Saudi Arabia Country Profile

Market Overview:

Euromonitor report that the Saudi Arabian economy will grow modestly after contracting in 2017. A stimulus program to rekindle the non-oil economy will be the main driver. Private consumption will grow modestly. Oil prices are expected to rise in 2018 although exports will see negligible gains because production will be capped. The investment climate will be clouded by the recent crackdown on corruption. Growth of real Gross Domestic Product (real GDP) should rise to about 2.5% per year in the medium term.

  • The Kingdom is in the midst of an ambitious program to reduce the economy’s dependence on oil
  • Real GDP is expected to grow by 1.7% in 2018 after contracting 0.8% in 2017
  • The real value of private final consumption rose by 1.2% in 2017 and gains of 2.2% are forecast for 2018
  • The slow growth of credit is a moderate drag on consumer spending - However, state employees will be given US$260 for the next year to compensate for the new Value Added Tax (VAT) and the recent rise in fuel prices
  • Unemployment was 5.6% in 2017 and it will dip to 5.5% in 2018 - Up to 1.8 million Saudi nationals are expected to enter the labor force over the next 5 years but the jobless rate for youth is nearly 40%
  • Between one and two million foreign workers will leave over the next couple of years
  • The economy should gradually rebound as oil prices recover - The government is also preparing a three-year US$53.3 billion stimulus to support the feeble economy while postponing its plans to balance the budget until 2023

Today, Saudi Arabia is dealing with a series of economic challenges. They include high levels of unemployment, a larger fiscal deficit and a fast-growing population. Saudi Arabia’s population is growing at a brisk pace. The total number of inhabitants was 32.9 million in 2017 – an increase of 12.2 million since 2000. By 2030, the country will be home to 39.5 million – more than four times the total for 1980.

Unemployment is the highest among Saudis in their twenties. Government figures suggest that approximately 175,000 new jobs are being created each year but the number of new job entrants (which is almost exclusively male) is close to twice that figure. Euromonitor also reports that Saudi Arabia faces an acute housing shortage. Approximately 3.3 million units are needed in 2016-2026. However, the market is presently delivering only about half of that. A major problem is that landowners sit on valuable but undeveloped land because land prices are rising at around 7% per year. In response, the Capital Riyadh has introduced a controversial 2.5% tax on undeveloped land.

The government must act quickly to increase the share of foreign investment. Only about 5% of the US$800 billion invested in 2006-2014 came from overseas. Officials hope to lure additional foreign capital with transportation and health projects valued at US$140 billion but it needs other appealing targets to attract additional foreign capital.

USDA’s Office of Agricultural Affairs (OAA) in Riyadh, hereinafter referred to as “Post” reports that in Saudi Arabia low international oil and petroleum products prices have reduced the country’s per capita income from about $24,000 in 2011 to about $21,784 in 2016. However, the reduced per capita income has not significantly changed consumer consumption patterns. The continued increase in the country’s population, the increased number of pilgrims coming for Umrah and Hajj rituals, and the relatively high disposable income will continue to increase demand for food imports.

The relatively high per capita income in Saudi Arabia as well as changing lifestyles and diets, are expected to boost the demand for high quality food products. U.S. food products are generally viewed as meeting higher quality standards compared to food produced locally or imports from other countries. Although U.S. food products command higher prices and higher margins compared to imports from Asia and Arab countries, demand for U.S. food products in the Saudi market has been increasing.

U.S. Exports of consumer ready products to Saudi Arabia rose 7% to nearly US$541 million in 2017. As mentioned, the country now ranks as the 19th largest export market of consumer ready foods from the U.S. The Kingdom is an active importer of U.S. processed foods as well, bringing in some US$470.4 million in 2017, growth of .5%.

Top U.S. processed food exported to Saudi Arabia in 2017 included:

  • Fats and oils
  • Condiments and sauces
  • Processed/prepared dairy products
  • Processed vegetables and pulses
  • Food preparations
  • Snack foods
  • Chocolate and confectionery
  • Non-alcoholic beverages
  • Pasta and processed cereals

U.S. food exporters enjoy some competitive advantages in the Saudi food market:

  • Saudi Arabia depends on imports to meet about 75% of its food needs
  • The Kingdom is a growing market for high value food products - Consumers have affinity for trying new food products, offering greater opportunities for new-to-market U.S. food products
  • Ready to eat foods, home meal replacements, fast foods and "take-away" are increasingly popular with the youthful Saudi population
  • The high per capita income and changing lifestyle and diets in Saudi Arabia continue to boost demand for high quality food products
  • The U.S. is a recognized reliable supplier of quality food products - Major Saudi importers are constantly looking for new-to-market food products
  • The more than 13 million expatriates that live and work in Saudi Arabia create demand for greater diversity and ethnic foods
  • An increasing number of religious pilgrims come to Saudi Arabia every year (approximately 8 million pilgrims in 2016) creating demand for institutional food services

Challenges that exist for U.S. food exporters include:

  • Price competitive local products and imports from Arab and Asian countries have reduced U.S. market share
  • Freight costs from the U.S. are higher than those from export competitors in Europe and Asia
  • Some consumers perceive U.S. food products as promoting a relatively unhealthy lifestyle - Negative consumer attitude towards food containing or made from biotech products
  • High markups, listing and other fees that major retailers charge significantly increase the cost of launching new products in the Saudi market
  • Some food retailers require that they be reimbursed for expired products
  • Local importers prefer to initiate business deals with small orders; conditions many U.S. exporters are not willing or able to meet
  • The requirement that chicken and beef not be produced using feed containing animal protein is a significant barrier to U.S. producers

Retail Sector:

Euromonitor has estimated 2017 retail sales in the Saudi packaged food market to be US$20.1 billion. That represents an increase of 32.8% and nearly US$4.9 billion from 2013. They also forecast sales of packaged food in the Saudi market to reach nearly US$29.4 billion by 2022, an increase of nearly US7.7 billion and 35.7%. High growth items in the forecast include:

  • Baby food
  • Ice cream and frozen desserts
  • Savory snacks
  • Sweet biscuits, snack bars and fruit snacks
  • Baked goods
  • Processed meat and seafood
  • Dairy products
  • Sauces, dressings and condiments
  • Processed fruit and vegetables

Post reports that Saudi Arabia’s retail sector continues to grow rapidly. Total 2016 retail sales are estimated at US$41.8 billion, an increase of 6% over the previous year. Hyper and supermarket chains continue to expand. And United Arab Emirates (UAE) based LuLu hypermarkets, established Y International, its first U.S. food processing and logistics base in Lyndhurst, New Jersey. Y International will be used as export center for U.S. food products where U.S. food products (dry, frozen and chilled) are purchased, processed, re-labeled, and exported to LuLu Hypermarkets worldwide.

The Saudi food retail sector is divided into two categories: modern and traditional grocery retailers. According to Euromonitor, there were a total of 43,987 food retailers in Saudi Arabia in 2016. Traditional retailers accounted for approximately 87% of the outlets, while modern retailers accounted for 13%. In terms of total food sales, traditional and modern retailers accounted for 57% and 43% market share, respectively last year.

In 2016, the total number supermarkets and hypermarkets in Saudi Arabia were estimated at 1,255 stores. This is a relatively small number, and accounts for only 2.9% of the retail outlets. However, that 2.9% of outlets accounted for approximately 37% of total grocery sales in Saudi Arabia in 2016. Changing lifestyles in Saudi Arabia have created an excellent opportunity for hypermarkets to introduce ready-to-eat meals and take-away food dishes as a substitute for home cooking. This food service is very popular, especially with working women and single foreign expatriates.

In 2016 there were approximately 1,031 supermarkets in Saudi Arabia, an increase of approximately 8.1% over 2015. They accounted for approximately US$10.9 billion of the food products sold by retailers in that year. Major Saudi supermarket chains such as Tamimi and hypermarkets such as LuLu and Danube import a significant percentage of the food products they sell directly from the U.S, employing consolidators. The products they import directly from the U.S. include cheese, nuts, fresh fruit, condiments & sauces, cereals, ketchups, fruit juices, vegetables, and several varieties of high value food products.

Hypermarkets were first introduced into Saudi Arabia in 2004. They are very large - approximately 200,000 square feet or 18,580 square meters - and have up to 50 checkout counters. They usually carry over 50,000 items including food, clothing, tools, toys, and electronics. In 2016, there were approximately 224 hypermarkets (an increase of 8 outlets from 2015). They are mostly located in the three major cites of the Kingdom (Riyadh, Jeddah and Dammam). Hypermarkets accounted for approximately 11% or approximately US$4.5 billion of the total retail food product sales in Saudi Arabia in 2016. Some hypermarkets such as LuLu, Danube, Hyper Panda, Carrefour, and Othaim directly import some of the food sold in their outlets.

Hyper Panda, Panda Supermarkets and Pandati Mini Market chains are owned by Azizia Panda United Co., a subsidiary of SAVOLA Group. The SAVOLA Group is the leading food products producer and retailer in Saudi Arabia with business interests in edible oil, sugar, dairy farms, confectioneries, fast food restaurants and packaging. With more than 490 retail outlets (65 hypermarkets, 156 supermarkets, and more than 270 Pandati Mini Markets), the firm is the largest food products retailer in Saudi Arabia. The company opens several retail outlets annually, and this trend is expected to continue in the next few years. In 2007, the company entered international operations by opening its first hypermarket in Dubai. In September 2015, the company inaugurated its first hypermarket in Cairo, Egypt as part of a several years plan to open up to 16 outlets in various Egyptian cities.

With 155 retail outlets, Othaim Markets is the second largest food products retail chain in Saudi Arabia. Othaim’s other business include food products imports under own brand names, and food production. Othaim, which opened its first supermarket in Cairo, Egypt in the first quarter of 2016, had opened 11 retail outlets by October 2017. The firm plans to open more outlets in major Egyptian cities over the next few years.

Tamimi Markets, which was launched in Riyadh in 1979, is considered the pioneer of the upscale supermarket concept in Saudi Arabia. The firm currently has 40 stores in the Eastern and Central Provinces of the Kingdom. Tamimi Markets carries the largest range of American foodstuffs of any supermarket in Saudi Arabia. Tamimi has plans to open additional 15 supermarkets in Saudi Arabia by 2020, raising the total number of its supermarkets to 50. Tamimi Markets is one of 30 companies owned by the Dammam based Tamimi Group.

Carrefour Hypermarkets (Saudi Hypermarkets CO) was established in Riyadh in 2004 as a joint-venture between Al-Olayan Group (Saudi company) and the Majid Al-Futtaim Group (U.A.E. based company). Currently, the company has 15 hypermarkets in four main Saudi regions. Carrefour has plans to increase the number of its outlets to 20 in the next few years.

LuLu Hypermarket chain, which entered the Saudi food retail market in 2009, is owned by EMKE Group, an Abu Dhabi, United Arab Emirates based company. Currently, it has 10 hypermarkets in the Central, Western, Northern and Eastern regions. The firm planned to inaugurate two more hypermarkets in Saudi Arabia before the end of 2017. It should have 15 outlets by the end of 2018. Like other hypermarkets in Saudi Arabia, LuLu caters to the growing consumer demand for all types of food products, garments, electronics and home appliances. LuLu Hypermarket is the most preferred retail chain among the South Asian expatriate community residing in Saudi Arabia. LuLu has plans several more outlets in major Saudi cities by 2020. Currently, the chain operates more than 140 stores across the six GCC countries (UAE, Oman, Bahrain, Kuwait, Qatar, and Saudi Arabia).

High value added U.S. food exports present in the market with good potential include:

  • Potato chips and savory snacks
  • Sauces, dressings and condiments
  • Beverage ingredients non-alcoholic beer
  • Dairy products
  • Red meat and poultry meat
  • Processed fruits and vegetables
  • Jams and jellies
  • Fruits and vegetable juices
  • Honey
  • Sweet pastry and biscuits
  • Fresh fruit and processed fruit and vegetables

Food Service Sector:

Post reports that the hotel, restaurant and institutional (HRI) food service sector in Saudi Arabia has been rapidly growing for the past decade. Major changes in Saudi citizens’ work and life styles as well as in their consumption patterns have led to Saudis eating outside their homes and traveling domestically more often. The annual revenue derived from consumer food services, restaurants and cafés in 2014 was estimated at US$15 billion, and is forecast to reach US$18 billion by 2020. The Saudi Commission for Tourism and Antiquities estimates that total revenues generated from sales of food, beverages and food service at restaurants and cafés have increased by 87% since 2006. The value of food purchased the HRI sector to produce meals in 2014 was estimated at of US$5 billion.

American fast food chains continue to dominate the upscale fast food restaurants market in the Kingdom. U.S. fast food chains such as KFC, McDonald’s, Pizza Hut, Burger King, Hardee’s, Subway, Little Caesar’s Pizza, Pizza Inn and Domino's Pizza. Other local chains such as Herfy, Al-Beck, Shawaya House, Taza, Dajen, and Kudo are gaining popularity and continue to expand in major urban areas. All of the American fast food chains and some local outlets such as Kudu, and Herfy import significant amounts of food requirements directly from the United States. It is estimated that overall about 80% of the food products used by the domestic HRI sector come from imports.

Other countries competing in the Saudi fast food market include the United Kingdom with Wimpy's burgers, the Philippines with Jollibee, Italy with Sbarro pizza and pasta restaurants and Switzerland with Movenpick ice cream. These chains have a limited number of outlets each. It should be noted that foreign restaurants (fast food and casual), coffee shops and cafés companies are not allowed to own outlets in Saudi Arabia and they are 100% owned and operated by the local franchisees. The franchisors roles are limited to collecting franchise fees, supplying or recommending approved suppliers and providing other operational supports as needed.

The institutional food sector in Saudi Arabia offers services to schools, workers camps, company cafeterias, hospitals, universities, Hajj catering, military, prisons, airline catering, and special events. There is no official government data on the value of the institutional food service market in Saudi Arabia. However, experts from major catering companies interviewed for this report estimate the annual value of the market to be about $5 billion. This subsector serves several millions of meals a day and relies mostly on imports to meet its huge demand for institutional food products.

Saudi Arabia is among the most visited destinations in the Middle East, even though the Kingdom is not a tourist destination and does not issue tourist visas. In 2014, about 17.4 million visitors entered the country for various religious and business purposes, an increase of 34% over the number of visitors in 2010. In 2014, visitors to Saudi Arabia spent US$13.1 billion mainly on food and accommodation, of which Hajj and Umrah pilgrims accounted for 63% of the total expenditures.

Saudi Arabia relies heavily on imports to satisfy the HRI sector’s food needs, with more than 80% of the sector’s food requirements coming from outside the Kingdom. The sector is fully self-sufficient in only two products, fresh milk and table eggs.

The U.S. faces fierce completion in the Saudi food import market from major suppliers such as Brazil, India, Netherlands, China, Thailand, Turkey, France, Belgium, New Zealand, other European Union (EU) countries. The catering and restaurant subsectors are very price sensitive, due to the stiff completion that prevails in the market. Catering companies and fast food chains compete on both prices and quality. They seek suppliers that provide good quality products at most competitive prices.

Post reports that the Saudi HRI sector is constantly seeking suppliers for high quality and competitively priced of high value and intermediate food products. Products of interest include:

  • Processed fruits and vegetables
  • French fries
  • Beverages
  • Beef, poultry meat (whole birds and chicken parts)
  • Rice
  • Sauces, dressings and condiments
  • Gravies
  • Dried beans
  • Seasonings
  • Cooking oil  

Food-Processing Sector:

Post reports that the Saudi food manufacturing and processing sector has rapidly grown in the past ten years. Support from the Saudi Government includes direct subsidies for selected food production equipment, low land leasing prices, long term interest free loans, duty free imports of raw materials, and highly subsided utilities. This support helped boost investment in the food and beverage production sector and increased the number of food processing factories in Saudi Arabia, from 737 units in 2007, to 1,018 units in 2017, an increase of about 38%.

During this period, the total investment in the Kingdom’s food processing industry increased by a factor of four, reaching US$23 billion by the end of 2017 compared to about US$8.2 billion in 2007. Besides the various government subsidies, major factors for the continued increase in the domestic food processing industry are:

  • Increased demand for packaged foods
  • Increases in per capita income
  • High population growth rate
  • Changing lifestyles and diets
  • Growing popularity of rapidly expanding food retail outlets and the food service sector

Domestically produced food products are considered good quality and competitively priced. Major food products that are locally processed using imported raw materials and ingredients include bread, dairy products, processed livestock and poultry meat, frozen vegetables, jams, potato chips, snack foods, juices, biscuits, peanut butter, spices, hot sauce, tomato paste, ketchup, cookies, confectionaries, fruit drinks, vinegar, pasta, honey, tea, canned beans, cooking oil, butter, mayonnaise, breakfast cereals and ice cream.

Post reports that the following products have good sales potential in the Saudi food processing sector:

  • Poultry meat and beef
  • Skimmed milk powder and full cream milk powder
  • Cheese, butter, margarine
  • Milk protein concentrate
  • Anhydrous milk fat (amf) and butter oil
  • Whey powder and whey permeate powder
  • Vegetable oil and vegetable fat
  • Spices, seasonings
  • Fruit pie fillings
  • Shortenings

Other products with good potential include jam ingredients, tree nuts, tomato paste, legumes, pulses, French fries, wheat, rice, beverage ingredients, bakery and pastry ingredients, juice concentrates, ice cream ingredients, chili sauce and specialized flours, sorbitol liquid, various syrups, wheat starch, wheat gluten, corn starch, potato starch, corn grits, rice flour, soya flour, soya protein, soya lecithin liquid and powder, semolina, cocoa powder, cocoa butter, gums, egg powder, food additives including coloring matters, favors and stabilizers, and other food snack food ingredients.

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