Driven by urbanisation, tourism and high per capita income.
The GCC food service market was worth $18.8 billion in 2014 and will grow at a compound annual growth rate of 6.8 per cent to reach $24.5 billion in 2018, says a report issued by investment firm Al Masah Capital.
Saudi Arabia led the region with total food service sales of $8.9 billion in 2014. The UAE was the second-largest contributor, with total sales of $5.3 billion, generating a 28 per cent share in the region, followed by Kuwait ($1.9 billion), Qatar ($1.3 billion), Oman ($1.1 billion) and Bahrain ($0.4 billion).
Within the food services sector, the fast food segment or quick-service restaurants has emerged as the largest, accounting for 58.2 per cent ($10.9 billion) of the GCC food services market in 2014. This was followed by full-service restaurants at 31.5 per cent ($5.9 billion) and the cafe and bakery segment at 10.3 per cent ($1.9 billion).
The full-service restaurant market includes fine and casual dining. While the concept of fine dining is still confined to the affluent class, the casual dining segment has seen growth, with the entry of new brands almost every year.
Chained and specialist coffee shops are growing in popularity. In 2014, the cafe and bakery segment registered an annual billing of $1.9 billion, exhibiting strong growth during 2012-14, growing at a CAGR of 3.3 per cent.
Securing food supply
Shailesh Dash, chief executive officer of Al Masah Capital, said: “Rising population is one of the key drivers of food consumption. The rising flow of tourists to GCC has also helped drive demand. As most major food services outlets are concentrated in the tier one and two cities of the GCC countries, the rapid growth in urbanised 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 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.”
Al Masah cited an increase in competition, weak supply chain infrastructure, high rents and shortage of skilled human capital as factors affecting accelerated growth within the sector.
Changing consumer palates, influx of global F&B brands and growing demand for takeaway by way of mobile apps and online ordering were key trends observed.
The report revealed that private equity activities have gained momentum in the food services industry in recent years.
Private equity deals
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 homegrown 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, Diamond Lifestyle, the F&B private equity fund of Al Masah Capital, acquired UAE-based Al Faris Restaurant. Al Faris operates the franchise of California brand Johnny Rockets in the UAE.
Again in June, Audacia Capital, an investment bank regulated by the Dubai Financial Services Authority, acquired a 30 per cent stake in Al Safadi, a chain of casual dining restaurants specialising in Lebanese food, with plans for further expansion in the UAE and the GCC. In April, the Abraaj Group and TPG, a global private investment firm, completed 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 $65 billion of capital.
In September, The First Investor, the investment banking arm of Barwa Bank Group, acquired a 49 per cent 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 Gulf contemporary cuisines.
The report revealed that 15 private equity 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 food service sector, several investors have turned their focus towards the industry. The UAE was the most attractive destination within F&B groups, accounting for six of the 10 deals during 2010-15.According to the International Monetary Fund, GCC’s economy is estimated to reach $2 trillion by 2020, with Saudi Arabia contributing $902 billion, followed by the UAE ($502 billion), Qatar ($269 billion), Kuwait ($196 billion), Oman ($81 billion) and Bahrain ($40 billion).