United Arab Emirates Country Profile

Market Overview:

Among the GCC-5 countries, the United Arab Emirates (U.A.E.) with its larger population, larger influx of tourists and businessmen coupled with its vibrant re-export activities is the largest market for food products, followed by Kuwait. Within the U.A.E., Dubai is the country’s commercial center and the region’s trade hub. Efficient infrastructure (sea, land and air ports), large free trade zones and a strong business orientation make Dubai an important commercial center in the Middle East. Dubai derives sizable revenue from the re-export business and invests heavily in infrastructure, while luring foreign investment and buyers. Other countries in the region and other Emirates in the UAE, particularly Abu Dhabi, the capital, are following Dubai’s lead and model to improve their infrastructure and attract business interests.

Euromonitor reports that the UAE economy is performing modestly as a result of low oil prices. Growth will continue to be subdued but the country’s fundamentals remain sound.  Real Gross Domestic Product (GDP) is forecast to grow by 2.5% in 2017 after gains of 2.3% in 2016. Moderate gains in both private final consumption and exports provide support. Oil production will also be ramped up. Cutbacks in government spending are a major constraint and are likely to slow growth in the non-oil sector. Fiscal deficits should shrink in the future but the budget will likely remain in deficit at least through 2020.  Real GDP will rise by about 3.4% per year in the medium term.

Private final consumption (in real terms) rose by 12.6% in 2016 after a steep decline in 2015. Gains of 3.2% are expected in 2017. Growth will improve but remain below trend for several years. Real GDP will rise by about 3.4% per year in the medium term.  Tourism and parts of the non-oil sector will help to propel the economy. Large-scale investments in preparations for Expo 2020 will be another driver.  

The standard of living in the United Arab Emirates is one of the highest in the world. A liberal, business friendly and market-oriented growth strategy has reshaped the economy. The non-oil sector steadily expanded as diversification of the economy has proceeded. Abu Dhabi and Dubai together contribute about 80% of the UAE’s income. Abu Dhabi’s diversification program has made impressive progress. Its non-oil industries now account for around 48% of real GDP and are larger than Dubai’s entire GDP. Dubai’s diversification efforts were side-tracked by troubles in the financial industry and the real estate market but both sectors have managed a modest recovery. The UAE is the second largest FDI recipient among Arab countries after Saudi Arabia, attracting nearly US$74 billion over the past four decades. As the UAE has developed into a major services hub in the Middle East, its dependency on oil exports has declined.

Retail Sector:

Euromonitor has estimated 2016 retail sales in the UAE packaged food market to be nearly US$4.7 billion. That represents an increase of 37.6% and nearly US$1.3 billion from 2012. They also forecast sales of packaged food in the UAE market to reach US$7.1 billion by 2021, an increase of US$2 billion and 40%. High growth items in the forecast include savory snacks, confectionery, sauces, dressings, condiments, baby food, processed meat and seafood, sweet biscuits, snack bars and fruit snacks, rice, pasta and noodles, and breakfast cereals.   

Euromonitor reports that UAE grocery retailers tend to align themselves with the changing residential landscape of the country. A number of construction projects were completed in 2016, and while the downturn in oil prices had an impact on the prices of both residential and commercial properties, modern grocery retailers looked for expansion opportunities within smaller formats to achieve a wider presence. As the country expands into new residential zones, which are distant from existing shopping centers, modern grocery retailers foresee greater demand for convenience stores and supermarkets.  

This is bringing opportunities for forecourt retailers to expand beyond their model and enter into commercial offices as well, where these convenience stores can offer snack offerings at regular intervals in larger office buildings. Modern grocery retailers are working towards greater optimization of floor space by eliminating redundant or unutilized spaces, such as unattended checkouts, to enhance value by offering a better in-store experience and a wider range of product types at both category level and stock keeping unit (SKU) level.

In 2016, grocery retailers posted growth of 8% in current terms, roughly in line with the review period (2010-2015) performance. The slight decline in current value growth was due to conservative consumer expenditure observed by various grocery retailers in the country. Many retailers reported that an increase in the number of SKU offerings did not resulted in corresponding growth of revenues, a reflection of the nature of consumer expenditure in the country. The rising cost of living in the UAE has always been a key concern for consumers, but a changing economic climate and a consumer shift towards more-limited spending resulted in the search for grocery retailers that had the best offers and promotions.

Consumers are tending to look for more promotions and offers when buying household items such as detergents and cleaning products; however, consumers still preferred to purchase quality fresh food products and therefore looked to different grocery retailers for different needs. Grocery retailers with more offers and better fresh food products remained popular among consumers. Quality fresh food items, however, remained a challenge for most convenience stores. Therefore, price and quality remained the dominant factors in attracting consumers to stores.

Convenience stores were the fastest growing channel in 2016, recording current value growth of 17%. Sales through convenience stores rose following the rapid development of infrastructure to meet demand for local shopping and the popularity of lower-value grocery baskets in relation to conservative shopping patterns. As more women entered the workforce, the need for just-in-time purchases also rose. Thus, busy lifestyles and unstructured lives mean the consumer is seeking convenience in availability. While, weekly trips to larger stores were still the norm, demand for smaller-value, frequent trips were also growing. The free home delivery service offered by convenience stores also supported a consistent revenue stream for retailers                                       

Majid Al Futtaim continued to lead grocery retailers in the country, holding a 20% value share in 2016, followed by Emke Group with a share of 15%. In terms of modern grocery retailers, these players posted respective value shares of 24% and 18% in 2016, as the chains Carrefour and Lulu developed strong consumer affiliation. Carrefour works on a value for money concept and boasts of the largest product range available at its stores.  Carrefour, being a global grocery retailer, has a presence in many regions; therefore, expatriate consumers in the United Arab Emirates strongly associate the brand with middle-income consumers from the Middle East and Asia.

Carrefour is also working on a multi-format strategy, expanding to supermarkets and convenience store formats. Of its total revenue, 90% is attributable to the wider presence of its hypermarkets in key shopping center establishments. During the last few years of the 2012-2016 review period the brand expanded into other key emirates such as Abu Dhabi. Carrefour’s global operations also enable it to have a wide network of suppliers and provide products at the best prices. Carrefour also works on developing its regional alliance with the leading FMCG companies to provide promotions and offers. Large-format stores enable Carrefour to provide brands with innovative in-store promotional strategies and greater visibility on the shelves. Carrefour’s loyalty program also enables the retailer to maintain a greater number of committed and returning customers.

Emke Group continues to benefit from its long-standing presence in the country, with its flagship brand Lulu Hypermarket. The brand is similar in terms of pricing and product range to Carrefour. Better understanding of Indian culture and tastes enables the retailer to cater to the largest expatriate community in the country from India, and is able to attract these consumers by importing relevant Indian brands. Lulu Hypermarket is more visible in northern emirates, as it has a greater presence in stand-alone stores and is not only in shopping centers. Lulu Hypermarket’s private label products are widely popular amongst its consumer base. Besides Indian expatriates, Lulu Hypermarket has a strong consumer base consisting of local residents of the United Arab Emirates.

Spinneys posted a decline of 12% in value sales within grocery retailers in 2016. As most grocery retailers felt the pinch of conservative consumer expenditure during 2016, the sales decline for Spinneys was an indicator of a consumer shift from premium prices to more promotions and deals. Convenience store retailers are looking to develop value-based relationships to match consumer needs in the country.  For example, 7-Eleven partnered with Del Monte Foods to provide its private label snacks and drinks in-store.

Forecourt retailers and international chains of convenience stores are looking to strategic solutions, such as franchising with local partners, for faster expansion within grocery retailers. Partnerships with food service providers and food manufacturing companies to enhance the value of convenience stores across various locations are also bringing new concepts in terms of grocery retail store formats. For example, Emarat is developing its convenience store brand Fresh Plus through franchising opportunities. Other players are similarly active, such as international convenience store player 7-Eleven.

Grocery retailers are set to grow at a compound annual growth rate (CAGR) of 6% at constant 2016 prices over the forecast period (2017-2021). Key drivers of growth for the channel are rising disposable incomes and population growth, as the United Arab Emirates is continuously emerging as a desirable country for expatriates to live and work in, in the light of weaker economic conditions in regional countries and high unemployment levels in South Asia. Meanwhile, health consciousness will drive growth of product types such as organic, gluten-free and low carbohydrates, providing grocery retailers with an avenue for value-based pricing. 

Convenience stores are expected to record the strongest performance over the forecast period, with sales set to grow at a CAGR of 13% at constant 2016 prices. Expansion within residential areas is driving sales through neighborhood stores in the United Arab Emirates, followed by single females among the expatriate population whose weekly grocery shopping needs are limited and they look for convenient options within grocery retailing. Forecourt retailers are now rebranding themselves as convenience store retailers, with international convenience store chains such as Circle K planning for aggressive expansion within the United Arab Emirates. Hypermarket brands such as Carrefour look forward to the expansion of the Carrefour Express concept, and similar plans are being made by other players such as Al-Maya Group.

Post advises that promotions and aggressive product marketing are essential, in view of the intense competition between countries, companies and brands, not only to gain but to also maintain market share. Newcomers to this market should be prepared to include product marketing and promotional support in their plan as the importer may not be prepared to invest in new-to-market products without initial support from the supplier. While the spread of satellite channels are making multi-market advertising easier, the cost for small to medium size companies could be prohibitive. Regular in-store promotions and newspaper ads are still the most commonly used advertising tools in this arena.

Guidance from Post includes a number of strategies which we agree to be successful and are building annual strategies around. They recommend that suppliers study each market, as importers often complain that U.S. suppliers are not well informed about local market conditions, requirements and governing regulations, which are regularly updated. They also highly recommend that U.S. suppliers visit the region, as making personal contacts is perhaps the single most important action a U.S. company can take. Post also recommends repeat visits as they demonstrate a commitment to the market.

In this region it is considered integral to success by participating in local food shows to be taken seriously about penetrating the market. They are shortest and fastest way for U.S. suppliers to meet with food importers from the GCC countries. The UAE hosts the following recommended shows, Gulfood Show which is currently the Middle East’s largest food show, and regarded as the 3rd largest in the world, after Anuga and SIAL Paris shows. They also recommend SIAL Middle East, hosted by the Emirate of Abu Dhabi.

Food Service Sector:

Euromonitor reports that consumer food service saw a strong performance in the United Arab Emirates in 2015, with the year seeing the strongest annual current value growth of the overall review period (2010-2015). Growth was supported by rising economic confidence and an ongoing surge in tourist numbers in the country. Sales are also benefiting from high grocery prices and a large number of expatriate workers living alone or in shared accommodation with few cooking facilities. There was strong investment in more premium types of consumer food service in 2015. Numerous luxury full-service restaurants opened in the year, with many featuring Michelin-starred chefs such as Vikas Khanna at Junoon and Sergi Arola at p&c. Fast food is also seeing premiumization, with a good performance for upmarket fast casual chains such as Elevation Burger and Burger Fuel in the burger/fast food category.

Consumer food service is led by strong global brands represented by regional or domestic franchise partners. Kuwait Food Co (Americana) remained the leading player in 2015, thanks to representing KFC, Hardee's and Pizza Hut, while Emirates Fast Food ranked second with McDonald’s and First Food Services ranked third with Burger King and Texas Chicken. Shares however remain highly fragmented, with this due to the dominance of independent players.

There are a number of clearly-defined consumer groups for consumer food service in the United Arab Emirates. On the one hand, the country is home to a large number of high-income consumers, with real disposable income levels rising by 14% during the review period. The country is also a major luxury shopping destination, attracting high-spending visitors from across the world and also strong domestic tourism among affluent consumers. Strong demand for luxury consumer food service is meanwhile encouraging investment in luxury dining, with Michelin-starred chefs notably featured in a growing number of upmarket full-service restaurants.

Conversely, however, the county is also home to a large number of low-income migrant workers. These consumers are often unbanked and live in shared accommodations with limited cooking facilities. In areas with a large number of these workers, there are meanwhile a large number of low-priced outlets, typically being full-service restaurants, fast food and street stalls/kiosks. Some smaller Asian fast food chains are however also increasingly appealing to these consumers, who are often from Asian countries, by focusing heavily on price competition. Chained Asian fast food notably saw 29% current value decline in spend per transaction during the review period, with a further 4% decline being seen in 2015 over the previous year.

Franchising is strong in the United Arab Emirates. Most international chains are present in the country with regional partners, with these including most of the top 20 brands. Many local partners are meanwhile franchising groups and represent a number of different brands, with Kuwait Food Co for example representing Yum! Brands' KFC and Pizza Hut and CKE's Hardees and First Food Services representing Restaurant Brands' Burger King and Cajun Operating's Texas Chicken. Other leading local franchisees meanwhile include Emirates Fast Food with McDonald’s and Saleh Bin Lahej with Brinker's Chili's.

Local partners not only enable global brands to better navigate the local bureaucracy involved in opening outlets but also to cater to local consumers' demands. Most local franchisees are also large companies with the ability to invest heavily in building brands. Individual franchising is however rare, with global brands preferring the reassurance of working with larger franchisees.

Franchising is particularly strong in fast food, where local franchisees Emirates Fast Food, Kuwait Food Co, Apparel Group and First Food Services alone accounted for a combined third of sales at the end of the review period. Franchising also accounts for a large share of sales in 100% home delivery/takeaway and self-service cafeterias, although these remain fairly small channels. Within 100% home delivery/takeaway, Al Jammaz accounted for 37% of value in 2015 with Domino's Pizza. The share of franchisees in this channel however plummeted in the year, as the previous franchisees of N_K_D Pizza opted to exit this franchise and relaunch the chain as local brand Freedom Pizza, with this chain accounting for 16% of value in 2015.

Within self-service cafeterias, franchisees Al Futtaim and Horizon Hospitality meanwhile accounted for 65% value share in the year with the Ikea Restaurant and Vapiano brands. There are meanwhile also numerous franchisees present in full-service restaurants and cafés/bars but the dominance of independents in these channels prevents franchising from accounting for a strong share.

Euromonitor reports that consumer food service is expected to continue to see good growth in the forecast period. Sales are likely to benefit from ongoing growth in the number of tourists visiting the country, with this in turn driven by heavy investment in upmarket hotels and shopping malls. There is also expected to be growth in demand from local consumers, with this linked to strong population growth and rising disposable income levels. Consumer food service is expected to continue to benefit from steady outlet volume growth, with players keen to capitalize on growth potential in this area, and is also expected to see ongoing premiumization.

Food-Processing Sector:

Post had reported that about 430 food processing firms operate in the UAE and a smaller number of food processors in other Gulf countries such as Kuwait, Oman and to a much lesser extent in Qatar. This sector consumes much of the bulk, intermediate, and semi-processed products the United States sells to the region. In the food-processing sector, U.S. ingredients are mainly used in the following product categories – flour and bakery products, vegetable oil, canned beans, carbonated and non-carbonated beverages, chicken franks, manufactured snack foods and reconstituted juices. 

Two soybean crushing facilities with 6 million metric ton processing capacity/year are operating in the UAE. They mostly crush canola seed for the production of oil and meals, targeting the European Union (EU) market. Soybeans are sourced from the United States and Latin America. Local dairies and poultry farms are not large enough to meet local demand.  Consequently, a number of local companies reconstitute dairy products from milk powder, primarily sourced from Europe, New Zealand, and Australia. It is expected that an increasing number of multinational food companies will look to link up with local processors.     

While food processors often started small, the UAE’s strategic location, excellent ports, and strong infrastructure have helped many to expand.  Some locally produced foods are of very high quality with competitive prices compared to imported products. As the number of food processing companies in UAE continues to increase, locally produced products are likely to compete directly with imports of consumer-ready foods, while boosting demand for ingredients and other raw materials.

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