The sector will see a compound annual growth rate (CAGR) of around 10% between 2013 and 2018, compared to a CAGR of 17% for the previous five years, said research firm Euromonitor in its Coffee, Tea, Spices and Ready Meals in Saudi Arabia report, released last month.
Imports made up 45% of the sector, with domestically made products on 55%. However, imported products made up 75% of the ready meal, soup, and other food products category, and far lower proportions of the coffee, tea and spices segments.
Ready meals, soups and other food products, are by far the largest portion of the market, at 76% by value. The food categories saw overall growth of 102% over the five years, while spices saw the fastest growth at 125%.
Changing eating habits
“Consumption preferences in Saudi Arabia are primarily shaped by one of the youngest populations in the region. Younger people are becoming exposed to Western culture and trying to incorporate this into their everyday lives, including food or drink habits. Over the review period fast food options became much more popular,” said the Euromonitor report.
“Young housewives in Saudi and expatriate families in urban areas are increasingly incorporating Mexican, Italian, Chinese, American, South Asian, Turkish and Lebanese cuisine into their cooking to provide maximum variety for their children. While Saudi meals are not available in a semi- prepared form, fast food products such as kebabs and pizzas and South-Asian breads are available as convenience foods,” the report added.
Local profit margins up
Saudi producers lost out slightly to foreign competitors over the past few years, with a CAGR of 15%, slightly lower than the overall market. But Euromonitor suggests local firms increased their profit margin by three points to 30%, thanks to a lower growth in costs.
This is particularly clear in labour expenses which grew 33% over the five years, only one point of which was down to increased wages. Labour made up 7% of total expenses in 2012, down from 10% in 2007, with B2B expenses on 93% in 2012.
The general market outlook is positive, the report said: “Growth will be driven by changing lifestyles, with the growing acceptance of Western eating habits and an increasing number of women active in the labour market. Considering the changes in the Kingdom’s economy in recent years, a general trend of price increases is anticipated.
“The Saudi government is perpetually offering support on food items, but this is applicable on basic products such as rice and flour. Consequently the unit price of ready meals is anticipated to increase to allow manufacturers to see some profit,” it added.