Saudi Food Industry’s Overview and Market Size Research Paper

Introduction

The food industry represents one of the cornerstone fields of any market, providing the population with a basic resource, namely, food. In the Saudi Arabian setting, the food industry has been flourishing, with the market expanding and companies producing increasingly diverse options for their target audiences. By considering some of the possibilities that the food industry opens, the KSA will be able to move away from its current oil-driven economy and accept a more sustainable approach toward building its economy.

Industry Overview and Market Size

In 2019, the Saudi food market reached the point of $31.76 billion. The outlined trend is likely to continue, with the current financial projections estimating a total of 39.89 billion to be reached by 2025 (“About Saudi food market,” 2020). The corresponding CAGR is believed to hit 12.22% at the specified time slot, which is a very impressive figure. Moreover, a total of 21,000 restaurants are expected to be operating in the KSA in 2020-2025.

Although state-owned companies play a big role in the economic development of the KSA, it is mostly the independent consumer food service that has been affecting the development of the KSA food industry. In 2019, the total share of the independent consumer food market had a total of 70.60% share, or USD 22.42 billion, in the KSA economy (“Saudi Arabia foodservice market – growth, trends and forecasts (2020 – 2025),” 2020). Nonetheless, even the specified stunning performance is believed to be overshadowed by the future accomplishments in the designated segment, which are believed to reach the CAGR of 13.08%. Therefore, future growth is expected to take place soon.

The extent to which customers engage with the food sector in the KSA is quite large. Namely, reports indicate that food-related products constitute approximately 18% of an average KSA family’s budget (Baig et al., 2019). Therefore, the domestic demand within the KSA food industry reaches 60% compared to the remaining 40% of the Gulf Cooperation Council (GCC) market. As a result, the food industry remains a lucrative investment area, which is why the Saudi Arabia General Investment Authority (SAGIA) has forecasted the extent of KSA’s investment in its food industry to reach $59 million by 2021 (Baig et al., 2019). Overall, the KSA food industry is extraordinarily impressive in its scale and efficacy.

The KSA weight loss market is often mentioned in tandem with its food industry for understandable reasons. Comparing the recent statistical data, the KSA weight loss market reached $957 million, and this number is expected to grow to $1,053 million by 2025, with its CAGR peaking at 7.9% on the specified time slot. However, even with the focus on the weight issue, the KSA food sector is likely to reach explosive growth in 2025, with the projected #7.84 million making the industry particularly lucrative.

Notably, the shift toward the consumption of organic and health product has become a noticeable trend in the KSA. It is believed that the levels of consumption of the specified product will exceed $27 million in 2025. In turn, the instructional food sector of the KSA has been evaluated as worthy of $6.71 billion in 20192, with the expected rise to $7.84 billion in 2025, and a CAGR of 10.87% in 2020-2025. Finally, the independent consumer sector of the food market’s worth was set at $22.42 billion in 2019, with the projected $27.82 billion for 2025 and a CAGR of 11.85% on the identified time slot (“Food and beverage industry global report — 2010,” 2011).

Market Dynamics

Market Drivers and Demands

As emphasized above, the food market of the KSA is one of the largest compared to the ones by which other industries are represented. The specified increase in sales correlates with the emergence of the younger KSA population and its focus on healthier and more balanced food. Indeed, looking closer at the KSA population, one will reveal that approximately 70% of it is under 30 years, which explains the rise in demand for healthy and organic food. Another important factor for the rapid development of the KSA food market, the introduction of its mobile element, is likely to witness rapid expansion and the introduction to every aspect of the KSA food economy. The described tendency in the Saudi food industry environment can be explained by the rise in the popularity of mobile food services as the path to healthy eating and improved quality. As a result, the rapid development of the KSA food industry is expected to be observed in the nearest time.

It is also believed that the younger demographic mentioned above will be the main vehicle behind the development of the described trends within the food industry, hence the anticipated rapid expansion of the food market in the KSA setting. Moreover, the fact that KSA is going to gradually move away from its oil-based economy toward a more versatile range of opportunities for economic growth contributes to the development of the food industry. Since the KSA government is currently ready and willing to invest in the development of private entrepreneurship, the younger population on is likely to use this opportunity to establish their retail organizations. Thus, the opportunities for the food service to flourish will be created.

The shift toward the evolution of the digital economy within the KSA is also likely to affect the increasing power of its food industry significantly. Since the current focus of private entrepreneurs lies primarily in the realm of online retail, the transitioning of the food industry to the specified setting will allow reducing the expenses, thus spurring the evolution of the food market. The rising purchasing power of buyers and the increase in the rates of Internet access among Saudi citizens has also contributed to the specified change in the economic development of the food sector. Indeed, the role of digital services and the Internet, in particular, has seen an exponential increase in the KSA environment over the past few years. As reports prove, the range of Internet users has increased from 60.5% in 2013 to 93.3% of the entire KSA population in 2018 (“About Saudi food market,” 2020). The described change implies that the expansion of the food industry into the digital realm and creation of online channels for food distribution, ordering, and delivery will help to boost its profitability.

Market Challenges

Import

However, the rapid evolution of the KSA food market mentioned above has not been devoid of any problems. Several concerns that may affect the further evolution of the KSA food market have been identified. The dependence on imports as the main source of the state’s economic development may result in the food industry seeing a demise if the states currently consuming KSA’s products start considering other options. Namely, KSA imports 80% of edible products, and leaves only 20% for the local food industry (“About Saudi food market,” 2020). The specified phenomenon is explained by poor conditions for growing and keeping food in the KSA environment. Scrutinizing the products that the KSA imports from other states, including Europe and the U.S., one will notice the prevalence of food items such as poultry and meat, especially beef, salad dressings and ketchup.

In addition, the KSA imports a variety of seafood, cheese and French fries, frying oil, seafood such as shrimp and salmon, mix buns, potato wiggles, fish, and a range of other types of food. However, it would be a mistake to presume that the KSA cannot produce any types of food independently from other states. The KSA is quite self-sufficient when it comes to dairy products, eggs, and dates. Nonetheless, the extraordinary dependence on extra items required for cooking basic dishes makes importing critical for KSA’s food industry.

Expenses

The issue of costs is another point of concern when it comes to discussing the KSA food industry. Namely, the fluctuations in the prices and costs for food and food-related services and products in the global market create substantial impediments for the KSA food industry to flourish. Moreover, the described issues in the international economy affect the expenses suffered by the KSA companies in the home market, as well as the prices that KSA companies set for local buyers (“About Saudi food market,” 2020). Therefore, the profit margins of KSA food manufacturers tend to shrink when the global market experiences economic challenges and shocks, which affects KSA organizations negatively.

At the same time, the fact that the KSA industry has proven to be so prolific encourages internationally companies to consider KSA food manufacturing firms as a sensible target for investments. As a result, KSA food organizations receive quite a lot of financial support from international firms, which leads to enhanced development. Moreover, several international companies have already contemplated acquiring KSA food manufacturing firms, which has contributed to the rise in the economic development of the state.

Suppliers

It will also be reasonable to consider the KSA food market from the perspective of supply-related issues. Restaurants, which are overwhelmingly represented by SMEs in the target economic context, have a considerably low bargaining powersince the amount of raw materials that they can buy from retailers is quite low compared to larger business entities. However, surprisingly enough, statistics shows that KSA food manufacturers also show low bargaining power of larger restaurants. However, since the Saudi food industry is represented vastly by a limited set of organizations, the opportunities for local restaurants to search for another supplier are limited (Vandevijvere et al., 2019). As a result, KSA food manufacturers mange to keep their profit margins wider, pursuing numerous opportunities and seeking expansion options.

In addition, the bargaining power of buyers is affected significantly in the food industry by the developments in the digital food market. Being eager to pay extra price to receive better services, customers create the environment where companies benefit substantially, gaining power in the food sector. Moreover, the digital environment is ripe with additional offers and opportunities for customers due to the reduced expenses compared to physical interactions with thousands of buyers. As a result, food manufacturers gain increasingly high control over the described interactions, thus building their bargaining power.

However, with the increase in the popularity of online food services and the products offered by companies in the digital realm, the extent of competition in the target market has increased stupendously. With the creation of new opportunities, more companies have emerged, creating extra chances for raising the bargaining power of suppliers. Furthermore, the demand for exotic products has made it possible for major food companies in the KSA to shine in the selected market. However, the ability to deliver exquisite and unusual dishes hinges on a firm’s ability to cooperate with its overseas partners effectively. Thus, food companies’ supply chains have to be extended to reach the global scale and built in the way that could allow them functioning properly. The described issue poses a massive challenge to the organizations that have troubles arranging their international communication process.

In addition, the current KSA food market setting does not have a fixed bargaining power of buyers. Instead, the specified concept fluctuates, ranging from low to medium high, depending on how vast the differentiation in the food offering is. Moreover, the areas where food services are numerous and focus on quantity rather thin quality, customers have extensive bargaining power. However, high rates of buyer information availability compared to moderately high buyer price sensitivity makes the functioning of KSA food organizations very lucrative, which means that new opportunities can be pursued in the designated industry. Given the lack of opportunity for buyers to switch costs or opt for a substitute, food organizations are going to flourish in the KSA environment in the future. Overall, large food organizations will inevitably stifle the performance of smaller businesses in the KSA economic context.

Market Opportunities and Future Trends

As emphasized above, the opportunities currently existing for the companies working in the KSA food industry are ample and worth examining in depth. As the overview of KSA food companies indicates, the focus on providing unique services to build a competitive advantage and become recognizable as a food service is the most profitable strategy for SMEs in the food market context of the KSA. The increased demand for organic and healthy food has contributed to a change in the performance of multiple KSA food manufacturers, who had to shift toward the specified healthier products, thus altering the type of supplies used. The resulting alterations in the supply chain of major companies may have caused certain disruptions, yet the firms in question have managed to overcome these hurdles for the most part.

In addition, food companies functioning in the KSA have been receiving substantial assistance from the KSA government. The observed trend was quite expected and reasonable given the huge boost that food organizations have given to the KSA economy and its GDP. Given the need to move away from the oil industry toward a set of more sustainable practices and sources of wealth has defined the KSA government’s willingness to accept the food industry as the next great chance at building competitiveness in the global setting. For instance, the presence of saving opportunities when purchasing large stocks of food for organizations working in the industry serves as a perfect way of drawing more entrepreneurs into the specified sector.

Specifically, an overview of the current KSA policies for purchasing supplies required by food manufacturers includes the reduced costs for land leasing, subsidized raw materials and equipment, and an array of other opportunities for saving expenses. At the same time, there is a plethora of impediments toward successful international trade for KSA food companies. For instance, the lack of transparency in the KSA tax policies creates a rather ambiguous environment, where some organizations may be unwilling to collaborate with the KSA food companies (Husain & Alnefaee, 2016). Nonetheless, the Saudi government has been applying extra efforts to improve the existing situation and promote better management of trading issues.

Specifically, the safety standards that the Saudi government has set as the principal concepts in the functioning of food organizations and the collaboration between KSA and overseas organizations are nearly impeccable. The current set of regulations allows minimizing the chance of fraud, offering audits and other tools for supervising the key processes within food organizations, especially the ones related to financial transactions. As a result, transparency and integrity are achieved in the KSA food sector.

Another important trend that is likely to affect the KSA food industry in the nearest future, the emergence of customers willing to pay extra for luxurious, exotic, or otherwise expensive products will redefine the industry. With the development of the specified demand, organizations will receive the boost for exploring other opportunities in food production, including the exploration of new cuisines and the search for exotic ingredients (Vandevijvere et al., 2019). The described changes to be observed in the KSA food sector are likely to spur an increase in global partnerships due to the need to seek ways of obtaining the said exotic raw materials and products. Therefore, it is believed that a range of KSA organizations working in the food sector will be able to expand their supply chains globally, embracing every opportunity to obtain the needed materials and products. As a result, the need to search for cheaper transportation options and the significance of consistent communication between KSA food organizations and their suppliers will be strongly required. Otherwise, misconceptions will occur, impeding the development of the said organizations and reducing customer satisfaction rates.

The focus on incorporating international cuisines into the range of services offered by KSA food companies as a supposition concerning the future development is also supported by the fact that global players currently view the KSA food sector as rather promising. Therefore, the ingesting options that the KSA food organizations can currently enjoy in the global market are rather ample. Moreover, the increase in demand for exotic product associated with a luxurious lifestyle allows organizations to expand the range of their products, as well as introduce new brands that will represent them in the global market in a different light (Husain & Alnefaee, 2016). The described change is instrumental in attracting new customers, which is critical since the new generation known as Generation Z is starting to gain agency and independence in the business realm. Thus, KSA food organizations will have to cater to their needs, which seem to involve appreciation for exotic experiences along with other specifics.

Conclusion

Overall, the current situation with the food industry in the KSA setting indicates that the state authorities may need to introduce extra measures to ensure that the transition from an oil-based industry to a more varied source of financial profit could be performed seamlessly. Namely, the enhancement of the food companies’ function should be carried out by shaping the existing policies and introducing extra measures for successful collaboration between KSA organizations and foreign companies in the global market. Thus, KSA food firms will gain a substantial competitive advantage, providing a massive source of income for the KSA. The reconsideration of the current policies should also be combined with revisiting the current taxation standards. It is crucial for KSA presently to create a friendly setting that will encourage companies to explore the food market and its opportunities, while providing the foundation for the future economic growth.

References

About Saudi food market. (2020). Web.

Baig, M. B., Al-Zahrani, K. H., Schneider, F., Straquadine, G. S. and Mourad, M. (2019). Food waste posing a serious threat to sustainability in the Kingdom of Saudi Arabia–A systematic review. Saudi Journal of Biological Sciences, 26(7), pp. 1743-1752.

Food and beverage industry global report — 2010 (2011). Web.

Husain, S. and Alnefaee, S. (2016). The effects of working capital management on profitability of firms: Evidence from agriculture and food industry of kingdom of Saudi Arabia. Journal of Emerging Issues in Economics, Finance and Banking (JEIEFB) An Online International Research Journal, 5(1), pp. 1684-1698.

Saudi Arabia foodservice market – growth, trends and forecasts (2020 – 2025). Web.

Vandevijvere, S., Jaacks, L. M., Monteiro, C. A., Moubarac, J. C., Girling‐Butcher, M., Lee, A. C.,… Swinburn, B. (2019). Global trends in ultraprocessed food and drink product sales and their association with adult body mass index trajectories. Obesity Reviews, 20, pp. 10-19.