Foodservice profile – Saudi Arabia

Macroeconomic profile and consumer trends

In 2019, Saudi Arabia's total population was 34.3 million people. The Saudi Arabian nominal gross domestic product (GDP) was US$793.0 billion. Consumers per-capita income continued to grow despite economic difficulties from 2014-2019. In 2019, however, the Saudi Arabian per-capita nominal GDP declined by 2.6% and continued to decline by −4.6% from $23,142.2 in 2019 to $22,082.2 in 2020.

Saudi Arabia's economic growth has been negatively impacted in 2020, mainly due to pandemic-related travel restrictions and oil output cuts. Being an oil-dependent nation and as the oil sector underperformed in 2019, the overall performance of its economy was highly dependent on other non-oil key sectors such as mining, construction, and logistics.^{Footnote 1}

Despite historically being a very religiously conservative nation, Saudi Arabia has opened up to the world with efforts to rejuvenate its culture by boosting tourism through its Vision 2030 program and by slowly opening up to the idea of introducing new (less conservative) family traditions such as giving greater autonomy to women by allowing women to drive, removing restrictions regarding segregated entrances and seating areas in distribution channels based on gender and marital status, and lifting the ban on movie theatres and concerts. These new reforms undertaken by the Ministry of Municipal and Rural Affairs in late 2019, to also uplift commerce through substantial changes in these reforms and privatization (ultimately to help in attracting foreign investments and new business establishments) will go a long way in altering the business of the foodservice industry in the country.^{Footnote 2}

The overall foodservice market

Amongst the two markets reported within the GCC region, Saudi Arabia was the largest foodservice market with a sales value of US$4.4 billion over the UAE at US$1.1 billion in 2019. Whereby, within the four markets reported throughout the Middle Eastern and North African (MENA) foodservice region, Egypt was the largest market with the highest growth at an historical CAGR of 15.1%, followed by the UAE at a CAGR of 5.1% between 2015 to 2019. Growth within the UAE is expected to increase by over double by a CAGR of 10.9%, while Egypt's growth will slightly slow down to 13.0% (2020-2024).

The Saudi foodservice profit operator sector has seen a sales value rise at a CAGR of 4.9% between the period of 2015-2019, reaching SAR72.4 billion in 2019. In hopes of increasing regular consumer visits to foodservice outlets with more affordable pricing, channel growth has been driven by improvements in domestic consumer demand, more by the number of transactions than change in the number of outlets, and by increases in private and/or independent operators in the country.

Albeit, due to tough economic conditions and an increase in prices due to the implementation of a value-added tax (VAT) of 5% in 2018 there has been a high disparity in consumer expenditure across all foodservice distribution channels, specifically affecting the more expensive FSR channel.^{Footnote 2}

In 2019, Saudi Arabia was the largest market for sales of non-alcoholic beverages at a value of US$1.7 billion. As Saudi Arabia remains a conservative, Islamic country, where alcohol or inebriation is completely banned, the UAE was the largest market with sales value of alcoholic beverages registering US$1.6 billion in 2019.

In 2019, restaurants for profit are Saudi's largest distribution channel with value sales of US$3.8 billion, representing a total share of 87.2% with a CAGR of 4.8% between the period of 2015-2019. Smaller foodservice channels in Saudi Arabia included on-trade profit retail distributors with value sales of US$160.1 million, followed by accommodation (US$155.6 million), and workplace operators (US$125.1 million). With initiatives to increase regular and affordable consumer visits to foodservice outlets, all subsectors are expected to grow by a CAGR from approximately 5-14% (2020-2024).

Within the restaurant channel, full-service (FSRs) and quick service/fast food restaurants (QSRs) were the largest outlets with respective sale values of US$2.7 billion and US$850.3 million, respectively in 2019. These top two outlets accounted for 93.4% (US$3.6 billion) of the total sales within the restaurant sector. Other outlets within this sector were coffee and tea shops accounting for 4.5% (US$168.6 million) and ice cream parlours at 2.1% (US$81.5 million), which is the outlet expected to register the highest growth by a CAGR of 18.9% between the 2020-2024 period.

Saudi Arabia's 2nd largest channel was the retail foodservice sector. The largest outlet within on-trade retail was bakery distributors, representing a share of 65.1% (US$104.2 million), followed by convenience store outlets at 13.2% (US$21.2 million), and on-trade sales within supermarket/hypermarket outlets at 11.4% (US$18.3 million) in 2019. Other smaller outlets within this channel consisted of the remaining share of 10.3% (US$16.5 million), which included service stations, department stores, delicatessens, and other non-specific retail foodservice types. All retail outlets are expected to grow at CAGRs between 5-8% from 2020-2024.

In 2019, accommodation outlets were Saudi Arabia's 3rd largest subsector within the foodservice industry. The largest outlet within the accommodation sector was hotel and motel services, representing a share of 50.9% (US$79.2 million), followed by guest house outlets at 22.9% (US$35.7 million), and holiday park outlets at 6.4% (US$9.9 million). Remaining outlets within accommodation services consisted of a share of 19.9% (US$31.0 million), which included bed and breakfasts, hostels, caravan parks, and other non-specific accommodation foodservice outlets. All of the accommodation outlets, along with the other smaller channel sectors such as retail/financial and office workplace cafés, travel, leisure, and mobile van operators are expected to increase the most by CAGRs between a range of 14.1% up to 19.6% during the 2020-2024 period (despite the drops in 2020).

Foodservice: chain franchises versus independent operators

Independent operators dominated the foodservice industry in Saudi Arabia with value sales of US$12.6 billion in 2019, an increase in growth rate of 4.9% from sales of US$10.4 billion in 2015. Consumers who are mostly inclined to visit independent channels mostly do so due to the uniqueness of food offered (57%), their belief in a higher quality product (51%), and their preference for niche/craft foods on offer in independent outlets (32%).^{Footnote 3} Comparatively from 2019 values, independent operator sales are forecast to decrease by −32.9% down to US$8.5 billion in 2020. Albeit, over the five-year forecast period (2020-2024) sales are expected to recover at a CAGR of 11.1% to reach a value of US$12.9 billion in 2024.

Independent mobile operators historically registered the highest growth rate of 57.2% (2015-2019) and is expected to continue to thrive as the leading outlet at a CAGR of 25.2% (2020-2024). All independent operator outlets are expected to grow at a rate over 10.2%, however, leisure (17.7%) and accommodation (15.5%) outlets are forecast to consist of the top three leaders in this profit channel sector.

In 2019, chain franchises in the Saudi Arabian foodservice industry had total value sales of US$5.6 billion with a CAGR of 7.1% (2015-2019) and an expected CAGR of 11.8% (2020-2024). Comparatively from 2019 values, chain profit operator sales are forecast to decrease by −30.5% down to US$3.9 billion in 2020. Albeit, over the five-year forecast period (2020-2024) sales are expected to recover at a CAGR of 11.8% to reach a value of US$6.1 billion in 2024.

Despite domination of independents, chained outlets are gaining popularity and is driven by multiple factors such as promotions, loyalty and incentive schemes, familiarity in the outlets, followed by the perception of these chains adhering to higher standards of regulations, cleanliness, and standardized offering.^{Footnote 3} Chain restaurant outlets historically registered the highest growth rate of 7.3% (2015-2019) at a chained share of 87.8% (US$4.9 billion) in 2019. All chained operator outlets are expected to grow at a rate over 11.3%, however, chained accommodation (18.1%), leisure (17.7%), on-trade retail (12.0%) outlets are forecast to be the top three leaders in this profit channel sector.

Note: Moving forward, values are reported in operator selling prices (OSP)

Channel growth will be driven mainly by the rising number of transactions, mostly from the increase of higher tourism rates and the growth in expected business visits to the country. However, the expected surge in average prices along with the introduction of the VAT consumption tax in 2018 will impact channel growth, and to a lesser extent, by possible decreases in domestic consumer spending. Nevertheless, momentum in growth should see continued rise in premiumization, resulting in the increased willingness for regular consumers to spend more.^{Footnote 2} In 2019, OSP sales within independent accommodation distribution channels brought in on-average the most value at US$68.3 per transaction, followed by restaurant (US$23.0), and leisure (US$22.0) channels that is expected to remain in this respective order between 2020-2024.

Independent OSP sales within accommodation outlets: Holiday parks were the highest charged sales value at US$15.7 per transaction, followed by hotels and motels (US$14.1), and caravan parks (US$9.5). Hotel and motel outlets experienced the highest price change (+16.2%), increasing from US$12.2 in 2015 to US$14.1 in 2019, followed by bed and breakfasts (+12.9%), and hostels (+11.6%).

Independent OSP sales within restaurant channels: Consumers in the FSR channel favor visiting an independent outlet over chained outlets (56% of those surveyed). This channel remains a largely traditional channel in Saudi Arabian foodservice, with consumers often visiting for its high quality, fine dining, food offering and quiet and peaceful atmosphere.^{Footnote 3} FSRs had the highest sales value of US$10.8 per transaction, followed by QSRs or fast food outlets (US$5.0), and coffee and tea shops (US$3.8) in 2019. FSR outlets experienced the highest price change (+12.5%), increasing from US$9.6 per transaction in 2015 to US$10.8 in 2019, followed by coffee and tea shops (+12.1%), QSRs (+8.2%), and ice cream parlours (+5.4%). This increasing price pressure on consumers due to economic duress and growth in international tourism are driving inclination towards casual dining formats.

Independent OSP sales within leisure channels: In 2019, visitor attraction sites charged the highest price with a sales value of US$11.1 per transaction, followed by entertainment outlets (US$6.2), and leisure venues (US$4.7). Entertainment outlets experienced the highest price change (+15.0%), increasing from US$5.4 per transaction in 2015 to US$6.2 in 2019, followed by leisure venues (+13.1%), and visitor attraction sites (+8.8%).

Historically, independent mobile operators brought in on-average the least OSP sales value at a total of US$8.1 per transaction in 2019. Albeit, mobile operators had the highest price change total (+132.4%), increasing from US$3.5 per transaction in 2015 to US$8.1 in 2019. During the period of 2020-2024, food prices within all independent foodservice profit channels are expected to significantly increase anywhere from 22.3% (mobile van operators) up to 56.2% (hotel and motel outlets).

In 2019, OSP sales within the chained accommodation distribution channels brought in on-average the most value at US$36.6 per transaction, followed by restaurant (US$25.8), and leisure (US$23.7) channel sectors that is forecast to remain in this respective order between 2020-2024.

Chained OSP sales within accommodation channels: Hotels and motels have the highest charged sales value at US$19.2 per transaction, followed by holiday parks (US$17.5) in 2019. Holiday parks had the highest price change (+16.4%), increasing from US$15.0 in 2015 to US$17.5 in 2019.

Chained OSP sales within restaurant channels: Chained restaurants will continue to infiltrate the FSR space with its unique food offerings, and its better value for money through promotions and loyalty schemes.^{Footnote 2} FSRs had the highest sales value of US$12.4 per transaction, followed by QSRs or fast food outlets (US$5.5), and coffee and tea shops (US$4.3) in 2019. FSR outlets experienced the highest price change (+25.3%), increasing from US$9.9 per transaction in 2015 to US$12.4, followed by ice cream parlours (+12.1%), QSRs (+11.6%), and coffee and tea shops (+11.4%).

Chained OSP sales within leisure channels: In 2019, visitor attraction sites had the highest sales value of US$11.7 per transaction, followed by entertainment outlets (US$6.3), and leisure venues (US$5.7).

Entertainment outlets experienced the highest price change (+16.4%), increasing from US$5.4 per transaction in 2015 to US$6.3 in 2019, followed by leisure venues (+13.1%), and visitor attraction sites (+9.0%).

Historically, on-trade chained retail distribution channels brought in on-average the least OSP sales value at a total of US$16.6 per transaction in 2019. Chain restaurant operators had the highest price change total (+17.8%), increasing from US$21.9 per transaction in 2015 to US$25.8 in 2019. During the period of 2020-2024, food prices within all chained foodservice profit channels are expected to significantly increase anywhere from 23.6% (coffee and tea shops) up to 59.7% (ice cream parlours).

Dine-in vs takeaway foodservice channels

Saudi Arabia's foodservice channels (dine-in and take-away) had OSP sales valued at US$19.3 billion in 2019. Once again, initiatives have been in place to encourage consumers to dine-out at more affordable prices, rather than cook at home. Fine dining remains the preferred format among most consumers, driven by continued demand for high quality meals. However, increasing prices are driving inclination towards casual dining formats. In 2019, 70% of consumers enjoyed their food on the premise, while 19% said they collected food from the restaurant for consumption elsewhere. Additionally, takeaway orders were primarily placed in-store and in-person (51%), while online ordering was preferred by 30% of consumers.^{Footnote 3}

Dine-in OSP sales were close to triple the value over take-away profit foodservices at US$14.0 billion, representing 72.4% of the market share in 2019 with a CAGR of 3.1% (2015-2019). During this 5-year period, take-away OSP sales have been growing the most at a CAGR of 13.5% reaching a value of US$5.3 billion in 2019 and is forecast to grow at a higher rate over dine-in services at a CAGR of 15.0% (2020-2024). Initially sales in both profit distribution channels are forecast to decline significantly by −32.8% from sales of US$19.3 billion in 2019 to US$13.0 billion in 2020, however, these foodservices are expected to recover at a CAGR of 11.5% to reach US$20.1 billion in 2024.

Top 10 foodservice companies in Saudi Arabia

In 2019, McDonald's was Saudi Arabia's top food service company with value sales of US$381.4 million, representing a 8.7% share of the foodservice market. Herfy was the second largest foodservice company with value sales of US$312.2 million, followed by Domino's Pizza (US$262.5 million), KFC (US$211.9 million), and Kudu (US$200.3 million). These top 5 company's, accounted for 31.4% of the total foodservice market in Saudi Arabia.

Company sales and shares from within the FSR channel is highly fragmented within Saudi Arabia. In 2019, the top FSR operators represented a total market share of 1.7%, which included Yum! Brands, Inc. (1.2%), followed by AmoHamza Seafood Restaurants Company (0.3%), Kabab House (0.14%), and DineEquity Inc. (0.10%). International brands are marking their presence, some examples include Applebee's, Outback Steak House, Chili's, and TGI Friday.

In Saudi Arabia, International company sales from within the QSR channel are growing including Domino's Pizza Inc. and KFC. In 2019, the top QSR operators represented a large market share of 31.4%, which included McDonald's (8.7%), Herfy - The Savola Group (7.2%), Domino's Pizza Inc. (6.0%), KFC (4.9%), and Kudu Restaurant (4.6%).

Time-poor experimenters (31%) willing to significantly over-trade with respect to their population share (in-line with their foodservice transaction shares), represent the largest consumer segment in the FSR channel in terms of transactions. Amongst those whom considerably under-trade in the channel and over-trade when compared to their population share were frugal convenience seekers (21%), and sporadic splurgers (18%). Whereby, the reverse is true for regimented routiners (17%) and inbetweeners (13%).

Although most frequented in evenings by all FSR segments, frugal convenience seekers (57%) are more likely to visit the channel during this time period for their main meal of the day (51% of transactions), than all other segments combined (52% evening - all). Time-poor experimenters represent the segment with the highest likelihood to visit the FSR channel between 11am-5pm, whereby still mainly visiting in the evening with a higher number of transactions being for light meal, snacking, sweet treat and a drink replacing a meal put together. Sporadic splurgers stand apart from other segments in their strong need to visit the FSR channel after 9pm at night, either for a main meal or light meals, snacking and drink base occasion (date visits account for 32% of transactions). Regimented routiners mainly visit between the evening and afternoon, slightly less than average for a main meal occasion and are more likely to visit for a sweet treat, where these consumers prefer the FSR channel over other segments to visit for socializing with colleagues. Inbetweeners are the smallest of the consumer segments and under-trade on both counts in terms of population and foodservice transaction shares. These consumers are more likely than other segments to visit for a main meal in the evening, however, they also overwhelmingly prefer the channel for a sweet treat (29% of the time) and are most likely to visit for a family outing and nourishment purposes.

Much of the FSR's channel business revolves around meals with family and partners, despite recent efforts to lift restrictions on women dining including segregation at entry and seating that previously restricted mingling between two genders. Target changes to the way women consumers interact within this channel is still a huge challenge for operators, forcing them to concentrate on strategizing around group visits as a

substantial number of the visits for a meal or outing, remain with family (42%), and another 23% for an outing with a partner. Of these visits, 38% were planned a day earlier, while 26% were planned the day of the visit and 16% of the visits were made out of impulse. The prevailing economic situation continues to have Saudi consumers be cautious in their spending and higher visits are encouraged by offering high quality meals, along with healthy options.^{Footnote 4}

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• GlobalData, March 2020. Saudi Arabia: The Future of Food Service to 2024

Foodservice profile – Saudi Arabia
Global Analysis Report

Prepared by: Erin-Ann Chauvin, International Market Research Analyst

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