Market Profile for Food and Beverage in UAE Market

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1.0
1.1

MARKET STRUCTURE
Size

The United Arab Emirates (UAE) imports an estimated 90 percent of its food and beverage.1 In 2007 the UAE had a GDP of US$190 billion and a resident population of around five million.6 The UAE is made up of seven emirates and is part of the Cooperation Council for the Arab States of the Gulf (GCC), the other members being Oman, Kuwait, Qatar, Saudi Arabia and Bahrain. The seven emirates have a large number of expatriates which make up the majority of the population, with UAE nationals comprising only about 20 percent of the total. The largest ethnic group is South Asian expatriates from India, Pakistan, Bangladesh and Sri Lanka making up 50 percent. Arabs and Iranians make up 23 percent of the populations with the remainder 8 percent being Westerners and East Asians.2 Demographically, the UAEs population is relatively young. Its population is growing at a rate of approximately three percent per annum, which is occurring through natural growth, as well as a rapid expansion in the number of expatriates based there.3 The UAE is the highest consumer per capita of bottled water.4 The total consumption of food and food products is estimated at almost US$4 billion and in the food service market 50 percent is estimated to be food consumption in the luxury hotel industry.6With this growth the demand for imported food will continue to rise, as climate and soil conditions the UAE prevents mass farming and product production, however secondary production such as value-added processing and manufacturing is increasing. Table 1 Food and Beverage market value and expenditure per capita, 2004 - 2008 $US Food and Beverage 2004 2005 2006 2007 2.73 2.92 3.11 3.32 UAE Food and Beverage Market (population Value ($US in billions) 2.12 2.28 2.46 approx 5 Food only Market Value ($US 1.96 million) in billions) 698.78 715.15 730.92 748.11 Food and Beverage Expenditure per Capita ($US) 502.66 520.39 536.73 554.1 Food only Expenditure per Capita ($US)
Source: Datamonitor. Consumer Products Database

2008
3.55 2.64 768.95 573.16

With more than 11,000 eating establishments are in the UAE6 major food and beverage multinationals have reported it to be a profitable market in terms of margin returns. The fast food industry is also growing with reported growth during the last quarter of 2008. Business through large quick service and casual dinning restaurants is valued at over US$1billion and is nowhere near saturation. There are 450 franchise restaurants in the UAE
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that are enjoying double digit growth. As in other markets residents and tourists in the UAE are expected to turn more to casual dinning and quick service restaurants during the global economic downturn. The UAE is now host to over 400 hotels with Dubai Emirates operating 66 luxury five star hotels.6 Due to the current global economic outlook there is a decrease in tourists, however prior to 2009 there was increasing growth in tourism which increased demand for imported food.5 As only food and beverage outlets located within certain establishments (primarily hotels) are permitted to apply for an alcohol licence, western resident expatriates, and tourists, are more inclined to dine there. Each hotel has a selection on eating places from coffee shops to fine dining and a five star hotel has a minimum of 15 restaurants. Along with the hotel and restaurant market, other food service sectors are also showing exponential growth. Airline catering is also experiencing rapid growth, in line with the aggressive expansion of Emirates Airline and Etihad Airways.

1.2

Sub sectors

Beverages The bottled water and juice markets are dominated by local production.6 Locally produced bottled water is very competitively priced, with 20-litre tower bottles delivered to residences and offices for around NZ$4. Imported bottled waters are generally successful (at a higher price point than the local) if they have strong brands internationally and particularly in Europe. A current trend is in hotel restaurants is to have a bottled water menu which lists brands from all over the world. New high end retailers are increasingly importing water from various countries as product of origin has become a major selling point as opposed to the brand name. Consumption of bottled water is high in the UAE. This is due in part to the extreme heat experienced for much of the year, combined with the fact that tap water, although safe for drinking, is not acceptable to many peoples tastes. Consumption of carbonated beverages is also high with all major international brands present in the market. Fruit juices are predominantly processed locally by dairy manufacturers and water bottlers. There is also a selection of imported juices and juice drinks, with South Africa being a major supplier. Dairy New Zealand is a leading supplier of dairy products to the UAE. This encompasses a wide range of products including powders, proteins, butter and cheeses. Other suppliers include Denmark, France, Turkey, Lebanon and Australia. Local consumption of dairy is high, including pasteurised fresh milk, labneh (strained yoghurt in a form similar to cream cheese) and laban (liquid form). Western brands of dairy products, particularly yoghurts and speciality cheeses, can be found in most retail environments, although the volume brands are local.

Fresh produce Although the premium hotel sector (along with top end retail) demands quality fresh produce, the UAE is a price-driven market. The global economic downturn has meant that retailers and foodservice operators are changing their current purchasing methods to a more centralised approach and with this increased single source suppliers and a reduction in the cost of produce. This new supply chain structure will be less challenging for New Zealand to compete in markets geographically closer to the UAE. Although much of the fresh produce entering the UAE is sourced from Holland, regular direct flights from New Zealand to the UAE allow airfreight shipments of fresh produce. That said a variety of New Zealand fresh produce can be found seasonally in the UAE, and especially where there are gaps in European and local production. At the cheaper end of the market, product from the Indian sub continent and Africa is generally available year round. Meat The major suppliers of red meat to the UAE are India, Australia, New Zealand and the USA. India supplies lower grade mutton to retailers, and also local manufacturers, which is consumed in volume by the local population. The remainder targets the upper end retail and foodservice markets predominantly with chilled cuts. New Zealand is amongst the largest 6 suppliers of meat to the retail and hotel markets. The UAE market is relatively sophisticated for the region with demand having moved to chilled product from the traditional frozen carcass. Poultry is largely imported from South America although there is some local production 6 particularly out of Saudi Arabia. Most eggs are sourced locally although there are imports, including free range and organic product, at the extreme top end. Seafood Seafood is also sourced locally with the Gulf and the waters of the Indian Ocean supplying a variety of white fish species and crustaceans. Cool water species, including salmon, are sourced globally and imported both frozen and chilled. Canada and Australia are well known 6 for their quality and low priced products of shellfish. There is an increasing supply of live shellfish, including oysters and mussels from Europe and New Zealand, largely for the hotel trade. Frozen, chilled and shellfish from New Zealand is available in most retail stores and many labelled under the retail brand. There is a growing number of processing plants specialising in value-added products such as flavoured mussels and crumbed fish, these are mainly located in the free zones and the surrounding Emirates Sharjah and Ajman. Frozen fish is still in demand in the UAE and for re-export into the Middle East. Honey Although Arabs are traditionally large consumers of honey this is generally in bulk and in ingredient applications. Much of the honey at retail is in volume packaging and at a lower price point than New Zealand product. The honey retail market is well established and new entrants will require a substantial marketing resource and distinctive value proposition. There is possibly more room in the foodservice market, such as through comb and portion controlled presentations, in the retail sector and categorized as a gourmet product and in duty free.
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Specialty foods There is a range of specialty products, such as condiments, soups, sauces, and so forth, available in the UAE. In many cases, the retail market for these goods is relatively small, given the diverse ethnic population. Product with recognised brands, attractive packaging, or a distinctive value proposition can command a price premium.6 Organics There is an increasing awareness of health issues and diet in the UAE. During 2005, a specialist organic supermarket opened in Dubai, which has since been expanded to include two additional outlets. These stores target predominantly the western expatriate, and the shopping experience is relatively sophisticated. Mainstream supermarkets typically have a small ambient section dedicated to organics. Organic juice is most predominant in the organic category in most retail stores.

1.3

Growth rate

The independent restaurant sector is experiencing a strong growth rate of an estimated 5 percent growth annually pushing the amount of restaurants over 11,000. These growth rates have been spurred on by a growing number of single expatriates, higher disposable incomes and duel incomes as well as trends of eating out more.6 It should be noted that restaurants not attached to hotels are legally not allowed to serve alcohol. The food processing sector and catering sectors have also experienced growth. The main growth areas of food processing are diary products, reconstituted juice, biscuits, meat processing and other snacks. The catering sector which provides services to labour camps and airlines in the UAE is estimated to serve 1.5 million individuals and prepares on average 150,000 in-flight meals per day.6 Tourism is booming in Dubai, with estimated 12 million tourists in 2007.6 The hotel and restaurant sector has grown rapidly in recent years with over 400 hotels in the UAE and many of them in the four to five star ranges and Emirates Airlines has grown quickly to keep up with the demand. Along with the hotel and restaurant market, other food service sectors are also showing exponential growth. Airline catering is also experiencing rapid growth with the expansion of Emirates Airline and Etihad Airways. Dubai international airport recorded 34 million passengers in 2008 which was an increase of 9 percent over 2007. In late 2008 Terminal 3 was opened for the exclusive use of Emirates Airlines. It is the largest airport terminal in the World and has the capacity to deal with 60 million passengers per year. Dubai Duty Free has increased their retail space from 8000m2 to 18000m2 at Dubai Airport with the opening of Concourse 2 and Terminal 3 and the recently launched FlyDubai Airline in Terminal 2. This has created enormous opportunities for both, new and existing suppliers to increase their portfolio's presence at Dubai Duty Free.

High end retail stores such as Waitrose recently opened two stores in Dubai. Hyperpanda opened last year in the newly developed festival city. Spinneys retail chain had increased from 20 to 29 stores in 2008 across the UAE. Dean & Deluca Dubai is scheduled to open in 2009, stores are already present in Kuwait and Qatar and 17 more stores are scheduled to open 2009-2012.

1.4

Known factors influencing growth rate

In late 2008 the UAE began to feel the effects of the global economic downturn, however overall growth in the UAE is anticipated to be at 3.1 percent for 2009.Error! Bookmark not defined. Although this is not as high as previous years, the current low tax, limited trade and exchange controls as well as infrastructure investment have allowed growth to continue. Low oil prices will affect the UAE nevertheless given the drop in exchange rates prices have stabilised against inflation providing cost savings on food in particular which is being passed on to then end user. It is anticipated that during 2009 Dubai will experience difficulty due to external investments however the government cuts will not have a huge impact. In Abu Dhabi government will continue with projects it has invested in and growth is anticipated to continue through 2009. Within the UAE there is a strong focus on value for money, as demand for food products increase value for money is also expected. The UAE is predominantly made up of younger generations who east out more often. This has encouraged restaurant growth and increased the demand for fast food outlets. It is anticipated that the numbers eating out will match or exceed population and visitor growth.6 Dubai is recognised as the national and regional trend-setter, and this applies to the food and beverage industry. Success and brand presence in Dubai can be used to leverage supply to the remainder of the UAE and the wider GCC region. Dubai is the commercial centre and trading point in the region and has experienced some of the biggest growth, it is seen as more developed than other economies in the region, including Abu Dhabi which is the next largest UAE market for food and beverage.1

2.0
2.1

COMPETITIVE ENVIRONMENT
Major players in the market

The UAE has an arid climate and there is little agricultural production. Dairy herds, poultry farms and some produce growing are managed in large scale temperature controlled environments. Many of the local farms and companies use reconstituted diary products 1 primarily from New Zealand, Australia, and Europe. The food processing industry is growing with over 300 processing plants in the UAE. Their main focus is on dry goods such as biscuits, snacks, as well as diary products and value-added meat and seafood processing.

The UAE is an internationally competitive market where product from all major food producing nations can be found. It is logistically relatively easy to supply and is often the entry point for supply to other parts of the region. Volume items are often sourced from within the Middle East region, for example, poultry and dates from Saudi Arabia and fresh produce from Oman and Lebanon. New Zealand, Australia and the US predominantly supply the upper end of the market for 1 beef, fresh produce as well as diary products. Country of origin is seen as important and is always clearly marked. Within the retail environment, for example, country of origin of fresh produce is usually stated alongside the product name. Within the meat section, all New Zealand beef cuts are placed together and labelled as such. Hypermarkets are growing with many small local retailers being forced to expand or become focused providing gourmet specialised products. Internationally companies must choose one or more representatives from the UAE to promote their brand. The major supermarket/ hypermarket chain Carrefour has the largest market share for hypermarkets within the UAE. Although consumer cooperative groups operate in the UAE they only hold a 25 percent market share with retailers relying on importers and their customer feedback for product 1 purchases. Other major players are the Union Cooperatives, Choithram (Indian owned supermarket chain), Lulu (Indian owned hypermarket chain) and Spinneys (locally run, with quality positioning, and targeting the western expatriate). Recent entrants into the already crowded retail market include Geant hypermarket, in direct competition to Carrefour, and Panda hypermarket, a Saudi owned chain targeting UAE nationals. There are also a number of convenience stores, many privately-owned and operated. Margins are generally tight for retailers, with the hypermarkets relying on volume business and the top end supermarkets on low stocking and high turnover, to remain competitive. Entry costs for suppliers can be high with the common use of shelf listing fees. Direct supply avoids the listing fee and is increasingly preferred by some buyers as it allows them to maximise their margins. Most retailers have their own in house distribution and storage facilities. This may be through a consolidator or third party exporter. However, direct supply does create a logistical hassle for retailers. Suppliers should be guided by supermarket buyers as to whether local representation or direct importation is preferred. Purchasing is generally performed centrally for each supermarket chain.

2.2

Marketing strategies

The UAE has a multitude of traders of varying quality and influence. Prospective exporters are urged to gain a clear understanding of potential representatives, including their reputation, product range, key customers and relationships, before engaging with them. As a rule of thumb, most distributors will claim to supply the five-star hotels and A list supermarkets but this should be validated prior to commitment. In the retail environment, some countries test-marketing efforts, followed by product withdrawal, have resulted in a reputation for unsustainability or insufficient commitment to
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the market. Market research prior to test-marketing is more effective and preserves brand equity. The Gulfood trade show is held annually during February in Dubai and is recognised as the focal point for the Middle East food and beverage industry. Many buyers and influencers from around the Middle East attend the event, a trade-only exhibition, which sees around 37,000 visitors. As well as the food exhibition (alcohol is not permitted), there is also an equipment exhibition and the Salon Culinaire chefs competition. Gulfood is a good platform for exposure to new products and brands

2.3

Distribution channels

The use of a local distributor is recommended in most cases and preferred by most buyers. There are a few volume buyers (such as airlines and supermarkets) who may request direct supply. In most cases a local distributor is preferred. Distributor margins vary from 10 to 50 percent, depending on marketing involved and whether the item is ambient or chilled. Foodservice distributors generally command 15 to 30 percent margin. In 2008 independent retailers took over from supermarket and hypermarkets as the main distribution channels for food holding 35 percent market share, up from 29 percent. Supermarket/hypermarkets dropped from 49 percent in 2007 to 34 percent for 2008. Convenience stores market share also grew to 21 percent for 2008 up from 12 percent in 2007. The small stores and outlets held steady making up the remaining market share.7 High freight costs associated with small sea freight shipments, coupled with market entry costs, can be prohibitively expensive for new products whose success in the market has yet to be proven. There are some options available in this regard for New Zealand suppliers, particularly for frozen goods (contact NZTE for further details). Standard payment terms are 60 days. The UAE experiences high temperatures (30 to 50C) and humidity for much of the year. Port and airport facilities are generally equipped to deal with this, as are most reputable distributors, but temperature-sensitive product should be protected for the lowest common denominator eventuality. In line with the wide variety of nationalities resident in the UAE, and the countrys rapid growth, the retail market is highly segmented with a large number of players. The retail shopping experience is centred around supermarket, hypermarket and convenience store shopping but there are also specialist retailers. The market has become one of destination shopping, a factor of extreme heat during the summer months, which rationalises the amount of time people spend outdoors. Recent years have seen the opening of a chain of organic stores independent of other retailers. The retail experience is relatively sophisticated in these stores, and pricing appears more elastic than elsewhere in the market, although it is still category-dependent.

Alcohol is not allowed in the food retail environment including as an ingredient. Some supermarkets retail pork but this must be located in a distinct area of the store (such as a separate room), which is marked as Pork in English and is off limits to the Muslim population. A strong price/quality relationship exists, and product that is sufficiently differentiated on a quality basis can command a higher price if supported by the consumer (or chef). In this regard, large brands tend to command a higher price at retail. This is particularly the case for large European brands. Although country of origin is perceived as being related to quality, and New Zealand items are generally regarded as high quality, this alone is insufficient to justify higher pricing.

3.0

REGULATORY OVERVIEW

The market for items such as pork is very small in the UAE pork fat and pork use as and ingredient is very restricted, only certain retailers and restaurants can sell it. There are stringent regulations around the supply, labelling and packaging of pork. All meat must be halal meat, there are exceptions for poultry and some non halal meat to be imported however it can only be sold in designated areas. Alcohol is also a small but growing market which is targeted at expatriates. There is no market for kosher food. 8

3.1

Duties/taxes

There is a standard five percent import duty charged on all foodstuffs entering the UAE. The exception is goods destined for duty free which do not officially enter the country. As a restricted item, alcohol is subject to higher duties up to 50 percent.

3.2

Regulatory requirements

All meat and meat products must be halal certified upon entry to the UAE. The only New Zealand certifying authority currently recognised by the UAE is FIANZ (www.fianz.co.nz). The exception to halal certification is pork and pork products, which are sold in some specifically licensed retail environments. Pork can be imported through normal channels but must have the word Pork as a prominent part of the food label. Arabic language cannot be used on pork products. Pork is also used in the restaurant environment (usually within appropriately licensed hotels), although menu items must be clearly marked as containing pork. As such, the market for pork in the UAE is small.8 During 2006, Dubai Municipality issued a decree stating that halal meat items may not use product names that are traditionally associated with pork, as they may be confusing to Muslims. As such, words like rasher, ham or bacon cannot be used in application to halal meat such as turkey or chicken. There are several banned colours, preservatives, antioxidants and non-nutritive sweeteners. Prospective suppliers who feel they may be affected should investigate further.

Following a decree issued in 2007, the importation of food into the UAE requires labelling in Arabic language. This is in line with neighbouring countries and represents a move towards GCC-wide standards. Production and expiry dates, in addition to the main product application and ingredients listing, must be in Arabic. Note that packaging or labelling which denotes product as kosher is likely to encounter delays upon clearance. Food imports are required to have both production and expiry dates printed on the product packaging itself not just on the carton. Adhesive labelling is not accepted, as it may be easily removed. Expiry dates are determined by the applicable municipal authority. In many cases, these are shorter in duration than the New Zealand or international standard.

3.3

Labelling requirements

Some of the general labelling requirements include information to be in Arabic with the 8 following detail: Product name Product description Ingredients listed in descending order of proportions Country of origin Net weight Manufactures export name and address All animal fats and their origins (should be all halal) Expiry date (dd/mm/yyyy) Preparation details List any ingredients that is known to cause allergic reactions

3.4

Industry standards

The industry standards are high and all regulations must be adhered to for the importation of food and beverages. There are stringent regulations and shorter shelf life requirements in comparison to international standards. The new/revised GSO 150/2007 (Expiration Periods of Food Products) came into force on 1 November 1, 2008 The UAE and other members of the GCC (Bahrain, Kuwait, Oman, Qatar and Saudi Arabia) are currently working on joint laws relating to labelling, shelf life and food safety for the region.8

4.0
4.1

RECOMMENDED STRATEGIES
Possible points of differentiation for NZ companies

Prospective suppliers should be aware that the UAE is a very competitive market. It is relatively close to European, African, and Asian suppliers, so the cost of freight added to New Zealand product makes market penetration for me too items very difficult. The same unique selling factors that allow New Zealand products to compete elsewhere, particularly in

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the European and US markets, will give them the necessary competitive advantage in the UAE and wider Gulf region. These unique selling factors may include innovation or uniqueness in ingredients, packaging, substantiated superior quality, product customisation or internationally recognised branding. Counter seasonality will work for some produce items, although the exclusive windows tend to be small with local production increasing over the winter months (New Zealand summer). New Zealand, through long association with meat and dairy supply, is positively regarded and this assists with a clean (disease free) and premium quality positioning that can be used in pitching, particularly with food service buyers, against other major suppliers. However, any price premium will require some other unique selling points to secure interest and suppliers must have a firm value proposition.

4.2

Tactical recommendations on market entry

New Zealand suppliers are advised to research the market thoroughly in order to approach it with a firm value proposition. Market research, including gaining an understanding of the product category and its competition, pricing and structure, is highly valuable. The Middle East is a relationship market and personal visits to customers are important. They will help to both gain an understanding of the market and also display commitment to the market to distributors and buyers. A visit around an event like Gulfood is a good way to establish what is in the market already and what competitors are looking to position. The selection of a distributor is critical and must fit the positioning, target market, and desired pricing of the product. There are few local distributors that are active marketers, so if a product requires the telling of a story to secure buy in, then the appointment of an order taker to support the exporters own marketing efforts (during frequent visits) is an option.

4.3

Recommendations on long-term strategic issues for exporters to consider

The UAE is a rapidly growing market both in volume and value terms. While volumes may not be large by developed market comparison, the opportunity is to get in on the ground floor and secure organic growth in both retail and food service applications. Middle East markets are of a size similar to New Zealand and, therefore, are suitable to a wider range of New Zealand suppliers. Dubai in particular is a showcase market for the region and success in Dubai can be leveraged over a two to five-year period to other surrounding countries aggregating to substantial volume potential. Markets such as Qatar and Bahrain are investing heavily in their aviation, tourism, and commerce sectors, and product that is successful in Dubai has a good chance of success in these markets in the medium term. While more conservative in its development, Saudi Arabia is the largest market in the GCC and its retail and foodservice sectors are similarly increasing in sophistication.
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5.0
5.1

MARKET RESOURCES AND CONTACTS

Government

UAE Government Portal: www.government.ae/gov/en/index.jsp UAE customs: www.customs.ae/E/whole.htm Ministry of Health: www.moh.gov.ae/en/default.aspx

5.2

Industry

Organic Foods and Caf, retailer website: www.organicfoodsandcafe.com Spinneys: www.spinneys.com Emirates Culinary Guild, a non for profit agency for Chef it promotes culinary development: www.emiratesculinaryguild.net/index.php

5.3

Trade publications

Caterer Middle East, Hotelier Middle East, and Retail News Middle East are regional F&B publications produced by ITP: www.itp.com Asia and Middle East Food Trade magazine provides information on food and beverage products: www.ameft.com/home.phtml

5.4

Trade events

Gulfood Held in Dubai every in February www.gulfood.com Ingredients Middle East (exhibition for food and health food products) Held in conjunction with Gulfood every year in February www.ingredientsme.com/Default_en_gb.aspx

Prepared by: New Zealand Trade and Enterprise, June, 2009

US. Department of Agriculture. United Arab Emirates : Agriculture Situation Exporters Guide for November 2008.
2

Datamonitor. Wine in the United Arab Emirates to 2012, February 2009.

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CIA World Fact Book Website. United Arab Emirates, updated bi-weekly, reference from: https://www.cia.gov/library/publications/the-world-factbook/geos/AE.html (17 June 2009)
4

Frost and Sullivan. Bottled Water Market Investment Analyst, 2008.

Datamonitor. Impact of the Global Economic Downturn on the UAE Consumer Retail Sector : Implications for 2009. March 2009. US. Department of Agriculture. United Arab Emirates: HRI Food Services Sector, March 2008. Datamonitor. Consumer Products Database.

US. Department of Agriculture. United Arab Emirates : FAIRS Country Annual Report, September 2008.

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