United Arab Emirates Country Profile

Market Overview:

On April 7, 2020 Focus Economics reported that the “UAE” economic growth is expected to decelerate this year on a weaker oil sector, while the non-oil sector is also expected to contract.  Economic momentum ebbed further in the first quarter of 2020 amid coronavirus-related disruption, after decelerating for two consecutive quarters in 2019.  The hydrocarbon sector likely suffered from markedly lower oil prices amid plunging global demand and rising supply due to the Russia-Saudi Arabia price war. However, increased production after the breakdown of OPEC+ production cut agreements in early March will have softened the hit to revenues somewhat.

The duration of the Covid 19 outbreak and its impact on global travel and trade present considerable downside risk to the outlook.  FocusEconomics panelists forecast Gross Domestic Product (GDP) to increase 1% in 2020, which is down 1% from the March estimate, and 2.9% in 2021.  Recently a vast gas field measuring around 80 trillion cubic feet was discovered in the UAE in February, boding well for energy self-sufficiency.

According to Euromonitor the real value of inbound tourist and business travel receipts rose by 4% in 2019 and growth of 2.3% is forecast for 2020.  To attract more visitors, a movie-based theme park known as IMG Wolds of Adventure has been built, which has the capacity for 10,000 visitors daily.  Dubai also plans to invest US$32 billion to develop one of the world’s largest aviation mega-hubs.  Expo 2020 is expected to create 270,000 new jobs and bring in 25 million visitors.  In the financial field, credit growth to the private sector has slowed as banks increase provisioning against potential loan losses. Although banks remain well capitalized, most are increasingly unwilling to lend to SMEs.

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 proceeded. However, greater diversification meant that the UAE was hit more severely by the global financial crisis than its neighbors. 

Abu Dhabi and Dubai together account for about 80% of the UAE’s income.  Abu Dhabi’s diversification program has made impressive progress.  Its non-oil industries now account for close to 50% of GDP.  Dubai’s diversification efforts were slowed by problems in the financial industry and the real estate market.  However, both sectors now appear to be on the way to recovery.   The UAE is the second largest foreign direct investment (FDI) recipient among Arab countries after Saudi Arabia.  As the UAE’s economy has developed into a major services hub in the Middle East, its dependency on oil exports has declined.

The UAE’s population has risen at a significant pace.  In 2020, the total number was 9.9 million, up from just 3 million in 2000 (CIA World Factbook Est.).  Foreign citizens make up around 88% of total population and are mainly responsible for the rapid gains in population.  However, almost all immigrants are young or middle-aged adults and their presence ensures a relatively high median age (38.4).  In addition, immigration has led to an imbalance between the male and female populations – there are two men for every woman in the UAE.

U.S. exports of consumer ready food products totaled US$936.5 million in 2019, an increase of 20% from 2018.  The UAE is the largest U.S. consumer food export market in the Middle East and the 20th largest overall.  The UAE also imported US$424.6 million of U.S. processed foods in 2019, an increase of 6%.  The UAE is the 2nd largest U.S. export market for processed foods in the Middle East after Saudi Arabia.  Top U.S. exports of processed food products to the UAE in 2019 included:

  • Food Preparations
  • Snack Foods
  • Processed/Prepared Dairy Products
  • Condiments and Sauces
  • Chocolate And Confectionery
  • Fats And Oils
  • Processed Vegetables And Pulses
  • Beer and Wine  

Retail Sector:

Euromonitor has estimated 2019 retail sales in the UAE packaged food market to be US$5.7 billion.  That represents an increase of 23.7% and nearly US$1 billion from 2015.    They also forecast sales of packaged food in the UAE market to reach nearly US$7.4 billion by 2024, an increase of US$1.4 billion and 23.7%.  High growth products in the forecast include:

  • Processed meat and seafood
  • Rice, pasta and noodles
  • Soup
  • Sauces, dressings condiments
  • Breakfast cereals
  • Processed Fruit and Vegetables
  • Baked goods
  • Savory snacks

Euromonitor reports that when it comes to modern grocer retailing, omnichannel is becoming a growing trend in the UAE.  For example, in 2018 the Lulu Group allowed consumers to make a purchase online and pick it up from a designated Lulu supermarket at their convenience.  This click-and-collect model has been particularly convenient for people who have busy working lives and prefer to have their groceries delivered in the evenings.

Dubai Mall has added another grocery store to the mall; currently it only had a Waitrose supermarket.  Grandiose, a supermarket that sells French brands such as Luchon and Cotterley has now opened in the new Dubai Mall Zabeel extension, the 9-storey retail space that is linked to the main mall with a footbridge.  Grandiose Supermarket will be the sole player in that space in close proximity to the car park, which will give consumers, added convenience because it will save them the hassle of having to travel through the mall to get to their car.

One of the reasons for the success of this Dubai-based business is its location in high-density residential areas.  Furthermore, in a bid to compete with the convenience offered by convenience stores, more and more supermarkets such as Al Maya are being open around the clock.  Al Maya has been in the Gulf region for the past 35 years and is pursuing further growth opportunities in the future.

With its first outlet in Abu Dhabi, it opened a second outlet in Dubai in 2019 which caters to a more multi-ethnic basket of consumers.  It includes many products of private label, SPAR Own Brand products are sourced both regionally and internationally.  The Dutch supermarket offers a fresh bakery, a fish counter and butcher.  It plans to open 30 more multi-format stores in Dubai in the coming years.

According to Euromonitor, leaders in hypermarkets are creating buzz by bringing cutting-edge technology to their brick-and-mortar stores.  The best example of this is Carrefour’s “Tally”, a 14kg robot with a height of 163cm, which scans items on the shelves and alerts managers to discrepancies.  This allows the rest of the staff members to focus on consumer service and create a better shopping experience.  This is a very important way to drive future prospects because some people avoid hypermarkets due to the chaotic nature and long queues.  Furthermore, promoting the in-store experience is a way for hypermarkets to compete with the growing entrenchment of discounters, competition that is expected to intensify as more players enter the market.  Investing in state-of-the-art technology can help hypermarkets distinguish themselves from lower-end convenience stores and supermarkets.

Consumer behavior is changing as more and more customers prefer to shop for convenience and grab and go, even at higher-priced outlets.  As the frequency of largely weekly or monthly shopping decreases, this can be a source of worry for hypermarkets. Furthermore, the growing preference for fresh food means that people buy things and use them right away rather than keep them in the “fridge” for weeks.  In addition, as lifestyles become ever busier and household size is reduced, hypermarkets will see sluggish growth over the forecast period (2024).

Hypermarkets are seeking ways to distinguish themselves from competitors.  One way they are doing this is by appealing to consumers’ sensitivity to environmental sustainability.  For example, in 2019 Carrefour hypermarket announced that it would become the first retail chain to set up a refill station in its hypermarkets for liquid detergents. Hypermarkets will have to appeal to consumers’ new behavior in order to keep themselves relevant over the forecast period.

The consumer trend of rising health consciousness continues to grow in the UAE as more people, especially millennials, look for products that are positioned as increasing wellbeing.  Traditionally, such choices have been exclusively the realm of premium offerings and hypermarkets are continuing to address demand by offering more choice. Charcoal toothpaste has become a ubiquitous trend in hypermarkets, a niche product that appeals to consumers’ desire for novelty and products with more nature-based ingredients.

Following Majid Al Futtaim’s strategic acquisition in 2017, acquiring the rights for Géant hypermarkets and supermarkets in the region, it acquired the largest distribution warehouse in Dubai’s Jebel Ali; factors that have helped it solidify its leading role in the channel.  At 1.5 million sq ft. (140,000 sq m), the storage warehouse will be the largest fmcg warehouse ever built in the region (four times larger than any of the previous Carrefour distribution centers).  The building represents an AED300 million (US$82.2 million) investment by Majid Al Futtaim, and plans are in the pipeline to automate the sourcing and delivery process for Carrefour in the next 2-3 years.  The storage facility will also help ensure freshness and keep prices competitive for the increasingly price-sensitive consumer base.

Another reason it is the leader in the channel is the success of the Carrefour private label. The company offers private label products in consumer appliances as well as homewares, which are quite popular among price-sensitive consumers in the UAE.  Prominent product segments are baked goods, shelf stable food, dairy and meat products, as well as bottled water and facial tissues.

According to Euromonitor, among UAE residents, there is an ever-increasing value placed on retailers who provide convenience and certainly convenience stores capitalize on this.  Given this, grab-and-go products from convenience stores, despite having a higher mark-up than in say, hypermarkets, are particularly popular.  Convenience stores in the UAE have increasingly expanded their range of daily essentials and tend to be located near residential buildings with a wide variety of ready-to-eat meals with fresher and healthier ingredients.

Ready-to-eat meals with a focus on fresher ingredients are helping to fuel the prospects of this segment.  Unique foods, especially of the Southeast Asian variety, such as ready-to-eat chicken tikka and butter chicken biryani, continue to attract UAE consumers.

With 7-Eleven engaging in constant store rationalization, other non-food-related plans to fight retail headwinds include rolling out of more self-checkout systems and retrofitting stores to include seating areas.  7-Eleven also partnered with soCash in 2018 to offer consumers the choice of “cardless” cash withdrawal via the soCash app as part of its efforts to enhance consumer convenience through digital means.  These initiatives are projected to ensure 7-Eleven’s dominance in the years to come, despite similar initiatives from rival Cheers.

When self-checkout was first introduced in the UAE, it usually required human assistance to get customers familiar with it.  But now after a couple of years, the self-checkout system has found its footing and convenience store consumers appreciate how quick and time saving it is.  This creates a better shopping experience and reduces the barriers for time-strapped young consumers.  Long queues are very off-putting in a convenience store, and as the segment becomes more popular, self-checkout will help grow the segment.

There are a greater number of players in this segment as brand-name supermarkets such as Spinneys and Carrefour expand their smaller format stores.  Some of these supermarkets are called “Mini Marts”.

Adnoc Distribution, one of the largest players in the UAE in the fuel and convenience store space, outperformed its competitors and stated that this was due to significant increase in volume and improvements in cost efficiencies in Abu Dhabi and the Northern Emirates.  Furthermore, newly-opened outlets in Dubai helped fuel growth.  Adnoc Distribution’s C-suite personnel are entirely made up of Emiratis, a rarity for the private sector.

After years of aggressive expansion, Zoom consolidated its position as the leader in value share terms in 2019.  Zoom’s expansion of food and beverage service through Pronto cafés in its outlets also attracted consumers who were interested in healthy and organic alternatives.  Zoom also acquired master franchise rights for Starbucks hot and cold beverages and introduced these in its outlets which have been popular among younger consumers.  Another source of its success is that it has consolidated the most fertile segments in the market but positioning its convenience stores in busy urban areas and within office buildings.  It has won the award UAE Superbrand for five consecutive years.  It also dominates the transit system in the UAE, with hundreds of stores across service stations and across the Dubai Metro.

Best Product Prospects:

U.S. consumer food products with good potential into the UAE and rest of the GCC-5 region include:

  • Condiments and Sauces
  • Halal Poultry Meat and Beef (Chilled And Frozen)
  • Breakfast Cereals
  • Confectionary Products
  • Snack Foods
  • Frozen Vegetables
  • Fresh Apples and Pears
  • Edible Oils
  • Cheese
  • Fruit and Vegetable Juices
  • Pet Foods

Food Service Sector:

Due to rising concerns regarding health and wellness among consumers in the UAE and the greater impact of consumption patterns shaped around calorie counting and the intake of vital nutrients, the industry has begun to see the development of functional food items with more foodservice operators introducing gluten-free options under regular menu items.  This has also led to foodservice operators offering premiumization in their menus by using ingredients such as organic grass-fed meat, organic vegetables, olive oil, avocado, etc. and labelling the calorie intake for menu items.

Rapidly developing tourism and diversity in the population makes the UAE a very attractive market for expansion for both big and small international players from all around the world, given that a number of enterprises specializing in the Middle East are ready to provide franchise support and investment to new brands and malls looking to increase their presence through a greater number of foodservice outlets.

As the country prepares for Expo 2020, with it continuing to attract a global tourist audience through the development of real estate, leisure and entertainment experiences it is expected that this will help support a positive turnaround within the consumer foodservice industry.  The opening up of various projects in the capital city of Abu Dhabi has also gained global attention, which will likely drive investment in new concepts, thereby raising the profile of the UAE as a provider of unique culinary experiences and thus being able to attract global audiences.

Food-Processing Sector:

At last report 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 U.S. 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 U.S. 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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