates.

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SOFT DRINKS IN SAUDI ARABIA

Significant growth in the soft drinks market as a whole.

The soft drinks market registered 6% total volume and value growth in 2007. Soft drinks’ popularity in the kingdom can be attributed to the diversity of products, together with their wide availability throughout the kingdom. Carbonates and bottled water remain the most popular in volume terms, while fruit/vegetable juice ranks second in value terms after carbonates. Functional drinks on the other hand registered the most dynamic growth in 2007, as these products are substitutes for alcohol in the country. Other smaller sectors, including RTD tea and concentrates are gaining further popularity despite seasonal demand, especially in concentrates, where demand almost triples during Ramadan.

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Health concerns boost sales of bottled water, fruit/vegetable juice and low calorie options

Consumers in the kingdom are becoming increasingly health-conscious. This trend is pushed by a couple of elements, firstly the effect of the media and the high number of television programs addressing health problems, and secondly, the impact of foreign expatriates who are more aware of health issues than local consumers. The trend is pushing demand for healthier products, including bottled water and fruit/vegetable juice, in addition to low calorie carbonates. Bottled water and low calorie cola carbonates registered an impressive 8% growth in total volume terms in 2007, while fruit/vegetable juice registered 6% growth.

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Escalating competition in the market

The competition between local and international players in the Saudi market is escalating. While international brands (Pepsi & Coke) dominate carbonates, the most popular drink in volume and value terms, local brands dominate fruit/vegetable juice and bottled water. Popularity and demand in the market is measured by many factors; mainly quality, health assurance and innovation, followed by price. Pepsi from Al Jomaih Bottling Plant remained by far the leader in the soft drinks market, with an 18% share of off-trade volume sales, followed by Coca-Cola and 7-Up with approximately 9% each.

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Off-trade channel registers higher sales

Sales of off-trade soft drinks in the kingdom are higher, registering four times the volume sales in the on-trade channel. Off-trade sales are directly linked with the expansion of supermarkets/hypermarkets in the kingdom. Not only are existing supermarkets/hypermarkets expanding rapidly on an annual basis, but new supermarket/hypermarket chains are also opening outlets throughout the country. Furthermore, sales in off-trade channels are not limited to a certain age group or gender, whilst this is the case in the on-trade channel due to the country’s culture. Besides, the price of soft drinks in the on-trade channel is almost double that of the off-trade channels.

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Major Beverage Players in the KSAThere are more than a dozen of key beverage players in the market, of which

only few like Almarai, Al Rabie, NADEC, NADA, Aujan and Abuljadayel act as trend setters. A list of the companies who not only operate in Saudi but also export to neighboring countries is as below.

1. Almarai Dairy Company2. Al Rabie Saudi Foods Company3. Abuljadayel Beverages4. National Factory for Foodstuff Production5. NADEC6. Al Othman (NADA)7. Pepsico8. Arrow Juice Company9. Aujan Soft Drinks10. Karim Food Industries11. Gulf Union Foods Company12. Najdiyah Marketing13. Al Safi Dairy Company14. Al Rai Food Industries

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CONCLUSION:

Majority of the companies located in Saudi Arabia have diversified themselves in terms of product range doing it from juices, nectars, floats, drinks, milk, laban, flavoured milk, fruit+milk, puddings, tomato paste etc thereby minimizing the operating costs.

In spite of price raise in commodities in the international trade in the previous year, these companies have survived well and some companies showed good growth in the fiscal ending 2008.

In the current year of 2009, the companies have set to take advantage of the price fall in the commodities, minimizing the inventory and thereby trying to become much more competitive. Even though only few companies have dared for new product launch this year, it need to be seen how far they do well in the market and how far do the Saudi customers accept them.