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UAE, Dubai 2012 | INDUSTRY | FOCUS: FMCGS

Increased household consumption and expatriate wealth has driven trends in the FMCG market in recent years, and the sector is now employing record numbers.

While the real estate sector continues to recover following the global economic downturn, retail was alive and kicking in Dubai and across the UAE throughout 2011. Behind impressive growth of over 30% in UAE retail sales figures in 2011 are increased household spending, the growing wealth of the country's expatriate residents, and more widespread modern retailing concepts.

The UAE has one of largest mass grocery retail (MGR) sectors in the Gulf, with sales exceeding $5.3 billion in 2011, accounting for 69% of the total food and beverage market. The trend looks set to continue toward MGR, which should represent approximately 74% of the sector by 2015, according to Business Monitor International (BMI) data.

As sales grow, so does the workforce. Mark Timms, Director of the Gulf Recruitment Group, claims that “employers anticipate a continued hiring pace [in 2012], with the brightest job prospects reported by employers in the [FMCG], construction, and pharmaceutical sectors."

FMCG logistics spending is also on the up to cope with demand. Logistics spending is now expected to grow at a CAGR of 4.6% over the 2010-2014 period. Moving into 2011, non-refrigerated food led FMCG logistics spending with 43%. Non-food personal care followed next with a 22% share.

MARKET STRUCTURE & DRIVERS

In 2011, the UAE's packaged food market was valued at $2.5 billion. Bakery goods represented 23% of the market, followed by dairy (23%), dried processed food (20%), and confectionery (12%). The sector is firmly focused on supermarkets and hypermarkets, especially due to the high urbanization level of over 85%, as well as weather conditions, which make it difficult to sell fresh foods in non-refrigerated environments. Supermarkets and hypermarkets account for 81% of packaged food sales, followed by smaller grocery retailers at 10%. Overall, total sales through MGR totaled $8.1 billion, with hypermarkets occupying a 51% market share, followed by supermarkets (21%), small grocery retailers (16%), and food, drink, and tobacco specialists (12%). The small grocery retailer segment, unlike the supermarket and hypermarket segment, remains fragmented, with over 70% being independent operators. The MGR sector is headed by Carrefour, with a 21% market share, followed by Union Co-operative Society (10%), ADCOOP (7%), Lulu Hypermarket (6%), and Choithram (4%).

Sales of packaged food grew by 8.5% in 2011, with noodles and spreads experiencing the highest growth. Demand for convenience food such as frozen food and canned or preserved food also rose by over 10%, in response to longer hours worked by Emiratis and expatriates, according to New Zealand Trade and Enterprise. Fresh foods, except for meat and seafood, dropped over 2011, as the market trends toward convenient options thanks to demand from expatriates. In terms of growth, hypermarkets are recording the highest figures, growing 8% in 2010, taking market share aware from specialist stores.

Dubai Refreshments, one of the first industrial companies in the UAE, manufactures and distributes PepsiCo products in Dubai and the Northern Emirates. Indicative of the beverages industry, its turnover in 2011 was around $260 million, and, according to General Manager Tarek El Sakka, the company is constantly seeking new opportunities in the market. “However, it is difficult for us to operate in small niche sectors. We are looking for categories where we can leverage our vast manufacturing and distribution capabilities," he commented. The company is also gearing up to move its facilities to Dubai Investment Park, where it will occupy 1.4 million square feet of land. In terms of soft drinks, smaller producers are starting to gain a foothold in an industry dominated by global brands. “There were very few products in Dubai 20 years ago, with carbonated soft drinks dominating the beverage category. Today, there are hundreds of products including flavored water, juice drinks, sports drinks, flavored milks, and malt beverages," said El Sakka, concluding that, “this variety of drinks led people to experiment with new products. We must evolve with the market if we want to continue to be successful."

MARKET POTENTIAL & IMPORTS

With food consumption widely expected to increase at around 5% yearly until 2015, there is much potential for FMCG retailers and logistics firms alike. As the economy recovers further, demand for high-quality products will also rise, and Dubai will likely follow global trends into flavored waters and iced teas.

Although hypermarkets and supermarkets lead the way in growth expectations over the 2010-2015 period at 4% annually, the move toward convenience foods will also boost the growth of the convenience store sector. The UAE is an importer of food and beverages, importing $11 million worth in 2010. Due to the challenge of growing in the desert, fresh meat and vegetables are mostly imported, as are cereals, fruit and nuts, and confectionery. India is the country's biggest import partner in the FMCG sector, followed by Brazil and the US. Dubai's traditional trading partner, Iran, comes in fourth. The UAE, however, meets approximately 80% of its own demand for milk, under 50% for eggs, and 30% for red meat. It is also home to many global brands, many of which reside in Dubai Industrial City, a non-free zone development catering to industrial firms in manufacturing and logistics. By the end of 2011, 30 factories were in operation in zone, and it was home to around 50 logistics firms from the region.

Among Dubai's global brands are Kraft, Mars, and Néstle, which told TBY it forecasts double-digit growth in 2012. Behind the growth, said Yves Manghardt, Chairman & CEO, is the amount of investment being made. “The economy in the region is definitely picking up again," he added. However, increasing price controls by the UAE authorities is a cause for concern among some FMCG manufacturers. “It can be a drawback and this is something that the UAE has to manage more carefully," commented Manghardt, concluding, however, that the “UAE has been a very investment-friendly place and should remain so."