Market Assessment for Ready Meals (Frozen and Chilled) in KSA, 2020
Introduction
The growing population (forecast to reach 36.3 million by 2023) is driving KSA to be the largest food and beverages market in the Gulf region. This is offering investors sustainable growth from the mass market expansion perspective in the medium-to-long term.
In 2018, various factors influenced the rise of food sales in Saudi Arabia. The rise from 0.1% in 2018 to 8.3% in 2019 can be attributed to the following factors—10% increase in food imports, USD 70 billion spend on food consumption and attractiveness of the KSA food & beverages market in the Middle East during 2018–2019 (valued at USD 45 billion (SAR 169 billion). In addition, retail value growth in packaged food was high in 2018 due to higher unit prices, influx of religious tourists and brand loyalty of Saudi consumers.
Also, in 2018, the food industry contributed 10% to the Saudi GDP, with an average household spending of about 18% of its total expenditure on F&B products. As per the Saudi Arabia General Investment Authority, the country is expected to witness investments worth USD 59 billion (SAR 221 billion) till 2021.
Multiple shifts such as population growth, higher levels of disposable income, more working women, busier lifestyles, growing distribution and infrastructure, and convenience of frozen food are contributing to the growth of the category. The food retail market in Saudi Arabia is expected to post a CAGR of 5% by 2020. An important trend is the expansion of distribution networks for frozen food in supermarkets and hypermarkets in the region. As a result of this, in-store promotions boost sales in 2018.
Frozen Ready Meals vs. Chilled Ready Meals
The main difference between chilling and freezing is that of temperature. Chilled foods are stored at low temperature, while frozen foods are stored at temperatures below their freezing point. The frozen produce is immediately placed in the freezer after being picked, caught, dug up or slaughtered while Chilled food items are stored in the fridge (not the freezer) to keep them fresh and safe.
Ready Meals – Distribution Model
Ready meals are offered through three mediums — Retail Packs, Corporate Packs and Private Label. The food retail outlets in KSA offer a wide range of domestic and imported food products as well as organic food products. Most retailers (i.e., hypermarkets or supermarkets) have a shelf for ready meals in their frozen foods section. Corporate packaging is mainly tailored to meet the client’s needs. This model offers specialised packs in bulk for HORECA (hotels/restaurants/cafes) and corporate segments.
Growing popularity of modern retailing has strengthened demand for private-label products. Private-label food products are produced by one company, but packaged and sold by another company as its own brand. Private labels is still at the nascent stage in the KSA, but the trend is gradually sinking into the market.
Growth Drivers
Favourable demographic factors such as rise in women labour force, younger population and disposable income are stable growth drivers throughout the year.
The larger the population, the greater is the potential demand for ready meals. At present, Saudi Arabia has a young population, with 70% people under the age of 40. Growing population, rising disposable income, urbanisation and increasing nuclear families are expected to spur demand for ready meals in the country in the long term.
Riyadh and Jeddah have a large population due to intense business and political activity, while Makkah and Madinah are popular tourist destinations. According to CNBC, the KSA expects to be one of the top five global tourism destinations. Tourism is likely to contribute 10% to the GDP (more than USD 100 billion (SAR 375 billion)). Upcoming projects such as the Red Sea Project and Qiddiya Entertainment City will help boost urbanisation and attract more expatriates. In September 2019, the KSA government announced the launch of a new visa regime that will also allow visitors from 49 countries to apply for electronic visas which will be much easier and cheaper to obtain. There are various more liberalizing policies the KSA government is coming up with to boost the aviation and tourism sector. A boost in airline passenger traffic is likely to drive demand for ready meals since frozen ready meals are served to airline passengers.
The tourism industry depends on Hajj and Umrah pilgrims. The KSA expects to nearly double its foreign Umrah visitors to over 15 million in 2020 from 8 million in 2015. As Muslims are expected to fast from dawn to sunset during Ramadan, some consumers desire quick and easy full meal solutions. An important choice of meal during Ramadan is “ful medames”, which is consumed at iftar (the meal after sunset) and suhoor (the meal before dawn). These items are available in the ready meals format and offers convenience to consumers; hence, this is driving growth of the ready meals market.
In KSA, frozen food is more affordable than fresh food; also, frozen food has lower fat content than fresh food. Demand for vegetables and seafood is increasing due to the shift towards protein-rich diets. There is also an increased demand for exotic fish species such as shrimp and oysters, which turns out to be very expensive. In May 2018, prices of fruits and vegetables increased by about 200% in retail shops and supermarkets just before the start of Ramadan. These factors are influencing more people to choose ready meals over fresh produces.
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Incidences of lifestyle-related diseases such as diabetes have resulted in the KSA population becoming health conscious. This has led to an increased demand for healthier foods such as whole grains, organic food, fruits and vegetables. The rise of health-conscious consumers and their awareness about health issues such as celiac disease and lactose intolerance is driving the market for frozen ready meals since ready meals are safe to consume and maintain nutritional balance in the body.
Developments
Growth within the KSA frozen ready meals market is driven by diverse consumer groups with varying lifestyles and a growing demand for a wide range of cuisines.
- Innovation in packaging: modern consumers are attracted to quick packaged foods. As per a report, sales for such packaged foods will increase by 39% in 2021. Packaging firms are also adopting environment-friendly practices such as utilising less raw materials. Replacing the use of aluminium foil will be a priority as the material is not recyclable.
- Preservative-free food production: Food additives and preservatives have been used for centuries to enhance not only the appearance of food but also to enhance flavour and prolong shelf life. However, food manufacturers are now moving into production of healthier products – free from artificial additives, preservatives, and GMO. Claims such as ‘free of artificial colours’, ‘no added food additives’ and ‘non-GMO’ are commonly seen on food labels of ready meals.
- Technological advancements in freezing techniques: the KSA food industry is witnessing technological advancements in the food processing and packaging industry. Various freezing techniques such as air-blast freezers and tunnel freezers are used very commonly; this helps in increasing the shelf life of frozen foods.
- Growth in organised retail of ready meals: Most of the frozen ready meals are sold through super markets. The KSA cold chain market is driven by the rising demand for dairy, meat and pharmaceuticals and is fuelled by the increasing number of modern grocery super markets in the country. The level of demand for frozen ready meals from supermarkets influences the performance of the industry, as supermarkets and retail outlets are the direct market for the growing ready meals business.
- Government initiatives to provide ready meals for Hajj pilgrims: The KSA’s Hajj Ministry is initiating healthy meal options for hajj pilgrims and has supplied more than 2.3 million hygienic meals to pilgrims in 2018. Ready meals come in a range of flavors and are provided to 15% pilgrims as part of the ministry’s health and safety programme for pilgrims. The ministry has tie-ups with several suppliers to provide ready meals and is also open to more suppliers joining the project. Taj Food Factory is one such supplier committed to produce ready meals for Hajj pilgrims. The factory with 9,000 sq. m. size can accommodate up to 9 production lines, which can produce more than 12 million meals.
- Chilled lunch kits: Chilled lunch kits gained popularity in Saudi Arabia in 2018; this became a suitable snack for school children. La Vache Qui Rit Dip & Crunch, which dominates chilled lunch kits, contains biscuit and cheese and is considered healthy and fun to eat. Chilled lunch kits are also popular among travelers and for picnics, as they are easy to carry and taste good. This segment is likely to witness the fastest retail current value sales growth in 2018, albeit from a relatively low sales base.
Conclusion
Growth within the KSA frozen ready meals market is driven by diverse consumer groups with varying lifestyles and a growing demand for a wide range of cuisines. Favourable demographic factors such as rise in women labour force, younger population, convenience and disposable income are stable growth drivers throughout the year, while Ramadan is the seasonal growth driver for frozen ready meals market. We believe ready meals will continue to thrive and evolve through three mediums — Retail Packs, Corporate Packs and Private Labels going forward in KSA.
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