Saudi Arabia Country Profile

Market Overview:

Euromonitor reports that the Saudi economy will grow modestly in 2019. Consumer spending will see moderate gains. The Saudi economy is limited by the production cap agreement amongst members and some non-members of the Organization of Oil Producing Countries (OPEC+) countries; however this is causing oil prices to rise. Riyadh has introduced a US$19 billion stimulus package to support the private sector and the results should be apparent in 2019.  Growth of real Gross Domestic Product (GDP) will rise to about 2.5% per year by 2025.

  • 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 2.4% in 2019 after growth of 2.1% in 2018.
  • The real value of private final consumption rose by 2.3% in 2018 and gains of 2.5% are forecast for 2019. The decision to hike electricity and petrol prices along with the introduction of a 5% VAT, curbs consumer spending. The government’s new cash-transfer program will help offset these moves.
  • Unemployment was 5.7% in 2018 and it will dip to 5.6% in 2019. The national transformation plan has a target of creating 450,000 private sector jobs by 2020 but this could still fall short of needs as up to 1.8 million Saudi nationals are expected to enter the labor force over the next 5 years. Currently, expatriates account for about 90% of private sector jobs.
  • Growth should pick up over the next few years as oil production increases and the negative effects of structural reforms dissipate. 

Today, Saudi Arabia is dealing with a series of economic challenges. They include high levels of unemployment, a large fiscal deficit and a fast-growing population. 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.

Saudi Arabia’s population is growing at a brisk pace. The total number of inhabitants was 33.6 million in 2018 – an increase of 12.8 million since 2000. By 2030, the country will be home to 39.5 million – more than four times the total for 1980.  

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 is still strong. 

Advantages and Challenges in the Saudi Food Market:

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 10 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 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.

U.S. Exports of consumer ready products to Saudi Arabia declined 2% to US$531.3 million in 2018.  The Kingdom is an active importer of U.S. processed foods as well, the top market in the GCC6 bringing in some US$424 million in 2018, a decline of 10% from the same period in 2017. Top U.S. processed food exported to Saudi Arabia in 2018 included:

  • Processed/Prepared Dairy Products
  • Fats and Oils
  • Condiments and Sauces
  • Processed Vegetables and Pulses
  • Food Preparations
  • Snack Foods
  • Chocolate and Confectionery
  • Non-Alcoholic Beverages.

Retail Sector:

Euromonitor has estimated 2018 retail sales in the Saudi packaged food market to be US$20.5 billion.  That represents an increase of 21.9% and nearly US$3.7 billion from 2014. They also forecast sales of packaged food in the Saudi market to reach nearly US$26.9 billion by 2023, an increase of nearly US5.3 billion and 24.7%. High growth products in the forecast include: 

  • Processed meat and seafood
  • Baked goods
  • Baby food
  • Ice cream and frozen desserts
  • Processed fruit and vegetables
  • Ready meals
  • Confectionery
  • Rice, pasta and noodles

Euromonitor reports that given the economic slowdown in the country, 5% Value Added Tax (VAT) implementation and increase in dependent fees impacting expatriates resulting in some leaving the country, in addition to the general rise in the cost of living, meant that most consumers tried to avoid unnecessary trips to larger grocery retailers and preferred shopping from nearby supermarkets. These stores offer carefully selected products across a range of categories and can be easily navigated due to the channel’s smaller format.  Supermarkets also offer time saving for customers by avoiding long queues at hypermarkets.  Despite declining sales for many players compared to 2017, supermarkets such as Al Othaim and Al Raya continued with their expansion strategies to increase their reach and presence across the country.

As consumers become increasingly health conscious, demand for healthy, organic and gluten-free products has also led to demand for unique and premium products among certain consumer groups in Saudi Arabia, while private label also continued to grow. Many customers decide where to shop for groceries based on the selection of organic and healthy products available at the store. This opens a window of opportunity for supermarkets to target these niche consumer segments.  Many e-commerce sites such as L’Organic and Mermiz have ventured into niche online grocery retailing.  

Although grocery orders placed online still form a marginal share of overall groceries and a larger consumer group visits physical stores, supermarkets holds strong potential to target niche segments, which may also result in the establishment of dedicated organic/fresh produce stores or premium stores featuring imported goods catering to demands of high-rise living in local neighborhoods.

Al Othaim (Abdullah Al-Othaim Markets) continued to be the leading supermarket in 2018, with a widespread network of 153 stores in 2018, an increase of 18 stores from 2017.  Its strongest presence is in the capital city of Riyadh. Al Othaim supermarket remained popular among the masses due to its reasonable pricing and its “Iktisaab” loyalty program, which holds a strong customer base in the country.  Al Othaim offers special promotions each Monday.  Its leadership was also strengthened as Savola Group’s Panda Supermarket closed eight outlets during 2018, in response to stale macroeconomic conditions, leading Savola Group to reconsider its retail strategy and retail footprint.

With demand for niche products developing, new players opening supermarkets aimed to sell organic and healthy foods. Natureland, Qaf Store, Nutrition Corner, Organica, Abazeer and Watania Agri are some of the major supermarkets targeting niche segments. Customers often search for health and nutrition bars, chia seeds, and organic apple cider vinegar in these stores. Most of the items sold are imported but growing demand has led to the development of private label by several local players such as Abazeer and Watania Agri. 

While fruit and vegetables are the dominant choices for organic food, there is high demand for packaged organic food items such as pasta, seeds and cereal.  These supermarkets have been able to perform well as they attract a growing consumer segment. Natureland is an organic product store that not only carries organic food but also organic cleaning supplies.  Its main customer segment comprises upper-middle and high-income groups and also features Western expatriates living in Saudi Arabia who are used to such supplies in their home countries.

Riyadh, Jeddah, Mecca and Dammam are the key cities in Saudi Arabia with an approximate total population of 15 million, which almost half of the country’s total urban population.  With young demographics, hot summers and a general lack of entertainment activities in the country, modern grocery retailers and shopping center development has rapidly grown.  This has also been supported by changing consumer needs and a shift in shopping habits, which is also visible in greater demand for convenience and quality experience for food purchases, thus supporting outlet growth of hypermarkets, with many new entrants emerging.

Lulu Hypermarket opened its 13th store in Riyadh, with plans to open an additional 15 hypermarkets in Saudi Arabia by 2020. Lulu Hypermarket and Saudi Arabia's National Guard Forces (SANG) signed a deal to launch two shopping centers and seven supermarkets in Dammam. Most hypermarket operators understand the changing scenario of the economy and have major expansion plans.

Best Product Prospects: 

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
  • Processed Fruit and Vegetables

Food Service Sector:

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 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.  

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.

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.

Best Product Prospects: 

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:

The Saudi food processing sector has been rapidly growing due to government support of food processers, rising per capita income, and major demographic and socio-economic changes. These factors have supported an increase in the number of Saudi food processing companies, from 691 firms in 2005 to 938 firms in 2016. Investment in this sector increased by approximately 11% per year from 2007 to 2016, and reached $23 billion in 2016. 

Attractive investment conditions have lured some multinational corporations to establish production facilities in Saudi Arabia. Most Saudi food manufacturers depend on imports to secure their needs of food ingredients and raw materials. In 2016, Saudi Arabia imported about US$2.3 billion worth of food ingredients for further processing.  U.S. suppliers provided about 6% of these food processing products. Saudi Arabia exports a significant part of its processed food production, estimated at US$1.2 billion in 2016, sharp decrease compared to approximately US$3 billion exported in 2015.                        

Best Product Prospects: 

The following is a listing of food products and ingredients that have high export potential in the Saudi food processing market: poultry meat, beef, skimmed milk powder, full cream milk powder, cheese, butter, milk protein concentrate, anhydrous milk fat (amf) and butter oil, whey powder, whey permeate powder, margarine, vegetable oil, vegetable fat, grape leaves, spices, fruit pie fillings, seasonings, shortenings, sauces, chocolates, cooking oil, vegetables, dehydrated chicken powder, 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.

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