The kingdom’s high levels of growth, including a 9.2% increase in soft drink consumption and a 9.6% increase in mass grocery retail value this year, make it an attractive prospect for retailers, according to BMI. Combined with an acceptable risk level, the research firm said Saudi Arabia was still the best market for investment in food and drink.
“We maintain our bullish outlook for Saudi Arabia's food and drink market over our forecast period to 2019. Sales will continue to benefit from rising disposable incomes, favourable demographics, increasing urbanisation and ongoing formalisation of the mass grocery retail (MGR) sector,” said the report, which gave the country a reward score of 57.8.
Lower risk beats rewards
Although BMI gives Egypt a higher reward score, it suggests its poor risk score of just 36.9, compared to Saudi Arabia’s 57.7, makes it less attractive: “Saudi Arabia's ability to continually outscore Gulf markets such as the UAE… comes down to its reward score, which at 57.8 this quarter is second only to Egypt. While Egypt has a strong reward score, it is let down from an index standpoint by its risk score, which is MENA's worst after Libya.
“For all Egypt's possibilities as a potentially dynamic market, illustrated by a reward score of 62.3, which is nearly 20 points higher than the regional average, there is no doubt that ongoing political and economic strife is making it very difficult for this potential to be realised within the index framework,” the report added.
BMI said three main factors are behind Saudi Arabia’s high reward prospect: favourable demographics, with 55% of its population aged under 30, providing an attractive market for retailers; high government spending, which will continue to drive demand; and the increasing development of the local food and drink industry, which will create new opportunities for retailers.
Egypt set for growth
But while Saudi Arabia is the best overall prospect, the BMI report noted Egypt offered very strong prospects for growth, despite the level of risk.
“Egypt is re-establishing its position as the standout growth market for consumer companies in the Middle East and North Africa (MENA) region and we believe this is a good time for food and drink companies to actively pursue expansion in Egypt, be it organically or via acquisitions. The pace of real GDP growth will pick up markedly over the coming years, helped by greater political stability and low base effects,” said the report.