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UAE market set to skyrocket

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THE value of food and non-alcoholic beverages purchased by the UAE (UAE) foodservice sector is currently valued at Dh5.25 billion (US$1.43 billion) in wholesale prices.

In consumer values, the UAE foodservice market is worth a massive Dh16 billion (US$4.36 billion).

Following the solid growth gains expected during 2005, the total value of spending in UAEs foodservice industry is projected to equal Dh6.47 billion (in wholesale prices) by 2006, according to a new study by foodservice and economic research company BIS Shrapnel: Foodservice in the Middle East the UAE, 20052006.

This is the second study the company has undertaken in the UAE, having also previously completed foodservice analyses of Saudi Arabia, Egypt, Kuwait, Bahrain, Qatar and Oman.

Since completing the previous foodservice study for the UAE, the country has gone through a period of major growth and development.

BIS Shrapnel believes that operators who have already set up dedicated foodservice operations are now well positioned to reap the benefits of the very high growth predicted for the market over the next five years.

The UAE foodservice sector is forecast to grow by a rate of 11% per annum over 2005 and 2006. This conservative growth estimate could well be exceeded if population growth, tourism and social changes surpass expectations and boost expenditure.

The population currently stands at 4.3 million which is relatively small on a global basis.

However, the UAE foodservice market is larger and more important than is initially apparent and is also growing at rates not seen in any developed countries of the world (over 10% per annum in most channels), according to BIS Shrapnel.

Dubai and Abu Dhabi account for 80% of total foodservice demand amongst the seven Emirates.

Changing lifestyles

Report author, Andrew Penfold explains that the UAE has an unusually large foodservice market for a country of its size. This is due to a series of demographic factors.

The UAE is very modern and growing extremely rapidly (population growth currently averaging over 7% per annum), with Dubai’s role as a trade hub and business centre for the Middle East making it the driving force of the region. Rising rates of private consumption expenditure are also driving the economy and pushing up levels of foodservice expenditure.

Further, three quarters of the UAEs population are non-nationals, with a large percentage of this segment being male bachelors (there are two males for every one female) who are more disposed to purchasing ready-to-eat meals.

Working lifestyles also impact foodservice spending, with most people in the UAE compelled to eat at least one meal per day while on the job — pushing up demand for fast, easy-to-consume, low price meals.

The final major factor supporting the growth of the foodservice industry in the UAE is tourism.

An estimated 6.2 million tourists visited the UAE in 2004.

Strong consistent growth in tourist numbers is expected to continue, encouraged by new malls, hotels and infrastructure development such as Palm Islands, Dubailand and ‘The World’, which attract wealthy tourists, investors and workers to the country.

Hotels also benefit from the UAEs strong tourist trade, accounting for 17% of total foodservice expenditure.

Foodservice in the Middle East — the UAE, 2005–2006 reveals a number of trends in food consumption in the UAE.

Asian cuisine is the most popular of all cuisines and is growing the fastest, according to the report.

Lebanese food is also continuing to be popular as it suits Arabic tastes and is also relatively healthy.

Coffee chains are also showing excellent growth.

The food market in the UAE is extremely price sensitive and drives product/brand choice in most channels. This is due to both a high level of competition and the low incomes of much of the population.

Those surveyed for the study noted an escalation in competition and a consequent squeeze on margins. This price sensitivity has implications for the sourcing of products, with Asia growing in importance as a market for importing food goods into the UAE.

Price pressures also affect low-end eateries which are being forced to seek lower priced and lower quality products.

Local manufacturers of food products have shown strong growth over the past few years and now dominate market share in several food product categories.

Foodservice in the Middle East — the UAE, 2005–2006 says the four largest product groups purchased by foodservice operators are meat, poultry and fish, accounting for just over 30%; beverages, at 18%; dairy products (13%); and rice bread, pasta and cereal (12.9%).

On an expenditure basis, the largest foodservice channel is restaurants, closely followed by street outlets — such as lunch bars and tea/coffee shops — then hotels and ship chandlers.

These four largest channels make up two-thirds (66%) of total foodservice expenditure, according to Penfold.

Based on interviews carried out with BIS Shrapnel with distributors in the UAE, the fastest growing product types in the foodservice industry are poultry, lamb/mutton, fresh fruit and vegetables, processed meat and poultry and liquid milk.

Also worth noting, is the increasing popularity of low fat versions of products, Asian sauces and ingredients, bakery products, coffee and speciality cheeses.

Survey respondents were also questioned regarding methods of ordering.

The most popular method identified was phoning the supplier (48%), followed by fax and online ordering at 16% respectively.

While the market is already growing at high rates, this is set to accelerate over the next few years.

Growth rates have the potential to rise to the region of 15% per annum during 2005 and 2006 (our current conservative estimate is 11% per annum).

Distribution as yet, lacks efficiency.

Fortunately there is excellent product availability (supply) due to the UAEs position as a major trading hub. The highest growth and best overall prospects for food and beverage suppliers will be in the premium channels who serve meals for tourists and wealthier locals.

Export opportunities

The UAE carries an important strategic role for the much larger Middle East region. It is the primary trade hub for the Gulf region and also acts as an entry point, showcase and regional leader for new products, outlets and other trends.

Suppliers can utilise this position as a useful point of penetrating and testing the Middle Eastern market, according to BIS Shrapnel.

Overall the UAE foodservice market is a very competitive but, as yet, not a very efficient one.

Distribution is complex and there is considerable duplication with suppliers, distributors and sub-distributors often calling on the same customers.

Retailers are also a significant source of supply used by foodservice operators.

The Australian Government is currently in the process of setting up a substantial, comprehensive free trade agreement between Australia and the UAE for goods, services and investments.

Once this agreement is finalised, Australian producers will have greater export opportunities and will be more competitive in the market for UAE business.

Australia currently exports meat, dairy products, wheat, and processed foods to the UAE.

The National Food Industry Strategy (NFIS), a Government funded group, has spent the past two years working with Australian food producers to create stronger ties with the UAE.

The aim is to assist the food industry to identify the UAE foodservice market as a one of significant opportunity for Australian suppliers.

Between June and August 2004, the NFIS held a series of workshops on Doing Business in Dubai.

The workshops covered market opportunities in Dubai and the Middle East, the requirements of the five-star hotel market in Dubai, working with the consolidator and distributors, and cultural diversity issues. This culminated in the successful Australia Week held in Dubai in September 2004.

As promoted by the Australian Government Department of Foreign Affairs and Trade, over the past decade, Australia’s trade with the UAE has expanded and diversified from traditional primary products and processed foods, to include more complex manufactures and services exports.

There are already almost 6,000 Australians and more than 100 Australian companies based in the UAE whose activities, amongst others, include dairy products and livestock.

BIS Shrapnel is an Australian-based industry and economic forecasting firm with over 20 years experience in analysing the foodservice industry world-wide.

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