BMI Saudi Arabia Food and Drink Report Q3 2016

Q3 2016
www.bmiresearch.com
SAUDI ARABIA
FOOD & DRINK REPORT
INCLUDES 5-YEAR FORECASTS TO 2020
Published by:BMI Research

Saudi Arabia Food & Drink Report Q3 2016
INCLUDES 5-YEAR FORECASTS TO 2020
Part of BMI’s Industry Report & Forecasts Series
Published by: BMI Research
Copy deadline: May 2016
ISSN: 1749-2920
BMI Research © 2016 Business Monitor International Ltd

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CONTENTS
BMI Industry View ............................................................................................................... 7
SWOT .................................................................................................................................... 8
Food & Drink ........................................................................................................................................... 8
Industry Forecast .............................................................................................................. 10

Consumer Outlook ................................................................................................................................... 10
Latest Updates ....................................................................................................................................... 10
Structural Trends ................................................................................................................................... 10
Food ..................................................................................................................................................... 11
Latest Updates ....................................................................................................................................... 11
Table: Food Sales (Saudi Arabia 2013-2020) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 14
Drink .................................................................................................................................................... 16
Latest Updates ....................................................................................................................................... 16
Table: Non-Alcoholic Drinks Sales (Saudi Arabia 2013-2020) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 19
Mass Grocery Retail ................................................................................................................................ 20
Latest Updates ....................................................................................................................................... 20
Industry Risk Reward Index ............................................................................................. 22

Middle East And North Africa - Risk/Reward Index ........................................................................................ 22
Table: Middle East & North Africa - Food & Drink Risk/Reward Index, Q316 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 25
Saudi Arabia Risk/Reward Index ................................................................................................................ 28
Market Overview ............................................................................................................... 30

Food ..................................................................................................................................................... 30
Market Drivers & Trends ......................................................................................................................... 30
Drink .................................................................................................................................................... 33
Mass Grocery Retail ................................................................................................................................ 35
Competitive Landscape .................................................................................................... 36

Table: Key Players In Saudi Arabia's Food & Drink Sector . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 36
Table: Key Players In Saudi Arabia's Mass Grocery Retail Sector . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 37
Company Profile ................................................................................................................ 38

Al Azizia Panda (Savola Group) ................................................................................................................. 38
Almarai ................................................................................................................................................. 41
Al Rabie Saudi Foods ............................................................................................................................... 44
© Business Monitor International Ltd Page 4

Aujan .................................................................................................................................................... 46
Carrefour ............................................................................................................................................... 49
Danone .................................................................................................................................................. 51
LuLu (EMKE Group) ............................................................................................................................... 53
Saudia Dairy & Foodstuff Company (SADAFCO) .......................................................................................... 55
Demographic Forecast ..................................................................................................... 57

Demographic Outlook .............................................................................................................................. 57
Table: Population Headline Indicators (Saudi Arabia 1990-2025) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 58
Table: Key Population Ratios (Saudi Arabia 1990-2025) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 58
Table: Urban/Rural Population & Life Expectancy (Saudi Arabia 1990-2025) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 59
Table: Population By Age Group (Saudi Arabia 1990-2025) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 59
Table: Population By Age Group % (Saudi Arabia 1990-2025) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 60
Glossary ............................................................................................................................. 62
Food & Drink ........................................................................................................................................ 62
Mass Grocery Retail ............................................................................................................................... 62
Methodology ...................................................................................................................... 64
Industry Forecast Methodology ................................................................................................................ 64
Sector-Specific Methodology .................................................................................................................... 65
Sources ................................................................................................................................................ 65
Risk/Reward Index Methodology ............................................................................................................... 66
Table: Food & Drink Risk/Reward Index Indicators . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 67
Table: Weighting . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 68

BMI Industry View
BMI View: Saudi Arabia will remain a highly favourable market across the region given its strong
consumer outlook with the rise in household spending. Growing investment in the country's food and drink
industry will boost sales growth despite slower economic growth over 2016, as the openness to foreign
investors in the private sector supports higher local employment.
Food and Drink Spending
(2013-2020)
300,000
200,000
100,000
0
2013 2014 2015 2016f 2017f 2018f 2019f 2020f
Food, sales, SARmn Non-alcoholic drinks, sales, SARmn
BMI/National Statistics
Key Views & Developments
■ Saudi Arabia's favourable demographics will boost food sales, as the country benefits from a large
consumer base and high per capita food consumption.
■ There are plans to implement a tax on energy drinks and soft drinks to combat high consumption of
unhealthy foods.
■ We believe that formal retailing will take more market share from independents, which will give long-
term growth opportunities in the Saudi Arabian market.

SWOT
Food & Drink
Food & Drink SWOT Analysis
Strengths ■
Saudi Arabia is by far the largest and most promising market in the Gulf region, with a
youthful population of 31mn.
■
Saudi Arabia is a good regional point of entry for investors seeking long-term volume
growth.
■
Like the rest of its Gulf peers, Saudi Arabia is home to a significant expatriate
population, providing a market for high-value packaged and processed foods.
■
Per capita soft drink consumption is high, led by the carbonates, bottled water and
juice segments.
■
High disposable incomes among a proportion of the population have created an
aspirational consumer base interested in premium products.
Weaknesses ■
Saudi Arabia has no formal alcoholic drinks industry.
■
The high-value dairy industry is very saturated, with little room for new dairy
manufacturers to enter.
■
The severe constraints on women's public participation inhibit their ability as a
demographic to maximise consumer spending power.
■
The private sector's dependence on expatriate labour, as well as the government's
'Saudisation' efforts, are a burden for potential investors.
■
Food manufacturers are highly dependent on imports for ingredients owing to the
country's severe agricultural shortcomings.
Opportunities ■
Demand for processed and packaged goods among Saudi consumers is set to
continue increasing as tastes and preferences evolve and lifestyles become busier.

Food & Drink SWOT Analysis - Continued
■
Long-term opportunities for premiumisation remain across all segments of the food
industry.
■
Rising health consciousness has significantly increased opportunities for food
producers that are able to introduce 'healthy' or 'light' options.
■
In line with growing health-consciousness, demand for organic foods is steadily
increasing.
■
Saudi MGR sector is expected to demonstrate the strongest growth in the region over
the next five years, with discount and convenience segments outperforming.
Threats ■
Poverty levels remain quite high despite the country's oil wealth and generous
government handouts.
■
Any cutback in government spending will prove difficult to implement in a country that
faces contained but persistent domestic unrest.
■
Popular boycotts, particularly of Western brands, can be very damaging, as a
country's politics can severely influence consumption in the Middle East.
■
Persisting low oil prices could negatively affect government spending thus
undermining business and consumer confidence.

Industry Forecast
Consumer Outlook
BMI View: Economic growth in Saudi Arabia is set to experience a notable slowdown in 2016 as the
government embarks on fiscal consolidation and as oil production flattens. That said, we maintain our
largely positive outlook for the country's consumer story over the longer term, as retail sales will also be
supported by more structural factors, including rising disposable incomes, favourable demographics and
increasing levels of urbanisation, as well as the increasing participation of Saudi nationals in the private
sector as a result of the government's 'Saudisation' programme.
Latest Updates
■ Economic activity in Saudi Arabia has passed its peak, and we expect growth to slow sharply over the
next two years. Fiscal consolidation will weigh on consumption and investment.
■ The revision of the base year of Saudi Arabia's GDP calculation has led to sizeable downward revisions
to our forecasts: we now project real economic growth of just 1.5% in 2016 and 1.9% in 2017 (compared
with 3.2% and 2.7% previously).
■ According to our estimates, 2015 private consumption growth has decelerated to 4.4% (from 6.1% in
2014) and we forecast a further slowdown in growth to 3.2% in 2016.
Structural Trends
Economic activity in Saudi Arabia has passed its peak, with the forces bolstering the expansion of the non-
oil economy set to gradually tail off over the coming quarters. Both fiscal and monetary conditions are
beginning to tighten as we head into 2016, a shift that will intensify over the coming quarters. Although
official clarity on the government's spending plans will not come until the release of the 2016 budget, we
expect the authorities to begin slashing capital spending, notably by reining back investment in longer-term
or more secondary projects.
The public sector wage bill is likely to be capped, although most of the country's large-scale welfare and
subsidy network will remain intact. King Salman has already strengthened his control on the country's
administrative apparatus and taken steps to tighten scrutiny on public infrastructure projects, ordering
government bodies to return unspent money to the finance ministry and suspend new hiring and promotions
for government jobs until the end of 2015.
We project public spending to fall by 10.9% in real terms over 2016, recording the largest decline since
1998. While this partly reflects a return to the mean after the end of one-off factors such as the bonus wage

payments, we also anticipate a large cut in capital expenditure (CAPEX). Lower government spending,
diminishing government deposits in the banking system and tighter liquidity, and weaker consumer and
business sentiment are bound to impact on private sector activity in the form of reduced contract awards,
softer retail sales and downside risks to corporate profits.
Indeed, leading indicators of economic activity generally point in a negative direction. The purchasing
managers' index (PMI) generated a reading of 56.5 in September, only marginally above the record low of
56.1 reached in June - with output growth and growth in new orders in the non-oil private sector both
decreasing. Private sector lending growth continues to decelerate, reaching its lowest level since 2011 in
August, while retail sales are on a downward trend. Even in the oil sector, Saudi Arabia's crude production
has reached a plateau. Output stayed flat at 10.3mn barrels per day in September, reflecting the end of the
peak fuel consumption summer season (although this is still 8.1% above last year's level).
That said, we believe that retail sales will continue to benefit from more structural factors, including rising
disposable incomes, favourable demographics and increasing levels of urbanisation, and the increasing
participation of Saudi nationals in the private sector as a result of the government's 'Saudisation'
programme. Incremental social changes are also slowly letting women take a greater role in the workplace
(particularly in some segments of the retail sector), boosting households' purchasing power.
Food
BMI View: Saudi Arabia's food industry will benefit from a healthy consumer base as the country's opens
up its private sector to more foreign investors, which will boost consumer spending amid the global oil
crisis. Saudi Arabia will remain one of the most attractive markets in the region given its population size as
well as a wealthy consumer base.
Latest Updates
■ Saudi Arabia's favourable demographics will boost food sales, as the country benefits from a large
consumer base and high per capita food consumption.
■ Food sales (local currency) growth in 2016: 7.9%; compound annual growth rate, 2015 to 2020: 8.1%.
■ We expect meat consumption will remain high in Saudi Arabia after the government lifted a 15-year ban
on French beef in October 2015.

Food Sales
(2013-2020)
250,000 9
200,000
8
150,000
100,000
6
50,000
0 5
2013 2014 2015 2016f 2017f 2018f 2019f 2020f
Food, sales, SARmn Food, sales, SARmn, % growth y-o-y
Structural Trends
Saudi Arabia's food industry will continue to experience strong growth over our forecast period to 2020,
despite the current economic slowdown. Economic growth in Saudi Arabia will slow over 2016 and 2017
due to pressure stemming from lower global oil prices. As a result, we project real GDP growth of just 1.5%
in 2016 down from 3.4% in 2015. Saudi Arabia is among the world's biggest oil exporters, and we therefore
forecast economic growth to slow in the short term. However, the country's non-oil sectors will support
growth as the construction industry drives foreign investment inflows.
With government increasingly opening up to foreign investment, the country's private sector now accounts
for 48% of GDP, which will impact positively on household incomes as the employment of Saudi nationals
increases. Though we forecast private consumption and household spending will decrease over 2016 and
2017, our food sales forecasts for Saudi Arabia will grow by 8.1% to 2020, owing to favourable
demographics and increasing urbanisation. The country's large consumer base gives great growth
opportunities for investors in the food industry, as the Saudi market benefits from high per capita food
consumption.

The country's food processing sector is continuing to attract strong investment, particularly in the key
segments (for example dairy), which are contributing to the growth in local food consumption as consumers
increasingly prefer higher-value, processed food products. The ongoing development of organised retail
channels also contributes to food consumption growth. The expansion of organised retailing will continue to
strengthen internal trade systems, which are expected to contribute to lower overheads and cost savings that
can be passed on to consumers.
Like all Gulf Cooperation Council (GCC) countries, Saudi Arabia is highly reliant on food imports, with
about 80% of its food demand imported. Meat consumption in the country remains high, and we forecast
meat and poultry sales will experience positive growth over our forecast period to 2020, reaching an 8.6%
CAGR. This is largely supported by the country's well-developed poultry segment, which stems from the
government's effort to reduce dependence on suppliers. Furthermore, the country has opened up to more
export markets by lifting a 15-year ban on French beef in October 2015. The rise in imports will support the
country's growing consumer base as well as strong food consumption as household spending is sustained
over our forecast period.
Saudi Arabia's population is expected to reach nearly 33.8mn by 2019, (up from 30.9mn in 2014) making it
the only market in the Gulf region that can realistically provide investors with long-term volume growth
potential. Despite moves to increase indirect taxes such a VAT in the GCC, in an attempt to offset the sharp
decline in oil revenues, premiumisation will remain an important growth factor in Saudi Arabia. Saudi
Arabia's expatriate population is expected to be one of the key drivers for premiumisation. The upside of
this is that Saudi Arabia is also much less reliant on attracting expatriates to maintain the size of the
consumer base than markets, such as the UAE.
We expect strong growth in the domestic food industry to spill over into the wider region, with strong local
companies Almarai and Savola looking to expand operations. With the country's growing infrastructure
investment, we expect improved transport and logistics networks to support regional trade. The government
is increasingly encouraging private investment in the region in order to enhance its economic ties with key
allies (see 'Saudi Companies Well Positioned For Regional Expansion' May 29 2015).

Table: Food Sales (Saudi Arabia 2013-2020)
2013 2014 2015 2016f 2017f 2018f 2019f 2020f
Food, sales, SARmn 122,894.9 133,243.5 144,229.4 155,695.1 168,848.2 182,278.6 196,781.5 212,442.9
Food, sales, SARmn, 5.4 8.4 8.2 7.9 8.4 8.0 8.0 8.0
% growth y-o-y
Bread, rice and 16,485.6 18,442.5 19,786.9 21,603.3 23,721.1 25,919.2 28,331.1 30,977.8
cereals, sales, SARmn
Bread, rice and
cereals, sales, 6.9 11.9 7.3 9.2 9.8 9.3 9.3 9.3
SARmn, % growth y-
o-y
Pasta products, sales, 3,270.1 3,050.2 3,526.0 3,633.6 3,732.8 3,808.9 3,863.8 3,893.3
SARmn
Pasta products, sales,
SARmn, % growth y- 4.8 -6.7 15.6 3.1 2.7 2.0 1.4 0.8
o-y
Baked goods, sales, 1,660.2 1,751.8 1,852.2 1,946.3 2,046.6 2,141.4 2,235.3 2,327.4
SARmn
Baked goods, sales,
SARmn, % growth y- 4.6 5.5 5.7 5.1 5.2 4.6 4.4 4.1
o-y
Meat and Poultry, 37,482.3 41,436.6 44,418.2 48,186.9 52,543.5 57,026.7 61,905.2 67,214.7
sales, SARmn
Meat and Poultry,
sales, SARmn, % 5.6 10.5 7.2 8.5 9.0 8.5 8.6 8.6
growth y-o-y
Fish and fish
products, sales, 8,247.8 8,436.4 9,777.5 10,609.1 11,570.5 12,560.2 13,637.5 14,810.2
SARmn
Fish and fish
products, sales, 6.6 2.3 15.9 8.5 9.1 8.6 8.6 8.6
SARmn, % growth y-
o-y
Dairy, sales, SARmn 15,000.2 15,415.8 17,448.2 18,748.8 20,228.7 21,727.2 23,331.7 25,049.4
Dairy, sales, SARmn, 5.9 2.8 13.2 7.5 7.9 7.4 7.4 7.4
% growth y-o-y
Oils and Fats, sales, 4,738.4 5,879.2 5,881.5 6,526.6 7,291.5 8,098.5 8,997.8 9,999.8
SARmn
Oils and Fats, sales,
SARmn, % growth y- 3.0 24.1 0.0 11.0 11.7 11.1 11.1 11.1
o-y
Fresh and preserved 14,467.4 15,902.1 17,084.0 18,500.4 20,133.3 21,809.2 23,628.1 25,602.4
fruit, sales, SARmn
Fresh and preserved
fruit, sales, SARmn, % 4.8 9.9 7.4 8.3 8.8 8.3 8.3 8.4
growth y-o-y
Fresh vegetables, 11,042.7 11,883.6 12,669.5 13,516.0 14,464.6 15,409.6 16,404.8 17,451.7
sales, SARmn

Food Sales (Saudi Arabia 2013-2020) - Continued
2013 2014 2015 2016f 2017f 2018f 2019f 2020f
Fresh vegetables,
sales, SARmn, % 4.5 7.6 6.6 6.7 7.0 6.5 6.5 6.4
growth y-o-y
Sugar and sugar
products, sales, 5,626.0 5,808.7 6,146.7 6,382.8 6,618.2 6,821.7 7,001.6 7,152.2
SARmn
Sugar and sugar
products, sales, 3.9 3.2 5.8 3.8 3.7 3.1 2.6 2.2
SARmn, % growth y-
o-y
Other food products, 4,874.2 5,236.7 5,638.5 6,041.5 6,497.3 6,956.2 7,444.5 7,964.1
sales, SARmn
Other food products,
sales, SARmn, % 5.2 7.4 7.7 7.1 7.5 7.1 7.0 7.0
growth y-o-y

Drink
BMI View: The consumption of alcohol in Saudi Arabia is fully prohibited, thus the growth in non-
alcoholic drinks is considerably high. Rising health consciousness will further boost the consumption of
healthier products such as fruit and vegetable juices, particularly following the proposal of a high tax on
carbonated soft drinks.
Latest Updates
■ Non-alcoholic drinks sales (local currency) growth in 2016: 8.1%; CAGR, 2015 to 2020: 8.2%.
■ US-based company Del Monte will look to expand its operations in Saudi Arabia through the acquisition
of farms, which will boost the growth of fruit and vegetable juice sales.
■ The GCC plans to implement a tax on energy drinks and soft drinks in its aim to combat high
consumption of unhealthy foods.
Structural Trends
Alcoholic Drinks
Saudi Arabia has some of the Gulf region's most severe alcoholic drinks restrictions. Saudi law does not
tolerate the consumption or distribution of alcoholic drinks to any extent, meaning that alcoholic drinks are
not sold in hotels or restaurants. However, there is a demand and illegal channels do exist, and there are also
opportunities for producers of non-alcoholic beers and malt-based beverages.

Non-Alcoholic Drinks Sales

(2013-2020)
20,000 9
15,000 8
10,000 7
5,000 6
0 5
2013 2014 2015 2016f 2017f 2018f 2019f 2020f
Non-alcoholic drinks, sales, SARmn
Non-alcoholic drinks, sales, SARmn, % growth y-o-y
Non-Alcoholic Drinks
The soft drinks sub-sector is by far the most important and dynamic in Saudi Arabia's drinks industry. The
country's hot and arid climate and the ban on the sales of alcoholic drinks have given the sub-sector a major
boost. Saudi Arabia's soft drinks industry is easily the region's largest in volume and value terms, which
comes as no surprise given the size of the population. Also, the soft drinks market could be considered as
mature, with per capita consumption levels comparable to those in Western Europe or the US. Local
consumers tend to be both brand loyal and aspirational, and are increasingly interested in new and
innovative products.
Due to rising health awareness, the demand for healthier food options will rise across the GCC region, with
the plan to introduce a 100% tax on energy drinks and 50% on soft drinks. The introduction of tax on
unhealthy foods will result in a switch in consumer preferences, with healthier products such as fruit and
vegetable juice driving Saudi Arabia's non-alcoholic drinks sales. We forecast strong growth over our five-
year forecast period for fruit and vegetable juice sales growing by 11.8% to 2020.

We expect rising disposable income, sustained private consumption as well as a high expatriate population
in the country will boost growth of healthier foods as international companies increase investment in Saudi
Arabia. In January 2016, US-based Company Del Monte, announced its plans to expand its operations
across the region by acquiring farms in Saudi Arabia and Jordan. With its increasing investment in fruit and
vegetable farms, the company is able to meet and benefit from rising demand for healthy foods across the
region. In 2015, Del Monte launched a range of healthy foods, such as fruit smoothies and juices for the
retail market in Saudi Arabia. Fruit juice sales are also increasingly driven by the fast food sector, which has
now switched to serving its meals with juice rather than carbonated soft drinks.
Carbonates remain an important segment in Saudi Arabia, accounting for around one quarter of the overall
soft drinks value sales in 2014. However, the category has been the slowest grower in volume terms in
particular over the past few years, which is hardly surprising given its relative maturity. Nevertheless,
opportunities remain present, particularly in the low-calorie segment thanks in large part to rising health-
consciousness and very high rates of obesity and diabetes in the country. We expect the established brands
to continue growing, albeit modestly.
Just like in the wider Gulf region, bottled water sales really took off over the past decade, driven by rising
incomes. In per capita terms, bottled water consumption increased from about 93 litres in 2004 to more than
118 litres by 2014. In value terms, bottled water is the most popular segment in the soft drinks category,
accounting for nearly 30% of the total sales in 2014. Concerns over the safety of tap water and Saudi
Arabia's harsh climate provide a great environment for the bottled water industry. Also, a big trend over the
period was the performance of bulk water; this includes home filtration systems.
We believe the bottled water segment will continue growing rapidly, largely led by investments into product
strengthening by leading players and an emphasis on the size of bottles. Emerging sub-segments such as
flavoured water also are likely to register strong growth from a low base, as consumers continue pursuing
new and innovative drinks.
Saudi Arabia's increasingly Westernised lifestyle, driven by a large youth population, will boost the hot
drinks industry, with coffee becoming increasingly popular. European-style cafes will grow with the rise in
Westernisation in the country, with El Farouki Coffee Centre is among the country's leading coffee
houses, and growing demand for instant coffee is also giving opportunities for international giant Nestle to
penetrate the market.

Table: Non-Alcoholic Drinks Sales (Saudi Arabia 2013-2020)
2013 2014 2015 2016f 2017f 2018f 2019f 2020f
Non-alcoholic drinks, sales, 10,878.3 11,809.8 12,798.7 13,830.8 15,014.8 16,223.8 17,529.2 18,939.0
SARmn
Non-alcoholic drinks, sales, 5.3 8.6 8.4 8.1 8.6 8.1 8.0 8.0
SARmn, % growth y-o-y
Coffee, teas and other hot drinks, 5,944.6 6,732.2 7,362.2 8,084.4 8,919.5 9,691.8 10,286.5 11,062.5
sales, SARmn
Coffee, teas and other hot drinks,
sales, SARmn, % growth y-o-y 8.5 13.2 9.4 9.8 10.3 8.7 6.1 7.5
Soft drinks, sales, SARmn 4,933.7 5,077.7 5,436.6 5,746.4 6,095.4 6,531.9 7,242.8 7,876.5
Soft drinks, sales, SARmn, %
growth y-o-y 1.6 2.9 7.1 5.7 6.1 7.2 10.9 8.7
Fruit and vegetable juices, sales,

SARmn 781.7 881.5 1,026.3 1,159.8 1,319.8 1,477.2 1,615.4 1,790.4
Fruit and vegetable juices, sales,

SARmn, % growth y-o-y 14.9 12.8 16.4 13.0 13.8 11.9 9.4 10.8
Mineral or spring waters, sales,

SARmn 2,584.5 2,577.4 2,733.2 2,847.4 2,985.7 2,981.9 3,337.6 3,606.4
Mineral or spring waters, sales,

SARmn, % growth y-o-y 0.6 -0.3 6.0 4.2 4.9 -0.1 11.9 8.1
Carbonated drinks, sales, SARmn 1,567.5 1,618.8 1,677.1 1,739.2 1,789.8 2,072.9 2,289.8 2,479.6
Carbonated drinks, sales,
SARmn, % growth y-o-y -2.3 3.3 3.6 3.7 2.9 15.8 10.5 8.3

Mass Grocery Retail
BMI View: Organised retail in Saudi Arabia will experience rapid expansion over our five-year forecast
period to 2020. This is owing to a favourable consumer base which will encourage investment as disposable
income increase and demand for formal food retail grows.
Latest Updates
■ We believe that formal retailing will take more market share from independents, which will give long-
term growth opportunities in the Saudi Arabian market.
■ We expect the country's rising need for convenience to drive growth in discount stores and convenience
stores.
■ We believe a strong presence from local regional retailers will drive growth in the market.
Structural Trends
The Saudi Arabian MGR sector is forecast to continue expanding strongly over our forecast period to 2020,
driven by high consumer confidence and new store openings. We believe that Saudi Arabia will offer the
greatest opportunities in the MGR sector within the region over the next five years as the country holds a
sizeable market for retailers (with roughly 55% of its 31mn population below 30). The development of the
local food and drink industry, with sectors such as processed food attracting considerable investment, will
also create significant opportunities for mass grocery retailers. While MGR sales accounted for roughly
50% of total grocery retail sales in 2009, we forecast this share to reach 70% by 2020, offering much
potential for expansion.
The hypermarket format will continue to dominate the sector, accounting for nearly half of total MGR sales.
Ongoing store launches will support the structural transition from informal to formal retailing in Saudi
Arabia's MGR sector.
Despite the prevalence of traditional hypermarket and supermarket formats, we believe that MGR
expansion will benefit less-developed formats such as discount retail, convenience stores and upmarket
retail, which will all grow from a lower base. As retailers seek to penetrate residential areas and demand for
proximity rises, reinforced by the fact that women in the country are not allowed to drive, convenience
stores will become increasingly popular. Another major driving factor will be continued investments in the
sector by leading industry players, and we expect domestic retailers to lead the formalisation process.
Underlining the strength of the leading Saudi players (especially in hypermarkets), the Gulf region's two
leading hypermarket retailers Carrefour MAF and EMKE-owned Lulu currently play second fiddle. We

believe that market-leader Panda, owned by Savola, is best placed to continue driving the formalisation
process. Having pursued strong non-organic investment over the past few years, it will most likely pursue a
strategy of organic growth in the coming years. Meanwhile, multi-segment retailer al-Othaim is also
strongly positioned with its convenience, hypermarket and convenience store formats. We expect all three
segments to grow considerably over the forecast period to 2020, shifting the retail segment away from
baqalas - local corner stores that remain prevalent across the kingdom.

Industry Risk Reward Index

Middle East And North Africa - Risk/Reward Index
BMI's Food & Drink Risk/Reward Index for the Middle East and North Africa (MENA) provides a
platform for investors to compare markets across a variety of indicators that assess the relative strengths and
weaknesses of individual countries. In doing so, our index provides a platform for benchmarking regionally
and, by being forward-looking in nature, we can gauge which markets we think are going to provide the
strongest opportunities.
We can also dig a little deeper and go sub-regional; for instance, we can compare frontier markets such as
Egypt against well-developed regional markets, particularly those in the Gulf region. A number of Gulf-
based and global multinationals are increasingly targeting growth across North Africa, where, despite all the
political upheaval that has taken place over the past five years, particularly following the Arab Spring, there
are some excellent long-term opportunities for consumer goods companies.
Briefly touching on the indicators we use to assess countries, the reward part of the index takes into account
market size, current consumption levels, future industry growth prospects (based on our five-year industry
forecasts), market fragmentation (with greater fragmentation indicating higher opportunities) and the size of
the youth population. Meanwhile, the risk part of the index takes into account the legislative environment,
the level of development of the organised retail sector (with higher development leading to lower risks), and
relevant aspects of the economic and political environment.
There have been some changes in our Food & Drink Risk/Reward Index since Q116. In the rewards section,
we have increased the weights of the 'per capita food consumption' and 'GDP per capita' indicators, at the
expense of 'food consumption growth', 'population size' and 'youth population'. This gives mature markets
an advantage over growth-focused economies. In addition, smaller markets are doing relatively better than
in the previous iteration, explaining various ranking changes. For the MENA region, we have introduced
three new markets: Iran, Lebanon and Syria.
Israel Out In Front
Israel remains in first place ahead of Qatar in our Q316 Food & Drink Risk/Reward Index for the MENA
region. Israel is, by some distance, the most mature market in the region. Therefore, the country scores
highly from a country rewards perspective, benefiting from its high level of GDP per capita. The country
also benefits from the highest risk score in the region, thanks to high food retail formalisation, a strong

regulatory framework and a favourable business environment. Israel is followed by Qatar and the UAE,
which have climbed up in our index thanks to strong risk scores and high levels of GDP per capita and food
consumption, as well as solid growth prospects despite their small populations. In fact, the six Gulf
Cooperation Council (GCC) markets place second to seventh.
Saudi Arabia and Egypt, which have at various points ranked in the top three, have dropped to 4th and
10th respectively. Despite sizeable and young consumer bases by regional standards, as well as robust
growth opportunities in the industry, the two markets are handicapped by lower GDP per capita levels and
weaker business environments compared to our top three economies. Nonetheless, we still believe that,
despite higher risk levels, especially in Egypt, these markets will offer some of the strongest growth
opportunities for multinational companies looking to enter markets with high long-term potential.
Lebanon, Iran and Syria, which were introduced to the index in Q216, rank 8th, 9th and 14th respectively.
We believe that Syria and Lebanon have little potential to climb up in our index over the coming quarters;
the military conflict is likely to continue in Syria, and we see little upside in Lebanon due to the country's
small size and weak business environment. On the other hand, we believe that Iran has the potential to
improve its score over the coming quarters. Benefiting from the largest population in the MENA region,
Iran scores highly by regional standards in the 'industry rewards' component. With the end of sanctions and
foreign investment returning in the country, we believe that the business environment will gradually
improve, while the retail sector will formalise.
Going sub-regional, Gulf markets, with the relative exception of Oman, share fairly high risk scores. This
reflects factors such as a sound business environment, positive short-term economic outlooks, despite lower
oil prices, and well-developed mass grocery retail industries. In addition, Gulf markets benefit from high
levels of food consumption per capita and the region is home to some major food and drink companies, such
as Almarai and Majid Al Futtaim. However, small and ageing populations will prevent Gulf markets from
climbing up in our index. Saudi Arabia is, from that perspective, the notable exception.
On the other hand, North African economies are characterised by low risk scores. While Egypt's consumer
potential remains unequalled, Algeria also offers a sizeable and young consumer base. Market
fragmentation also means that there are plenty of opportunities for food and drink companies to enter the
market. Nonetheless, a poor business environment will continue to deter foreign investment in the
country. Tunisia remains handicapped by a small consumer base, and its economic outlook has deteriorated
following the two high-profile terrorist attacks in March and June 2015. Morocco will experience only
limited growth in food consumption, and suffers from low levels of GDP per capita. Lastly, Libya remains

in the midst of political turmoil, and we do not expect the country to improve its score in our index in the
foreseeable future.
Israel To Remain Top MENA Player

Middle East & North Africa - Food & Drink Risk/Reward Index, Q316
Source: BMI

Table: Middle East & North Africa - Food & Drink Risk/Reward Index, Q316
Industry Country Industry Country Food & Drink

Reward Reward Reward Risk Risk Risk Score Rank
Israel 63.9 56.0 71.9 69.4 75.0 63.8 66.1 1
Qatar 59.6 56.0 63.2 60.7 57.5 63.9 60.0 2
UAE 50.9 42.0 59.8 67.7 70.0 65.4 57.6 3
Saudi Arabia 56.3 50.0 62.7 58.4 60.0 56.8 57.2 4
Bahrain 45.3 40.0 50.5 62.3 62.5 62.2 52.1 5
Kuwait 45.2 34.0 56.4 55.0 55.0 55.0 49.1 6
Oman 47.3 50.0 44.7 45.0 35.0 55.0 46.4 7
Lebanon 41.9 40.0 43.7 41.4 35.0 47.8 41.7 8
Iran 47.9 54.0 41.7 31.8 20.0 43.7 41.5 9
Egypt 43.0 38.0 48.0 35.5 25.0 46.1 40.0 10
Tunisia 37.3 46.0 28.6 39.7 31.0 48.4 38.3 11
Morocco 35.7 38.0 33.5 41.9 35.0 48.8 38.2 12
Libya 34.5 38.0 31.1 24.7 10.0 39.4 30.6 13
Syria 34.2 30.0 38.3 20.0 10.0 30.1 28.5 14
Each score is out of 100, with 100 the highest. The Food & Drink Risk/Reward Index is the principal index. It comprises
two sub-indices, 'reward' and 'risk', which have a 60% and 40% weighting respectively. In turn, the 'reward' index
comprises 'industry reward' and 'country reward', which have equal weighting and are based upon growth and size of a
country's food, alcoholic drinks and soft drinks market (industry) and the broader economic and socio-demographic
environment (country). The 'risk' index comprises 'industry risk' and 'country risk', which also have equal weightings and
are based on a subjective evaluation of the market's regulatory and competitive issues (industry) and its broader country
risk exposure (country), which is based on BMI's proprietary Country Risk Index. Source: BMI
The MENA region includes a wide range of disparate markets, and there is wide disparity in the first of our
reward indicators, food consumption per capita, with spending very high across most of the Middle East
but low across most of North Africa. Oil wealth means that consumers across the Middle East already spend
a significant amount on food purchases. However, this also means that the potential for growth is perhaps
lower than in other, lower spending countries.
For the second factor, market fragmentation, scores are generally fairly high across the region, indicating
low levels of concentration and relative ease for a new entrant to come in and quickly capture market share.
On this factor, Israel and Bahrain are viewed less favourably, with high levels of concentration in certain
sectors. Meanwhile, the North African countries along with Oman and Saudi Arabia are viewed more

favourably, with these markets less developed and with significant room for new players in a large number
of sectors.
For the third factor, per capita food consumption (five-year compound annual growth), the scores for
MENA are relatively muted in comparison with global averages. As mentioned above, in many Middle
Eastern markets (especially in the Gulf) spending is already high, leaving limited room for growth. In many
North African countries, spending is low, but relatively muted economic forecasts mean that spending is not
expected to increase at the rapid rates seen in some other emerging markets. The major standout country in
the region is Egypt, which is perhaps the most interesting economy in our index, and which has the prospect
of very strong growth as long as the current transition towards multiparty democracy proves to be
successful.
For the fourth factor, population size, Egypt is again the standout market, followed by Saudi Arabia,
Morocco and Tunisia. The reward scores of other markets in the region are hampered by the limited size of
the overall market afforded by their smaller relative populations.
The fifth factor, GDP per capita, is again quite variable across the region, with a close correlation to the
first factor, food consumption per capita.
The final factor in the reward part of the table is youth population. On this factor Egypt is yet again seen
most favourably, followed by Saudi Arabia, Libya and Israel. In contrast, the United Arab Emirates, Qatar
and Bahrain score relatively poorly.
The seven factors that make up the risk index are mass grocery retail (MGR) penetration, regulatory
environment, short-term economic growth, income distribution, legal environment, economic openness, and
availability of labour.
MGR penetration measures the extent to which food retailing is controlled by large, organised retailers.
High penetration is seen as positive from a risk perspective as it eases the distribution of goods and
simplifies the supply process. On a regional basis, MGR penetration is low, with only Israel currently
boasting a very well-developed MGR network. Many of the Gulf countries are on the way towards this. In
the Middle East there has been some level of development, with Saudi Arabia, the UAE, Qatar, Kuwait and
Bahrain all having attracted some investment into this sector. However, in North Africa the sector is still in
the very early stages of development, with only a handful of modern grocery outlets present in each country
- a factor that is an impediment to the development of an advanced food and beverage sector.

The second factor, regulatory environment, evaluates the complexity of areas such as labelling and
nutrition requirements. There is limited regional differentiation, with all markets in the region viewed
relatively favourably from this perspective. Israel is currently viewed as the easiest market to navigate from
this respect, while Libya is seen as the most challenging, although much of this can be attributed to
hangover from the Qadhafi regime and could quickly change over the coming months and years.
The third factor, short-term economic growth, assesses the economy's current economic health. Most Gulf
countries score well on this index thanks to a stable track record of growth, although their macroeconomic
outlooks have deteriorated in recent quarters due to the fall in oil prices. Across North Africa the picture is
more mixed, with significant risks inherent in the economies of Egypt, Libya and Tunisia, where the
economic policies of current and future administrations are harder to predict.
The fourth factor, income distribution, is measured by the proportion of private consumption accounted for
by the middle 60% of earners. Scores across MENA are fairly high, despite the inherent inequalities thrown
up in many of these economies, which are highly dependent on oil. Clearly the administrations in each of
these markets recognise that wealth must be distributed to prevent social unrest and have been fairly
successful in ensuring that the domestic population benefits from the country's natural oil wealth.
The fifth factor, legal environment, is a measure of the hurdles that any producer is likely to face in areas
such as starting and closing businesses, paying taxes, dealing with licences and registering property. Here
scores are generally average across the region, with Qatar and Bahrain viewed most favourably, and Egypt,
Libya and Morocco still having much to do to make the market an easy place for new entrants to set up shop
and for existing players to expand.
The sixth factor, economic openness, is a measure of an economy's level of business orientation, and
measures the level of foreign direct investment protectionism, tax rates and the level of government
intervention. Here, Israel, Kuwait and Bahrain are viewed most favourably, while the markets of North
Africa are again seen as having work to do in this area.
The final risk factor, availability of labour, measures the size of the labour force and its qualifications. A
large labour force equipped with basic skills is advantageous to businesses choosing to operate in a
country.

Saudi Arabia Risk/Reward Index
Saudi Arabia continues to perform strongly in our Q316 Food & Drink Risk/Reward Index for the Middle
East and North Africa region, holding its position in fourth from Q216. The country boasts a strong rewards
profile, with already high per capita consumption of food and drink and a lot of opportunities for future
growth. Saudi Arabia's risk score remains above average, but is constrained by the largely underdeveloped
nature of physical infrastructure.
Rewards
While Saudi Arabia already boasts fairly high per capita food consumption levels, its young and rapidly
increasing population indicates additional potential for market growth in the future. Combined with
considerable scores for the market fragmentation criteria, which shows low levels of concentration and
relative ease for a new entrant to come in and quickly capture market share, Saudi Arabia continues to offer
long-term potential to food and drink investors looking to capture dynamic consumer demand.
Risks
The country's risk profile is also favourable and is largely in line with the wider Gulf region. While its
business environment still does not match the likes of Israel or the UAE, the country receives high scores
for the short-term economic growth prospects and relatively equitable income distribution within the
country. Saudi Arabia's regulatory environment attracts mediocre scores, while its undeveloped physical
infrastructure demonstrates that investments in this area could further strengthen the country's leadership in
our regional index.

Saudi Arabia vs MENA

Risk/Reward Index Scores, Q316
Source: BMI

Market Overview
Food
Market Drivers & Trends
Recent Developments
■ The Saudi government is placing increasing importance on the country's agricultural sector.
■ Saudi Arabia's bustling dairy industry has been at the forefront of the food industry's expansion and
continues to grow rapidly.
■ Meat and halal products are now being imported from many countries, including Australia, New Zealand,
Ireland, Brazil, Canada and the US.
Food Processing
The Saudi Arabian food-processing sector has developed at a considerable pace over the past decade. The
government currently supports the industry by providing attractive financing and subsidies on selected
equipment, and through the imposition of high tariffs on imports that compete with locally produced
equivalents. These include meat and poultry, table eggs, infant nutritional foods, sugar and macaroni.
However, the government did reduce customs tariffs on a number of basic food products in response to high
rates of inflation.
Fuelled by the kingdom's economic boom, significant growth has taken place across a number of food
segments. The meat-processing, dairy and confectionery segments have attracted particular attention.
Increased investment by multinational food companies, the continued development of domestic
food processing capabilities and the continued expansion of Saudi Arabia's mass grocery retail industry are
contributing to the gradual shift towards more Western consumption habits.
Dairy Processing
Saudi Arabia's bustling dairy industry has been at the forefront of the food industry's expansion and
continues to grow rapidly. Higher incomes, the increasing use of white goods, growing consumer interest in
healthy eating and the continued emergence of major domestic manufacturers have seen the sector emerge
as a major economic contributor over the past decade.
Saudi Arabia's dairy industry is comfortably the Gulf region's most competitive and the country's main dairy
companies have invested heavily in vertically integrating their operations. The industry is led by the

increasingly ambitious Almarai, the region's largest dairy company by market value. Almarai's core
competitive advantage is the company's highly developed distribution network. More recently, the company
purchased 12,000 hectares of farmland in Argentina through farm operator Fondomonte in order to beef up
its supply chain. The largest food producer in the Persian Gulf, Almarai produced roughly 1bn litres of milk
in 2013.
In the past, the fresh food industry has suffered due to the inefficient transportation of produce from the
point of production, an issue that Almarai has been working to address through greater investments.
Through a joint venture with the soft drinks giant PepsiCo, Almarai has been expanding beyond the Gulf
region and into the wider Middle East through acquisitions. In addition to Almarai, other prominent players
in the dairy industry include al-Safi Danone and SADAFCO.
Furthermore, improved production practices have been matched by improvements in the standards of
imported cattle, helping transform Saudi Arabia from a dairy importer to a fast-growing dairy exporter.
While the export market remains an important source of revenue for the industry, domestic demand for
dairy remains the primary driver of industry growth. The characteristics of the industry enable it to appeal to
health-conscious Saudi consumers, while economic growth has had a positive impact on the ability of the
average consumer to purchase, and have the means of storing, dairy produce. Per capita annual dairy
consumption in Saudi Arabia currently stands at about 54kg - a rate far higher than is typical in most
emerging markets.
The bulk of dairy consumed in Saudi Arabia is consumed in primary forms, with 38% of demand accounted
for by liquid milk and 30% accounted for by laban (a regional variety of yoghurt). More profitable
secondary dairy products, such as cheese, remain emerging categories in Saudi Arabia; given the financial
protection currently afforded to the industry, this is not a problem. However, as government subsidies are
reduced, the price - rather than just the quantity - of goods sold will become of increasing importance to
manufacturers.
Agriculture
The Saudi government is placing increasing importance on the country's agricultural sector. However,
agriculture contributes very little to the local economy in comparison to the industry and service sectors.
The farming sector accounts for just 3.1% of total GDP and employs less than 10% of the total population,
with an estimated 1% of the country's land is suitable for farming. However, local processing capabilities

are fairly developed, and value-added production is made possible once raw materials have been imported
from abroad.
In socioeconomic terms, the agricultural sector is crucial to the Saudi economy, as it provides employment
for a significant segment of the population that has little formal education. The majority of agricultural
production in Saudi Arabia is in the north of the country, in areas such as Qasim, Hail and Wadi. The
leading crops include wheat, watermelon, dates and tomatoes.
Wheat production has collapsed since the government changed its support policy at the end of 2007 in a bid
to preserve water resources. The Saudi government will reduce state wheat purchases from local farmers by
12.5% on an annual basis until 2016 (by which time it expects to be totally import dependent). We see a
plummeting trend in line with the reduction of state support to the end of our outlook period to 2019.
Saudi Arabia is the Gulf region's largest exporter of dates (average yearly output is roughly 830,000
tonnes). Milk and butter are among the country's most notable dairy products, and it also can count on
relatively buoyant poultry production.
Nevertheless, like most other countries in the region, Saudi Arabia cannot meet its growing population's
food needs and is therefore reliant on imports. According to our research, Saudi Arabia currently imports an
average of USD19bn-worth of food, drink and tobacco products each year. With its growing population
now more than 28mn, this makes it by far the largest importer of such products in the Middle East region,
resulting in an enormous negative trade balance for the food and drink sector. With agriculture using 90%
of Saudi Arabia's already minimal water supply, critics are sceptical about the need for expansion when this
will only marginally increase the contribution to exports.
Over the review period, Saudi Arabia's agricultural production has remained fairly stable, thanks in part to
the subsidies that were in place. Moving forward, the sector looks likely to expand, and this will remain a
key government focus despite objections by critics. However, over the long term, significant advancements
are not expected, with geographic and climatic limitations too severe for the proposed level of government
investment to overcome.
Meanwhile, Saudi Arabia has actively sought to enter into long-term lease agreements with a number of
African countries for agricultural land. The country's agricultural minister has encouraged companies to
invest in farms in Africa as it looks to secure supplies of food imports to replace phased-out local
production. In 2011, Saudi Star Agricultural Development announced plans to invest USD2.5bn by 2020

in the development of a rice-farming project on 10,000 hectares of land in Ethiopia on lease for 60 years,
with plans to rent a further 290,000 hectares from the government.
Halal
The importance of the halal food industry is continuing to grow in the Middle East, with Saudi Arabia
hosting the first international conference on Halal food in February 2012 in Riyadh. The long-term outlook
for the halal food industry is captured by the fact that the world's Muslim population represents close to
25% of global population, at more than 1.6bn. As investment into the industry increases, competition among
producers will intensify, which will lead to a rise in the output of halal products.
While Middle Eastern consumers traditionally prefer fresh meat, health and hygiene scares have been a
major driver of changing consumer habits and have ultimately benefited the packaged-meat industry. Meat
and halal products are now being imported from many countries, including Australia, New Zealand, Ireland,
Brazil, Canada and the US. In fact, most distributors of halal products are not from Muslim countries, with
many international producers having recognised the potential in the market.
Although it is Malaysia that has taken the lead in developing and modernising this sector, regional
producers have increased production and are slowly reducing the Gulf region's import dependence.
Companies such as UAE-based al-Islami Foods have started to assume the regional mantle.
Drink
Recent Developments
■ Saudi Arabia is the Gulf region's largest bottled water market, with a number of prominent domestic
producers accounting for the majority of sales.
■ Alcohol is banned in Saudi Arabia under Islamic law, and punishments for drinking alcohol are strictly
applied.
Alcoholic Drinks
Alcohol is banned in Saudi Arabia under Islamic law, and punishments for drinking alcohol are strictly
applied. Despite this, Saudi Arabia's large expatriate community and Western military personnel serving in
the country are still able to obtain alcohol that is home-brewed or through various routes operating out of

neighbouring Gulf states. This is a point of conflict in the country, with Saudi nationals believing that by
encouraging smuggling, Westerners are not showing respect for Saudi lifestyles and religion.
Soft Drinks
Saudi Arabia's soft drinks industry is increasingly competitive across all segments. Competition within the
carbonates, juices and bottled water sub-sectors is particularly fierce, leading to frequent new product
developments and launches supported by significant marketing and promotional spending.
PepsiCo's core brands (bottled by the National Bottling Company in Saudi Arabia) continue to dominate
the Saudi carbonates market, accounting for more than 70% of volume sales. The Coca-Cola Company's
unfamiliar second-place position in Saudi Arabia, and indeed much of the Middle East region, has
traditionally owed much to regional perceptions and strong geopolitical influences. Although Saudi Arabia
is one of the few notable emerging markets in which Coca-Cola is not a leader, it has progressed
promisingly over the past two decades, having previously been absent from the market.
Saudi Arabia is the Gulf region's largest bottled water market, with a number of prominent domestic
producers accounting for the majority of sales. Leading the domestic contingent is Makkah Water - owner
of the Safa and Mozn brands. UAE-based Masafi is also a major producer of bottled water in the region and
has recently launched a range of premium juices that are being processed and bottled at its plant in the
UAE. Leading players in fruit juices include Almarai, The National Fruit Juice Company and al-Rabi
Saudi Food Company.
Other market entrants into the juice sub-sector include dairy companies al-Safi Danone and SADAFCO.
Meanwhile, Zamzam Cola has entered the carbonates sub-sector, Red Bull is active in energy drinks, and
Nestlé and Coca-Cola are making inroads into bottled water. Red Bull leads the emerging energy drink
market ahead of PepsiCo's Pepsi X brand.
Hot Drinks
Saudi Arabia's hot drinks sector is very mature. Major players within the sector include local manufacturers
Tea Factory and AMS Baeshen & Co, and global major Nestlé. The teabag market is dominated by
Unilever's Lipton Tea brand. Lipton has been available in the Gulf since the 1960s and is particularly
popular. Its ability to innovate and cater to developing consumer preferences sets it apart from its
competitors. Lipton produces a variety of black and green teas from its regional manufacturing headquarters

in Dubai. Its Jebel Ali-based facility is the second largest teabag factory in the world with a production
capacity of around 5bn tea bags per annum.
Lipton has also steadily introduced a range of fruit teas. Across the Gulf Cooperation Council, and has a
market share in excess of 70%. A steady rise in health consciousness is set to boost tea sales. Coffee is also
widely enjoyed across the country, with the entrance of chains such as Starbucks and Tim Hortons
pointing to increasing demand for Western-style caffeinated products.
Mass Grocery Retail
Recent Developments
■ With the independent sector still accounting for slightly less than half of grocery sales in Saudi Arabia,
significant room for expansion exists.
■ The rate of mass grocery retail (MGR) penetration in Saudi Arabia has lagged behind Gulf states, such as
the UAE, where the size of the market is much smaller and the spending power of most of the population
generally much higher.
Having attracted considerable investment over recent years, Saudi Arabia's MGR industry has continued to
gradually consolidate, with market leader Panda (owned by Savola) in particular continuing to pursue
significant organic and non-organic expansion. With non-organic growth avenues all but extinguished,
Panda has since focused on organic store growth.
UAE based Majid al-Futtaim is a leading hypermarket operator in the country under the Carrefour
banner, having recently acquired the French retailer's 25% stake in their Middle East/ North Africa joint
venture. It will retain the banner until 2025, with its impressive buying power likely to allow it to keep
prices reasonably low and affordable, which is particularly important in Saudi Arabia, a country that by
Gulf standards remains a relatively low-income market.
Other prominent players in organised retail include the hypermarket operator al-Othaim, hypermarket/
supermarket-focused Bin Dawood and the UAE-based EMKE with its LuLu hypermarkets. Upmarket
retailer Spinneys, which has presence across the region, has recently announced plans to open 10 outlets in
the country over the next decade, in cities including Jeddah and Riyadh.

Competitive Landscape
Table: Key Players In Saudi Arabia's Food & Drink Sector
Company Country Of Ownership Sub-Sector Sales Sales Fiscal Number Of

Origin (SARmn) (USDmn) Year Employees
End
Savola Group Saudi Private Food - edible oil, 26,461 na Dec-15 23,000+
Arabia company dairy, sugar, mass
grocery retail
Almarai Company Saudi Private Food - dairy, fruit 13,795 na Dec-15 34,000
Arabia company juice
Unilever NAME UK Parent Food & beverage na 950e* na na
company:
Unilever
Group
Aujan Industries Saudi Beverage - soft na 1,000e na 2,500e
Arabia drinks
Al-Rabie Saudi Foods Saudi Private Beverages na 350e na 1,200
Co. Arabia company
Al-Safi Dairy Saudi Parent Food - dairy na 275e na 2,000e
Arabia company:
Danone
Saudi Dairy and Saudi Food & beverages 1,807 na Mar-15 2,200
Foodstuff Company Arabia
(SADAFCO)
Hail Agricultural Saudi Parent Agribusiness & na na na 1,500+
Development Co Arabia company: food
(HADCO)** Almarai
Arab Supply & Trade Saudi Agribusiness na na na 5,000+
Corporation Arabia
Arabian Agricultural Saudi Agribusiness na na na 1,800
Services Co (ARASCO) Arabia
Zamzam Group Saudi Beverage - na na na 7,780
Arabia carbonates
National Bottling Saudi Beverage - na na na 1,500
Company (PepsiCo) Arabia carbonates
Coca Cola Bottling US Beverage - na na na na
Company of Saudi carbonates
Arabia
Makkah Water Saudi Beverage - bottled na na na na
Arabia water
Nestlé Middle East Switzerland Food & beverages na na na 4,000
e = BMI estimate, na = not available; *includes Middle East Sales; **HADCO was acquired by Almarai in July 2009.
Source: Company results, trade press, BMI

Table: Key Players In Saudi Arabia's Mass Grocery Retail Sector
Company Country Ownership Sales Sales Fiscal Fascia Format No Of Year No Of

Of Origin (SARmn) (USDmn) Year Outlets Est. Emplo-
End yees
Panda Retail Saudi Parent 26,461 na Dec-15 113 1979 15,000e
Company Arabia company:
Savola
Group
Al-Azizia Super- 65 na na
Panda market
Hyper Hyper- 17 na na
Panda market
Géant Super- 12 na na
market
Giant Hyper- 19 na na
Stores* market/
Super-
market
Universal Saudi na 530e na Al-Othaim Hyper- 76 1981 7,000
Marketing Arabia market
Carrefour France/ na 500e na Carrefour Hyper- 13 1995 6,000
MAF UAE MAF market
Super- 7 na na
market
EMKE Group UAE/India Private na 1,100e na Lulu Hyper- 5 1966 na
company market
Farm Saudi na 60e na Farm Super- 15 na 1,000
Superstores Arabia Supers- market
tores
Al-Raya Saudi na na na Al-Raya na 14 1992 1,000+
Super- Arabia
markets
Bin Dawood Saudi na na na 21 1984 na
Arabia
Bin Super- 13 na na
Dawood market/
Danube Hyper- 8 na na
market
Tamimi & Saudi na na na Safeway na 13 1990 na
Fouad Food Arabia
Co
Al-Sadhan Saudi na na na Al-Sadhan Hyper- 7 2004 450
Trading Co Arabia market
e = BMI estimate, na = not available; *Giant Stores are in the process of being converted to the al-Azizia Panda and Hyper
Panda fascias. Source: Company results, trade press, BMI

Company Profile
Al Azizia Panda (Savola Group)
SWOT Analysis
Strengths ■
Saudi Arabia's leading mass grocery retailer with estimated market share of around
8%.
■
Acquired the retail operations of the Giant Store and Géant chains from two of its
rivals.
■
Having a real estate arm gives Savola major advantage, as it will help in obtaining
prime pieces of real estate for the construction of new hypermarkets at reasonable
prices and ahead of the competition.
Weaknesses ■
Consumer spending power across the entire population in Saudi Arabia is fairly low
by Gulf standards, with access to mass grocery retailers fairly uneven across the
country.
■
There is little room left for non-organic growth in Saudi Arabia.
Opportunities ■
Significant scope for organic growth remains across both the hypermarket and
supermarket segments as the local mass grocery retail industry continues to
formalise.
■
Panda has managed to establish a successful private label range, the popularity of
which is expected to grow as consumers slowly warm to what is a relatively new
addition to the country's mass grocery retailer framework.
■
Expansion opportunities exist across the wider Middle East and North Africa region
through both the Panda and Giant Stores banners.
Threats ■
Panda's hypermarket business faces strong competition from the Carrefour formats
and local rival al-Othaim.

Company Overview Panda was established in 1978 and expanded throughout the 1980s. In 1994 Panda
merged with Azizia to form the largest food retail chain in Saudi Arabia, becoming part
of the Savola Group in 1998. The company has since established itself as the country's
leading retailer. In 2008, Savola acquired an 80% stake in the Giant Stores chain from
domestic company AK al-Muhaidib and Sons Group to become one of the region's
largest retailers, with a combined turnover of more than USD1bn. It is Saudi Arabia's
only national supermarket chain, operating nearly 300 outlets.
Strategy Having established market domination in the Gulf's biggest market, both geographically
and in terms of population, Panda's ultimate aim is to be the leading retailer in the
Middle East, taking on both MAF's Carrefour format, al-Othaim and EMKE.
Domestically, it intends to adopt an aggressive store-opening strategy to maintain its
market leadership while retaining profitability. Panda has determined that the
hypermarket format will be its main driver of growth, and its parent company Savola's
establishment of an independent real-estate company should aid the group in achieving
this aim. Savola's real estate arm, which is part of a wider bid for diversification, will
help in obtaining prime pieces of real estate for the construction of new hypermarkets at
reasonable prices and ahead of the competition. However, the company will also
continue to pursue expansions in the important supermarket store format.
Developments 2015
Savola Group has posted a 47% y-o-y decline in its net profit to SAR371.6mn
(USD99.1mn) for Q3 2015. The decline has been attributed to the return on the sale of
some investment assets via the divestment of its entire stake in a real estate project,
according to the company. Operating profit dropped 21% y-o-y to SAR510.6mn
(USD136.2mn) during the quarter, driven by increased operating expenses due to
growth and expansion in retail sector operations. Sales stood at SAR5.9bn (USD1.6bn)
during Q3 2015 (Just-Food).
On the domestic front, Panda expanded its store network, consisting of supermarkets,
hypermarkets and convenience stores, to 300 in 2015. The company plans to invest
AED1bn-2bn per annum over the next four to five years in new stores and warehouses,
and the expansion of its fleet.
2014
According to announcements in October 2014, the company was reportedly among the
first-round bidders for a potential acquisition of Kuwait-based Americana. The average
offer for the deal was valued at about KWD1.41bn (USD5bn) or about KWD3.5
(USD12.3) a share. However, the deal is likely to fetch more than USD4bn, reports
Bloomberg. The firm has also received a joint bid from Kohlberg Kravis Roberts & Co

and CVC Capital Partners, while Advent International and TPG Capital have submitted a
separate bid.
In August 2014, the company announced that it will open between eight and 12
supermarkets and hypermarkets in the UAE over the next three years, with an
investment of AED2bn-3bn, according to the company's chief executive, Muwaffaq M.
Jamal. The company was also looking to enter Egyptian market by the end of 2015,
with up to seven outlets in Cairo, which will be a combination of standalone stores and
stores within shopping malls.
Financial Data ■ 2014 revenues: SAR26.6bn

■ 2013 revenues: SAR25.2bn

Almarai
SWOT Analysis
Strengths ■
The largest Gulf dairy company by market value.
■
Almarai has been diversifying through acquisitions both in terms of geography and
business categories.
■
Almarai's first-rate and hands-on distributional system is unmatched regionally, with a
broad network of delivery trucks and sales depots.
■
Joint venture with PepsiCo has significantly raised its international profile.
■
Almarai has reported strong financials in recent quarters.
■
The company receives support from the Saudi government, which seeks to
encourage the development of non-hydrocarbon sectors.
Weaknesses ■
Restrictions imposed by the Saudi government make it difficult for foreign investors to
own equity in Almarai.
■
The company has been affected by higher by higher commodity prices and expansion
costs.
Opportunities ■
Demand for dairy products remains strong in the Gulf and in less-developed wider
Middle East regions.
■
Outperforming fruit juice unit is expected to continue growing sharply.
■
By expanding its operations further afield, Almarai is in a good position to benefit from
strong growth in other emerging markets.
■
Large investment plans for the period 2016-2020 could further strengthen company's
position.

SWOT Analysis - Continued
Threats ■
The Saudi dairy market is highly competitive.
■
Unfavourable moves in dairy prices could affect the company.
■
Profits have been threatened by higher operating costs.
Company Overview Saudi Arabia-based Almarai is the largest dairy company in the Gulf by market value.
Almarai became a publicly listed company in 2005 and soon began acquiring smaller
Saudi dairy companies to integrate into its business. It now has a total production
capacity of 1.8mn litres of milk per day. It is a vertically integrated organisation that
covers all supply chain activities ranging from dairy farming and food processing to
marketing, sales and distribution.
Strategy Almarai recently indicated that it would push investment in its poultry segment, as it
views the segment as the strongest growth opportunity over the medium term.
Almarai's poultry business has been outperforming Almarai's more traditional
businesses in terms of revenue growth since it entered the market in 2010. However,
despite this growth, the poultry sector remains unprofitable given the large initial
investment and the slow flock-building process. Production costs for local broiler
farmers are in general very high due to heavy dependence on imported feed
ingredients, poultry equipment and medicine, and the high costs of temperature control.
Almarai has been recording losses in its poultry due to high feed costs and mortality
rates.
Developments 2015
In May 2015, Almarai revealed its plans to invest about SAR21bn (USD5.59bn) in its
business between 2016 and 2020. The latest investment plans follow the company's
earlier plans to invest SAR15.7bn (USD4.2bn) until 2017 to expand its business across
dairy, bakery and poultry segments. The new investment plan will enable the company
to strengthen its presence in all segments and geographies, and double its revenues,
reports Food Business Review. Almarai plans to expand its farming, manufacturing,
distribution and logistics activities across all segments.
In H1 2015, the company reported consolidated net profit of SAR836.9mn, which

marked an increase of 18.4% compared to the same period of last year (SAR 706.9mn).
Net income for the first half of 2015 also saw an increase of 11.3% y-o-y, climbing to
SAR6,686.8mn.

2014
In mid-2014, the company revealed a USD345mn investment plan to set up a new juice
factory and create a new dairy farm in Egypt.
2013
In early May 2013, the company revealed that it plans to raise at least USD500mn from
the sale of its debut international Islamic bond, targeting regional investors. The
company said the proceeds will be used to finance growth in the form of factories,
farms and distribution capabilities, with plans to invest SAR3bn (USD800mn) annually
over the next five years.
Financial Data ■ 2015 revenue: SAR13.7bn

■ 2014 revenue: SAR12.6bn
■ 2013 revenue: SAR11.2bn

Al Rabie Saudi Foods
SWOT Analysis
Strengths ■
Al Rabie is the established market leader in the lucrative fruit juice division.
■
Operating presence across a diverse range of food and drink segments.
■
Strategic emphasis on health and wellbeing is a promising long-term strategy.
Weaknesses ■
The sharp pace at which consumer preferences are evolving within the sector means
the company must invest to retain its leadership position in the market, particularly as
regional competition increases.
■
The global economic downturn impacted consumer confidence in Saudi Arabia, and
has slowed the premiumisation trend from taking hold, which is important for Al
Rabie's long-term growth.
Opportunities ■
Fruit juice consumption is forecast to experience strong growth both in Saudi Arabia
and regionally.
■
Rising health consciousness is likely to boost demand for low-calorie juice drinks and
functional drinks.
■
Opportunities exist for a more segmented product portfolio.
■
The company is aiming for expansion in European and the U.S. markets.
Threats ■
The juice and dairy segments are highly competitive, with a number of domestic and
regional companies increasing volumes and investment into value-added product
portfolio enhancers.
Company Overview Al Rabie Saudi Foods Co produces a range of food and drink products and is the
largest juice manufacturer in the Middle East. As well as a wide variety of juices, the
company also produces dairy products, iced coffee, chocolate drinks, tomato paste,
chickpeas and soya products. Established in 1980 as the Saudi Irish Dairy Company,

the company changed its name in 1983. The company also has branches in Bahrain.
Popular brands include Al Rabie and Awal Qatfa.
Strategy Al Rabie has also been investing into public education campaigns regarding the health
benefits of some of its key product groups, such as soya-based foods. Social
responsibility programmes are also a key element of the company's marketing and
growth strategy.
The company's export team has also reportedly moved ahead with plans to release its
value-added products in the US, focusing on various juice and nectar products along
with its Awal Qatfa brand (ready-to-eat food products from Al Rabie).
Developments 2014
In 2014, the company inaugurated a new production factory in the city of Jazan. The
new factory is set to produce juices and soft processed foods. It will serve the city of
Jazan and wider Saudi Arabia, as well as northern Africa. 'The new factory is an
implementation of the company's expansion strategy, in order to meet the consumers'
demand to Al Rabie products, locally and regionally as well as MENA,' said Monther Al
Harthi, the CEO of Al Rabie.
In April 2014, the company indicated that it is sponsoring the Jeddah Green Sports
team for women in different sport categories during 2014. The team has been active in
promoting the role of women in a largely patriarchal society, and we believe it will
position Al Rabie foods as an open and forward-looking company, which could
generate good publicity and boost volume sales for the company's products. In July,
the company also signed a partnership to distribute 100,000 meals to fasting individuals
during the holy month of Ramadan.
Financial Data ■ Estimated annual sales: USD350mn

■ Established: 1980

Aujan
SWOT Analysis
Strengths ■
Aujan is one of the soft drinks industry's leaders, producing a number of popular
brands.
■
Aujan has experienced strong growth in recent years, with current turnover exceeding
USD850mn.
■
Aujan has established a strong management, manufacturing and distribution
infrastructure on which it can expand, and is committed to technological
advancement in each of those areas.
Weaknesses ■
The company's planned expansions, both in the Gulf region and further afield, require
significant investment, especially as consumer preferences and expectations evolve
rapidly.
Opportunities ■
Coca-Cola's investment will allow Aujan to pursue its international expansion plans
for brands including Barbican and Rani, as well as building upon the regional success
of its Vimto brand.
■
Aujan's partnership with energy drinks manufacturer Base is a wise strategic move in
a country with a fast-growing youthful market, as it will allow the company to diversify
its portfolio to capture a greater share of this emerging functional drinks segment.
■
Investment into re-emerging Iraq will open up access to the large and
underdeveloped soft drinks market.
■
A ban on alcoholic drinks in Saudi Arabia and many of its neighbouring countries
means that soft drinks sales are forecast to experience strong growth.
■
Iran is an increasingly important market for Aujan, and the country's large population
provides it ample opportunities for growth.
Threats ■
Aujan faces strong competition from a number of local and international players in the
soft drinks sector.

■
Aujan could suffer from anti-American sentiments due to its partnership with The
Coca-Cola Company.
Company Overview Established in 1905, Aujan is the largest privately owned beverage company in the Gulf
Cooperation Council. The company's brands include Rani, Barbican and Vimto, and it is
also the regional distributor for a number of recognisable confectionery products,
including Wrigley's chewing gum and the Cadbury chocolate range. Aujan has
operations in 15 regional locations, with a presence in 50 countries, and more than
2,500 employees.
Strategy Aujan's strategy for growth has been to focus on its five key brands, which include Rani,
Vimto and Barbican, as a means of increasing revenues. In recent years, Aujan has
started to look further afield for growth and has been eyeing regional markets as a
means of expansion. Specifically, Aujan is aiming to have its brands available in 100
countries. The company is also looking at additional production facilities in Iraq, North
Africa and most likely, Egypt.
Developments 2015
In early February 2015, the company revealed its USD500mn investment plans in the
MENA region. The company's CEO Nicolaas Nusmeier said that the investments will be
made over the next three years: 'major investments in capacity, geographical coverage,
and brand development will allow us to capitalise on the growth potential for the
beverage industry in the MENA region.'
2014
In early 2014, the company acquired the majority stake in National Beverage Company,
the manufacturer and distributor of Coca-Cola and Pampa products in Lebanon.
Nicolaas Nusmeier, CEO of Aujan, said: 'his partnership reflects ACCBC's commitment
to invest in beverages for long term growth, and we look forward to developing and
growing this business over time'.
In February 2014 the company said it was ready to spend USD100mn building a fruit-
juice factory in Egypt over the next few years, Reuters reported, citing Meshal
Alkadeeb, vice president of strategy and business development. The plant is expected
to be commissioned between 2016 and 2017.
2011
In late 2011, Coca-Cola announced that it had acquired a 50% equity stake in Aujan's
soft drinks company. The deal, worth USD980mn, represented the largest-ever

investment by a multinational firm in the Middle's East's fast-moving consumer goods

sector. The deal with Coca-Cola will allow Aujan to pursue its international expansion
plans for brands including Barbican and Rani, as well as building upon the regional
success of its Vimto brand. Aujan Chairman Sheikh Adel Aujan said that the partnership
would combine Aujan's regional knowhow with Coca-Cola's international experience.
Coca-Cola will also acquire 49% of Aujan's bottling and distribution company, under
which aegis Vimto will remain. The deal with Coca-Cola will also allow Aujan to expand
its markets and will help finance two more factories in the region.
Financial Data ■ Estimated annual sales: USD1.0bn

Carrefour
SWOT Analysis
Strengths ■
The company's considerable buying power keeps shelf prices relatively low,
particularly for branded goods.
■
Carrefour MAF has raised the bar in terms of the variety and volume of goods it
stocks.
■
Carrefour has now also branched out into the supermarket format with Carrefour
Market.
Weaknesses ■
Carrefour MAF will need to continue investing to compete with other MGR players in
the country.
■
As most mass grocery retail outlets are located in large shopping malls, this restricts
expansion, with the process of finding locations often costly and difficult.
Opportunities ■
Saudi Arabia's MGR segment is expected to record strong growth over the coming
years.
■
The company has been rapidly expanding its store network.
Threats ■
The hypermarket and supermarket segments will face increasing competition from
discount and convenience stores.
■
Growing economies could potentially undermine Carrefour's expansion plans.
Company Overview Carrefour entered Saudi Arabia in 2004 and currently operates more than 10 branches
in the kingdom. Under a franchise agreement, Carrefour stores are operated by Majid Al
Futtaim (MAF) group in Saudi Arabia and other regional countries.
Strategy Carrefour MAF's strategy for the Middle East region has been to drive modernisation
and strengthen its brand, rather than delay significant store expansion. Its home market,
the UAE, continues to be its most important in the region.

In a surprise move, in May 2013, Carrefour sold its 25% stake in its MENA joint venture
to MAF for AED2.5bn (EUR530mn). Under the agreement, MAF will retain a franchise
agreement with Carrefour until 2025 so the stores will retain the popular Carrefour
banner until then. MAF is now well positioned to expand operations both domestically
and internationally (a promising prospect for the company).
Developments 2015
On 20 April 2015, MAF opened a Carrefour hypermarket in the city of Hofuf, Saudi
Arabia.
2013
In autumn 2013, the chief executive of MAF Properties, George Kostas, stated that the
UAE, Saudi Arabia and Egypt are the three key markets that the company plans to
focus on in the next two to three years following an extensive strategy review.

Danone
SWOT Analysis
Strengths ■
Danone owns some of the most powerful brands in the global food industry,
particularly in fresh dairy categories such as yoghurt.
■
Has a fast growing baby food business.
■
Strong exposure to emerging markets.
■
Bottled water business has far stronger margins than Nestlé's
Weaknesses ■
Strong emerging markets business leaves it exposed to weakness in emerging market
currencies.
■
Russia is one of its main international markets, which leaves it exposed to the
ongoing slowdown and political risk associated with the Russia-Ukraine crisis.
■
Danone has relatively more debt on its balance sheet than Nestlé, its main
international peer.
■
China infant formula product recall in August 2013 has heavily dented baby food
segment sales.
Opportunities ■
Potential to capitalise on ongoing health and wellness trend in Europe and elsewhere.
■
Significant scope for further expanding emerging market operations.
■
Selling clinical nutrition business could free up capital to be spent on potential growth
drivers like infant formula, notwithstanding the recent slowdown in the segment.
■
Baby food is one of the best growth opportunities for the dairy focused food majors,
and Danone is increasingly well positioned for growth in this category, particularly in
Asia.
■
Low levels of per capita milk consumption across the emerging world mean there is
still a lot of room for growth in Danone's core fresh dairy category.
Threats ■
Exposed to further foreign exchange volatility across its key emerging markets,

■
Losing more market share in China infant formula as a result of 2013 product recall.
Company Overview Danone is a global market leader for fresh dairy products and, in volume terms, a
worldwide co-leader in the bottled water market. Main brands include Danone, Actimel,
Activia, Danonino and Vitalinea in fresh dairy products, and Evian, Volvic, Wahaha and
Aqua in bottled waters. The firm is also active in the areas of medical and baby
nutrition. It is the second biggest global food company behind Nestlé.
Strategy Key strategic objectives facing Danone over the next quarters include returning its baby
food business to meaningful growth following the China induced collapse in sales and
deciding whether to sell or keep hold of its clinical nutrition business - we believe it
should sell to free up resources for more strategic segments such as baby food. We do
not expect Danone to pursue major acquisitions over the next year having spent an
above average EUR1.2bn in cash for acquisitions in 2013 (compared to a four year
average of EUR0.48bn). The focus will instead be on further integrating new associates
such as Ghana-based Fan Milk, which provides an excellent platform to further push
the Danone business in Sub-Saharan Africa.
The past 12 months were challenging for Danone and peer companies like Nestlé that
sell fast-moving consumer goods across the world. The period from around May 2013
to around the end of the first quarter of 2014 (calendar) was arguably the toughest for
companies like Danone since 2008-2009 as weakening currencies across the emerging
world and a slowdown in consumer spending growth in key markets such as India,
Brazil, Russia and even China (mainly for industry specific factors in baby food) hit sales
and earnings.
Bottled water has emerged as one of Danone's best performing segments over recent
years and had another excellent quarter in Q214, with organic sales increasing 11.2%
with volumes contributing 6.2% to this number. The margins are also relatively strong at
about 13%, which is better than for Nestlé's water business. We see bottled water as a
strong growing business globally for companies with the most established brands
(Danone's flagship is Evian) and forecast data for some of its key markets is provided in
the table directly above.

LuLu (EMKE Group)

SWOT Analysis
Strengths ■
LuLu benefits from considerable brand equity and a reputation for quality.
■
LuLu was recently named one of the fastest growing retailers in the world by Deloitte.
Weaknesses ■
EMKE will have to invest heavily in order to realise its ambitious expansion plans for
both the Saudi market and the greater region.
■
Competition in the sector has grown significantly in recent years, as more
international mass grocery retail operators have entered the market.
■
The Saudi market is considerably different than the smaller Gulf markets that EMKE is
used to operating in and will present more logistical challenges.
Opportunities ■
The emergence of stand-alone retail outlets appears the logical next step for Saudi
Arabia's mass grocery retail industry.
■
There is plenty of untapped potential in the country's convenience stores sector.
■
EMKE has ambitious expansion plans for the Saudi market.
Threats ■
Global commodity prices are continuing to rise, which means that consumers could
once again become very cost-conscious and cut back on non-essential purchases.
■
EMKE will face increased competition as more international companies enter the
Saudi market.
Company Overview Abu Dhabi-based food and retail group EMKE operates the LuLu hypermarket chain in
the Middle East as well as a number of supermarkets and now convenience stores
under the LuLu Express banner. It has been steadily growing its store presence since it
first entered the Saudi market in 2009 and currently has five hypermarkets in the
country.
Strategy EMKE's strategy for its LuLu stores is to use the network to bring modern, organised
retailing within reach of the entire Gulf population and beyond. It has pursued this aim

through an ambitious and expansive store-opening programme, with further regional

expansion plans including outlets in the UAE, Oman, Yemen, and Kuwait, before
eventually investing in expansion to Africa and India. Despite being expensive, the
profitability and inevitable level of competition in the region in the coming years makes
EMKE's rapid growth strategy for the LuLu brand a sensible one.
Recently, the company has been exploring new store formats and focusing its
expansions on its LuLu Express format, with three new stores recently opened in the
UAE. EMKE plans to use this smaller Express format as a means of penetrating more
residential communities. The new outlets will focus on the quality and diversity of the
products on offer, as EMKE looks to compete with local rivals and regional major MAF-
owned Carrefour. EMKE will also continue to stress hygiene, food safety, waste
disposal and quality control as a means of drawing customers away from traditional
markets. Larger outlets will also have a hot food section, as well as ready-to-eat foods
as the company looks to take advantage of the rising demand for convenience foods
along with increasingly busy lifestyles.
Developments 2016
Lulu Group opened its sixth hypermarket in Dammam, Saudi Arabia on 13th January
2016 and plans to open an additional four before the end of the year. Targeted locations
are two stores in Jeddah and one store in Hofuf and Hail. The company also reported
further expansion of six more hypermarkets over 2017 in Madina and Makkah.
2015
In March 2015, LuLu strengthened its retail footprint in Saudi Arabia with the opening of
a new hypermarket in Jubail, an industrial city in the country's eastern province. Jubail
Governor Badr bin Mohammed Al Otaishan officially inaugurated the hypermarket,
which is located at King Faisal Street and is the company's fifth in the country. In total,
the company operates 118 outlets in 31 countries.
2014
In autumn 2014, LuLu bought a 10% stake in UK-based trading firm The East India
Company and a 40% stake in its fine foods subsidiary for around USD82mn. According
to Yusuff Ali, the new investment will enable the fine foods unit to expand its store
network in Europe, the Far East and prepare for a launch in the US.
Financial Data ■ Estimated Middle East and North Africa sales: USD1.1bn

Saudia Dairy & Foodstuff Company (SADAFCO)

SWOT Analysis
Strengths ■
Through organic and acquisition-led growth, SADAFCO has established itself as one
of the market leaders in a number of dairy sub-sectors, including fresh milk and ice
cream.
■
SADAFCO's tomato paste brand leads the domestic market.
■
SADAFCO benefits from strong brand recognition and established distribution
networks across the company.
■
The company's partnership with the world's largest dairy exporter Fonterra is likely to
see the continued sharing of expertise and improved operational efficiencies.
Weaknesses ■
The company must continue to invest in product portfolio enhancements and
distributional efficiencies as sector-wide competition intensifies.
■
The local climate is not conducive to dairy farming, with the company constantly
looking for fresh water resources.
Opportunities ■
We expect steady growth in dairy demand in Saudi Arabia and the wider Middle East
region.
■
SADAFCO's fruit juice business is likely to benefit from forecast growth in the soft
drinks industry.
■
The country's snack foods sector is experiencing strong growth.
Threats ■
Saudi Arabia's dairy industry is the most competitive in the Gulf region.
■
Unfavourable shifts in dairy prices could affect the company, particularly since local
consumers are already price sensitive.
■
Rival dairy company Almarai has been investing heavily in expansion.

Company Overview Established in 1976 in Jeddah, SADAFCO began production in 1977. The original focus
was on dairy products and through a series of acquisitions over the following years the
company has now expanded its product range. Through a joint venture with Saudi New
Zealand Milk Products, it now produces cheese, and through the acquisition of Sara
Snack Foods Factory in 1995, it entered the snack food market. In 2005, the company
launched an initial public offering and is now listed on the Saudi Stock Exchange.
Strategy SADAFCO will look to maintain its dominant position in Saudi Arabia while also
increasing geographical diversification in the region. The company has a well-
established sales and distribution network that enables it to maintain a strong brand in
its domestic market. SADAFCO has been investing heavily in distributing its milk
products to school children and public awareness campaigns regarding the health
benefits of dairy products. The company will continue to invest heavily in advertising
and marketing as it continues to launch new and value-added products.
The company now also exports its products to a number of countries, including other
Gulf states, Djibouti, Egypt, Jordan, Lebanon, Iran, Sudan, Syria and Pakistan, and has
established subsidiaries in the UAE, Qatar, Bahrain and Jordan, where it markets its
products through external distributors and agents. These regional markets will continue
to be important growth engines for the company.
Developments 2013
In May 2013, SADAFCO announced the reopening and expansion of its production
facilities in Dammam, Saudi Arabia. With the company's enhanced production
capacities, SADAFCO is well placed to meet rising consumer demand, producing its
Crispy Snacks range, tomato paste and feta cheese.
Financial Data ■ 2014/15 sales: SAR1.87bn

■ 2014/15 net profit: SAR141.5mn
■ 2013/14 sales: SAR1.55bn
■ 2013/14 net profit: SAR171.5mn

Demographic Forecast
Demographic Outlook
Demographic analysis is a key pillar of BMI's macroeconomic and industry forecasting model. Not only
is the total population of a country a key variable in consumer demand, but an understanding of
the demographic profile is essential to understanding issues ranging from future population trends to
productivity growth and government spending requirements.
The accompanying charts detail the population pyramid for 2015, the change in the structure of
the population between 2015 and 2050 and the total population between 1990 and 2050. The tables show
indicators from all of these charts, in addition to key metrics such as population ratios, the urban/rural split
and life expectancy.
Population
(1990-2050)
60
40
20
0
1990
2000
2005
2010
2015f
2020f
2025f
2030f
2035f
2040f
2045f
2050f
Saudi Arabia - Population, mn
f = BMI forecast. Source: World Bank, UN, BMI

Saudi Arabia Population Pyramid

2015 (LHS) & 2015 Versus 2050 (RHS)
Source: World Bank, UN, BMI
Table: Population Headline Indicators (Saudi Arabia 1990-2025)
1990 2000 2005 2010 2015f 2020f 2025f
Population, total, '000 16,361 21,392 24,745 28,090 31,540 34,366 36,846
Population, % y-o-y na 2.7 2.9 2.5 2.1 1.6 1.3
Population, total, male, '000 9,154 11,781 13,810 15,819 17,835 19,294 20,523
Population, total, female, '000 7,206 9,610 10,934 12,271 13,704 15,071 16,323
Population ratio, male/female 1.27 1.23 1.26 1.29 1.30 1.28 1.26
na = not available; f = BMI forecast. Source: World Bank, UN, BMI
Table: Key Population Ratios (Saudi Arabia 1990-2025)
1990 2000 2005 2010 2015f 2020f 2025f
Active population, total, '000 9,020 12,792 15,762 18,767 21,622 23,807 25,894
Active population, % of total population 55.1 59.8 63.7 66.8 68.6 69.3 70.3
Dependent population, total, '000 7,340 8,599 8,982 9,322 9,917 10,558 10,952
Dependent ratio, % of total working age 81.4 67.2 57.0 49.7 45.9 44.4 42.3

Key Population Ratios (Saudi Arabia 1990-2025) - Continued
1990 2000 2005 2010 2015f 2020f 2025f
Youth population, total, '000 6,881 7,976 8,282 8,544 9,014 9,290 9,120
Youth population, % of total working age 76.3 62.4 52.5 45.5 41.7 39.0 35.2
Pensionable population, '000 459 623 700 778 902 1,268 1,831
Pensionable population, % of total working age 5.1 4.9 4.4 4.1 4.2 5.3 7.1
Table: Urban/Rural Population & Life Expectancy (Saudi Arabia 1990-2025)
1990 2000 2005 2010 2015f 2020f 2025f
Urban population, '000 12,530.1 17,081.3 20,038.4 23,057.9 26,219.5 28,905.8 31,330.1
Urban population, % of total 76.6 79.8 81.0 82.1 83.1 84.1 85.0
Rural population, '000 3,831.4 4,311.0 4,706.8 5,032.7 5,320.9 5,460.5 5,516.7
Rural population, % of total 23.4 20.2 19.0 17.9 16.9 15.9 15.0
Life expectancy at birth, male, years 67.5 70.9 71.9 72.4 73.2 73.9 74.6
Life expectancy at birth, female, years 71.0 74.2 74.5 75.0 75.9 76.7 77.4
Life expectancy at birth, average, years 69.0 72.4 73.1 73.7 74.4 75.1 75.8
Table: Population By Age Group (Saudi Arabia 1990-2025)
1990 2000 2005 2010 2015f 2020f 2025f
Population, 0-4 yrs, total, '000 2,724 2,804 2,772 2,990 3,161 3,019 2,934
Population, 40-44 yrs, total, '000 674 1,254 1,560 2,022 2,816 2,880 2,888
Population, 45-49 yrs, total, '000 476 907 1,118 1,470 2,056 2,618 2,697

Population By Age Group (Saudi Arabia 1990-2025) - Continued
1990 2000 2005 2010 2015f 2020f 2025f
Population, 50-54 yrs, total, '000 339 516 788 1,036 1,478 1,894 2,446
Population, 55-59 yrs, total, '000 275 373 451 721 1,016 1,415 1,795
Population, 60-64 yrs, total, '000 243 296 337 390 679 963 1,345
Population, 65-69 yrs, total, '000 202 234 259 288 353 616 878
Population, 100+ yrs, total, '000 0 0 0 0 0 0 0
Table: Population By Age Group % (Saudi Arabia 1990-2025)
1990 2000 2005 2010 2015f 2020f 2025f
Population, 0-4 yrs, % total 16.65 13.11 11.20 10.65 10.02 8.79 7.96

Population By Age Group % (Saudi Arabia 1990-2025) - Continued
1990 2000 2005 2010 2015f 2020f 2025f
Population, 100+ yrs, % total 0.00 0.00 0.00 0.00 0.00 0.00 0.00

Glossary
Food & Drink
Food Consumption: All four food consumption indicators (food consumption in local currency, food
consumption in US dollar terms, per capita food consumption and food consumption as a percentage of
GDP) relate to off-trade food and non-alcoholic drinks consumption, unless stated in the relevant table/
section.
Off-trade: Relates to an item consumed away from the premises on which it was purchased. For example, a
bottle of water bought in a supermarket would count as off-trade, while a bottle of water purchased as part
of a meal in a restaurant would count as on-trade.
Canned Food: Relates to the sale of food products preserved by canning. This is inclusive of canned meat
and fish, canned ready meals, canned desserts and canned fruits and vegetables. Volume sales are measured
in tonnes as opposed to on a unit basis to allow for cross-market comparisons.
Confectionery: Refers to retail sales of chocolate, sugar confectionery and gum products. Chocolate sales
include chocolate bars and boxed chocolates; gum sales incorporate both bubble gum and chewing gum;
and sugar confectionery sales include hard-boiled sweets, mints, jellies and medicated sweets.
Trade: In the majority of BMI's Food & Drink reports, we use the UN Standard International Trade
Classification, using categories Food and Live Animals, Beverages and Tobacco, Animal and Vegetable
Oils, Fats and Waxes and Oil-seeds and Oleaginous Fruits. Where an alternative classification is used due to
data availability, this is clearly stated.
Drinks Sales: Soft drinks sales (including carbonates, fruit juices, energy drinks, bottled water, functional
beverages and ready-to-drink tea and coffee), alcoholic drinks sales (including beer, wine and spirits) and
tea and coffee sales (excluding ready-to-drink tea and coffee products that are incorporated under BMI's
soft drinks banner) are all off-trade only, unless stated.
Mass Grocery Retail
Mass Grocery Retail: BMI classifies mass grocery retail (MGR) as organised retail, performed by
companies with a network of modern grocery retail stores and modern distribution networks. MGR differs
from independent or traditional retail, which relates to informal, independent-owned grocery stores or
traditional market retailing. MGR incorporates hypermarket, supermarket, convenience and discount
retailing, and in unique cases cooperative retailing. Where supermarkets are independently owned and not
classified as MGR, BMI will state so clearly within the relevant report.

Hypermarket: BMI classifies hypermarkets as retail outlets selling both groceries and a large range of
general merchandise goods (non-food items) and typically more than 2,500sq m in size. Traditionally only
found on the outskirts of towns, hypermarkets are increasingly appearing in urban locations.
Supermarket: Supermarkets are the original and still most globally prevalent form of self-service grocery
retail outlet. BMI classifies supermarkets as more than 300sq m, up to the size of a hypermarket. The
typical supermarket carries both fresh and processed food and will stock a range of non-food items, most
commonly household and beauty goods. The average supermarket will increasingly offer some added-value
services, such as dry cleaning or in-store ATMs.
Discount Stores: Although most commonly between 500sq m and 1,500sq m in size, and thus of the same
classification as supermarkets, discount stores will typically have a smaller floor space than their
supermarket counterparts. Other distinguishing features include the prevalence of low-priced and private
label goods, an absence of added-value services, often called a no-frills environment, and a high product
turnover rate.
Convenience Stores: BMI's classification of convenience stores includes small outlets typically less than
300sq m in size, with long opening hours and located in high footfall areas. These stores mainly sell fast-
moving food and drink products (such as confectionery, beverages and snack foods) and non-food items,
typically stocking only two or three brand choices per item and often carrying higher prices than other
forms of grocery store.
Cooperatives: BMI classifies cooperatives as retail stores that are independently owned but club together
to form buying groups under a cooperative arrangement, trading under the same banner, although each is
privately owned. The arrangement is similar to a franchise system, although all profits are returned to
members. The term is becoming more archaic, with fewer cooperatives remaining that conform to this
model. Most cooperative groups now have a more centralised management structure, operate more like
normal supermarkets, and are thus classified as such in BMI's reports.

Methodology
Industry Forecast Methodology
BMI's industry forecasts are generated using the best-practice techniques of time-series modelling and
causal/econometric modelling. The precise form of model we use varies from industry to industry, in each
case being determined, as per standard practice, by the prevailing features of the industry data being
examined.
Common to our analysis of every industry is the use of vector autoregressions. Vector autoregressions allow
us to forecast a variable using more than the variable's own history as explanatory information. For
example, when forecasting oil prices, we can include information about oil consumption, supply and
capacity.
When forecasting for some of our industry sub-component variables, however, using a variable's own
history is often the most desirable method of analysis. Such single-variable analysis is called univariate
modelling. We use the most common and versatile form of univariate models: the autoregressive moving
average model (ARMA). In some cases, ARMA techniques are inappropriate because there is insufficient
historic data or data quality is poor. In such cases, we use either traditional decomposition methods or
smoothing methods as a basis for analysis and forecasting.
BMI mainly uses ordinary least squares estimators. In order to avoid relying on subjective views and
encourage the use of objective views, BMI uses a 'general-to-specific' method. BMI mainly uses a linear
model, but simple non-linear models, such as the log-linear model, are used when necessary. During periods
of 'industry shock', for example when poor weather conditions impede agricultural output, dummy variables
are used to determine the level of impact.
Effective forecasting depends on appropriately selected regression models. BMI selects the best model
according to various different criteria and tests, including but not exclusive to:
■ R2 tests explanatory power; adjusted R2 takes degree of freedom into account
■ Testing the directional movement and magnitude of coefficients
■ Hypothesis testing to ensure coefficients are significant (normally t-test and/or P-value)
■ All results are assessed to alleviate issues related to auto-correlation and multi-collinearity

BMI uses the selected best model to perform forecasting.
Human intervention plays a necessary and desirable role in all of BMI's industry forecasting. Experience,
expertise and knowledge of industry data and trends ensure that analysts spot structural breaks, anomalous
data, turning points and seasonal features where a purely mechanical forecasting process would not.
Sector-Specific Methodology
Within the Food & Drink industry, issues that could result in human intervention might include but are not
exclusive to:
■ Significant company expansion plans;
■ New product development that might influence pricing levels;
■ Dramatic changes in local production levels;
■ Product taxation;
■ The regulatory environment and specific areas of legislation;
■ Changes in lifestyles and general societal trends;
■ The formation of bilateral and multilateral trading agreements and negotiations;
■ Political factors influencing trade;
■ The development of the industry in neighbouring markets that are potential competitors for foreign direct
investment.
Example Of Food Consumption Model
(Food Consumption)t = β0 + β1*(GDP)t + β2*(inflation)t + β3*(lending rate)t + β4* (foreign exchange

rate)t + β5*(government expenditure)t + β6*(food consumption)t-1 + εt
Sources
BMI uses the following sources in the compilation of data, developments and analysis for its range of Food
& Drink reports: national statistics offices; local industry governing-bodies and associations; local trade
associations; central banks; government departments, particularly trade, agricultural and commerce
ministries; officially released information and financial results from local and multinational companies;
cross-referenced information from local and international news agencies and trade press outlets; figures
from global organisations, such as the World Trade Organization (WTO), the World Health Organization

(WHO), the UN Food and Agricultural Organization (FAO) and the Organisation for Economic Co-
operation and Development (OECD).
Risk/Reward Index Methodology
BMI's Risk/Reward Index (RRI) provides a comparative regional ranking system evaluating the ease of
doing business and the industry-specific opportunities and limitations for potential investors in a given
market. The RRI system divides into two distinct areas:
Rewards: Evaluation of sector's size and growth potential in each state, and also broader industry/state
characteristics that may inhibit its development. This is further broken down into two sub-categories:
■ Industry Rewards: This is an industry-specific category taking into account current industry size and
growth forecasts, and the openness of the market to new entrants and foreign investors, to provide an
overall score for potential returns for investors.
• Country Rewards: this is a country-specific category, and the score factors in favourable political and
economic conditions for the industry.
Risks: Evaluation of industry-specific dangers and those emanating from the state's political/economic
profile that calls into question the likelihood of expected returns being realised over the assessed time
period. This is further broken down into two sub-categories:
■ Industry Risks: This is an industry-specific category whose score covers potential operational risks to
investors, regulatory issues inhibiting the industry and the relative maturity of a market.
• Country Risks: This is a country-specific category in which political and economic instability,
unfavourable legislation and a poor overall business environment are evaluated to provide an overall
score.
We take a weighted average, combining industry and country risks, or industry and country rewards. These
two results in turn provide an overall Risk/Reward Index, which is used to create our regional ranking
system for the risks and rewards of involvement in a specific industry in a particular country.
For each category and sub-category, each state is scored out of 100 (100 being the best), with the overall
index a weighted average of the total score. Importantly, as most of the countries and territories evaluated
are considered by BMI to be 'emerging markets', our index is revised on a quarterly basis. This ensures that
the index draws on the latest information and data across our broad range of sources, and the expertise of
our analysts.
In constructing these indices, the following indicators have been used. Almost all indicators are objectively
based.

Table: Food & Drink Risk/Reward Index Indicators
Rewards
Industry rewards
Indicator denotes overall breadth of market. Wealthier markets
Food and drink consumption per capita, USD score higher.
Per capita food consumption growth, five- Lead Food & Drink growth indicator. Scores based on compound
year compound annual growth, % annual growth over our five-year forecast period.
Subjective score reflecting how relatively developed the industry
Market fragmentation is. Higher score reflects a more fragmented industry.
Country rewards
Population size, mn Indicator denotes size of market.
Proxy for wealth. Size of population is important but needs to be
considered in relation to spending power. High-income states
GDP per capita, USD receive better scores than low-income states.
The size of the 0-15 age group as a percentage of the total
working age population. Younger populations are generally
Youth population, % considered to be more desirable.
Risks
Industry risks
The proportional contribution of the organised food retailing
sector; higher scores reflect better developed routes to
Mass grocery retail penetration, % consumers and more efficient internal trade systems.
Subjective score based on the industry-specific regulatory
Regulatory environment environment and the presence of potentially restrictive legislation.
Country risks
Score from BMI's Country Risk Index (CRI). It evaluates likely
growth trajectory over a two-year forecast period, based on
BMI's forecasts and projections of business and consumer
Short-term economic growth confidence.
Middle 60% of population as % of total spending. Higher score is
Income distribution an indicator of incomes being spread more equitably.
From CRI. It evaluates the risks to business posed by official
Lack of bureaucracy bureaucracy, the broader legal framework and corruption.
Subjective score from CRI to denote predictability of openness to
Market orientation foreign investment and trade.
From CRI. Poor power/water/transport infrastructure act as
Physical infrastructure bottlenecks to sector development
Source: BMI

Weighting: Given the number of indicators/datasets used, it would be inappropriate to give all sub-
components equal weight. Consequently, the following weights have been adopted:
Table: Weighting
Component Weighting
Rewards 60%
- Industry rewards 30%
- Country rewards 30%
Risks 40%
- Industry risks 20%
- Country risks 20%
Source: BMI

BMI Saudi Arabia Food and Drink Report Q3 2016

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Q3 2016

Published by:BMI Research

Part of BMI’s Industry Report & Forecasts Series

Published by: BMI Research

Copy deadline: May 2016

BMI Research © 2016 Business Monitor International Ltd

BMI Industry View ............................................................................................................... 7

Industry Forecast .............................................................................................................. 10

Industry Risk Reward Index ............................................................................................. 22

Market Overview ............................................................................................................... 30

Competitive Landscape .................................................................................................... 36

Company Profile ................................................................................................................ 38

© Business Monitor International Ltd Page 4

Demographic Forecast ..................................................................................................... 57

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BMI Industry View

Food and Drink Spending

Key Views & Developments

© Business Monitor International Ltd Page 7

Food & Drink SWOT Analysis

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Food & Drink SWOT Analysis - Continued

© Business Monitor International Ltd Page 9

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Table: Food Sales (Saudi Arabia 2013-2020)

2013 2014 2015 2016f 2017f 2018f 2019f 2020f

© Business Monitor International Ltd Page 14

Food Sales (Saudi Arabia 2013-2020) - Continued

2013 2014 2015 2016f 2017f 2018f 2019f 2020f

© Business Monitor International Ltd Page 15

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Non-Alcoholic Drinks Sales

© Business Monitor International Ltd Page 17

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Table: Non-Alcoholic Drinks Sales (Saudi Arabia 2013-2020)

2013 2014 2015 2016f 2017f 2018f 2019f 2020f

Fruit and vegetable juices, sales,

Fruit and vegetable juices, sales,

Mineral or spring waters, sales,

Mineral or spring waters, sales,

© Business Monitor International Ltd Page 19

Mass Grocery Retail

© Business Monitor International Ltd Page 20

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Industry Risk Reward Index

Israel Out In Front

© Business Monitor International Ltd Page 22

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Israel To Remain Top MENA Player

© Business Monitor International Ltd Page 24

Industry Country Industry Country Food & Drink

© Business Monitor International Ltd Page 25

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© Business Monitor International Ltd Page 27

Saudi Arabia Risk/Reward Index