Bright Future for Foodservice In

TRENDS

Bright future for foodservice in KSA The Saudi quick service and fast dining market is still relatively small but has potential for growth, given rising disposable incomes and changing food patterns and dining habits in the Kingdom, especially among the youth

lasgow Consulting Group (GCG) estimates the Saudi market for Gquick service, fast casual and casual dining to be worth $3.3 billion, the per capita spend being around $115, a figure that rises to $147 if children aged under 10 years are excluded. The average is expected to reach $192 by 2017. Food operators are thus sanguine about the prospects of the Kingdom’s QSR and casual dining sector, which has been growing at a CAGR of 9.5% even during the global economic downturn of 2008-09. They see growth as having picked up to 12.7% in 2012, the current rate averaging 10-to-15%, catalysed by work and lifestyle changes that have led to changes in consumption patterns, more in-country travel and a higher frequency of eating out. But Saudi figures of average per capita spending on eating out are just a third or fourth of the world’s most developed QSR/casual dining market – the US, which range from $390 to $550. Clearly, / Shutterstock.com Studio Photo Yeko therefore, the size of the Saudi market growing numbers of teenagers familiar part of their sales accounted for by is still small by comparison so there are with international and local dining chicken burgers. good reasons to feel optimistic about its concepts. Table 4 gives a breakdown of the future growth potential, particularly since Arguably the key risk to the growth quick service and casual dining sector Saudi GDP per capita at $22,400 is still scenario is a collapse in oil prices, in 2012 by number of outlets and type of less than half that of the US ($48,100). which would have a negative impact on operation. Moreover, Saudi disposable incomes are disposable incomes and a knock down The total of 3,123 restaurants in the rising, with a higher proportion spent on effect on fast food consumption. But that Kingdom equates to slightly more than food outside the home even if restrictions seems a highly unlikely eventuality. 0.1 restaurants per 1,000 population, on social mixing and women driving tend compared to a figure of 0.5-to-1.0 to stifle this trend. Restaurant classification restaurants per 1,000 population in The eating out trend is supported by and offerings urbanised areas of the US (and over the continued opening of new shopping Restaurants and cafes are classified 1.0 in some counties). This implies the malls with food courts, fast food outlets according to their primary food offerings. Saudi market is far from saturated, by local and international chains, gradual Burgers are the most popular food type although Saudi restaurants seem to have relaxation of social restrictions and based on consumer spending, the biggest significantly higher revenues on average

44 MARCH 2014 www.imagesretailme.com TRENDS

than their American counterparts (taking total spend into account). One point, however, needs to be borne in mind. In many respects QSR restaurants are the quintessential eating places in the US but Saudi Arabia has more alternatives in its traditional Arabic style outlets. That could partly explain the difference in restaurant density, although it may not fully account for the five-to-tenfold difference.

Local chains take the competition to multinationals Restaurant chains compete for the ‘food riyals’ of consumers but many of them offering the same food type (eg burgers) are in direct competition with each other. Table 4: Saudi Arabia: Breakdown of Quick Service Table 1: KSA Quick Service, For example, McDonalds sees KFC (and Table 4:and Saudi Casual Arabia: Dining Break Chaindown Restaur of Quickants Service Fast Casual and Casual Dining Market 2008-2012 (SR billion) Al Baik in the Western region) as primary Table 1: KSA Quick Service, and Casual Diningby Type Chain, 2012 Restaurants competitors. / Shutterstock.com MNStudio Fast Casual and2008 Casual Dining2009 Mark2010et 2008-2012 2011 (SR2012 billion) CAGR FTaoodble 4:Ty Saudipe Arabia:Numberby Ty Breakpe Of, 2012down Outlets of Quick% of Ser Totalvice Table 5 compares the market shares of Table 1: KSA Quick Service, and Casual Dining Chain Restaurants the main brands/systems. T otal market size 20088.5 20099.1 20109.9 201111.0 201212.4 CA9.5%GR BurgerFood Ty pe Number588 Of Outlets % 19%of Total Fast Casual and Casual Dining Market 2008-2012 (SR billion) by Type, 2012 The QSR, fast casual and casual dining YTotaloY % market growth size 8.5 7.1%9.1 8.8%9.9 11.1%11.0 12.712.4% 9.5% InBurgerternational 588315 19%10% market is highly fragmented, with the 2008 2009 2010 2011 2012 CAGR Food Type Number Of Outlets % of Total combined sales of the Top 10 brands/ YPoYer capita % growth spend (SR) 324 7.1%340 8.8%361 11.1%391 12.7432% 7.5% LInocalternational brands 273315 10%9% Total market size 8.5 9.1 9.9 11.0 12.4 9.5% Burger 588 19% systems just exceeding half the total YPoYer capita % growth spend (SR) 324 4.9%340 6.2%361 8.3%391 10.5%432 7.5% PizzaLocal brands 503273 16%9% market. YoY % growth 7.1% 8.8% 11.1% 12.7% International 315 10% YoY % growth Source:4.9% GCG research and 6.2%estimates 8.3% 10.5% InPizzaternational 503443 16%14% GCG estimates Pizza Hut holds the Per capita spend (SR) 324 340 361 391 432 7.5% Local brands 273 9% largest market share of any brand Source: GCG research and estimates LInocalternational brands 44360 14%2% because of its large branch network (180 YToYable % 2:growth KSA Quick Service and Casual4.9% Dining6.2% Mark et8.3% 2013-2017 10.5% (SR billion) Pizza 503 16% branches) and relatively high average ChickLocal brandsen 35460 11%2% Table 2: KSA Quick Service andSource: Casual GCG research Dining and estimates Market 2013-2017 (SR billion) International 443 14% transaction value - a medium pizza 2013 2014 2015 2016 2017 CAGR InChickternationalen 354157 11%5% being priced between $8.5 and 10.4, T otal market size 201314.0 201415.9 201518.0 201620.3 201722.9 13.1%CAGR Local brands 60 2% considerably more than a standard burger Table 2: KSA Quick Service and Casual Dining Market 2013-2017 (SR billion) LInocalternational brands 197157 6%5% YTotaloY % market growth size 12.9%14.0 13.6%15.9 13.2%18.0 12.8%20.3 12.8%22.9 13.1% Chicken 354 11% or chicken meal. The Pizza Hut franchise 2013 2014 2015 2016 2017 CAGR SandwichLocal brands etc. 446197 14%6% is split between two franchisees – A&B International 157 5% PYoYer capita % growth spend (SR) 12.9%478 13.6%532 13.2%590 12.8%653 12.8%720 10.8% InSandwichternational etc. 446118 14%4% Shaker for urban areas and Jeddah and Total market size 14.0 15.9 18.0 20.3 22.9 13.1% Local brands 197 6% Mawarid Group elsewhere. YPoYer capita % growth spend (SR) 10.6%478 11.3%532 10.9%590 10.7%653 10.3%720 10.8% LInocalternational brands 328118 10%4% YoY % growth 12.9% 13.6% 13.2% 12.8% 12.8% Sandwich etc. 446 14% Local chain Herfy has the largest YoY % growth 10.6% Source:11.3% GCG research and10.9% estimates 10.7% 10.3% Per capita spend (SR) 478 532 590 653 720 10.8% AsianLocal brands 163328 10%5% branch network of any QSR chain (up Source: GCG research and estimates International 118 4% to 203 outlets in mid-2013) and outsells Table 3: Saudi Arabia: Size of Key Restaurant Sectors By Type, 2012 InAsianternational 1637 5%- YoY % growth 10.6% 11.3% 10.9% 10.7% 10.3% Local brands 328 10% McDonald’s (134 branches) despite SectorTa ble 3: Saudi Arabia: SizeSource: ofRev KeGCGenues researchy Restaur and (SRestimates Billion)ant Se ctors MarketBy Type Shar, 2012e (%) LInocalternational Brands 1567 5%- significantly lower sales per store. Asian 163 5% BurgersSector Revenues3.2 (SR Billion) Market26% Share (%) CoLocal ee/bak Brandsed 963156 31%5% Al Baik is the only one among the Table 3: Saudi Arabia: Size of Key Restaurant Sectors By Type, 2012 International 7 - leading brands that does not have BurgersPizza 2.93.2 23%26% InCoternational ee/baked 963493 31%16% a national presence – it has just 48 Sector Revenues (SR Billion) Market Share (%) Local Brands 156 5% ChickenPizza 2.32.9 19%23% LInocalternational Brands 470493 15%16% branches, all in the Western region. Burgers 3.2 26% Co ee/baked 963 31% However, it generates the highest revenue Sandwich,Chicken Subs & Shawarmas 1.22.3 10%19% CasualLocal Brands Dining 106470 15%3% per store of any QSR chain (estimated Pizza 2.9 23% International 493 16% CasualSandwich, dining Subs & Shawarmas 1.2 10% InCasualternational Dining 10677 3%2% at up to three times most QSR outlets), Chicken 2.3 19% Local Brands 470 15% which means it also narrowly outsells CoCasual ee anddining baked goods 1.01.2 10%8% LInocalternational Brands 2977 1%2% KFC, despite the latter’s more extensive Sandwich, Subs & Shawarmas 1.2 10% Casual Dining 106 3% AsianCo ee and baked goods 0.61.0 5%8% TLocalotal Brands 3,12329 100%1% branch network. Casual dining 1.2 10% International 77 2% Kudu is a locally developed brand with TAsianotal 12.40.6 100%5% InTotalternational 3,1231,610 100%52% Co ee and baked goods 1.0 8% Local Brands 29 1% a large branch network – 158 branches – Total Source: GCG research 12.4and estimates 100% LInocalternational brands 1,5131,610 48%52% Asian 0.6 5% Total 3,123 100% Source: GCG research and estimates Local brands Source: GCG 1,513research and estimates 48% Total 12.4 100% International 1,610 52% www.imagesretailme.com MARCH 2014 45 Source: GCG research and estimates Source: GCG research and estimates Local brands 1,513 48%

Source: GCG research and estimates Table 5: Saudi Arabia: Market Shares of TMainable 5: Restaur Saudi Arantabia: Systems Mark et(Rev Sharesenues) of SyMainstem/br Restaurandant SyMarkstemset (RevShareenues) % Table 5: Saudi Arabia: Market Shares of SyPIZZAstem/br HUT and Market8.0% Share % Main Restaurant Systems (Revenues) HERFYPIZZA HUT 7.5%8.0% System/brand Market Share % MCDONALD’SHERFY 6.9%7.5% PIZZA HUT 8.0% ALMCDONALD’S BAIK 5.6%6.9% HERFY 7.5% KFCAL BAIK 5.2%5.6% MCDONALD’S 6.9% KUDUKFC 5.1%5.2% AL BAIK 5.6% DOMINO’SKUDU 4.2%5.1% KFC 5.2% HARDEE’SDOMINO’S 3.2%4.2% KUDU 5.1% BURGERHARDEE’S KING 2.9%3.2% DOMINO’S 4.2% AlBURGER TAZAJ KING 2.4%2.9% HARDEE’S 3.2% OAlther TAZA J 49.0%2.4% BURGER KING 2.9% TOotalther 100% (SR49.0% 12.4 billion) Al TAZAJ 2.4% Total Source: GCG100% research and (SR estimates 12.4 billion) Other 49.0% Source: GCG research and estimates Total 100% (SR 12.4 billion)

Source: GCG research and estimates Table 4: Saudi Arabia: Breakdown of Quick Service Table 1: KSA Quick Service, and Casual Dining Chain Restaurants Fast Casual and Casual Dining Market 2008-2012 (SR billion) by Type, 2012 2008 2009 2010 2011 2012 CAGR Food Type Number Of Outlets % of Total Total market size 8.5 9.1 9.9 11.0 12.4 9.5% Burger 588 19% YoY % growth 7.1% 8.8% 11.1% 12.7% International 315 10% Per capita spend (SR) 324 340 361 391 432 7.5% Local brands 273 9% YoY % growth 4.9% 6.2% 8.3% 10.5% Pizza 503 16% Source: GCG research and estimates International 443 14% TRENDSLocal brands 60 2% Table 2: KSA Quick Service and Casual Dining Market 2013-2017 (SR billion) Chicken 354 11% 2013 2014 2015 2016 2017 CAGR International 157 5% Total market size 14.0 15.9 18.0 20.3 22.9 13.1% Local brands 197 6% YoY % growth 12.9% 13.6% 13.2% 12.8% 12.8% Sandwich etc. 446 14% Per capita spend (SR) 478 532 590 653 720 10.8% International 118 4% YoY % growth 10.6% 11.3% 10.9% 10.7% 10.3% Local brands 328 10% Source: GCG research and estimates Asian 163 5% Table 3: Saudi Arabia: Size of Key Restaurant Sectors By Type, 2012 International 7 - Sector Revenues (SR Billion) Market Share (%) Local Brands 156 5% Burgers 3.2 26% Co ee/baked 963 31% Pizza 2.9 23% International 493 16% Chicken 2.3 19% Local Brands 470 15% Sandwich, Subs & Shawarmas 1.2 10% Casual Dining 106 3% Casual dining 1.2 10% International 77 2% Co ee and baked goods 1.0 8% Local Brands 29 1%

Asian 0.6 5% Total 3,123 100% / Shutterstock.com Virissimo Joao Total 12.4 100% International 1,610 52% Source: GCG research and estimates Local brands 1,513 48%

Source: GCG research and estimates keko64 / Shutterstock.com

Table 5: Saudi Arabia: Market Shares of Main Restaurant Systems (Revenues) Table 4: Saudi Arabia: Breakdown of Quick Service TableSy 1:stem/br KSA Quickand Ser vicMarke, et Share % and Casual Dining Chain Restaurants Fast Casual and Casual Dining Market 2008-2012 (SR billion) PIZZA HUT 8.0% by Type, 2012 2008 HERFY2009 2010 20117.5% 2012 CAGR Food Type Number Of Outlets % of Total Total market size 8.5 9.1 9.9 11.0 12.4 9.5% Burger 588 19% MCDONALD’S 6.9% Saudi Arabia food YoY % growth AL BAIK7.1% 8.8% 11.1%5.6% 12.7% International 315 10% consumption trends Per capita spend (SR) 324 340 361 391 432 7.5% Local brands 273 9% KFC 5.2% Saudi Arabia continues to be the YoY % growth 4.9% 6.2% 8.3% 10.5% Pizza 503 16% KUDU 5.1% single-largest food market in the DOMINO’SSource: GCG research and estimates 4.2% International 443 14% GCC, accounting for more than HARDEE’S 3.2% Local brands 60 2% 60% of the region’s total food Table 2: KSA Quick Service and Casual Dining Market 2013-2017 (SR billion) consumption. The Kingdom’s total BURGER KING 2.9% Chicken 354 11% 2013 2014 2015 2016 2017 CAGR food consumption is estimated Al TAZAJ 2.4% International 157 5% Total market size 14.0 15.9 18.0 20.3 22.9 13.1% to grow at a CAGR of 2.6% during Other 49.0% Local brands 197 6% 2012–17, driven primarily by YoY % growth 12.9% 13.6% 13.2% 12.8% 12.8% Total 100% (SR 12.4 billion) Sandwich etc. 446 14% increasing population and per Per capita spend (SR) 478 532 590 653 720 10.8% capita income. Source: GCG research and estimates International 118 4% YoY % growth 10.6% 11.3% 10.9% 10.7% 10.3% Local brands 328 10% The Kingdom’s population is givingSource: GCG itresearch a leadingand estimates market position. Yum! expected to grow at a CAGR of 2.1% Asian 163 5% Brands claim a 13.2% market share owing between 2012-17, driven largely by Table 3: Saudi Arabia: Size of Key Restaurant Sectors By Type, 2012 to the strong position of its Pizza Hut and International 7 - higher life expectancy and lower Sector KFCRev franchises.enues (SR Billion) Market Share (%) Local Brands 156 5% infant mortality rate. Moreover, Burgers The success3.2 or failure of a 26% Co ee/baked 963 31% there will be an increase in urban restaurant chain is largely determined population, as more people migrate Pizza 2.9 23% International 493 16% by performance in four key areas: towards cities, which offer better Chicken concept, execution,2.3 restaurant network19% Local Brands 470 15% economic prospects and sustainable Sandwich, Subs & Shawarmas and marketing.1.2 The sustainability10% Casual Dining 106 3% infrastructure. In addition, given Casual dining of an existing1.2 business against new10% International 77 2% that it is the homeland for Islam, Co ee and baked goods competitors1.0 is determined by an 8% Local Brands 29 1% foreign tourist inflow into Saudi additional factor - the ability to erect Arabia has been increasing. All the Asian 0.6 5% Total 3,123 100% barriers against new competitors. It is above factors are likely to contribute Total prudent for12.4 any operator to continually100% International 1,610 52% largely to the growth in food reviewSource: GCG researchits performanceand estimates on these factors Local brands 1,513 48% consumption in Saudi.

against competitors. ■ Source: GCG research and estimates

46 MARCH 2014 www.imagesretailme.com Table 5: Saudi Arabia: Market Shares of Main Restaurant Systems (Revenues) System/brand Market Share % PIZZA HUT 8.0% HERFY 7.5% MCDONALD’S 6.9% AL BAIK 5.6% KFC 5.2% KUDU 5.1% DOMINO’S 4.2% HARDEE’S 3.2% BURGER KING 2.9% Al TAZAJ 2.4% Other 49.0% Total 100% (SR 12.4 billion)

Source: GCG research and estimates