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UAE’s food and beverage (F&B) industry is currently witnessing a boom in activity and average spend, brought on by staycations and pent-up demand, and experts see it staying steady this summer. Picture used for illustrative purposes. Image Credit: Bloomberg

Dubai: UAE continues to attract entrepreneurial interest and investment of food and beverage companies and investors from around the world. Let’s outline some of the key factors why.

UAE’s food and beverage (F&B) industry is currently witnessing a boom in activity and average spend, brought on by staycations and pent-up demand, and experts see it staying steady this summer.

With the presence of globally renowned food and beverage brands, the UAE has been at the forefront of the Food and Beverage (F&B) sector in the GCC region for years, among other industries in the country.

So, why is the F&B industry in the UAE ripe for investment?

1. Growth potential

It has been evident over the past years that growth within the GCC food and beverage market has been driven by its diverse consumer groups, which have an appetite for a wide range of cuisines.

The UAE, for example, is home to over 200 nationalities, while the number of tourists flocking to the country continues to grow every year.

Moreover, tourism experts evaluate how the UAE’s hospitality sector is in the midst of rapid expansion, with new hotels and restaurants looking to cater to the changing needs and demand of tourists.

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Tourism experts evaluate how the UAE’s hospitality sector is in the midst of rapid expansion, with new hotels and restaurants looking to cater to the changing needs and demand of tourists. Picture used for illustrative purposes.

2. Pace of recovery after pandemic slump

Most UAE sectors are recording steady growth, especially the F&B sector. Data released by the UAE federal statistics centre had recently indicated that during the month of May 2021 most industries in the country recorded their best performances since the start of the COVID-19 pandemic.

Like most other sectors, the food and beverage sector too recorded growth in May compared April. Moreover, analysts opine that the latest data from the Federal Competitiveness and Statistics Centre (FCSC) suggested that demand will further increase in the coming months across the board.

Like the UAE, many economies in the Middle East are geared towards long-term food and beverage growth, with targeted government policies to encourage foreign investment, tourism and a broader rise in economic growth.

Why did sector recovery speed up during COVID -19? Answer: Online sales
During the pandemic, consumer behaviour underwent a near-term dramatic shift and the majority of consumers reduced dining out and ordering in during the pandemic. However, surveys indicate that respondents are resuming pre-pandemic dining out habits since the start of 2021.

Online sales within the UAE’s food and beverage market surged 255 per cent year-over-year in 2020 to reach $412 million (Dh1.51 billion), analysis by Dubai Chamber of Commerce and Industry had revealed earlier this year.

The analysis predicted the value of online food and beverage sales in the country to reach $619 million (Dh2.27 billion) by 2025 and record an annual growth of 8.5 per cent over the 2020-2025 period.

Additionally, e-grocery gross merchandising value in the country has nearly doubled in recent years, supported by the COVID-led digital shift and changing consumer behaviours.
supermarket
How has the F&B sector fared so far during the current crisis?

COVID-19 Report Card: How has the F&B sector fared so far during the current crisis?

The above trends are in line with estimates according to Germany-based database Statista, which earlier saw revenue in the UAE Food & Beverages segment reaching Dh712 million in 2020.

By 2024, revenue is expected to show an annual growth rate of 20.2 per cent, resulting in a projected market volume of Dh1.5 billion, which was made up in online sales last year.

According to analysts at Anglo-Dutch advisory firm KPMG, as per their report that analysed 2019 and 2020 F&B sector trends, some F&B operators expect EXPO 2020’s delay to 2021 could provide a boost to the business as consumer demand normalises.

How the F&B sector performed across Dubai, Abu Dhabi in recent years
Given the sheer volume of tourists and size of the expatriate work force, Dubai represented a significantly larger portion of the UAE’s F&B market in 2019 – both in the number of transactions and share of the delivery segment, the KPMG report ‘Recipe for Resilience’ had revealed.

The KPMG analysis also showed that Abu Dhabi represented a better margin offering for operators. This is attributable to the lower pre-pandemic cost of rentals, utilities, trade licenses, and labour-related expenses (for example, transportation and accommodation).

“Dubai still boasted higher average spend per head in fine dining, as it is the gastronomic hub of the UAE,” the analysts noted. “Prior to the pandemic, operators also noted that with new openings and increased competition, it was more challenging to succeed in Dubai than in Abu Dhabi.”

“Despite these factors, operators have continued to focus on succeeding in Dubai, as it remains the region’s go-to city for most brands – international and regional – looking to establish a presence and grow in the Middle East.”
Customers queue to pay for groceries at a supermarket during a nationwide curfew to stem the spread of COVID-19 in the Saudi capital Riyadh, ahead of Ramadan. From cancelled iftar feasts to suspended mosque prayers, Muslims across the Middle East are bracing for a bleak month of Ramadan fasting as the pandemic lingers.
Picture used for illustrative purposes.

Other reasons why the UAE F&B sector bounced back quicker than analyst expectations

• Resilience: Retail segment within the F&B industry saw limited impact from COVID-19

A 2021 F&B market analysis conducted by logistics firms in the region indicated that within the F&B industry, it’s the retail sub-sector which has recorded the most growth. This is as food items have been bought in bulk in grocery stores by consumers who needed to replace eating out by cooking at home.

The analysis further showed that while long shelf-life products have gained nearly 20-25 per cent while other categories such as confectionaries have seen a decline of 30-35 per cent since the start of the pandemic.

From a business perspective, by experiencing an unexpected growing number of consumers virtually and physically, food retailers, however, have been facing other challenges such as meeting the increased demand for online orders and home delivery and provision of constant food supply. But this has to a larger extent also led retailers to adapt accordingly as well, research shows.

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UAE restaurants reworked their business models in 2021 after pandemic-induced industry slump

• Adaptability: UAE restaurants reworked their business models in 2021 after pandemic-induced industry slump

Cash flow issues were a serious matter for many F&B operators last year and as a result restaurants have increasingly become much more cost-efficient this year.

While COVID-19 imposed harsh and immediate realities for restaurants and the wider F&B industry, the ones to benefit were those that could rely on their order-and-deliver operations. But recent months have brought back partial cheers.

For 2021, business models that provide multiple revenue streams, not solely reliant on dine-in are more likely to survive, multiple industry analysts opine.

The market experts further evaluate how while there has been a general tightening up within the industry on all sorts of costs, with new locations opening, it will create opportunities to test the waters all over again.

Key takeaway: F&B near-term outlook brightens: Market analysis show UAE, GCC food sector to grow further in the years to come

Food consumption in the GCC is expected to grow at an annual rate of 3.3 per cent in 2023, Dubai-based Alpen Capital revealed in their last published F&B research note, with growing tourism, high per capita income and a sustained economic recovery are likely to drive the growth of the food sector in the region.

Being the staple food of the region, cereals are expected to remain the most consumed food category with a share of 48.2 per cent by 2023. Increasing demand for milk products will drive the growth of the dairy sector and consumption of egg, fish, potatoes and fats and oil will contribute to the growth.

Consumption of healthy and organic food is also likely to increase with growing awareness. However, the respective share of most food categories in the overall consumption is anticipated to remain broadly unchanged, the investment bank had evaluated in a note.

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What F&B sub-sectors are currently doing well, and expected to do well in the years to come?

What F&B sub-sectors are currently doing well, and expected to do well in the years to come?

According to UK-based market research firm Euromonitor, UAE retail sales of fresh food has been growing at an annual rate of 5 per cent and retail sales value of packaged food grew by around 4 per cent in recent years. Staple foods had the highest retail sales value and growth rate among the packaged food categories, followed by dairy, snacks, and cooking ingredients and meals.

Data also shows that in the fresh food category, the largest sales value was observed for meat, vegetables and fruits, but pulses had the highest growth rate of 7 per cent in the past 5 years. UAE retail sales of soft drinks has been averaging at a growth rate of around 6 per cent. The largest category in this group was bottled water, juice and carbonated water. It is also worth mentioning that Ready to Drink (RTD) coffee had the highest growth rate of 22 per cent.

When it comes to new trends, Euromonitor research continues to show that up and coming market segments are still doing well. Naturally healthy food (which includes sub-segments like nuts and seeds, high-fiber products, fruit snacks, olive oil, among others), organic foods, Free-From foods (which includes sub-segments like ‘Dairy Free’, ‘Gluten Free’, ‘Allergens Free’ and ‘Lactose Free’) have been growing at a rate of 10 per cent, 18 per cent and 19 per cent respectively – making them ideal investment-worthy sectors that have potential.

Investment opportunity trends for F&B Market, according to Euromonitor

According to Euromonitor’s forecast, UAE sales of packaged food, fresh food and soft drinks will grow by around 3.5 per cent, 5.2 per cent and 1.2 per cent, respectively, by 2023.

In packaged food, the growth of retail sales value will be the highest in staple food, followed by cooking ingredients, snacks and dairy. In fresh food, the largest growth is expected in meat, pulses, nuts and vegetables. Moreover, in soft drinks category, the largest growth will be in ready to drink (RTD) coffee, bottled water, concentrates, tea and other products.