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Al Masah Capital: GCC Foodservice Sector

August 2017

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GCC Foodservice Sector

GCC FOODSERVICE SECTOR

Market Overview

Foodservices sector is one of the fastest growing sectors in the world and this is

particularly true in the GCC. It has surfaced as one of the most promising sectors in the

region and has grown exponentially over the last few years, with the trends pointing

towards further growth. Despite a recent slowdown in the backdrop of sluggish

economic conditions, factors like favorable demographics, changing dietary habits and

preferences, rising tourist arrivals, and increasing penetration of organized retail formats

will continue to build hearty expectations. The region's foodservices sector will further

continue to be supported by higher disposable income due to a growing middle class

population and prevalently young demographics, who love to see new visually attractive

cooking processes and technology being used to make and serve food in an interesting

and appetizing manner. Thus, the demand for food is likely to continue growing in the

face of an expanding consumer base, with the region building a strong brand identity in

the foodservices space and will keep on strengthening its foothold in coming years.

Rapid urbanization in the GCC has resulted in major changes in work and life styles along

with changes in the consumption patterns, which has led to tremendous growth in the

‘eating out’ culture in the region. The high expat population has further added to the

demand for assorted global cuisines and new dining concepts. Additionally, owing to a

young population base, service providers are focusing more and more on creating new

concepts and brands in the F&B sector to attract this age group. With a concurrent

growth in the working population, the instances of business meetings, team lunches and

conferences have also increased. Consequently, as these favorable demographic trends

continue, the demand for the F&B sector will continue to increase across the region.

Since the industry has started gaining a substantial momentum in the past few years, the

market has witnessed strong growth in all food service categories, including Fine Dining,

Casual Dining, QSRs (Fast Food), Cafes and Bakeries, and Lounges/Bars.

Additionally, rising obesity rates and related lifestyle diseases coupled with growing

health awareness and a developing taste for a westernized diet in the GCC, introduced

by the increasing expatriate population, are bringing about a change in the region’s

dietary habits. This has led to the emergence of new concepts such as organic and

gluten-free food and healthy fast food choices such as salads and baked fries. In-line

with the healthy eating trend, food service operators are increasing their focus on locally

sourced ingredients and are continuously developing innovative set-ups to make the

eating and dining experience more appealing.

So far, the GCC countries have adopted a wealth of foodservice concepts from around

the globe, ranging from fast food franchises to celebrity chef-endorsed restaurants. This

is led by local operators who have partnered with international brands to boost the

destination’s dining credentials. Big brands and international chefs continue to

contribute, in a big way, in making the GCC a gastronomic hub, particularly in cities such

as Dubai, Abu Dhabi, Muscat and Doha. However, apart from the international brands,

even the home-grown brands across GCC are altering the dynamic of the regional dining

scene. The region is witnessing a phenomenon in the QSR segment, building a strong

momentum in concepts such as mobile food trucks and pop-up kiosks, especially in the

UAE where chefs and entrepreneurs are capitalizing on the country's international flavor

GCC foodservices sector well supported by booming population and growing tourism industry

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and spreading homegrown dining options. The encouraging initial response of the

concepts is likely to spread across the other GCC nations, going forward.

Moreover, as people become more tech-savvy and begin to value convenience and

speed of service, various online food ordering portals have emerged across the GCC. An

inclination towards home-grown brands and a thriving cafe culture are also playing a

role in shaping up the region's F&B market. Although the market is highly competitive,

huge opportunities still exist for well thought out foodservice concepts that deliver

consistently on service and quality in this demanding marketplace.

Per Capita Spend on Food in GCC

Around 25% of Saudi Arabia’s consumer expenditure was spent on food in 2015, the

highest in the region, equating to USD 2,063 per person. However, on the basis of per

capita annual spend on food, the UAE with USD 3,188 per person (representing around

14% of consumer expenditure) not only ranks first in the region, but is also above most

of the developed nations’, including the US (USD 2,438), the UK (USD 2,333) and Japan

(USD 2,605). Food is the largest segment of consumer expenditure in the GCC region and

stood at around USD 109 billion at 2015-end, equating to approximately 18% of the total

consumer spend, up significantly (50.4%) from USD 72.4 billion in 2009. Saudi Arabia and

the UAE, home to nearly 77% of the overall GCC population in 2016, together account

for 87% of the region’s total food expenditure.

Exhibit 1: Food & Beverages Expenditure in GCC (2010-15)

Source: USDA – ERS Food Expenditure Series, Al Masah Capital Research

Food consumption by volume in the GCC grew at a CAGR of 6%, to reach 45.8 million MT

in 2014. The 'MEED Insight Thought Leadership Report' further expects it to grow at a

CAGR of 4.5% until 2019 on the back of expanding population. Increasing tourist inflow

into the region could also stimulate food consumption, particularly of packaged foods

and restaurant meals. While Saudi Arabia accounts for the highest consumption, primary

owing to its large population base, the UAE’s share in overall food consumption has

decreased, while consumption in Kuwait and Qatar has increased considerably. Qatar is

proving to be fastest-growing food consumer market with growth primarily attributed to

the rapidly rising population due to the upcoming 2022 FIFA World Cup, which has

increased the inflow of foreign workers, mainly in the construction sector. The per capita

food consumption in the region averaged at 892.7 kg in 2014, with Saudi Arabia

-

0.5

1.0

1.5

2.0

2.5

3.0

3.5

4.0

2012 2013 2014 2015

UAE Saudi Arabia Bahrain Qatar Kuwait

Per Capita Annual Spend on F&B ('000)

14.3% 12.9%

18.7%18.2%

12.5% 11.7%

26.3%25.0%

14.5% 13.8%

10%

15%

20%

25%

30%

2010 2011 2012 2013 2014 2015

Bahrain KuwaitQatar Saudi ArabiaUAE

Share of Consumer Expenditure Spent on F&B

UAE has the highest per capita annual spend on food in GCC; even higher than developed nations

Saudi Arabia and the UAE are the largest food consuming countries in the GCC

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recording the highest levels (961.6 kg), followed by Kuwait (847.3 kg), and the UAE

(824.3 kg). Bahrain had the lowest per capita consumption at 492.5 kg.

Exhibit 2: Food Consumption in GCC (2009-14)

Source: IMF, Al Masah Capital Research

While the region’s food consumption was well supported by rapid increase in

population, a CAGR of ~4% between 2006 and 2016, GCC’s food production remained

restricted due to its arid climate, less arable land, and water scarcity, making the region

heavily reliant on imports (70% of total food requirement). In 2015, total food imports

reached USD 36.3 billion, growing at 7.7% Y-o-Y from the previous year. According to the

'MEED Insight Thought Leadership Report' , the GCC’s food import bill will reach USD

53.1 billion over the next few years.

Market Size and Structure

The GCC foodservice market was valued at USD 21.5 billion in 2016, up from around USD

16.5 billion in 2012, and is expected to grow at a CAGR of around 8% to reach USD 29.3

billion by 2020. The market had grown at a modest 6.8% CAGR since 2012 to reach USD

20.1 billion as of 2015, and is now expected to bolster on account of an estimated 25

million tourists to visit the EXPO 2020 in Dubai, increasing deal activity and investments

in the sector, and the influx of several global brands, coupled with the fast growing QSR

segment. Further, the foodservices sector is expected to witness considerable uptake on

the back of increased consumer spending in the next few years, which is expected to

grow at over 25% to reach around USD 136.1 billion by 2020. Most notably, the market

has grown substantially over the last couple of years, largely driven by the rapid

expansion of homegrown brands - well supported by the regional private equity (PE)

players who have clearly preferred to rebalance their portfolios by increasing their

investment focus in the foodservices sector, which is a defensive, non-cyclical sector,

amid rising volatility and decline in oil prices since 2014.

As of 2016, Saudi Arabia led the region with total foodservice sales of USD 10.8 billion,

accounting for approximately half of the total GCC market. The UAE was the second

largest contributor, with total sales of USD 6.7 billion, followed by Kuwait (USD 1.7

billion), Qatar (USD 1.5 billion), Oman (USD 0.5 billion), and Bahrain (USD 0.4 billion).

Even though the UAE makes up only 17.2% of the GCC population, 31% of the GCC

foodservices market takes place within the nation, which can be largely attributed to the

higher traffic of tourist arrivals in the country that pushes up the foodservices

consumption every year.

66%

18%

6%5%

4%

1% Saudi Arabia

UAE

Kuwait

Oman

Qatar

Bahrain

2009

65%

17%

7%

6%

4%

1%

2014

492.5

722.2

781.6

824.3

847.3

892.7

961.6

0 500 1000 1500

Bahrain

Qatar

Oman

UAE

Kuwait

GCC

Suadi Arabia

(in kg)

Per Capita Food Consumption in the GCC (2014)

GCC foodservice market was valued at USD 21.5 billion in 2016 and is expected to grow at a CAGR of 8% to reach ~USD 29.3 billion by 2020

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Exhibit 3: GCC Foodservice Market Size (2016)

Source: Al Masah Capital Research

The Fast food or Quick Service Restaurants (QSR) segment continues to dominate the

market, accounting for 58% (USD 12.5 billion) of the total GCC foodservices sales in

2016, followed by the Full Service Restaurant (FSR) segment with 31% share (USD 6.7

billion), while the Cafes & Bakery segment made up for the remaining 11% of the market

(USD 2.4 billion). Most notably, the FSR segment, which includes fine and casual dining,

is just over half the size (56.1%) of the QSR market.

Exhibit 4: GCC Fast Food and Full Service Restaurant Market Size (2016)


While the concept of fine dining is still confined to the affluent class and has not grown

radically in the last few years, the casual dining segment has been rising steadily with the

entry of new brands, backed by the rising mid-income populace, and their moderate

pricing which has a mass appeal. Although the GCC Cafes & Bakery segment sales has

remained relatively subdued, registering a CAGR of 7.5% over 2012-16, it has still

managed to outpace the QSR and FSR segments which grew by 7.4% and 6%,

respectively, over the same period. The Cafes & Bakery market size stands at

approximately USD 2.4 billion as of 2016, up from USD 1.8 billion in 2012, and is

expected to grow at around 3% CAGR to reach USD 2.75 billion by 2020.

Saudi Arabia, with a market size of USD 5.9 billion in 2016, was the region’s largest QSR

market (47.3% QSR market share), followed by the UAE with USD 3.9 billion (31.3% QSR

market share). Though American chains such as McDonald’s, KFC, Burger King and

Saudi Arabia, 5

0%

UAE, 31%

Kuwait, 8%

Qatar, 7%

Oman, 2%

Bahrain, 2%

Foodservice Market (by country)

USD 21.5billion

QSR, 58%

Full Service, 3

1%

Cafes & Bakery, 1

1%

Foodservice Market (by category)

USD 21.5 billion

5.9

3.73.9

1.9

1.2

0.51.0

0.40.3 0.10.2 0.10

1

2

3

4

5

6

Quick Service Restaurants Full Service Restaurants

Saudi Arabia UAE Kuwait Qatar Oman Bahrain

(USD bn)

QSR remains the largest segment, accounting for 58% of the GCC food services market in 2016

Saudi Arabia leads the region's QSR and FSR markets with the UAE quickly gaining ground

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Hardee’s dominate the region's QSR market, the segment has seen the entry of a large

number of local players capitalizing on the demand for Middle Eastern fast food.

Likewise, Saudi Arabia, with a market size of USD 3.7 billion in 2016, was also the

region’s largest FSR market (55.5% FSR market share), followed by the UAE with USD 1.9

billion, equating to 28.5% of the total GCC FSR market.

Exhibit 5: GCC Fast Food and Full Service Restaurant Market Share (2016)


A number of international QSR chains have flocked to the GCC, especially in Saudi Arabia

and the UAE, over the past few years, with specific cuisines and product offerings,

fuelling the market’s exponential growth. Even the home-grown QSR food operators,

especially in QSR segment, are rapidly rising in the region to benefit from the growing

demand for innovative food. The entry of a number of players into this space has

widened the market to USD 12.5 billion in 2016, up 32.6% from USD 9.4 billion in 2012.

On a similar note, the GCC FSR market too has witnessed the entry of a large number of

international chains setting their base in the UAE, Saudi Arabia and Kuwait, fuelling the

market with multi-cuisine and specialty food options. The GCC FSR market has grown by

over 26.2% to reach USD 6.7 billion in 2016 from USD 5.3 billion in 2012. Most notably,

in the last 3-4 years, the region, especially the UAE, has witnessed the establishment of

an increased number of celebrity chef restaurants. Due to increased influx of foreign

brands and chained restaurants, currently, only 20% of the UAE’s food sector is home-

grown, signifying the vast potential for local businesses to eat into the dominant

franchise market’s share.

The concept of restaurants has changed drastically in the region over the past few years,

from being a simple food place to an entertainment and enjoyment destination. With

the growing cultural diversity and greater recognition and preference for branded

products, international chains perceive tremendous growth potential in this region.

While the UAE and Saudi Arabia still remain the key growth markets in the region,

leading international and local chains are now increasingly focusing on Tier II GCC

countries and smaller cities for further expansion.

Saudi Arabia, 4

7.3%

UAE, 31.3%

Kuwait, 9.6%

Qatar, 8.0%

Oman, 2.4%

Bahrain, 1.6%

QSR Market Share (by country)

USD 12.5billion

Saudi Arabia, 5

5.5%UAE, 28.5

%

Kuwait, 7.5%

Qatar, 6.0%

Oman, 1.5%

Bahrain, 1.5%

FSR Market Share (by country)

USD 6.7 billion

The GCC QSR market has grown by 32.6% between 2012-16, compared to 26.2% growth in the FSR market

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INVESTMENT LANDSCAPE

Foodservices in GCC Offer an Attractive Investment Thesis

The GCC foodservices market has attracted investments from several international

restaurants and food chains, and this spurt is further expected to continue as the

countries are currently overlooking a market with possibly the lowest level of saturation.

As the GCC’s F&B sector continues to embark on its rapid growth trajectory, several

investors are eyeing a pie of the market share through M&A and PE deals, in addition to

opening company-owned outlets and franchise outlets in the region. Despite the

slowdown in broader economy, the region's foodservices sector has shown resilience

and continued to deliver healthy growth over the past couple of years, hence being the

sector with maximum expansion for most international brands. This was primarily driven

by favorable demographics and rising participation from the private sector.

Exhibit 6: GCC Equity Index Performance (Rebased to 100) 1

Source: Thomson Reuters, Al Masah Capital Research

The F&B sector primarily acts as a hedge against the cyclical sectors, which are highly

correlated to the oil prices, such as the Banking and Real Estate sectors. Since the

beginning of 2014, oil prices have nearly halved, impacting the leading indexes to fall by

around 15% until mid-Aug 2017, as regional equity markets have a larger weightage of

Petrochemical and Banking sector, both of which are cyclical in nature and are highly

correlated to movement in oil prices. On the contrary, the GCC F&B sector, being

defensive in nature, has remained resilient to rather grow by 4.5% during the same

period, primarily gaining momentum since the beginning of 2017.

Localization - The Franchise Concept

Most of the international brands prefer setting up base in the GCC through franchises as

local partners not only enable global brands to better navigate the bureaucracy involved

1*Dow Jones GCC Index measures the stocks in the region that are accessible to local investors and represents approximately 95% of the underlying market capitalization of the six countries. **GCC food service index has been calculated based on market capitalization of following companies: Kuwait Food Co, Herfy Food Services, Fawaz Abdulaziz Alhokair, Danah Al Safat Foodstuffs, United Foodstuff Industries Group, Almarai, Juhayna Food Industries, Agthia Group, Halwani Brothers, Savola Group, and Saudi Airlines Catering.

20

40

60

80

100

120

140

160

Dec

-13

Mar

-14

Jul-

14

Oct

-14

Jan

-15

Ap

r-15

Jul-

15

Oct

-15

Jan

-16

Ap

r-16

Jul-

16

Oct

-16

Jan

-17

Ap

r-17

Jul-

17

Dow Jones GCC Index* GCC F&B Index** Oil Prices

Despite the slowdown in broader economy, the region's foodservices sector has shown resilience

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in opening outlets but also to cater to regional consumers' demands. Notably, the QSR

segment is estimated to account for 40% of the franchising market in GCC, and experts

expect the region’s F&B franchises to grow by ~25% in the coming years, maintaining

their dominance. On the other hand, regional chains are also expanding operations in

the market on the back of increasing demand for Arabic food. Despite the market being

flooded with international brands, regional entrepreneurs are taking onto the

international competition and spreading restaurant chains serving local cuisine, such as

falafel, to overseas markets.

Some of the other notable family-owned franchise-holders in the GCC include:

Exhibit 7: Top Franchise Families in GCC


Most local franchisees are large companies, primarily family-owned businesses, with the

ability to invest heavily in building brands. As per Euromonitor, Kuwait Food Co.

(Americana Group) is the largest operator of restaurant chains in MENA and the only

player with double digit value share of 12% in 2015, representing key brands such as

KFC, Hardee's, TGIF, Krispy Kreme, and Pizza Hut, amongst others. With a network of

over 1,700 outlets as of 2015, Americana Group has developed 12 most recognised

brands under different food service categories, from fast food to fine dining. Based out

of Kuwait, the company has leveraged its strong understanding of the varied F&B tastes

and preferences of people in the GCC. This capability has enabled it to develop six of its

home-grown brands, including Chicken Tikka, Fish Market, Samadi, Maestro, Grand Cafe

and Fusion. The company has expanded operations across 13 countries and 105 cities.

Most of the international brands prefer setting up base in the GCC through franchises

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Another famous international retail franchise operator - MH Alshaya Co. has been a

pioneer in franchising and brought in several international brands such as Starbucks, The

Cheesecake Factory, etc. to the GCC countries. It has added several famous international

restaurant groups to its portfolio in the last few years, and is a trusted partner for

international chains looking for expansion in the region. The popular US chain - Raising

Cane’s (among the top five US QSR), with over 220 restaurants in the US, made its first

international debut in Sep. 2015 in Kuwait in partnership with Alshaya Co. Since its first

launch in 2015, it has opened six restaurants in the GCC and plans to continue further

expansion. In 2017, Alshaya Co. announced a partnership with award-winning Australian

chef Johnny Di Francesco to bring the 400 Gradi Italian restaurant brand to the Middle

East. Another significant deal was recently signed with the US-based Blaze Fast-Fire'd

Pizza to build and operate multiple Blaze Pizza restaurants across the MENA region, and

the first five restaurants are scheduled to open in Kuwait and the UAE in 2018.

Amongst the GCC nations, the UAE, especially Dubai, has been a launch pad for various

international F&B chains since long, while Kuwait has also started witnessing a surge in

international investors, after the promulgation of the country's Company Law which was

revised and simplified to provide a more realistic and practical perspective than the

previous law. Though the UAE has become an ideal destination for many international

brands, it does not allow foreign nationals or companies to directly carry out business in

the country - they can operate only through franchises which are run by local corporate

and family run businesses. Several of the notable UK and US casual restaurants and QSR

joints have inked multi-unit franchise agreements for expansion in the region in the last

few years. Franchising is expected to remain strong in consumer foodservice in the UAE

in the long run, primarily backed by government initiatives such as the launch of UAE

'Franchise Association' in 2004. The 'Franchising Middle East Exhibition' also continues to

be held annually in Dubai.

Additionally, Saudi Arabia with its number of expat workers and tourists has also been

an attractive destination for international casual and fast food restaurants to set shop.

According to the Oman Ministry of tourism, foreign investors from the UK, US and the

Middle East have expressed an interest in investing in the Sultanate's tourism and hotel

industry projects. However, the presence of international restaurants in Oman has been

negligible so far. On the other hand, Bahrain, which has been relatively unexplored by

international restaurant chains, has recently set foot to bring in US restaurants into the

country. First Bahrain and International Business Group (IBG) are set to introduce the

region's first branches of Jalapeño Charlie's and WildSide Texas BBQ in Bahrain.

Some of the recent international chains to establish their presence in the GCC and their

planned expansion are highlighted below:

The American fast-casual burger chain Mooyah Burgers, Fries and Shakes launched its

first outlet in Dubai’s Ibn Battuta mall in 2013, and has more than 6 restaurants in KSA

alone, with the most recent one being opened up in Jan 2017. It is owned and operated

by franchise partner Awgal investments, which entered into a multi-unit development

agreement with MENAFEX, Mooyah’s international development partner for the UAE.

The US fast food chain Smashburger began its expansion in the UAE and Qatar in

partnership with Pearl Investments in 2016. Together, they plan to open 26 restaurants

across the two countries over the next several years. 22 of the outlets will open in the

UAE and the remaining four restaurants will be located in Qatar.

Dubai has been a launch pad for various international F&B chains since long

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Indian cuisine is a favourite in the region and in July 2017, the award-winning, fine dining

Indian restaurant Khyber was launched in Dukes Dubai on the Palm Jumeirah.

The fondue restaurant chain, The Melting Pot Restaurants, announced plans to launch

its unique fondue dining experience to Qatar in February 2016 through a franchise

agreement with Al Amthal Hospitality (AAH). It is already operational in the UAE and

Saudi and this is going to be its first outlet in Qatar.

In 2016, the UK casual steak house group SteakOut announced plans to expand in the

Middle East and signed a master franchise agreement with an investor to open six

SteakOut restaurants in Middle East by 2017-end.

Another notable entry of a UK group is the CDG (Casual Dining Group), which entered

into an agreement with Riyadh based Fawaz Alhokair Group in 2016 to open 18 franchise

outlets of Bella Italia in Saudi Arabia alone.

In May 2016, Arby’s Restaurant Group announced its plans to expand in the GCC by

opening 25 new Arby’s restaurants in Kuwait and Saudi Arabia over the next seven years.

The Atlanta-based fast-food chain inked an international franchise development

agreement with Al-Kharafi Global General Trading & Contracting Co. for the expansion.

Al-Kharafi is also the largest international franchise partner of the US hamburger brand

Johnny Rockets and has opened more than 20 restaurants across Bahrain, Saudi, Kuwait

and Qatar since 1995, with about 10 new restaurants opened in the last 3-4 years alone.

Exhibit 8: International Brands with Strong Presence in the GCC


Apart from the family-owned firms, private investment firms (PE players) have also

started investing in the GCC foodservice market. Regional players have started focusing

on in middle-market chains, both local and international, with high growth and

established presence in the GCC.

Private Equity Deals (Acquisitions by PE Companies)

PE activity in the GCC foodservices sector has been ripe, with a total of 22 deals being

clocked between 2006–2017 YTD. Most notably, the deal activity has been robust in

recent years with 16 deals struck in the region since 2013. Over the last decade, NBK

A total of 22 PE deals were clocked between 2006-2017 YTD in the GCC foodservices sector

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Capital and AWJ Investments were the most active funds in the GCC foodservice sector

with completion of four deals each since 2012, including six deals in the Casual Dining

and two in the Bakery segments.

In terms of deals by country (of target company), UAE led the PE activity with a total of

12 deals, followed by Saudi Arabia (7), while Kuwait, Qatar and Bahrain witnessed one

deal each. Casual Dining was the most active segment accounting for 12 deals, followed

by eight deals in the fast food (QSR) segment, and two in the Bakery segment.

Exhibit 9: PE Deals in GCC’s Foodservices Sector (2006-2017 YTD)

Year Company Country Fund Category

May 2006 Rotana Hotel Management Corp PJSC UAE Shuaa Partners Fund I, LP Casual Dining

Apr 2010 Intercat Hospitality (LLC) UAE QInvest LLC QSR

Oct 2010 International Food Services Saudi Arabia GrowthGate Capital Corporation QSR

Jan 2011 Hassan Mohammed Jawad and Sons Bahrain Standard Chartered PE Casual Dining

Dec 2011 Alamar Foods Saudi Arabia Carlyle Group LP (MENA Fund) QSR

Aug 2012 Sanabel Al Salam Company for food Saudi Arabia NBK Capital Bakery

Feb 2013 Hungry Bunny Saudi Arabia International Investment Bank BSCc (IIB) & Tharawat Investment House

QSR

Jul 2013 Chef Middle East LLC UAE GC Equity Partners II Casual Dining

Oct 2013 Shakespeare and Co UAE NBK Capital Equity Partners (Fund II) Casual Dining

Mar 2014 Awani UAE Awj Investments Casual Dining

Mar 2014 Bahria UAE Awj Investments Casual Dining

Mar 2014 Operation Falafel UAE Awj Investments Casual Dining

Sep 2014 Al Faysal Bakery & Sweets Co. WLL Kuwait NBK Capital (Mezzanine Fund I) & Noor Kuwaiti LBO Fund, LP

Bakery

Jan 2015 Bateel Company Limited Saudi Arabia L Capital Asia LLC Casual Dining

Apr 2015 Kudu Corp Saudi Arabia Abraaj Capital, TPG Capital Management QSR

Jun 2015 Al Faris Restaurant (Johnny Rockets) UAE Diamond Lifestyle (Al Masah Capital) QSR

Jun 2015 Al Safadi Restaurants UAE Audacia Capital Ltd Casual Dining

Sep 2015 Shater Abbas Rest Intl Qatar First Investor QSC Casual Dining

Apr 2016 Amo Hamza Seafood Restaurants Co Saudi Arabia NBK Capital Equity Partners Fund II Casual Dining

May 2016 Cravia Inc LLC UAE Fajr Capital QSR, Café

Nov 2016 Catch 22 Restaurant LLC UAE Awj Investments LLC Casual Dining

Dec 2016 Yum Yum Tree Food Court Co UAE Global Capital Management QSR

Source: Zawya, Thomson Reuters, Thomson One Banker, Al Masah Capital Research; Data as of August 2017

Mergers & Acquisitions (within F&B Groups)

Owing to the burgeoning growth in the GCC foodservice sector, several investors have

turned their focus towards the industry to bolster their strengths by building onto

established core brands.

26 M&A deals took place in the GCC’s foodservice sector during 2010-17 YTD, of which 13 deals took place since the beginning of 2015

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A total of 26 M&A deals took place in the GCC’s foodservice sector during 2010-2017

YTD, of which 13 deals took place since the beginning of 2015, showing early signs of

consolidation in the market. Amongst the GCC nations, UAE was the most attractive

destination, accounting for 12 deals during the period, followed by Kuwait with three

deals, while Qatar and Saudi Arabia recorded one deal each. Of the total, nine were

outbound deals, of which five were recorded in the UK. Of the 26 deals completed

during the period, QSR was the most prominent segment with nine deals, followed by

Casual Dining, Fine Dining, Bakery, and Cafes/Bars, all recording four deals each during

the period.

Exhibit 10: M&A Activity in GCC’s Foodservices Sector (2010-2017 YTD)

Year Target Company Target

Country Acquirer Company

Acquirer Country

Deal Size (USD mn)

Segment

Jan 2010 Model Restaurants Co PLC Jordan Global MENA Macro Fund Co Bahrain NA QSR

Apr 2011 Al Oumara Bakery Co Lebanon Al Meera Consumer Goods Qatar NA Bakery

Apr 2011 800 Pizza UAE Belhasa Hospitality LLC UAE NA Casual Dining

Dec 2011 Leila Restaurant UAE Pinnacle Restaurant Management Co

UAE NA Casual Dining

May 2012 Banquets New Chicken Ltd UK Kout Food Group Kuwait 4.0 QSR

Sep 2012 Model Restaurants Co Jordan Jemball Holding Co Bahrain 1.9 QSR

Mar 2013 Galadari Brothers Group UAE Dunkin’ Brands Group US NA Bakery

May 2013 Marco Pierre White Grill & Sake House

UAE Rmal Hospitality PJSC UAE NA Fine Dining

Aug 2013 Gourmet Gulf LLC UAE MAF Ventures LLC UAE NA QSR

Aug 2013 Little Chef UK Kout Food Group Kuwait 23.0 QSR

Aug 2013 South West Coffee UK Kout Food Group Kuwait 4.9 Cafe

Jan 2014 Sushisamba UK Leemar Investments FZE UAE NA Fine Dining

Jul 2014 Coffee Snobs UK Kout Food Group Kuwait 8.2 Cafe

May 2015 Reem al Bawadi Group UAE Marka PJSC UAE 85.8 Casual Dining

Jun 2015 Al Oumara Bakeries Co LLC Qatar Qatar Quality Food LLC Qatar 0.8 Bakery

Jul 2015 VIP Room Facility Management UAE African & Eastern LLC Oman NA Bars/Lounges

Jul 2015 Bulldozer Group Investment UAE African & Eastern LLC Oman NA Fine/Casual

Dining

Jul 2015 Gourmet Gulf LLC-Morelli's Gelato Outlets

UAE Marka PJSC UAE 8.4 Cafe

Sep 2015 Aamal Holding Co KSC Kuwait Zima Holding Co KSC Holding Kuwait 6.0 QSR

Oct 2015 United Foodstuff Industries Kuwait Advantage Holding Co KSCC Kuwait 8.0 Bakery

Jan 2016 Novikov Restaurant LLC UAE African & Eastern LLC Oman NA Fine Dining

Mar 2016 Al-Thiqa Restaurants Co WLL Kuwait Baynunah for Investment Co UAE 19.0 QSR

Jun 2016 Sushi Art Group UAE Eathos UAE NA Casual Dining

Aug 2016 HungerStation KSA Hellofood (Saudi Arabia) KSA NA Online Food

Portal

Sep 2016 Mcdonalds Corp-South Africa South Africa

MSA Holdings UAE NA QSR

Jun 2017 Kcal Healthy Fastfood UAE Vis Mundi Ltd UAE NA QSR

Source: Zawya, Thomson Reuters, Thomson One Banker, Al Masah Capital Research; Data as of August 2017

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KEY GROWTH DRIVERS

Resilient Economy due to Diversification Strategy

Though the recent drop in oil prices since mid-2014 have weakened the region's GDP

growth in the short term, the GCC economy is expected to remain resilient and revive on

the back of supportive economic policies and growth in the non-oil sector. Over the last

decade (2006-16), it has grown at a CAGR of 5.2%, higher than the world GDP CAGR

growth of 4.3%, and is estimated to reach USD 1.9 trillion by 2021.

Exhibit 11: GDP, Current Prices (2010-21P)


While the GCC economies are clearly moving towards diversification, the structure of government budget and export revenues registered nominal changes over the past decade. For most GCC states, hydrocarbon revenues accounted for over 80% of total government revenues in 2014, while this figure was close to 70% for more diversified economies of Qatar and the UAE. While the economic diversification efforts have propelled the share of non-hydrocarbon GDP, its contribution to government revenues remains small primarily due to policy decision of maintaining a low or zero-tax environment to assist private sector activity.

Exhibit 12: GCC Per Capita Income (2016)


0.0

0.5

1.0

1.5

2.0

2010 2011 2012 2013 2014 2015 2016 2021P

Saudi Arabia UAE Qatar Kuwait Oman Bahrain

1.14

1.441.58 1.62 1.64

1.90

1.40

(USD tn)

1.35

14.9

20.1

22.3

27.1

37.6

59.3

25.1

36.8

38.9

39.9

41.457.5

0 10 20 30 40 50 60 70 80 90 100

Oman

Saudi Arabia

Bahrain

Kuwait

UAE

Qatar

GCC

France

Japan

UK

Germany

US (USD ‘000)

Continued GDP growth in the region has led to higher personal income levels, supporting the market for foodservice providers

GCC GDP is estimated to reach USD 1.9 trillion by 2021 from USD 1.35 trillion in 2016

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Despite the challenging economic scenario and a growing population, the region's

personal income levels have remained strong, supporting the market for foodservice

providers. Over the last decade (2006-16), the GCC’s per capita income grew at 1.2%

CAGR, pulled down slightly over the last couple of years due to the slowdown in

economy on the back of low oil prices, but still highlights the region’s rising affluence

levels. This in turn has drawn international as well as local F&B providers to establish and

expand their presence in the region.

Favorable Demographics with High Proportion of Expats

The region's rising population, well supported by its oil wealth and the government's

efforts toward economic diversification, is one of the key drivers of food consumption in

the GCC. During 2006-16, the GCC population grew at 3.9% CAGR, considerably higher

than in MENA (2.3%) and the world average of 1.3% during the same period. Moreover,

almost 37% of the region's population is aged between 15 and 34 years, mainly

comprising the young and the working, which supports the market’s shift in taste for

international brands and preference towards convenient and high quality food services.

Exhibit 13: GCC Expat Population (2016)

Source: National Institute of Statistics, Al Masah Capital Research

The region is also home to expatriates from over 200 countries, which account for 49%

of the total population and almost 80% of the workforce in the Gulf. The busy lifestyles

of expatriate groups help create demand for dining out, especially the casual restaurants

and fast food outlets.

Strong Investments in the Hospitality Sector

The hospitality and tourism market in the GCC is robust with huge potential for

investments from both local and global players. Many of the GCC countries are investing

heavily in the hospitality industry as a strategic initiative for economic diversification,

with the hotel and tourism being the key focus areas. While UAE and Saudi Arabia are

the key destination for tourism and luxury hotels, comprising a major chunk of the

market, Qatar, Oman and Bahrain have also identified this sector as a promising one to

fuel growth, and are taking measures to improve their market presence. There has been

a wave of investments to promote tourism and develop infrastructure to meet the

demand, boosted by several events and expos. This in turn led to a robust growth in the

foodservices sector in the region which reached USD 21.5 billion in 2016, and further

67.3%54.6% 48.0%

30.6%

11.5% 10.1%

51.0%

32.7%45.4% 52.0%

69.4%

88.5% 89.9%

49.0%

0%

20%

40%

60%

80%

100%

Saudi Arabia Oman Bahrain Kuwait UAE Qatar GCC

National Non-Nationals

49% of GCC population is made up of expats with Qatar and the UAE having the largest share

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expected to rise to USD 29.3 billion by 2020, growing at around 8% CAGR, propelled by

upcoming events such as the Expo 2020 Dubai and FIFA World Cup 2022, which will

make GCC a promising hub for investors and hospitality brands.

Exhibit 14: International Tourist Arrivals in GCC (in millions)

Source: The World Travel & Tourism Council (WTTC); Al Masah Capital Research

On an average, Saudi Arabia and the UAE receive more than 30 million tourists annually,

and accounted for more approximately 62% of the total tourist arrivals in the GCC in

2015. By 2020, the share of both the countries is expected to rise to approximately 64%

of the total GCC tourist arrivals. Further, according to The World Travel & Tourism

Council, the tourist arrivals in the region are expected grow at a CAGR of 5.7% during

2016-2026.

Exhibit 15: UAE Hotel and Retail Supply (2012-18F)

Source: Jones Lang LaSalle (JLL), Al Masah Capital Research

Malls and hotels are the most preferred locations in the GCC for restaurant operators to

set up their bases. There are several hotel and retail projects in the pipeline in GCC, with

UAE and Saudi leading the region. Dubai is likely to witness an addition of nearly 57,000

rooms in hotels and serviced apartments by 2020, while Saudi Arabia has a pipeline of

over 47,000 rooms. In Dubai, the hotels and tourism sector attracted large amount of

FDI in 2016 as recent developments have enabled the nation to scale up its position as a

global tourism destination. Many international brands have expanded into the GCC

region in the recent years, and groups like Hard Rock International chose Dubai to

21.0

14.511.4

5.4 3.1 2.2

27.4

20.0

12.1

5.8 4.0 5.00

5

10

15

20

25

30

Saudi Arabia UAE Bahrain Kuwait Qatar Oman

2015 2020F

15

,700

18,1

50

19,7

00

20,

700

23,

000

24,

600

25,9

00

-

5,000

10,000

15,000

20,000

25,000

30,000

20

12

20

13

20

14

20

15

20

16

201

7E

20

18F

Completed Future Supply

Abu Dhabi Hotel Supply (in no. of keys)

57,0

00

60,2

00

64,4

00

65,0

00

68,0

00

76,5

00

86,6

00

-

20,000

40,000

60,000

80,000

100,000

120,000

201

2

201

3

201

4

201

5

201

6

201

7E

20

18F


Dubai Hotel Supply (in no. of keys)

1,9

00

2,2

00

2,5

00

2,60

0

2,6

54

2,73

9

-

1,000

2,000

3,000

20

12

20

13

20

14

20

15

20

16

201

7E


Abu Dhabi Retail Supply (in '000 sqm)

2,80

0

2,90

0

2,90

0

2,90

0

3,0

94

3,5

13

-

1,000

2,000

3,000

4,000

201

2

201

3

201

4

201

5

201

6

201

7E


Dubai Retail Supply(in '000 sqm)

Tourist arrivals in Saudi Arabia and the UAE accounted for ~62% of the total in 2015

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develop its pioneering property in the Middle East. Additionally, Dubai’s AED 25 million

Mall of the World is a massive project which will add around 100 hotels to the Emirate

upon completion, and also be home to a plethora of regional and international

restaurants as its home.

Growth in population and personal incomes coupled with increasing consumer

preference toward modern retail outlets due to limited entertainment avenues, has

boosted the demand of hypermarkets and malls in the UAE and Saudi Arabia. The retail

supply in the UAE is expected to remain robust with Abu Dhabi's total GLA anticipated to

reach 2.82 million sqm by the end of 2017, while Dubai's total GLA is likely to reach 3.6

million sqm by the end of 2017, growing at a CAGR of 7.8% since 2015. On the other

hand, Saudi Arabia, one of the largest retail markets in the GCC, expects an addition of

372,000 sqm GLA by end of 2017 in Jeddah and Riyadh, cumulatively. This exponential

growth in development of retail space, which is mostly in the form of malls, present a

higher demand for foodservices outlets to be established in the space.

Exhibit 16: Saudi Arabia Hotel and Retail Supply (2012-18F)

Source: Jones Lang LaSalle (JLL), Al Masah Capital Research

Religious tourism is the key growth driver of Saudi Arabia’s foodservices sector. The new

Saudi government strategy, Vision 2030, aimed at diversifying the country’s economy

away from dependence on oil revenues from current 70% to 31% in a 15 year period,

envisages increasing the number of annual foreign Umrah pilgrims from the current 8

million to 15 million by the end of 2020 and to 30 million by 2030. The huge increase in

the number of foreign pilgrims and tourists is expected to drastically increase demand

for hotels, restaurants and imported food products in the coming years.

On the other hand, the rest of the GCC nations are also taking proactive measures to

encourage their tourism industry in a bid to diversify their economy, which will

resultantly positively affect the foodservices industry. The Qatar Tourism Authority

(QTA) aims at making tourism a sustainable business for the nation in line with the Qatar

National Vision 2030. According to MEED, the government has awarded more than USD

2.5 billion of tourism related contracts in 2014, and further expects a total of U.SD 135

billion to be pumped in the period between 2015 and 2020 as part of preparations for

the World Cup. The Bahrain tourism industry is going through a phase of expansion.

According to Bahrain EDB, the tourism sector has grown marginally, a 6 % increase in the

number of tourist arrivals between 2015 and 2016, with 12.2 million visitors in 2016.

Though Oman's hospitality industry is at a relatively nascent stage, the country is slowly

catching up with its peers. According to the World Travel and Tourism Council, Oman’s

7,40

0

9,50

0

9,90

0

10,1

00

13,0

00

15,5

00

18,2

00

-

2,000

4,000

6,000

8,000

10,000

12,000

14,000

16,000

18,000

20,000

2012

2013

2014

2015

2016

2017

E

2018

F


Riyadh Hotel Supply (in no. of keys)

6,80

0

7,30

0

8,50

0

8,50

0

10,9

00

11,9

00

13,8

00

-

2,000

4,000

6,000

8,000

10,000

12,000

14,000

16,000

18,000

2012

2013

2014

2015

2016

2017

E

2018

F


Jeddah Hotel Supply (in no. of keys)

1,20

0

1,30

0

1,40

0

1,40

0

1,49

5

1,71

8

-

500

1,000

1,500

2,000

2,500

2012

2013

2014

2015

2016

2017

E


Riyadh Retail Supply (in '000 sqm)

780

861

923

923

949 1,

150

-

200

400

600

800

1,000

1,200

1,400

2012

2013

2014

2015

2016

2017

E


Jeddah Retail Supply (in '000 sqm)

The UAE and Saudi governments are heavily investing in the hotel and retail space

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tourism and hospitality industry is building momentum, with total investment in the

sector expected to reach USD 1.2 billion by 2026, and the travel and tourism in the

country is expected to increase to USD 785 million in the next 10 years.

Saudi Arabia –National Transformation Programme 2020

The Saudi National Transformation Program (NTP), which is a part of the wider Vision

2030 strategy, was approved in April 2016 to reduce the dependence on oil revenues

and to diversify the economy of the nation. As a part of the initiative, it is boosting

tourism and has approved 13 initiatives submitted by the Saudi Commission for Tourism

& National Heritage (SCTH) with a budget of over USD 6.93 billion. The expected huge

expansion in the Umrah and Hajj sectors is expected to drastically boost the demand for

imported food products used in foodservice sector. In particular, the institutional food

service sector in Saudi Arabia is expected to have a strong growth in the next five years.

A strategic aim of the NTP 2020 is to capitalize on the Kingdom's Islamic position to

establish the Saudi Food and Drug Authority (SFDA) as the global reference for Halal

food and products, and engage both local and international investors for the same. It is

also encouraging private investment in the foodservices sector which will recover the

domestic market, which has been largely been devoid of any investments, and increase

spending power for consumers, thereby bringing back the confidence. The NTP also

includes an SAR 1.5 billion centre to be founded to battle obesity, a key health issue for

Saudis who have a penchant for fast food. Moreover, under Vision 2030, a program for

nationalizing employment in selected sectors was launched to help realize the potential

of specific sectors such as hospitality, foodservices, and retail in attracting national labor.

The goal of Saudi Arabia’s Nitaqat (Saudization) system is to reduce unemployment

among nationals by encouraging Saudi companies to maintain specific national-to-expat

employment ratios. It’s an especially challenging policy for restaurant operators,

considering 85% of employees in foodservice activities in 2015 were non-Saudi nationals.

Recently, the Ministry of Labor and Social Development announced that jobs in shopping

malls (where many restaurants are located) would be limited to Saudis only, marking yet

another hurdle for operators.

Expo 2020 Dubai

The upcoming Dubai Expo 2020 is expected to boost investment opportunities and

support infrastructure development in the country, with hospitality demand likely to

peak in that period. The impact on the tourism industry will be substantial and during

the six months of the Expo (October 2020 -April 2021), this event will attract more than

25 million visitors, of which 70% would comprise of international visitors, a record of the

largest number of international visitors in Expo history.

This would have a significant positive impact on the F&B industry and with the huge

inflow of people from around the world, there would be a massive demand for food and

beverages of assorted varieties during the expo. It is estimated that onsite sales of F&B

during the Expo itself would be around USD 544 million, thereby providing a promising

opportunity for local service providers to cater to the demand for food supply. F&B will

occupy a 30,000 sqm. space in the Expo and the food supply required at peak hours is

expected be enormous. As per official Expo statistics, it is estimated that 85,000 meals

will be needed to be served per hour. Though the event would primarily support home

grown brands and local restaurants to exhibit their talent during the show, it would also

Expo 2020 Dubai is likely to attract a record number of over 25 million visitors

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provide an opportunity for international brands and renowned chefs to enter the Dubai

restaurant scene, which is already popular as a destination for good food. There will be a

specific session during the event that will target SMEs in the F&B sector to explore

opportunities. The F&B session will be the latest edition of the Business Connect series,

which has been developed by Expo 2020 Dubai to connect with businesses and

encourage conversation, exchange ideas, share expertise and deliver the best solutions.

Qatar FIFA World Cup

Qatar is working seriously on economic diversification and has plans to expand its

tourism and hospitality sector to establish itself as a strong tourism hub in the GCC.

Qatar government has identified tourism development as a strategic initiative and the

Qatar Tourism Authority (QTA) targets to attract 7 million visitors per year by 2030.

Currently, Qatar predominantly attracts business tourists which constituted 75% of the

total visitors in 2013.

The upcoming FIFA world Cup in 2022 will bring in huge requirements in terms of hotels,

restaurants, cafes supply and hotel construction and will ensure that Qatar emerges as a

major player in the hospitality and franchise investment market in the GCC. With a surge

in hotels and hotel rooms, there would be a growing demand for restaurant and cafe

chains in the country as well which would strengthen the country's foodservices sector.

Several suppliers and international investors are now capitalizing on the opportunities

available in the country, and many international hotel and restaurant brands are

investing in Qatar due to the upcoming world cup.

There are nine stadiums hosting the FIFA 2022 and each of these would support the

development of hotels, malls and restaurants nearby. The QSR segment is likely to

witness high growth and investments, with many of the malls opening adjacent to the

stadiums holding food courts and food kiosks. The upcoming Mall of Qatar, which was

soft opened in 2016, once fully operational would be the largest in Qatar and is adjacent

to Ahmed bin Ali stadium, one of the host stadiums for FIFA 2022. It will have about 81

F&B outlets, which would include famous brands such as Eataly and Carluccio’s. The Al

Bayt stadium in Al Khor city is another important host stadium, and many retail areas

and restaurants are entering the scene not only for the FIFA but also for the local

community. There is a dearth of workforce in Qatar and the event has created job

opportunities across verticals, with the highest requirement in construction, hospitality

and the foodservices segments.

Food Festivals and Exhibitions

The increasing trend of organizing food festivals in the GCC has given a new dimension

to the region’s foodservices market, and has brought in many new concepts such as

gourmet restaurants featuring celebrity chefs, food trucks and other unique dining

experiences to the region. Both Dubai and Abu Dhabi host a number of food festivals

and trade shows, and these sustained efforts will continue to keep UAE on the top as a

popular tourist destination not only in GCC, but also globally. Saudi, Qatar, Kuwait and

Oman have also started hosting several food festivals and exhibitions to promote the

regional F&B segment.

Food festivals provide a great platform for smaller, innovative and new market entrants

to showcase their services. Below are some of the most notable annual food festivals

held in the GCC region:

The Qatar FIFA World Cup presents a unique opportunity for the regional foodservices market to grow

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Exhibit 17: Notable Food Festivals and Exhibitions in GCC

Source: Respective Food Festival Websites, Al Masah Capital Research

The Dubai Food Festival (DFF) hosted by the Dubai government is the truly the most

popular food fest of the Middle East, making Dubai as a gastronomic capital, and

promoting its foodservices sector. The festival hosts a number of food-related events

that aim to popularize Dubai’s unique restaurant and cuisine landscape. The Gulfood,

hosted in Dubai is the most important trade event for Saudi agribusiness, where more

than 4,500 Saudi companies attend the show every year. Another popular food festival

in the UAE is the Sharjah Food Festival which was first launched in 2007, and it has

grown significantly since then. The 10th

edition of the Food Festival was recently held in

April 2016 and featured a number of celebrity chefs, food trucks and innovative dining

concepts.

In Saudi Arabia, Jeddah Food Festival was held for the first time under the patronage of

Jeddah government in 2017. It is expected to become an annual event, with a mission to

promote the Saudi hospitality industry, attract foreign and local investments and

support domestic tourism. Oman also has a few upcoming conferences and exhibitions

in the F&B space and the country is advancing its foodservices segment considerably. A

major upcoming event is the 12th

edition of Food & Hospitality Oman that will be held at

the new Oman Convention and Exhibition Centre (OCEC) in October 2017. This

international trade exhibition is the biggest event in the F&B sector in Oman with more

than 500 international and local brands and entrepreneurs participating. Similarly Qatar

International Food Festival and Kuwait Food Festival are some other renowned festivals.

GCC food festivals provide a great platform for smaller, innovative and new market entrants to showcase their services

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TRENDS IN FOODSERVICES INDUSTRY

Rise in Demand for Healthy and Organic Food

With a growing incidence of lifestyle related diseases and a high rate of diabetes and

obesity in the GCC, there is a marked increase in demand for healthy and organic foods.

The region has some of the highest rates of obesity, diabetes and cardio-vascular

diseases in the world. The market for health and wellness food is growing strongly in the

GCC due to growing awareness about the benefits of healthy food among consumers,

and increasing media and government attention on health issues. As a result, premium

operators are adding healthier options to their menus such as salads, whole-wheat

dough and organic ingredients in an attempt to stay in line with this rising trend.

Although healthy eating is growing in popularity, it is still a niche market in the GCC

countries. While the foodservices industry has a key role to play in creating awareness

amongst consumers about healthier options, it is likely not to occupy a majority of the

market unless it consistently matches the price, taste and convenience offered by other

conventional formats. However, the market is growing slowly and is expected to grow

steadily in the next 4-5 years.

Exhibit 19 : Organic Food Consumption in the GCC (2009-18F)

Source: Frost & Sullivan, Al Masah Capital Research

According to Frost & Sullivan, the organic food market in the GCC is expected to reach

USD 1.5 billion by 2018, growing at a CAGR of 19.5% from USD 300 million in 2009 due

to changing consumer tastes and habits. Recognizing this demand, the regional

governments have been pursuing the development of organic farms. The number of

organic farms in the UAE rose to 39 covering a total of 3,920 hectares, marking an

increase of 1,698% since 2007 when just 218 hectares accounted for organic farming.

Furthermore, the UAE is quickly becoming a key market for organic products, as organic

exports from the US to Abu Dhabi increased by 346% from 2011 to 2014.

Gluten free foods have become a buzz word in the GCC and many restaurants are

serving gluten free options on their menu. California-based Lemonade recently opened

two branches in Dubai, Richy’s offers custom-made salads, while Circle has been

expanding its presence offering salads and bagels. With an increasing preference for

organic and healthy foods, not only is it available in retail outlets, but even mainstream

restaurants have started offering healthy options on their menu. Many fast food

restaurants sense the competition that healthy foods would proffer, and have thus

300

1,500

2009 2018F

(USD mn)

Organic food market in the GCC is expected to reach USD 1.5 billion by 2018, growing at a CAGR of 19.5% from USD 300 million in 2009

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revamped their menus to offer healthier options such as baked fries instead of french

fries, salads and fruits instead of empty calorie foods.

Rise in Street Food and Food-Truck Concepts

Food trucks and mobile food restaurants is a well established concept in countries such

as the US and the UK; however, it is only recently that the concept is emerging as a

attractive option for many service providers in the GCC region. The mobile food market

is gaining wide acceptance in the GCC region and has picked up a strong foothold in the

market. Though the food trucks concept is in nascent stage in the GCC and might not

offer any significant competition to other food service providers, it is a platform for new,

home grown entrants with many more players entering the food truck concept

competing for a small share of the basket. Food truck businesses in the GCC, especially in

the UAE, are expected to grow further as entrepreneurs seek a cheaper way to start

restaurants.

Exhibit 18: Food-truck destinations in the GCC

Country City Area Prominent Names

UAE

Dubai Last Exit - Street Food Truck Park

Jebel Ali E11, Al Qudra D63, Al Khawaneej D89, Jebel Ali Mad X

Dubai The Boardwalk Lavedette Grill, Bob's Fish & Chips, Pizzeria Pulcinella, Intucca Burger & Wraps, Mia Strada

Dubai Jumeirah SALT, M&M’s, Yumtingz, Yellow Brick Road

Abu Dhabi Al Mushrif SALT, Social Cocina,

Abu Dhabi Al Bateen Diet House, Ybala Karak, Quick Way

Abu Dhabi Multiple Locations

Street Bites, Big Tasty Truck

Saudi Arabia

Jeddah Multiple Locations

Chicken in Waffle, Coffeetruck, Xtremesso, Street Chef, Cakend more, Brainfreeze, Food Truck Park

Riyadh Multiple Locations

Zeno Pizza Truck, Amigos Mexican Cuisine, One Truck

Qatar

Doha Porto Arabia Pick N Shake, MD’s

Doha MIA Park Coffee-Bike, Dareen Sweets, Ice Rolls, Burger & Burmait, Poori & Karak


While the concept of food trucks has been in existence in Dubai for over 10 years now, it

was only in 2017 that Abu Dhabi granted the first permits for setting mobile restaurants

in the Emirate. According to Abu Dhabi Integrated Transport Centre, also known as

Mawaqif, the food trucks will get license to operate in specific locations outside Abu

Dhabi Island. The regulations are quite rigorous and food truck applicants have to secure

approvals from the Department of Economic Development, Abu Dhabi Police and Abu

Dhabi Food Control Authority. In Dubai, food trucks are gaining traction and have

mushroomed in the last two to three years. Meraas, the parent of theme parks operator

Dubai Parks and Resorts, opened 'The Last Exit' food truck park, on the Dubai-Abu Dhabi

highway, as a spin-off from the American idea. By 2017-end the company plans to open

nine more Last Exit destinations that would feature between 20 and 40 food trucks at

Food trucks are slowly gaining in popularity across the GCC, serving a range of global cuisines at reasonable price points

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each location. Conceived in line with Dubai’s tourism vision, Meraas opened the first Last

Exit in July 2016, which has 17 outlets.

Some of the most popular food trucks in UAE are The Salt, Big Smoke Burger, Yumtingz

(gourmet burgers), The Shebi (Indian- Lebanese fusion food run by Foodsters Inc), Calle

Tacos (Mexican), Casa Latina (Latino food), amongst others. While some of these have

permanent locations such as the 'food truck zone', most food trucks are seen in food

festivals, markets, concerts and social events, and tour around the city. Events such as

Truckers DXB and Street Food Market DXB have been hosted in Dubai recently where

talented food pop-up and food truck vendors are encouraged to promote their brands

and concepts and have been gaining popularity. In November 2016, an AED 150 million

Boardwalk at The Palm Jumeirah opened to the public which is a 11 km stretch, and has

more than 30 mobile food trucks offering an array of foods.

There has been an increase in the number of food trucks in carnivals at Saudi Arabia, and

food trucks garnered attention at the Al-Janadriyah festival that took place in February

2017. Saudi’s Vision 2030 has a focus on the opportunities for entertainment, and event

companies are organizing several carnivals and festivals, where street food and food

trucks have become common. The food truck scenario in Saudi Arabia is booming with

Riyadh and Jeddah witnessing highest growth of the mobile food concept. Renowned

chef Adnan Yamani, from the international television show Top Chef, also followed many

others and has a food truck which is one of the most popular burger joints in Jeddah.

Dubai based food truck operator, Roundup, recently opened an office in Riyadh and

entered into a deal with a Saudi Arabia-based company to expand its operations in the

Kingdom. The operator has already exported a few food trucks into Qatar, Bahrain and

Kuwait and is looking for partners to begin operations there.

Apart from the UAE, other GCC countries have been quite slow in the adoption of food

trucks and some of the regulations are still evolving. Qatar and Bahrain are emerging

destination for food trucks, and in 2016 Bahrain launched a food truck zone with four

operators, which include Gold Label Burgers offering crepes, burgers and Arabic food.

Other operators are Paco’s Tacos and Franky Joe’s, which participate in many events and

markets. Arab Street, Le Creperie, Terminal Burger and Seed are some of the other food

trucks recently launched in Bahrain. In a bid to control the number of food trucks, in

April 2017, Bahrain’s Industry, Commerce and Tourism Ministry passed a resolution,

which limits the ownership of mobile food restaurants and food trucks only to Bahrain

nationals. Doha, on the other hand, witnessed an explosion of food trucks in the last two

editions of the Qatar International Food Festival. Qatar launched its first food truck,

Burgeri in 2015 which has been doing rounds in Doha, and has been in existence as a

brick and mortar restaurant for quite some time now. In 2016, Qatar’s Ministry of

Economy and Commerce (MEC) announced that it would give five licenses to set up food

trucks in the country.

Changing Consumer Palates

Consumer profiles are evolving rapidly in the GCC and with an increase in income levels,

a growing cosmopolitan crowd and higher global exposure, customers are having varied

preferences in terms of cuisines, dining experiences and restaurant brands. Since the

GCC region is flooded with expat workers, there is an increases demand for assorted

cuisines and dining concepts. This in turn has boosted the growth of F&B outlets,

especially international brands which are creating a strong presence in the GCC. Since a

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23


majority of the expat population is from South Asia, mostly from India, Indian is the most

preferred cuisine in the region followed by Italian, Lebanese and Chinese.

Exhibit 19: Preferred Cuisines in the UAE (KPMG 2016 Survey)

Source: KPMG, Al Masah Capital Research

French cuisine is emerging in the region and spreading rapidly across the GCC. French

cuisine caters to all budgets and operates under different concepts, such as bakeries,

bistros and high end restaurants, and some brands are even bringing in Middle Eastern

flavor to their offerings. Japanese cuisine is gaining popularity due to its health appeal,

and many restaurants and kiosks offering Japanese food are sprouting across the region.

Though international cuisine is strongly present here, there is also a growth in

restaurants offering ethnic and fusion food with a Middle Eastern touch to it.

Celebrity Chef Restaurants Gaining Ground

There is a growing trend of celebrity chefs and Michelin Star chefs making appearance

on TV shows, events and even opening restaurants in the GCC countries. With

competition stiffening in the GCC food sector, many hotels and entrepreneurs are

banking on celebrity chefs as a viable commercial opportunity. Dubai has recently seen

an influx of famous international chefs, such as Heinz Beck, Jason Atherton and Gordon

Ramsay, amongst others. Celebrity chef and Michelin Star chefs such as Gary Rhodes,

Vineet Bhatia, Atul Kochhar and Pierre Gagnaire are some of the celebrity chefs running

successful restaurants across the region. Among the Michelin Star rated chefs, some of

the recent ones who expanded into the GCC are three Michelin-starred chef Jean-

Georges Vongerichten who opened two restaurant outlets in Dubai in 2015, and two-

Michelin starred chef Sergi Arola who launched his restaurant in Abu Dhabi in 2015.

An interesting feature of the food events and fest organized in the GCC is the growing

participation of celebrity chefs. Originating from the Dubai Food Festival, this concept is

gaining popularity among the people and many top celebrity chefs have established their

restaurants after appearing in these food festivals. Some of the top celeb chef

restaurants in the UAE include Bread Street Kitchen by Gordon Ramsay, Signature by

Sanjeev Kapoor, Nobu by Nobu Matsuhisa, Whitehouse Steakhouse and Grill by Marco

Pierre White/ Following this trend, popular chefs including Vineet Bhatia and Nirmine

Hanno Moreover marked their presence at the Sharjah Food Festival 2016.

20

30

31

33

18

47

29

97

51

110

84

235

24

24

22

32

48

38

52

55

117

105

161

105

17

23

25

28

61

44

63

54

101

111

147

80

0 50 100 150 200 250 300 350 400 450

French

Other European

Other East Asian

Japanese

North American

Emirati & GCC

Middle Eastern/ North African

Pakistani

Chinese

Lebanese

Italian

Indian

Choice 1

Choice 2

Choice 3

Indian continues to be the most preferred cuisine, largely driven by the huge population from the sub-continent country in the UAE

Several celebrity chefs have recently launched many of their brand concepts in the GCC, especially in the UAE

X

24


Exhibit 20: Notable Celebrity Chef Restaurants in GCC


Though the concept of celebrity chef restaurants is dominant in the UAE, Qatar and

Oman are also witnessing a surge in the number of restaurants of this concept. A good

example is Nobu Doha located in the Four Seasons Hotel in Doha, run by Nobuyuki

Matsuhisa, which is one of the largest celebrity chef restaurants globally.

Online Ordering & Takeaway Delivery Reshaping the Market

Technology is completely reinventing the modern dining experience and it has been

more prevalent in QSR segment. Delivery services such as UberEats, Deliveroo and

online ordering platforms like Zomato, talabat.com and foodonclick.com, are generating

a majority of the business, especially for many new restaurants. They are providing

technology that caters to the preferences of the modern consumers, such as

convenience, digital platform functionality, enhanced customisation and engagement

through rewards and loyalty programmes. According to the KPMG 2016 UAE F&B Survey

Report, nearly 75% of the respondents in the UAE order takeaway at least once a week.

The study also found that 82% of operators were listed with food delivery apps. Even

older restaurants like the India Palace chain, which has been operating for 20 years and

has 12 outlets, have started relying on deliveries for a significant amount of business.

Online ordering, mobile payments and delivery service together form the foundation of

the long-term growth opportunities in global foodservice. It is rising rapidly in the UAE

due to increasing internet and smartphone penetration. This has opened an additional

channel for players in consumer foodservice. Leading service providers have made this

area very competitive and they reported a substantial increase in the number of

restaurants signing up for these platforms. These services provide occasional free

deliveries and discounts for online payments, thereby posing a challenge for players

operating in 100% home delivery/takeaway. With food orders placed online and through

apps per month ranging in the thousands, the trend of online food ordering has caught

on in the UAE and expanding to other countries in the region too.

Technology is empowering consumers to make wiser decisions in selecting foodservices options

https://www.ubereats.com/en/dubai/

https://deliveroo.ae/?invite&utm_source=google&utm_medium=cpc&utm_term=deliveroo&utm_campaign=**%5eBrand%5eSearch%5eBrand%5eUnited%20Arab%20Emirates%5eAbu%20Dhabi%5e%5eExact%5e%5e%5e%5e&gclid=CjwKEAjw8ZzHBRCUwrrV59XinXUSJADSTE5kxBeLdNWSIPaNUXU0uLj7JRzeknm4j852gfcrqfYwsxoC4XLw_wcB

https://www.zomato.com/abudhabi

https://www.talabat.com/uae

https://foodonclick.com/

X

25


Exhibit 21: Usage of Smartphones for Foodservices in the UAE (KPMG 2016 Survey)


Sensing the opportunity in the region, new players are also continuing to enter this

segment. For example, Foodora, a Berlin-based start-up founded in October 2014 with a

focus on takeaway delivery, recently established itself in the UAE market. The

acquisitions of UAE’s 24h.ae by global online food delivery company - Food Panda,

acquisition of Kuwait-based talabat.com by Rocket Internet, and acquisition of Kuwait-

based food delivery platform Carriage by online food takeaway firm Delivery Hero,

highlights the market interest and growth potential in online food ordering business.

More recently, in August 2016, Food Panda merged its Saudi Arabian arm Hellofood with

Hungerstation, a KSA-based food delivery startup. The recent uptake in mergers signify

how consolidations is becoming common in the GCC food tech sector, with investment

action in new startups slowing down.

Exhibit 22: Top Foodservices Web Portals in GCC


7

19

178

55

112

124

238

17

39

75

182

125

142

146

22

42

76

127

149

209

126

0 100 200 300 400 500 600

Write restaurant reviews

Book tables at restaurants

Order meals

Read restaurant reviews

Look for discount, promotions & deals

Look for directions to restaurants

Find restaurants to try

Choice 1

Choice 2

Choice 3

Online food-delivery platforms are expanding choice and convenience, allowing customers to order from a wide array of restaurants

X

26


KEY GROWTH MARKETS IN THE REGION

UAE

The UAE’s Foodservices market grew the fastest among all the GCC countries, driven by

rising affluence, booming tourism sector and high expat population. It is the second

largest market in the region and as per Euromonitor, and is ranked amongst the top 20

countries in the world in the foodservice markets in 2015. According to the CBRE Middle

East, the UAE has the highest number of F&B outlets, per capita, in the world. About half

of the new retail brands setting up in Abu Dhabi and Dubai are either coffee shops or

other F&B outlets. Thus, even though the UAE makes up only 17.2% of the GCC

population, it accounts for 31% of the GCC foodservice market.

Foodservices Market Witnesses Exponential Growth

The UAE is one of the world’s leading foodservices market, with market size measured at

USD 6.7 billion in 2016. It expanded at a CAGR of 9.6% during 2012-2016 and is expected

to continue posting strong growth into the future. A growing and diverse population,

increasing tourist footfalls and improving living standards have significantly enhanced

the demand for foodservices in the UAE. With one of the largest proportion of expats in

the world (~88.5% in 2016), UAE’s population is very diverse, wealthy and well-travelled,

and thus the foodservice options have expanded rapidly to suit a myriad of tastes as well

as busy schedules. People are increasingly eating out or visiting cafes with family, friends

or colleagues; thus becoming a vital part of their lifestyle.

A strong tourism sector is yet another factor driving the nation’s flourishing foodservice

market. Dubai, one of the most prominent tourist destinations, attracted over 15.3

million visitors in 2016, up 7.5% from that in 2015. Furthermore, the UAE government's

focus on developing the tourism market will push the demand for the foodservice

industry. The city is now further gearing up to receive a footfall of about 20 million by

2020. Driven by this demand, the market is expected to reach USD 9.7 billion, by 2020.

Exhibit 23: UAE F&B Market by Category (2012-16)


The QSR segment is the country’s top growing category with the maximum share of

58.5% in 2016, followed by FSRs with a share of 28.5%, while Cafes & Bakery form 13%

of total sales.

62.8%

23.2%

14.0%

Fast Food

Full-service restuarants

Cafe's & Bakery

USD 4.6billion

2012

58.5%28.5%

13.0%

Fast Food


Cafe's & Bakery

USD 6.7billion

2016

UAE foodservices market stood at USD 6.7 billion in 2016, growing at 9.6% CAGR since 2012

X

27


The UAE market has been quite resilient in a challenging environment. Though the

foodservices market in the UAE got impacted by changing macroeconomic conditions, it

continues to benefit from UAE’s efforts towards diversification by positioning the

country as a major global tourism and retail destination with a diverse mix of cultures

and ethnicities. Additionally, even during the economic downturn, the convenience,

indulgence and social opportunities found in foodservice outweighed the cost savings of

cooking at home. In fact, Euromonitor predicts that with continued growth in affluence,

given the strong affinity for out-of-home dining, consumers in the UAE will prefer eating

out for a major part of their weekly meals. Its data suggest that a growth in revenue

between 2015 and 2020 is likely to outstrip the growth of outlets by around 30% on the

back of continuing strong tourism growth in the UAE in the run up to Expo 2020. There

are, however, a number of challenges which operators have to contend with including

increasing competition that puts pressure on both topline and overheads, most evident

from rising rents.

Notable Rise in Number of Outlets across Segments

The UAE’s robust foodservice landscape has placed the country as the third biggest F&B

spender in malls globally. Retail locations such as malls are the preferred places for

establishing foodservice outlets as nationals and tourists visit shopping malls for leisure

activities. As per Agriculture & Agri-Food Canada, the total number of outlets in the UAE

foodservice sector stood at over 5,813 in 2013 and is expected to rise to around 7,603

outlets by 2018, growing at a CAGR of 7%. By subsector, QSR establishments had the

highest number of outlets with 2,320, followed by Cafes & Bars (1,631) as of 2013.

Exhibit 24: UAE Foodservice Outlets by Subsector (2013-18F)

Source: Agriculture & Agri-Food Canada (UAE Foodservice Profile), Al Masah Capital Research

*Others include Home Delivery/ Takeaway, Street Stalls/ Kiosks, and Self Service Cafeterias

Most malls have plans to increase the number of F&B outlets to attract more visitors and

gain a higher share of tourist spending. The government is also investing in various

tourism and retail related projects which will push the F&B sector. There is projected to

be strong growth in the number of tourists over 2016-2020 as the country prepares for

Expo 2020 with the target expected to reach a milestone of 20 million visitors by 2020.

As a result there will also be a continuous increase in the number of expats from

Western countries, particularly as global economic challenges and the re-structuring of

2,3201,631 1,615

247

5,813

3,424

2,088 1,815

276

7,603

0

2,000

4,000

6,000

8,000

Fast

Fo

od

/ Q

SR

Caf

és/

Bar

s

FSR

Oth

ers*

Tota

l Co

nsu

mer

Fo

od

serv

ice

2013 2018F

UAE foodservices outlets are expected to grow at 6.1% CAGR to ~7,603 outlets by 2018

X

28


the EU impacts employment rates in their home countries. All of this is likely to support

flourishing growth in foodservices market.

QSR – The Dominating Foodservices Segment

The UAE witnessed strong demand and fast growth of QSRs amid a rise in disposable

income, establishment of extravagant shopping malls and a seemingly unquenchable

appetite for Western food concepts. Apart from this, with more and more women

entering the workforce, both dining out and bringing prepared food home several times

a week are becoming increasingly popular. The US brands dominates the fast-food

industry in the UAE with players such as Smash Burger, Shake Shack and IHOP operating

in the region. As per a study by CBRE, the topmost target market for American retailers

outside of their home region is London, followed by Dubai and Kuwait City.

Cuisines from all over the world are increasing in popularity in the UAE as it has become

a mini world with a multitude of nationalities and culture either residing or travelling to

the UAE, due to its myriad attractions and advantages. The premium, fast casual food

concepts in the UAE is growing at a much faster pace than any other segment in the food

sector with exponential growth anticipated over the next four to five years.

Total market size of the UAE QSR segment increased from USD 2.9 billion in 2012 to USD

3.9 billion in 2016, growing at a CAGR of 7.7%. The number of QSR outlets has increased

from 1,707 in 2008 to 3,325 in 2016 on the back of expansion of existing brands, as well

as new brands entering the fast growing segment in the UAE. As the UAE becomes the

culinary capital of the world, an industry survey by KPMG states that QSRs and Cafes will

continue to be the most popular formats in the UAE. By 2020, the fast food market in

the country is bound to grow by leaps and bounds and is expected to reach over USD 5.7

billion, primarily because of the scale and magnitude of world-class events such as Expo

2020 and the influx of several international and local chains, coupled with the rise of

food truck business in the country.

Exhibit 25: UAE QSR Market Size (2008-18F)

Source: Euromonitor, Al Masah Capital Research

A large share of the QSR market rests in major cities due to higher consumption and

heightened consumer awareness and is slowly now expanding into smaller cities with

smaller formats. It is majorly found in high footfall market or malls, densely populated

residential area or big office complexes, with malls being the most preferred location.

According to a UAE-based F&B strategy house - TRIBE, the UAE residents visit malls once

1.7 1.8 2.0 2.32.9 3.1 3.3 3.5

3.9 4.0 4.2

1,707 1,836 2,017

2,294 2,640 2,567

2,811 3,056

3,325 3,595 3,700

-

500

1,000

1,500

2,000

2,500

3,000

3,500

4,000

0.0

1.0

2.0

3.0

4.0

5.0

2008 2009 2010 2011 2012 2013 2014 2015 2016 2017E 2018F

Market Size (USD bn) No. of Outlets

(USD bn)

UAE QSR segment increased from USD 2.9 billion in 2012 to USD 3.9 billion in 2016, growing at a CAGR of 7.7%

X

29


a week, with 60–70% availing Casual Dining or QSR services. As per a CBRE study, UAE

residents are the third biggest spenders on F&B worldwide with 60% of consumers

visiting a mall just to eat or drink, in contrast to 25% in the UK. Most notably, F&B

accounts for more than 20% of the retail mix in Dubai and is expected to grow to around

25-30% in the next five years.

Exhibit 26: Share of QSR Sales by Outlet Location in the UAE (2008-15)


Within QSR, eat-in format is the most prominent in Self-service Cafeterias (97.5%),

followed by Cafes & bars (89.8%), and Fast Food segment (51.4%). On the other hand,

takeaway format dominates street stalls/kiosk, and forms a formidable portion of the

Fast Food segment.

Exhibit 27: QSR Sub-segment Sales by Formats (2015)


Based on food type, the fast food market can be segmented into (i) Burgers, (ii) Middle

Eastern, (iii) Chicken, (iv) Bakery, (v) Asian (vi) Ice cream (vii) Latin American and (viii)

others. According to Euromonitor, burger forms the largest segment of UAE's fast food

market, accounting for ~31% of sales in 2015, and is expected to contribute ~32% of the

total by 2018. Considering the growing number of Middle Eastern food joints in the UAE,

the stores are expected to contribute ~22.4% of the sales in 2018, up from ~21% in 2015.

McDonald’s is the leading brand in the burger fast food category, followed by Burger

King, Hardee’s and Wendy’s. In 2015, KFC was the top brand in the chicken fast food

category. Moreover, the Middle Eastern cuisine is quite prevalent in the UAE, dominated

56

.8%

58

.0%

59

.2%

60

.4%

61

.6%

62

.8%

64

.0%

65

.2%

43

.2%

42

.0%

40

.8%

39

.6%

38

.4%

37

.2%

36

.0%

34

.8%

2008 2009 2010 2011 2012 2013 2014 2015

Retail (Malls) Stand-Alone

89.8%

51.4%

97.5%85%

6.3%

0.9%15% 10.2%

38.3%

1.6%

100%

4%

0%

20%

40%

60%

80%

100%

Home Delivery/Takeaways

Cafés/Bars Fast Foods Self-Service Cafeterias

Street Stalls/Kiosks

Eat In Home Delivery Takeaway Drive-through

Burger forms the largest segment of UAE's fast food market, accounting for ~31% of sales in 2015

X

30


by the fish fast food category. Bakery fast foods such as sandwiches, rolls, cakes and

pastries have a substantial demand in the UAE. Also, within each category of bakery

products, numerous options have emerged to meet the demand for assorted foods. Fast

food is also seeing premiumization, with a good performance for up market fast casual

chains such as Elevation Burger and Burger Fuel in the burger/fast food category. Going

ahead, fast food brands are likely to be more quality conscience as the competition

increases with a greater level of consumer awareness and health consciousness.

Exhibit 28: UAE Market Value of Fast Food by Type (2009-18F)


FSR Segment Gaining Considerable Traction

The FSR category has the second-largest share in the UAE’s foodservices market, driven

by rising disposable income and increasing presence of international fine dining brands.

During 2012–2016, the FSR segment expanded the maximum among all segments at a

CAGR of 15.6% to reach USD 1.9 billion. The Middle Eastern cuisine had the highest

share at 29%, followed by European, Asian and North American cuisines at market share

of 24%, 18% and 15%, respectively. The UAE FSR market is expected to further rise to

USD 2.9 billion by 2020.

Eating out at upscale food joints has become a style statement and an integral part of

social norm. The country is home to a large number of high-income consumers and is

also a major luxury shopping destination, attracting high-spending visitors from across

the world and also strong domestic tourism among affluent consumers. Thus, strong

demand for luxury consumer food service is encouraging investment in luxury dining,

with Michelin-starred chefs notably featuring in a growing number of up market FSRs.

However, FSRs remain a fragmented channel in the country due to the diversity of

cuisine types as well as formats across casual and fine dining. Independent players

account for 94% of the outlet volume and 84% of value sales.

Middle Eastern cuisine is the most famous among Emiratis, with a growing preference

for Lebanese mezze, Persian kebabs and Moroccan meatballs. Qbara, Khan Murjan and

Lalezar are some of the top fine dining restaurants serving Middle Eastern specialties.

Higher proportion of Asian and European expats has led to an increased demand for

these cuisines. Middle Eastern FSRs continue to grow due to it being more focus on

value and casual dining experiences, while developments in pizza FSRs continue to drive

the growth of the chained players in the channel.

28.8% 29.6% 30.9% 31.8%

22.5% 20.6% 20.9% 22.4%

21.1% 19.2% 18.6% 17.2%

16.4% 18.8% 18.0% 17.2%

3.9% 3.6% 3.4% 3.2%

0%

10%

20%

30%

40%

50%

60%

70%

80%

90%

100%

2009 2012 2015 2018F

Others

Latin American

Ice Cream

Asian

Bakery

Chicken

Middle Eastern

Burger

UAE FSR segment expanded at a CAGR of 15.6% since 2012 to reach USD 1.9 billion in 2016

X

31


Exhibit 29: UAE Market Value of FSRs by Cuisine Type (2016)


During 2016, FSRs moved towards a more dynamic strategy by utilizing the resources of

third party online delivery and ordering platforms. Some players also developed new

menu items as consumers appeared to be more ready to try different cuisines. Changes

in menus ranged from the introduction of seafood menus to fusion recipes. Going

ahead, the attraction of the UAE as a leading tourist destination will likely bring many

international restaurateurs into the country with these partnering with local players

which are looking for more casual and luxury dining concepts to invest in. Operators of

Casual Dining restaurants are likely to remain prominent while, existing restaurants are

likely to redesign the ambience and décor of their outlets as well as move to high footfall

locations. New investors in the channel will look to launch concept dining or chef-

featured restaurants in order to offer value to customers looking for more than a meal

when they dine-out. Michelin Starred chefs will continue to appear more frequently in

the country, with more prominence in Dubai and Abu Dhabi, and this will help them

develop a culinary profile among international peer cities known for tourism.

Café & Bakery Remains a Popular Segment

Total market size of the UAE Café & Bakery segment increased from USD 0.65 billion in

2012 to USD 0.9 billion in 2016, growing at a CAGR of 7.5%. The segment is further

expected to reach USD 1.1 billion by 2020. Based on drinks type, the Café & Bars market

can be segmented into (i) Bars/Pubs, (ii) Specialist Coffee Shops, (iii) Cafes, and (iv)

Juice/Smoothie Bars. Bars/Pubs is the largest segment in UAE’s market, accounting for

~83% of sales in 2015, despite it being highly regulated. The share is likely to increase to

~85% by 2018, on account of being highly frequented by tourists and Western expats

who have personal liquor license.

However, specialty coffee and café culture is fast gaining prominence, with international

chains dominating this market. Most notably, coffee and tea consumption in the Arab

World has tripled over the last decade with the UAE alone registering an 85% increase,

according to recent coffee statistics from the International Coffee Organization (ICO).

With 3.4 billion cups consumed per day, coffee is undoubtedly one of the most popular

beverages in the UAE. Internationally, the country occupies 35th

position in terms of

coffee consumption, growing at the rate of 30% per annum.

551.0463.6

357.2302.1

226.1

0

100

200

300

400

500

600

Middle Easten European Asian North American Pizzas

(USD mn)

UAE Café & Bakery segment increased from USD 0.65 billion in 2012 to USD 0.9 billion in 2016

X

32


Exhibit 30: UAE Café/Bars Market Segmentation by Sales (2009-18F)


Dubai is home to thousands of coffee shops, ranging from old-style cafes that serve

traditional Arabic coffee to international chains such as Starbucks and Costa Coffee. In

spite of the presence of many international brands and cafes serving coffee blends, the

preference for speciality coffee is increasing with the rising consumer demand. Rising

demand for home roasters and growing affinity for personalization are the two major

factors driving the coffee market currently in the UAE. In response to this demand, the

number of coffee shops over the last few decades has risen to over 2,200, with many

more in the pipeline. Currently, speciality coffee comprises only 1% of the UAE's total

market with enormous room for growth for more specialised coffee shops outside the

typical franchise model. A study indicates that by 2020, the emerging coffee markets,

many of which are in the GCC, will reach 50% of the global consumption, making the Gulf

an attractive region for coffee entrepreneurs.

The Alshaya Group continues to lead Cafés segment in the UAE with an overall value

share of 3%, on the back of its strong presence in specialist coffee shops (owns franchise

rights for Starbucks in the country). Starbucks led specialist coffee shops in the country

in 2016, with a 29% share in terms of outlets and a value share of 32%.

In addition to the expanding coffee market, the tea market is also witnessing a growing

demand, due to the large presence of Asian communities, especially from India, who

prefer tea to coffee. Capitalizing on this demand, Filli Cafe, a UAE-based tea brand, has

gained much popularity not only among nationals but also overseas. Over the last ten

years, the consumption of coffee and tea has more than tripled in the Arab region, while

it has become a thriving economic activity in the UAE worth around AED 300 million

(USD 81.6 million) a year. With independent Cafes on the rise, it is evident that the

trend is heading in a more positive and sustainable direction with the emphasis on

quality products and services

The juice bars market has also witnessed a healthy demand. With a growing preference

for healthy beverage options such as fresh or canned juices and smoothies and popular

presence of juice/smoothie bars in shopping malls, offering consumers a convenient and

portable snack, juice bars are seen as upcoming segments in the UAE’s beverage market.

80.3% 81.4% 83.2% 84.7%

10.6% 10.4% 8.7% 7.3%7.2% 6.6% 6.3% 6.2%

0%

20%

40%

60%

80%

100%

2009 2012 2015 2018F

Bars/Pubs Specialist Coffee Shops Cafes Juice/Smoothie Bars

Bars/Pubs share is likely to have reached over 83% in 2015, and is expected to increase to ~85% by 2018

X

33


Highly Fragmented Market

With the growth of various new home-grown brands, the market now has multiple food

options at the domestic level. People are embracing home-grown brands which

are increasingly adopting localization. Outlets such as Café Blanc and Mezze House are

offering traditional Arabic food in a trendy style. Thus, independent FSRs are the leading

F&B service providers, accounting for approximately 62% of the UAE’s total foodservice

market. However, even the restaurant chains are gaining prominence with the rising

international tourists who prefer familiar cuisines and are influenced by strong

marketing tactics of the international brands.

Exhibit 31: UAE Market Share of Chains vs Independent FSR Outlets (2012-16))


Similarly, the QSR market is also highly fragmented with several independent and

chained restaurants, with the former accounting for 54.5% of 3,325 outlets in UAE in

2016. However, the revenue generated by the chained outlets continue to remain much

higher than the independent outlets.

Exhibit 32: No. of Chained and Independent QSR Stores in the UAE (2016)


UAE is a favored destination of US burger chains largely because consumers in the nation

increasingly favor these chained concepts, more so than in other regions. Going forward,

the chained QSR stores will continue to capture significant portion of the QSR market as

they reach out to strike a right balance between customization and authenticity.

2.85

4.11

1.77

2.55

0

1

2

3

4

5

6

7

2012 2016

Independent Outlets Restaurants Chains

(USD bn)

Fast Food 72%

Street Stalls/Kios

ks17%

Pizza Consumer

10%

Home Delivery &

Self Service

1%

Independent Outlets

1,812 (54.5%)

Fast Food88%

Pizza Consumer

10%

Home Delivery &

Self Service

2%

QSR Chains

1,513(45.5%)

The UAE QSR and FSR markets remain highly fragmented in terms of type of outlets

X

34


However, independent outlets will also grow strongly driven by the success of higher-

quality concepts targeting affluent local consumers and tourists.

Within the Cafés/Bars market, the share of independent brands increased to 76% of the

total 3,004 total outlets as of 2015, compared to 65% in 2012.

Exhibit 33: No. of Chained and Independent Café/Bars Stores in the UAE (2012-15 )


UAE Market Led by International Brands

The UAE market continues to be a lucrative market for many international players,

witnessing the increasing entry of global brands into the market, largely due to their

affordability, the sheer volume of outlets across the region, and heavy advertisement.

From Fine Dining, Casual Dining to Fast Casual, as well as QSR – every segment is sated

with new concepts entering the market to quench the increasing diversified appetite of

the consumers.

Most notably, international brands are rapidly expanding in the UAE QSR segment, and

testimony of this is growth registered by Burger Kings and KFC, the first American QSR

brands to enter GCC. Apart from the QSR segment, international chains are also

establishing themselves across FSRs, Cafes, Bars and Lounges. The number of Casual

Dining and Fine Dining restaurants, including franchised and home-grown, are on the

rise. In the last five years, several exciting home-grown concepts have also sprung

making the market competitive for pricing and offerings.

During the last two years, several internationally acclaimed restaurant brands have

opened in UAE, including IHOP, Shake Shack, Tim Hortons, The Cheesecake Factory,

MOOYAH, Cielo Tapas Bar & Sky Lounge, Clinton Street Baking Company and GQ Bar.

Most of the international brands prefer setting up base in the UAE through franchises.

On the other hand, regional chains are also expanding operations in the market. For

example, ChicKing, which started in 2000 with just one outlet in Dubai, currently has

around 14 outlets across the UAE, and aims to take on international QSR giants by

setting up 1,000 outlets across 30 countries by 2020.

Some of the most notable regional and global players operating in the UAE are:

Independent65%

Chained35%

986

2012

Independent76%

Chained 24%

3,004

2015

UAE remains the most preferred destination for international brands to set base

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35


Exhibit 34: Regional and Global Brands with Strong Presence in the UAE


SAUDI ARABIA

Eating out and shopping are the main entertainment activities in Saudi Arabia, making

the region a source of potential for restaurant operators and investors looking to get in

to the F&B sector. With higher disposable incomes, consumers in the Kingdom are

increasingly trading up, eating out and ordering food more often. Further increased

travel and the rising use of social media have exposed a significant proportion of Saudi

society to Western culture. Technology and increasingly relaxed social norms are in turn

leading to an emerging freedom of choice, benefiting foodservice by expanding the

consumer base, boosting sales, and driving transaction volume growth.

Foodservices Market Witnesses Robust Growth

Saudi Arabia is the largest foodservices market in the region, accounting for 50% of total

sales in GCC. The market value of the sector expanded from USD 7.8 billion in 2012 to

USD 10.8 billion in 2016, growing at a CAGR of 8.5%, with its market share improving

from 47% to 50% during the same period. Being the largest economy in the Middle East,

Saudi Arabia has a rapid growth of food consumption. The Kingdom offers abundant

growth opportunities to foodservices companies, across all its sub-sectors and

categories, due to a particular lifestyle, age group and potential.

The fastest growing category within the sector is the QSR segment, followed by FSRs.

Though the smallest segment, the Cafes/Bars segment has expanded at the fastest pace

owing to the increased popularity of café culture. Characterized by a relaxed and casual

Saudi Arabia is the largest foodservices market in the region, accounting for 50% of total sales in GCC

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36


ambiance, offering a full table service, the Casual Dining has emerged as the second

fastest growing segment within the food sector market with potential for further

growth, primarily on the back of its reasonable pricing strategy and a focus on localized

concept of offering. The QSR and Casual Dining segments are expected to continue to

prosper at the expense of Fine Dining restaurants due to a decline in disposable income

resulting from sluggish oil revenues. Nevertheless, with economic prospects expected to

stabilize with the rebound in oil prices and the likely positive demand growth, the size of

the foodservices market is expected to reach USD 14.7 billion by 2020.

Exhibit 35: Saudi Arabia F&B Market by Category (2012-16)


Urbanized population, globally-exposed younger generation who are inspired by food,

shopping festivals, exhibitions and events are stimulus to the Kingdom's foodservices

industry. In combination with high disposable incomes and significant investments in

new malls, restaurants and hotels, Saudi Arabia is particularly ripe for global investments

in the foodservice sector, most notably in the Casual Dining and QSR segments.

Increasing Number of Foodservices Outlets

Most of the Kingdom's major branded restaurants with multiple branches are

concentrated in the Tier 1 and Tier 2 cities. In 2015, the total number of restaurants and

cafés in Saudi Arabia were estimated at 25,854 units and 8,798 units, respectively.

Exhibit 36: Number of F&B Outlets in Saudi Arabia (2011-15)


54.2%34.8%

11.0%

Fast Food


Cafe's/Bars

USD 7.8billion

2012

54.9%34.4%

10.7%

Fast Food


Cafe's/Bars

USD 10.8billion

2016

13,815 13,996 14,180 14,366 14,553

12,351 10,742 10,924 11,110 11,301

2,244 5,355 6,319 7,456 8,798

0

10,000

20,000

30,000

40,000

2011 2012 2013 2014 2015

Fast Food Full Service Cafes

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The urbanized youth’s increasing reliance on foodservice, both for socialization and

nourishment purpose, further supported by the evolving roles of women, contributed to

the growth of foodservices in Saudi Arabia. With most growth coming from urban areas,

transaction growth is expected to outstrip outlet growth, with transactions growing at a

CAGR of 2.3% until 2021, compared to an outlet growth of just 0.7%, as per ‘The Future

of Foodservice to 2021’ by GlobalData.

QSR Remains the Most Dominant Segment

Saudi Arabia’s fast food has historically been dominated by independent players, which

still account for 75% of sales in the region. However, chained foodservice companies,

particularly international ones as well as important local players, account for the lion’s

share of growth, recording 6% transactions volume growth and 9% current value growth

in 2015, compared with the 4% transactions volume growth and 5% current value

growth recorded in independent consumer foodservice over the course of the year, as

per Aaron Allen & Associates.

Saudi Arabia accounts for the largest share (47.3%) of the total fast food market in the

GCC, with USD 5.9 billion, as of 2016. Between 2012 and 2016, it grew at a CAGR of 8.9%

from USD 4.2 billion in 2012 to USD 5.9 billion in 2016. The fast food channel offers

quick, affordable, filling and tasty snacks options to consumers, given that apart from

shopping and eating out, the country has limited options for entertainment. By 2020, the

market value of the Kingdom's QSR market is expected to reach USD 8.1 billion.

With the growing popularity of QSR segment, American fast food chains dominate the

market, especially in the upscale fast food segment. Various local brands such as Herfy,

AlBeck and Shawaya House are also leveraging the potential demand for fast food,

creating a strong presence in the Kingdom. The top 30 brands in chained fast food

accounted for approximately 66.3% of the market in 2015. Among these, McDonald’s

remained the leading player, with a share of 28.8% among the top 30, followed by Herfy

(12%), and Al Baik (5.7%).

Exhibit 37: Saudi Arabia Market Size of Fast Food by Type (2016)


Bakery products contribute to the majority of the Saudi QSR market, accounting for 31%

of the total fast food market in 2016. Burgers accounted for the second-largest share at

26%. While Artisanal bakery, with a market share of 67% (2014), is the largest player in

the Bakery segment, McDonald’s is the largest player in the Burger segment. The

31.0%

26.0%

19.0%

10.0%Bakery

Burger

Middle Eastern

Asian& Chicken

USD 5.7 billion

Saudi Arabia's QSR market is the largest in the region at USD 5.9 billion as of 2016

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growing popularity of burgers has not only boosted the sales of brands such as Herfy and

Burger King but also several other independent players such as Burgeronomy,

Hamburgini, 12 Burger and The Burger Box. In the Chicken fast food segment, Al Baik

brand leads the market, followed by KFC. A growing trend of takeaways and drive

through service has also expanded the fast food sales. Moreover, the global chains have

followed the strategy of localization through intelligent modifications in their menus.

One such example is McArabia Grilled Chicken sandwich offered by McDonald’s.

Going forward, the competition is expected to remain strong among the fast food

chains. While in 2016 there were about 2,099 people per fast food outlet, in 2020 that

value is expected to decrease slightly (by 2%) to about 2,064 inhabitants per fast food

outlet, as per Aaron Allen & Associates.

Cafes/Bars are a Popular Destination for the Youth

Saudi Arabia’s large population of young adults continues to drive the Cafés/Bars

segment in the country. Independents outlets remain dominant within the category,

claiming an overall value sales share of 82%. This dominance is in large part due to the

success of independent outlets offering hookah smoking, an increasingly popular activity

among both men and women. On the other hand, chained Cafés/Bars outlets rarely offer

hookah smoking facilities, and their menus tend to be more expensive than those of

independents.

Coffee is a popular drink in Saudi Arabia and a symbol of hospitality in the country. Its

consumption is increasing, largely because of westernization and the rapidly growing

young population who are employed. Rise in working women is catching on in Saudi

Arabia, and resulting in further growth of coffee consumption. The country imports

around 10,000 tonnes of coffee annually, while the per-capita consumption of coffee is 3

kg per year. Led by the high coffee consumption, the Café/Bars market grew from USD

0.9 billion in 2012 to USD 1.2 billion in 2016 and is expected to attain a market value of

USD 1.5 billion by 2020. Moreover, coffee chains, both international and local, are

leveraging the growth potential in the Kingdom through innovations in their offerings.

International Brands Growing Presence

Saudi Arabia has a flourishing foodservices sector and is an ideal location for the global

brands to open their outlets. With a dynamic economy and growing numbers of tourists

visiting Saudi Arabia, international companies bring a new and fresh dining experience

for both locals and the global customer coming to the region.

Saudi inhabitants are very fond of American foodservice brands which is evident from

various American outlets operating in the country including Starbucks, KFC, TGI Friday’s,

Hardee’s, Krispy Kreme and many others. The nation offers huge growth potential for

the US brands by offering highest margins in comparison to other nations. On the other

hand, some of the largest chains in Saudi Arabia are direct knock-offs of American

brands that had not yet established a presence there. For example, the largest fast food

chain in the Middle East is Herfy, whose burgers were inspired by McDonald’s and

Burger King – and now McDonald’s is second to Herfy in Saudi Arabia. Additionally, a lot

of home-grown service providers are also establishing a strong presence across all the

segments in the foodservices sector. Some of the most notable regional and global

players operating in Saudi Arabia are:

http://en.wikipedia.org/wiki/Herfy

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Exhibit 38: Regional and Global Brands with Strong Presence in Saudi Arabia


KUWAIT

Kuwait has slowly gained prominence and become a hub of activity for the foodservices

sector, witnessing steady growth for both local brands and international players.

Modernization and changing lifestyles has resulted in the increasing popularity of fast

foods in Kuwait. A growing trend of original food concepts is also gaining traction, with

many top restaurants adapting menus to the Kuwaiti culture and including ethnic flavors

in their menu to attract localities. With stiffening competition, many local restaurants

are reinventing themselves to strengthen their position in the market and are

attempting to bring in new dining concepts, providing a vast array of cuisines and

customizations, along with improvements in ambience and overall quality. A good

example is the high-end Kuwaiti burger joint, Slider Station, which is the world’s first

conveyor belt burger joint, and offers a vast range of options on its menu.

Many international food brands are expanding their presence in the GCC with their first

international outlet opening franchises in Kuwait. Restaurant chains such as McDonald’s,

Domino’s, Cheesecake Factory, Costa Coffee, Red Lobster, Olive Garden and Texas

Roadhouse, in addition to franchises and international brands have already built a strong

position in the country. Kuwait provides a conducive environment, supporting private

investments in the foodservices sector, with the new Companies Law passed in 2013

simplifying regulations for foreign investments. While some of the international brands

are already present in the UAE and Saudi Arabia, Kuwait is the latest attractive

destination for branching out new restaurants. Boston Market, for instance, opened its

first Middle East outlet in Kuwait in 2017, and plans to expand further in the next few

years. In March 2016, Nestlé Toll House announced that its Café by Chip concept would

Kuwait is the new hub for foodservices sector, and several international brands are setting foot in the country

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open two new cafés in Kuwait, improving its presence in the GCC. Similarly, Blaze Pizza

and US-based Arby’s Inc. is expanding into the GCC, and Kuwait will be one of their key

priority countries. Kuwait also takes pride in being home to several celebrity restaurants

and famous names such as Indian singer Asha Bhonsle opening 5 restaurants (Asha's) in

the country with one more expected to open soon. The concept of designer multi cuisine

restaurants such as B+F Open Flame Kitchen, that was recently launched in the country

is also emerging.

Among the franchised food companies, Americana Group (Kuwait Food Co) with brands

such as KFC, Pizza Hut and TGIF dominates the market, and has 175 outlets under its

umbrella and accounts for 45% share in Kuwait’s F&B market. It recently opened six new

Burger King outlets in Kuwait. Another key restaurant operator is Alghanim Industries

which is actively opening up new international brands in the country. In 2016, it opened

the first Wendy’s restaurant in Kuwait, as part of a strategic collaboration to expand the

US brand across the Middle East. Demand is increasing for quality food services,

restaurants and cafés, both in terms of franchised international brands, and original

home grown concepts.

Foodservices Market has been Thriving with New Entrants

Kuwait is a key growth region in GCC and the foodservices segment is primed for rapid

growth in the coming years. The country's foodservices market stood at USD 1.7 billion

in 2016, and is expected to grow at a CAGR of 4.5% to reach USD 2.05 billion by 2020. It

is the third largest market in the region, driven by rising per capita income and

increasing youth population, which has resulted in a high influx of international brands in

the country. QSR is the fastest growing segment in the country and had the maximum

market share of about 70% in 2016, followed by FSR (29%). In terms of market position

in GCC, Kuwait's QSR sales accounts for 9.6% of the total GCC QSR market, while FSR

accounts for 7.5% of the total GCC FSR GCC market.

An interesting trend in the last year has been the recent drop in food inflation. Food

inflation has been lagging behind consumer prices since April 2016, and this trend could

benefit restaurants.

Exhibit 39: Kuwait Market Share (2016-20F)


1.72

2.05

2016 2020F

(USD bn)

Americana Group dominates the franchised food companies with 45% market share

Kuwait’s F&B market stood at USD 1.7 billion in 2016; expected to grow at a CAGR of 4.5% to reach USD 2.05 billion by 2020

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Like other GCC economies, Kuwait is also strategically investing its funds in non-oil

sectors and a specific focus on tourism and hospitality development is evident. Despite

the growth that’s occurred in just a short time in Kuwait, continued potential remains on

the horizon, particularly in the F&B sector. The country’s National Development Plan has

identified tourism as one of the sectors for development, which will indirectly have a

positive impact on Kuwait’s foodservices revenues.

Some of the most notable regional and global players operating in Kuwait are:

Exhibit 40: Regional and Global Brands with Strong Presence in Kuwait


QATAR

The F&B sector is experiencing rapid growth in Qatar, mainly driven by rising population,

high per capital income and high disposable income. After winning the bid to host FIFA

World Cup 2022, the country’s sports and tourism sectors have grown rapidly, which has

benefitted the country's F&B market, making it one of the most promising and attractive

segments in the region. Additionally, Qatar's Ministry of Economy and Commerce (MEC)

is promoting investments in the restaurant sector and seeking opening of new

restaurants in areas which have not been explored yet. The MEC is also supporting local

food producers and has taken steps to encourage restaurants, cafes and other food

outlets to buy local produce, which would indirectly have a positive impact on Qatar

economy.

According to the recent data from the MEC, the total number of active commercial

licenses in the restaurant sector amounts to 3,716, and most of these restaurants are

concentrated in Doha (2,004), followed by Al Rayyan (1,038), Wakrah (291), Umm Salal

Doha market highly competitive with casual dining gaining prominence

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(130), Al Khor and Al Zakhira (111), Al Shehaniyah (47), and Al Shamal Municipality (23).

These active licenses include 1,889 restaurants, 1,271 cafeterias, 270 juice shops, 201

fast foods, and 121 popular kitchens, 6 healthy eating and diet restaurants, and other

small joints for other minor activities. The restaurant market in Doha is fiercely

competitive, and Casual Dining restaurants with different concepts are mushrooming in

the country. While Kuwait restaurant operators run a majority of the Qatar’s F&B

outlets, the local players such as Hospitality Development Company, Al Muftah and Al

Jassim Groups are also gaining prominence.

With a large number of expat workers and a high percentage of youth population, there

is a demand for assorted cuisines and restaurants offering varying price points to cater

to different crowds. Among the cuisines, international and American cuisines remain the

most popular and represent over half of the total number of outlets in Doha. Due to

Qatari and Arab nationals’ exposure to the Lebanese culture, current foodservices trends

show that there is an increasing preference for this cuisine, which also contributes to the

popularity of 'sisha/hookah' concepts in the city.

Similar to the UAE and Saudi Arabia, the demand for QSR options is on the rise in Qatar,

fueled by trends such as food trucks, kiosks and online ordering platforms. A notable

trend in the country is the increase in number of malls, which is also being driven by the

upcoming FIFA 2022, and each mall is expected to open doors to reputed food chains

and unique brands for cuisine diversification. The trend of mobile food trucks is also

emerging in Qatar and the MEC has issued five licenses to food truck operators in 2017.

Foodservices Market to Expand on Robust Demand

The Qatar foodservices market size grew steadily over the last few years to USD 1.51

billion by 2016, approximately 7% of the total GCC foodservices market, and is expected

to reach around USD 1.76 billion by 2020. The QSR and FSR market shares are estimated

at 8% and 6% of the total GCC foodservices market, respectively. With growing

urbanization and increase in working population, most people rely on eating meals

outside their homes, and easily available, pocket friendly options are most preferred

making the fast food segment the largest in the Qatar restaurant sector.

Exhibit 41: Qatar Market Share (2016-20F)


1.51

1.76

2016 2020F

(USD bn)

The demand for QSR is on the rise in Qatar, fueled by trends such as food trucks, kiosks and online ordering platforms

Qatar Foodservices market stood at USD 1.5 billion in 2016; expected to reach USD 1.8 billion by 2020

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As of 2016, the fast food segment had a market share of about 67% of the Qatar

foodservices market, while the FSR segment comprised of 26%. Of the total GCC QSR

market, Qatar accounts for only 7.3% of the total share, and has significant scope for

growth, especially in terms of international chains entering the country. This is already

an emerging trend, as Qatar is actively promoting its tourism and hospitality industry,

and the advent of FIFA 2022 is making Qatar a promising destination for foreign

companies to invest an expand in.

Some of the most notable regional and global players operating in Qatar are:

Exhibit 42: Regional and Global Brands with Strong Presence in Qatar


Oman

Until a few years ago, the Omani foodservices sector was quite sluggish compared to

other GCC nations, but the scenario is changing with many international restaurants and

franchises being set up in Oman. Currently, the F&B sector is one of the fastest growing

segments in the Sultanate, and in order to aid its expansion, the government relaxed the

regulation for setting up of restaurants in 2015. As per the new regulations, restaurants

are no longer required to get an approval from the Ministry of Tourism (MoT) for setting

up business. Bin Mirza International (BMI), the Omani franchise partner for some of the

world’s most reputed F&B brands is one of the key operators in the country.

Promoting tourism has been a key priority for Oman, and many of the tourism boosting

initiatives have positively impacted the foodservices industry. With an increase in

expatriates and tourists, and a rise in income, more people are dining out and are

looking for new cuisines and different dining concepts. There is a shift from the limited

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cuisines and dining options that were available in the past to introduction of restaurants

serving new cuisines and unique dining concepts. Customization of food is also becoming

quite popular and many restaurants are adapting their menus to incorporate local

flavors and introducing healthy, diet options. Oman has opened two themed restaurants

(The Jungle and Love at First Bite) along with other new dining venues, and focus on

ambience and new concepts are a part of the agenda for many restaurants. Muscat is

the hub for multi cuisine restaurants and serves an array of food including Omani,

Lebanese, Moroccan, North African, Asian, European and Continental cuisines. Like

other GCC nations, Oman’s fast food segment is the fastest growing and has remained

quite resilient to the recent oil price volatility.

Over the last decade, the Sultanate's QSR and Casual Dining segments have undergone a

major transformation, driven growing competition. These two segments have seen the

largest number of foreign and local players establishing their brands in, and is expected

to see further influx on account of robust demand.

Market to Expand on Favorable Government Regulations

The foodservices sector in Oman is one of the smallest in the GCC, and the total market

was estimated at USD 0.47 billion, accounting for only 2.2% of the entire GCC

foodservices market. Oman's QSR segment is growing rapidly and as of 2016, it stood at

63% of the total Omani foodservices market. In terms of market share in the GCC, both

FSR and QSR account for only 1.5% and 2.4%, respectively. However, Oman is primed for

tremendous growth in the next few years, and the foodservices market is expected to

grow at a CAGR of 10.4% to reach USD 0.7 billion by 2020.

Exhibit 43: Oman Market Share (2016-20F)


The market is expected to be primarily boosted by the recent initiatives taken by the

government on approvals for setting up restaurant businesses, coupled with huge

investments in hospitality infrastructure projects. The government plans to construct

more than 20,000 hotel rooms to accommodate the growing number of visitors by 2020,

which is primed to rise to 2 million from 1.5 million in 2015. In anticipation of a surge in

tourist footfalls, and the improvement in oil prices, which until now had somewhat

dented the consumer spending, the demand for foodservices is expected to increase

considerably over the period of time. However, Oman’s foodservices sector continues to

be marred by challenges owing to Omanization and the lack of skilled employees may

hinder the sector’s growth to its full potential.

Some of the most notable regional and global players operating in Oman are:

0.47

0.70

2016 2020F

(USD bn)

Oman's foodservices

market is expected to grow

at a CAGR of 10.4% to

reach USD 0.7 billion in

2020

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Exhibit 44: Regional and Global Brands with Strong Presence in Oman


Bahrain

Bahrain, which has been relatively unexplored by international restaurants, has recently

set foot to bring in US and other international restaurants into the country. In 2014

alone, more than 100 US franchise restaurants and outlets operated in Bahrain, with

several new ones opening on a regular basis. The country is flooded with small takeaway

restaurants, shawarma delis, fast food joints, Casual Dining restaurants as well as some

of the finest dining establishments in the region.

As one of the smallest foodservice markets in the GCC, Bahrain has immense potential to

emerge as a vibrant dining hub. Like other GCC countries, Bahrain allows international

restaurants to operate only under the franchise model and not independently. First

Bahrain and International Business Group (IBG) are set to introduce the region's first

branches of Jalapeño Charlie's and WildSide Texas BBQ in Bahrain. While American fast

food and Indian restaurants are predominantly present, Italian food is also gaining

popularity in Bahrain. Some of the popular restaurants are Roma, Primavera, La Taverna,

Cico's, Ciro's Pizza Pomodoro or home-style Italian cooking at Mammamia's.

Market to Expand on Increasing Government Investments

Being one of the smallest foodservices market in GCC, the country's market is estimated

at USD 0.39 billion in 2016 and expected to grow a CAGR of 4.9% to reach USD 0.47

billion by 2020. QSR is the largest growing segment and stood at around USD 0.2 billion

in 2016, accounting for 50% of the total foodservices market. However, Bahrain is the

smallest market for fast foods in the GCC, accounting for 1.6% of total GCC QSR sales in

Bahrain, the smallest

foodservices market, is

expected to grow at a

CAGR of 4.9% to reach USD

0.47 billion in 2020

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2016. Similarly, the country's FSR market is also the smallest in the region accounting for

only 1.5% of the total GCC FSR sales in 2016

Exhibit 45: Bahrain Market Share (2016-20F)


According to Bahrain Economic Development Board (EDB), in Q1 2017, hotels and

restaurants emerged as the fastest growing sector recording a 12.3% Y-o-Y real rate of

expansion. On account of the increasing government investment in hospitality

infrastructure, and influx of several individual and chained food joints, both local and

global, the market is expected to receive a much needed boost going forward. Some of

the most notable regional and global players operating in Bahrain are:

Exhibit 46: Regional and Global Brands with Strong Presence in Bahrain


0.39

0.47

2016 2020F

(USD bn)

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Al Masah Capital Management Limited

Level 9, Suite 906 & 907

ETA Star - Liberty House

Dubai International Financial Centre

Dubai-UAE

P.O.Box 506838

Tel: +971 4 4531500

Fax: +971 4 4534145

Email: [email protected]

Website: www.almasahcapital.com

http://www.almasahcapital.com/

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Disclaimer:

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under the DIFC Companies Law and is regulated by the Dubai Financial Services Authority (“DFSA”). The

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Copyright © 2015 Al Masah Capital Management Limited

Al Masah Capital: GCC Foodservice Sector

December 2016

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GCC FOODSERVICE SECTOR

Market Overview

Foodservices sector has surfaced as one of the most promising sectors in the GCC and

has been rapidly growing over the past decade on the back of thriving economy,

booming tourism, favorable demographics, rising urbanization and a sturdy rise in per

capita income. The sector appeals to consumers across a broad income and cultural

spectrum, including locals, expatriates and visiting tourists from all over the world. Over

the past decade, this demand has been well supported by the entry of several

international fast food, casual dining and health food restaurants in the region.

Major changes in work and life styles as well as changes in the consumption patterns

have led to increase in frequency of people eating outside their homes. Additionally,

rising obesity rates and related lifestyle diseases coupled with growing health awareness

and a developing taste for a westernized diet, introduced by the increasing expatriate

population, are bringing about a change in the region’s dietary habits, creating demand

for organic and international foods. In-line with the healthy eating trend, food service

operators are increasing their focus on locally sourced ingredients and are continuously

developing innovative set-ups to make the eating and dining experience more appealing.

With the growing cultural diversity and greater recognition and preference for branded

products, international chains perceive tremendous growth potential in this region.

International chains continue to partner with regional players to understand the local

business conditions and consumer trends, while it helps the local partners to offer global

standard services. In addition to the rising population and tourism industry in GCC, the

rise of social media and technology driven applications continue to build hearty

expectations for the sector, helping push the food service sector further.

Apart from the international brands, today, even the home-grown brands are altering

the dynamic of the regional dining scene. Kuwait and Lebanon are well known for their

many, very successful home grown brands and even UAE is becoming open to the home-

grown concept. From mobile food trucks to pop-up kiosks, chefs and entrepreneurs are

capitalizing on the UAE’s international flavor and spreading homegrown dining options.

Few notable examples are SALT, Herfy, Bateel among many more.

Per capita Spend on Food in GCC

Around 25% of Saudi Arabia’s consumer expenditure was spent on food in 2015, the

highest in the region, equating to USD 2,100 per person. However, on the basis of per

capita annual spend on food, the UAE with USD 2,683 per person (representing 13.8% of

consumer expenditure) not only ranks first in the region, but is also above most of the

developed nations’, including US (USD 2,432), UK (USD 2,334) and Japan (USD 2,702).

As per Euromonitor International, UAE ranked amongst the top 20 countries in the world

in the foodservice markets worldwide in 2015, and grew around 56.3% at current prices

between 2010 and 2015. Consumer foodservices in the UAE reached AED 52,399 million

(USD 14,266.2 million) in 2015 from AED 33,534 million (USD 9,130 million) in 2010,

GCC foodservices sector well supported by the entry of local and international restaurants

UAE has the highest per capita annual spend on food in GCC

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growing at 9.3% CAGR during the period. The total number of transactions in the country

reached 1,375.8 million in 2015 from 1,022.6 million in 2010, growing at 6.1% CAGR.

With one of the highest standards of living and largest proportion of expatriates in the

world (90% as of 2016), coupled with an increasing number of incoming tourists, the

country boasts one of the highest hotel occupancy rates in the world (~90% occupancy

year-round), creating ample demand for foodservice options that suit a myriad of tastes.

Exhibit 1: Food & Beverages Expenditure in GCC (2010-15)

Source: USDA – ERS Food Expenditure Series, Al Masah Capital Research

Food consumption by volume in the GCC also grew to reach 40.9 million MT in 2012.

Saudi Arabia and the UAE, home to nearly 77% of the overall GCC population in 2015,

were the largest food consumption centers. The per capita food consumption in the

region averaged at 851.9 kg in 2012, with Kuwait recording the highest levels, followed

by Saudi Arabia and the UAE.

Exhibit 2: Food Consumption in GCC (2012)

Source: Arab Agricultural Statistics Yearbook, Al Masah Capital Research

While the region’s food consumption was well supported by rapid increase in

population, a CAGR of ~4% between 2005 and 2015, GCC’s food production remained

restricted due to its arid climate, less arable land, and water scarcity, making the region

heavily reliant on imports. Net food imports accounted for 73.4% of total consumption

in 2012.

-

0.5

1.0

1.5

2.0

2.5

3.0

3.5

2012 2013 2014 2015

UAE Saudi Arabia Bahrain Qatar Kuwait

Per Capita Annual Spend on F&B ('000)

14.3% 12.9%

18.7%18.2%

12.5% 11.7%

26.3%25.0%

14.5% 13.8%

10%

15%

20%

25%

30%

2010 2011 2012 2013 2014 2015

Bahrain KuwaitQatar Saudi ArabiaUAE

Share of Consumer Expenditure Spent on F&B

62%18%

8%

7%

4% 1%

Food Consumption by Country

Saudi Arabia UAE KuwaitOman Qatar Bahrain

491.1

775.6

845.7

851.9

862.2

866.5

867.5

0 500 1000

Bahrain

Qatar

Oman

GCC

UAE

Saudi Arabia

Kuwait

Per capita Food Consumption

Saudi Arabia and the UAE are the largest food consuming countries in the GCC

X

4


Market Size and Structure

The GCC foodservice market was valued at USD 20.11 billion in 2015 and is expected to

grow at a CAGR of 6.8% to reach USD 24.5 billion in 2018 and USD 28 billion by 2020.

Saudi Arabia led the region, with total foodservice sales of USD 9.5 billion, accounting for

nearly half of the GCC market. The UAE was the second largest contributor, with total

sales of USD 5.6 billion generating 28% share in the region, followed by Kuwait (USD 2

billion), Qatar (USD 1.4 billion), Oman (USD 1.2 billion) and Bahrain (USD 0.4 billion).

Even though the UAE makes up only 17.5% of the GCC population, 28% of the GCC food-

service market takes place within the nation. This disproportionately larger share of

consumption is attributed to higher traffic of tourists that pushes up the food services

consumption every year.

Exhibit 3: GCC Foodservice Market Size (2015)


Fast food or Quick Service Restaurants (QSR) remain the largest segment, accounting for

58.2% (USD 11.7 billion) of the GCC food services market in 2015, followed by Full

Service Restaurant (FSR) with 31.5% market share (USD 6.3 billion), and Café & Bakery

segment with 10.3% share (USD 2.1 billion). Notably, the FSR segment, which includes

fine and casual dining, is nearly half of the QSR market.

While the concept of fine dining is still confined to affluent class and has not grown

drastically in the last few years, the casual dining segment observed growth with the

entry of new brands almost every year. Chained and specialist coffee shops are growing

in popularity and exhibited strong growth during the last 3 years, a CAGR of 4.5%. Main

participants in this segment include Starbucks, Tim Hortons, Costa Coffee, Caribou,

Second Cup and Gloria Jean’s.

Saudi Arabia, with a market size of USD 5.1 billion in 2015, was the region’s largest QSR

market (43.8% share in GCC market), followed by UAE (USD 3.5 billion). American chains

such as McDonald’s, KFC, Burger King and Hardee’s dominate the region's QSR market.

Saudi Arabia

47%

UAE 28%

Kuwait10%

Qatar7%

Oman6%

Bahrain2%

Foodservice Market (by country)

USD 20.1 billion QSR

58%

Full Service

32%

Cafes, Bakery

10%

Foodservice Market (by category)

USD 20.1 billion

GCC foodservice market was valued at USD 20.11 billion in 2015 and is expected to grow at a CAGR of 6.8% to reach USD 24.5 billion in 2018 and USD 28 billion by 2020

QSR remains the largest segment, accounting for 58.2% of the GCC food services market in 2015

X

5


Exhibit 4: GCC Fast Food and Full Service Restaurant Market (2015)


Components of the Foodservice Sector

The foodservice sector can broadly be categorized into following: (i) Full Service

Restaurants; (ii) Quick Service Restaurants; (iii) Café & Bakery; and (iv) Lounges & Bars.

Exhibit 5: Market Structure


Full Service Restaurants (FSR)

The FSR landscape is fairly fragmented, providing more comfortable dining experience as

opposed to fast food outlets and accordingly, are priced higher than the other segments.

Fine Dining

Usually located in luxury hotels and up-scale areas in metropolitan cities, fine dining

restaurants serve high quality food in a formal setting with a high service level and high

prices, paying considerable attention to their decor and ambience. Some of them,

particularly in the UAE, are also owned by celebrity and Michelin-starred chefs such as

Gary Rhodes, Vikas Khanna, Sergi Arola, Gordon Ramsey, Sanjeev Kapoor, Nobu

Matsuhisa, offering exotic and customized cuisines. The UAE lacked any Michelin stars so

far, but recently Michelin Guide announced in May 2016 about rolling out the Michelin

system in the country which is likely to attract more investment in luxury dining.

5.1

3.33.5

1.61.2

0.60.9

0.40.7

0.40.2 0.1

0

1

2

3

4

5

6

Quick Service Restaurants Full Service Restaurants


(USD bn)

Saudi Arabia is the largest QSR and FSR market in the GCC

X

6


Exhibit 6: Fine Dining Restaurants


Casual Dining

Casual Dining restaurants with comfortable dining experience and moderate pricing

have a mass appeal, targeting customers across income levels. The decor, food and

service are usually less extravagant than those of a fine dining restaurant with some

providing takeaway and home delivery services. Consequently, it has emerged as one of

the fastest growing segments, dominated mostly by independent operators. However,

several international chains, especially from the US, have entered the market.

Exhibit 7: Casual Dining Restaurants


Quick Service Restaurants (QSR)

Quick service restaurants offer low-cost food options, focusing on speed of service. The

design and ambiance are simple and offers basic services like few tables and chair for

fast dining, delivery service or a pickup counter. It is the largest and the fastest growing

segment, with the most prominent categories being the burger and Middle Eastern fast

food. It has gained significant traction amongst consumers with its format coupled with

breadth of international cuisines and well-known brands that are available.

Exhibit 8: Quick Service Restaurants


X

7


Cafés & Bakery

Lately interest in western-styled coffee culture has been trending upwards in the GCC,

especially amongst the younger demographic. Boosted by the influx of business/leisure

tourism, cafés have become a regular meeting point for social and business meetings.

Exhibit 9: Cafes & Bakery


Bars & Lounges

The sale of alcohol is strictly monitored in the GCC with Saudi Arabia and Kuwait

imposing outright ban on the sale and consumption of liquor. While drinking laws in the

UAE are relatively liberal, alcohol is available for sale through off-trade channels in

specialist retail outlets only and consumers are required to hold a liquor license before

purchasing. Otherwise alcohol can be served by licensed bars/ restaurants.

Exhibit 10: Bars & Lounges


X

8


GCC QSR MARKET

Overview

QSR has been a key segment for the GCC Food Services market and has grown over the

years due to its focus on affordable and competitive pricing. It caters to the growing

consumer needs such as convenience, increased appetite and craving for international

food. A number of international QSR chains have flocked to GCC, especially KSA and the

UAE, over the past few years, with specific cuisines and product offerings, fuelling the

market’s growth.

High earning capacity, a young and fast growing population base and continued

investment in a number of new and large retail destinations across GCC has fuelled the

strong demand and fast growth of QSRs in the region. At the forefront of this revolution

are the American brands such as Smash Burger, Shake Shack and IHOP. As per a study by

global real estate consultants - CBRE, the topmost target market for American retailers

outside of their home region is London followed by Dubai and Kuwait City. Apart from

American concepts, Canadian-based coffee shop Tim Hortons and Freshii, together with

operators as far as New Zealand, have all been keen for the Gulf market. According to

the industry survey by KPMG, as the UAE becomes the culinary capital of the world,

QSRs and cafes will continue to be the most popular formats in the UAE.

Even the home-grown food operators, especially in QSR segment, are rapidly rising in

the region to benefit from the growing demand for innovative food. Many are on a roll

and have already sold multiple franchises within the UAE, GCC and beyond. However,

currently, only 20% of the UAE’s food sector is home-grown, showing the potential local

businesses have to eat into the dominant franchise market’s share.

GCC QSR Market Size and Structure

Fast food (QSR segment) is the largest market, accounting for 58% of the total USD 20.1

billion GCC’s foodservice market. The entry of a number of players into this space has

widened the market to an estimated size of USD 11.7 billion in 2015, which is projected

to grow at 6.8% CAGR to reach USD 14.3 billion by 2020. Industry data indicates that

Saudi Arabia is the largest QSR market in the region with ~44% share, followed by the

UAE (over 30%). Cafes and bakery market size stands at approximately USD 2.1 billion as

of 2015, and is expected to grow to USD 2.5 billion by 2020.

Exhibit 11: GCC QSR Market Size (2015)


5.1

3.7

1.2 0.9 0.7

0.2

0

1

2

3

4

5

6


(USD bn)

QSR is projected to grow at 6.8% CAGR to reach USD 14.3 billion by 2020

Around 20% of the UAE's food sector is home-grown signifying the huge potential for growth

X

9


Rapidly Growing UAE QSR Market

Total market size of the UAE QSR segment has increased from USD 2.9 billion in 2012 to

USD 3.5 billion in 2015, growing at a CAGR of 6.8%. The number of QSR outlets has

increased from 1,707 in 2008 to 3,056 in 2015 on the back of expansion on existing

brands as well as new brands entering the fast growing segment in the UAE.

Exhibit 12: UAE QSR Market Size (2008-2017F)


The UAE QSR segment is expected to grow to reach over USD 4 billion at the end of

2017, with the number of outlets increasing to around 3,595. According to Euromonitor

International, the number of transactions per order is expected to increase from USD 7.6

in 2012 to USD 8.5 in 2017, a CAGR growth of 3.5% during the period.

Exhibit 13: UAE QSR and Café/Bars to Outpace FSR Segment


Though UAE is the second largest market in terms of sales, but on a per capita basis, it is

the largest foodservice market in the GCC region. In UAE, the cafes/bars is the most

dominant section, both in terms of sales share and growth, and will continue to perform

strongly going forward.

Components of QSR Market

A large share of the QSR market rests in major cities due to higher consumption and

heightened consumer awareness and is slowly now expanding into smaller cities with

1.7 1.8 2 2.32.9 3.1 3.3 3.5 3.8 4

1,707 1,836 2,017

2,294 2,640 2,567

2,811 3,056

3,325 3,595

-

500

1,000

1,500

2,000

2,500

3,000

3,500

4,000

0

1

2

3

4

5

2008 2009 2010 2011 2012 2013 2014 2015 2016F 2017F

Market Size (USD bn) No. of Outlets

(USD bn)

31% 30% 29% 28%

38% 39% 42% 45%

31% 31% 29% 26%

0%

20%

40%

60%

80%

100%

2009 2012 2015E 2018E

QSRs Cafes/Bars FSRs

UAE QSR segment has increased from USD 2.9 billion in 2012 to USD 3.5 billion in 2015, and expected to reach over USD 4 billion by 2017

X

10


smaller formats. It is majorly found in high footfall market or malls, densely populated

residential area or big office complexes, with malls being the most preferred location.

Exhibit 14: QSR Formats and Locations


Most Preferred Locations for QSRs

Mall culture is highly prevalent in the GCC, as the majority of population prefers to

spend significant leisure time on shopping, socializing, and dining out. With malls

attracting young and affluent visitors, especially over weekends and during shopping

festivals, QSR and cafes/bars have boomed significantly in the the shopping malls.

According to a UAE-based F&B strategy house - TRIBE, the UAE residents visit malls once

a week, with 60–70% availing casual dining or quick service restaurant services.

As per a CBRE study, UAE residents are the third biggest spenders on F&B worldwide

with 60% of consumers visiting a mall just to eat or drink, in contrast to 25% in the

United Kingdom. Most notably, F&B accounts for more than 20% of the retail mix in

Dubai and is expected to grow to around 25 to 30% in the next five years

Exhibit 15: Share of QSR Sales by Outlet Location in the UAE


QSR outlets in malls grew 8.4% during 2008–12 in UAE, amounting to 1,292 outlets, or

56.3% of total QSR outlets, capturing 61.6% of total QSR sales in 2012 compared to 38%

by stand-alone outlets. Market size of mall stores increased at a CAGR of 12.2% to USD

1,441 million during 2008–12. The share of mall stores, in terms of QSR revenues, is

anticipated to have increased to 65.2% as of 2015.

56

.8%

58

.0%

59

.2%

60

.4%

61

.6%

62

.8%

64

.0%

65

.2%

43

.2%

42

.0%

40

.8%

39

.6%

38

.4%

37

.2%

36

.0%

34

.8%

2008 2009 2010 2011 2012 2013E 2014E 2015E

Retail (Malls) Stand-Alone

Malls/shopping centres are the most preferred locations for QSRs with kiosks and take-away formats gaining popularity

X

11


COMPETITIVE LANDSCAPE OF QSR MARKET

Highly Fragmented Market

The QSR market in the region is highly fragmented with several independent and

chained restaurants, with the former accounting for 54.5% of 3,583 outlets in UAE in

2015. However, as of 2012, the revenue generated by the chained outlets was much

higher at 69% than the independent outlets. Within the chained QSR category, Fast food

dominated the market in 2015 with approximately 88% share in total chained eateries in

comparison to approximately 72% share in case of independent outlets. Street Stalls/

kiosks also formed around 17% of the independent outlets in 2015.

Exhibit 16: No. of Chained and Independent QSR Stores in the UAE (2015)


Further within chained QSR category, as of 2012, the bakery and burger formed the

largest market share at around 52%, while independent QSR was dominated by Middle

Eastern eateries (40%), followed by bakery (17%). Going forward, chained QSR stores

will continue to capture significant portion of the QSR market. However, independent

outlets will also grow strongly driven by the success of higher-quality concepts targeting

affluent local consumers and tourists.

Exhibit 17: No. of Chained & Independent QSR Stores in UAE sub segment wise (2012)


Fast Food 72%

Street Stalls/Kios

ks17%

Pizza Consumer

10%

Home Delivery &

Self Service

1%

Independent Outlets

1,953 (54.5%)

Fast Food88%

Pizza Consumer

10%

Home Delivery &

Self Service

2%

QSR Chains

1,630(45.5%)

Bakery28%

Burger24%

Ice Cream

21%

Chicken16%

Asian4%

Middle Eastern

3% Others4%

QSR Chains

1,045 (46%)

Middle Eastern

40%

Bakery17%

Chicken6%

Ice Cream

5%

Others24%

Asian4%

Burger3% Latin

American1%

Independent Outlets

1,227 (54%)

The GGC QSR market is highly fragmented within the independent and chained formats

X

12


Within the Cafés/Bars market, the share of independent brands increased to 76% of the

total 3,004 total outlets as of 2015 in comparison to 65% in 2012. However, their

contribution to market sales was limited to ~43%, or USD 239 million in 2012.

Exhibit 18: No. of Chained and Independent Café/Bars Stores in the UAE (2012-15 )


Food formed the major share of sales across different QSR segments except for the

Café/Bars segment, given the obvious nature of that segment.

Exhibit 19: QSR Sales by Food vs Drinks Split (2015)


However, the market is getting saturated and success now depends upon innovation and

the quality of the food. The model of low cost ingredients and low selling prices is not

working any longer as people are growingly becoming conscious about their health and

what they eat. Thus, while new entrants are growing rapidly, only some of the well-

established categories within fast food are able to post growth, as they find ways to

attract a diversified consumer base and offer food items that cut across subsectors.

Burger Fast Food and Pubs/Bars Dominate the UAE QSR Market

Based on food type, the fast food market can be segmented into (i) Burgers, (ii) Middle

Eastern, (iii) Chicken, (iv) Bakery, (v) Asian, (vi) Ice Cream, (vii) Latin America, and (viii)

others. According to Euromonitor, burger forms the largest segment of UAE's fast food

market, accounting for ~31% of sales in 2015, and is expected to contribute ~32% of the

Independent65%

Chained35%

986

2012

Independent76%

Chained 24%

3,004

2015

89.5%

10.6%

70.3%

89.5%76.5%

10.5%

89.4%

29.7%

10.5%23.5%

0%

20%

40%

60%

80%

100%

HomeDelivery/Takeaways

Cafés/Bars Fast Foods Self-ServiceCafeterias


Food Drink

X

13


total by 2018. Considering the growing number of Middle Eastern food joints in the UAE,

the stores are expected to contribute ~22.4% of the sales in 2018, up from ~21% in 2015.

Exhibit 20: UAE Fast Food Market Segmentation (by sales)


Based on drinks type, the Café/Bars market can be segmented into (i) Bars/Pubs, (ii)

Specialist Coffee Shops, (iii) Cafes, and (iv) Juice/Smoothie Bars. Bars/Pubs is the largest

segment in UAE’s market, accounting for ~82% of sales in 2013, despite it being highly

regulated. The share is likely to have reached over 83% in 2015, and is expected to

increase to ~85% by 2018. It is highly frequented by tourists and Western expats who

have personal liquor license.

Exhibit 21: UAE Café/Bar Market Segmentation (by sales)


GCC QSR Market Led by International Brands

The QSR market is dominated by international brands, largely due to their affordability,

the sheer volume of outlets across the region, and heavy advertisement. They are

rapidly expanding in GCC and testimony of this is growth registered by Burger Kings and

KFC, the first American QSR brands to enter GCC.

During the last two years, several internationally acclaimed restaurant brands have

opened in GCC, including IHOP, Shake Shack, Tim Hortons, The Cheesecake Factory,

MOOYAH, Cielo Tapas Bar & Sky Lounge, Clinton Street Baking Company and GQ Bar.

Burger King, which opened its first GCC outlet in 1992 in Saudi Arabia, has expanded to

almost 267 outlets across GCC, while KFC which opened its first outlet in 1973 has

28.8% 29.6% 30.9% 31.8%

22.5% 20.6% 20.9% 22.4%

21.1% 19.2% 18.6% 17.2%

16.4% 18.8% 18.0% 17.2%

3.9% 3.6% 3.4% 3.2%

0%

10%

20%

30%

40%

50%

60%

70%

80%

90%

100%

2009 2012 2015E 2018E

Others

Latin American

Ice Cream

Asian

Bakery

Chicken

Middle Eastern

Burger

80.3% 81.4% 83.2% 84.7%

10.6% 10.4% 8.7% 7.3%7.2% 6.6% 6.3% 6.2%

0%

20%

40%

60%

80%

100%

2009 2012 2015E 2018E

Bars/Pubs Specialist Coffee Shops Cafes Juice/Smoothie Bars

Bars/Pubs share is likely to have reached over 83% in 2015, and is expected to increase to ~85% by 2018

QSR market is dominated by international brands, largely due to their affordability and volume of outlets across the region

X

14


expanded to 400 outlets. Dunkin Donuts also has more than 250 outlets in the region,

while Subway has crossed the milestone of 500 outlets in Middle East and Africa region.

Exhibit 22: International Brands with Strong Presence in GCC


Most of the international brands prefer setting up base in the GCC through franchises.

Notably, fast food is estimated to account for 40% of the franchising market in GCC, and

experts expect the region’s F&B franchises to grow by ~25% in the coming years,

maintaining their dominance. On the other hand, regional chains are also expanding

operations in the market. For example, ChicKing, which started in 2000 with just one

outlet in Dubai, currently has around 14 outlets across the UAE, and aims to take on

international QSR giants by setting up 1,000 outlets across 30 countries by 2020.

Exhibit 23: Top 5 UAE Chained QSR and Cafes/Bars by % Share in Sales (2013)


Eat-in Joints Form the Major Revenue Share

Chained and independent shops operating in the region have adopted different QSR

formats, with some of them providing seat-in facility, a few offering delivery options

(takeaway/home-delivery), and some providing both. Eat-in are the most preferred

format, which accounted for ~50.7% of total QSR sales in 2012, growing at a CAGR of

10.4% from 2008 to 2012. The takeaway option is becoming lucrative, accounting for

43.3% of the QSR market, thus attracting large number of franchises. Home-delivery

9.3

%

8.2

%

6.4

%

5.4

%

3.0

%

0%

2%

4%

6%

8%

10%

KFC

McD

on

ald

's

Sub

way

Bu

rger

Kin

g

Har

dee

's

1.9

%

1.8

% 0.5

%

0.4

%

0.3

%

0%

1%

2%

3%

4%

5%

Star

bu

cks

Co

sta

Co

ffee

Car

ibo

u C

off

ee

Glo

ria

Jean

's

Caf

fe`

Ner

oMost of the international brands prefer setting up base in the GCC through franchises

X

15


option has been gaining prominence in the region, with 6% market share and 12.6%

growth over 2008–12. The home delivery segment has grown due to increasing real

estate prices which make it unviable for chains to set up elaborate drive-through,

standalone stores or open outlets in malls.

Exhibit 24: QSR Sales by Formats (2008-12)


Within the QSR sub-segments, eat-in format is most prominent in Cafes/bars (89.8%),

Fast Food segment (51.4%) and Self-service Cafeterias (97.5%). On the other hand,

takeaway format dominates street stalls/kiosk segment, and forms a formidable portion

of the Fast Food segment.

Exhibit 25: QSR Sub-segment Sales by Formats (2015)


Global vs. Regional QSR Chains

Consumer foodservice is led by strong global brands represented by regional or

domestic franchise partners, primarily well established family-owned firms. As per

Euromonitor, Kuwait Food Co (Americana) remained the leading player in fast food

services and the only player with double digit value share of 12% in 2015, representing

KFC, Hardee's and Pizza Hut. KFC dominated the chicken fast food with 51% share in this

channel in 2015 as it has a wider consumer appeal to tourists, expatriates and local

consumers. The company ranked third in the burger fast food with Hardee's. Emirates

Fast Food ranked second with McDonald’s, while First Food Services ranked third with

93 103 113 129 150

847 894975

1,1071,259

745 780844

953

1,076

2008 2009 2010 2011 2012

Home Delivery Eat-in Takeaway

(USD mn)

89.8%

51.4%

97.5%85%

6.3%

0.9%15% 10.2%

38.3%

1.6%

100%

4%

0%

20%

40%

60%

80%

100%

HomeDelivery/Takeaways

Cafés/Bars Fast Foods Self-ServiceCafeterias


Eat In Home Delivery Takeaway Drive-through

Eat-in are the most preferred format, which accounted for ~50.7% of total QSR sales in 2012, growing at a CAGR of 10.4% from 2008 to 2012

X

16


Burger King and Texas Chicken. Given the fragment nature of the market with

dominance of independent players, shares remained in single digit.

Apart from the family-owned firms, private investment firms (PE players) have also

started investing in the GCC foodservice market. Regional players have started focusing

on in middle-market chains, both local and international, with high growth and

established presence in the GCC. For example, in January 2015, Diamond Lifestyle Ltd,

the F&B PE unit of Al Masah Capital announced the acquisition of the UAE-based Al Faris

Restaurant for an undisclosed sum. Al Faris Restaurant operates the franchise of

California-brand Johnny Rockets in the UAE, and own the development rights in Oman.

Currently, Al Faris operates 14 restaurants across the UAE. The Johnny Rockets brand is

also well represented in the GCC, operating 35 franchised restaurants across the UAE

(14), Kuwait (10), Saudi Arabia (4), Qatar (4) and Bahrain (3).

Similarly in May 2016, Fajr Capital acquired Cravia Group, the Dubai-based franchise

operator behind chains including Cinnabon, Seattle's Best, Zaatar W Zeit and Five Guys.

Cravia runs over 80 restaurants across the Middle East. Its Five Guys franchise covers

Saudi Arabia, Bahrain and Qatar. The attention of private equity was highly drawn to

Cravia with the outstanding success of the Five Guys store opened in Riyadh compared

to other competitive outlets opened before. Fajr Capital's contribution will mainly be

focused on Five Guys and will likely open new market opportunities.

Exhibit 26: Top Franchise Families in GCC

Family-owned Firms

Franchises Held (Portfolio)

Al Shaya Group Starbucks, The Cheesecake Factory, Potbelly, IHOP, Pinkberry, Shake

Shack, Pei Wei, Raising Cane's, Sprinkles Cupcakes, Cafe Coco

Apparel Group Tim Horton's, Cold Stone Creamery

Rmal Hospitality Ten Street, Wagamama, Trader Vic's Mai Tai Lounge

Bin Hendi Group Bageterie Boulevard, Joe’s Café, Marimekko’s Café, Japengo Café, Café

Havana, Bella Donna, Second Cup, NOW Café, Extreme Shawarma

First Food Services Burger King, Texas Chicken, Buffalo Wild Wings

Kuwait Food Co.

(Americana Group)

Hardee's, Krispy Kreme, KFC, Samadi, Costa Coffee, Grand Café, Baskin

Robbins, Maestro

Fawaz Abdulaziz

Alhokair

Ca’puccino, Caffe Concerto, Cinnabon, Fauchon, Guven, Kahve

Dunyasi, La Cure Gourmande, Life with CACAO, MAMMA Roti,

Seattle’s Best Coffee, Emirgan Sutis

Source: Thomson One Banker, Al Masah Capital Research

Local partners not only enable global brands to better navigate the local bureaucracy

involved in opening outlets but also to cater to local consumers' demands. Most local

franchisees are also large companies with the ability to invest heavily in building brands.

Individual franchising is however rare, with global brands preferring the reassurance of

working with larger franchisees.

Franchising is expected to remain strong in consumer foodservice in the UAE in the long

run. The country's diverse consumer group, owing to a large number of expatriate

workers and rising tourist numbers, result in many global brands viewing the country not

only as offering a strong sales potential but also as a good test site for concepts. The

Kuwait Food Co (Americana) remained the leading player in fast food services and the only player with double digit value share of 12% in 2015

X

17


government is also keen to encourage franchising in the country, having launched the

UAE Franchise Association in 2004. The Franchising Middle East Exhibition also continues

to be held annually in Dubai.

Despite the market being flooded with international brands, Middle East entrepreneurs

are taking onto the international competition and spreading restaurant chains serving

local cuisine like falafel overseas.

Exhibit 27: Regional QSR Chains in GCC and Their Expansion Plans

Brand Name Segment Current Presence Expansion Plans

Operation Falafel QSR 6 branches in Dubai Plans to expand to more than 400 globally in the years ahead

Man’oushe Street QSR 8 branches in Dubai Plans to expand in Middle East and Europe with 4 in Egypt, 12 in

Qatar and 35 across Netherlands, Belgium and Luxemburg

Kcal QSR 11 restaurants in the

UAE and Egypt

Plans to open restaurants in 16 more locations across Middle East

and 1 in New York, US

Chicking QSR 100 outlets across 7

countries Plans 1,000 outlets across 30 countries by 2020

Herfy QSR 310 restaurants Plans to add 20-25 restaurants every year

Bateel Café 2 cafes in London, 1 in

Moscow

Plans to open several new branches in the UAE as well as in Saudi

Arabia, Qatar and Kuwait over the next two years; also plans to

expand in Russia and Turkey and the Far East

Filli Cafe Café 18 outlets in Dubai & 1

in Sharjah Plans to open 1,000 stores in next 10 years with 300 in the UK

Zaroob QSR 4 outlets in UAE Plans to expand to Qatar, Kuwait, Saudi Arabia, Egypt, London and

Australia

Doner Kebab QSR 33 outlets including 21

in UAE Plans to open 92 outlets in UK

Zaatar w Zeit QSR 35 outlets across Middle

east Plans to open 57 outlets in Saudi Arabia with 5 already opened

SALT QSR 3 Branches in the UAE NA


Effective localization is important in every region, yet it is essential in the GCC, where

local norms place clear barriers on what can and cannot be served, above all in

conservative Saudi Arabia. Going forward, the majority of regional players in consumer

foodservice are expected to continue to mainly focus on local flavor and rush to pump

out new concepts, brands and outlets within the GCC as well as abroad.

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18


KEY TRENDS IN QSR MARKET

Dining Out Becoming More Rampant in the Region

QSR market in GCC is expected to continue its strong growth going ahead, benefitting

from rapid socio-cultural changes, increasing affluence level and smaller household sizes

coupled with rising share of younger population, and ongoing surge in tourist numbers.

Sales are also benefiting from a large number of expatriate workers who are living alone

or in shared accommodation with few cooking facilities and thus relying on outside food.

Increasing travel and the rising use of social media have exposed GCC to the Western

culture, thus making them more open-minded and relaxing their social norms. Further,

even local consumers especially youngsters are dining out more than ever and cooking

less at home and they want their experiences to be quick, casual and flexible. All these

factors are cumulatively fuelling higher demand for QSRs and Cafes/Bars.

The trend of dining out has only strengthened due to factors such as longer working

hours, busier lifestyle, rising affluence levels, and lack of time to cook food at home. Of

the dining out options, QSR accounts for the maximum share of the total spending,

followed by casual and fine dining. QSRs and cafés continue to be the most popular

formats, indicating a preference for speed, value for money and a sociable environment.

Changing Consumer Palates

GCC residents have become richer, trendier, and more brand conscious. Thus, the food

consumption pattern of GCC residents is shifting from traditional Arabic cuisine to more

international flavors, ranging from Japanese (sushi) to Indonesian, Italian, and Lebanese

food to reflect their social status. As per the KPMG – 2016 UAE Food & Beverage Survey

Report, Indian continues to be the most preferred cuisine, largely driven by the huge

population from the sub-continent country in the UAE, followed closely by Italian,

Lebanese and Chinese cuisine.

Exhibit 28: Preferred Cuisines in the UAE (KPMG 2016 Survey)


While the regions' palate preferences are shifting towards international cuisines, several

international operators are also introducing localized menus to attract traditional

customers. For instance, McDonald introduced MC Arabia Grilled Chicken and

20

30

31

33

18

47

29

97

51

110

84

235

24

24

22

32

48

38

52

55

117

105

161

105

17

23

25

28

61

44

63

54

101

111

147

80

0 50 100 150 200 250 300 350 400 450

French

Other European

Other East Asian

Japanese

North American

Emirati & GCC

Middle Eastern/ North African

Pakistani

Chinese

Lebanese

Italian

Indian

Choice 1

Choice 2

Choice 3

Indian continues to be the most preferred cuisine, largely driven by the huge population from the sub-continent country in the UAE

The trend of dining out has only strengthened due to factors such as longer working hours, busier lifestyle, and rising affluence levels

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19


McDonald’s pita bread sandwiches to attract the local taste buds. Similarly, Pizza Hut

introduced flat-bread pizzas and new toppings, such as mint and halloumi cheese.

Kiosk Format Gaining Popularity

QSRs and Cafés/Bars operate majorly through outlet format. However, in recent years,

many players are gradually adopting the kiosk format given low investment and lesser

space required for setting it up in high footfall areas where rentals are very high.

Additionally, they are known for saving time and cutting lines. For QSR that promote

their convenient service, self-order kiosks present a new opportunity to improve

customer experience. Many players such as Jungle Juice Bars and Bateel Bakery operate

as outlets as well as kiosks in the UAE market. However, it does not offer extensive food

options and dining space and primarily run as a delivery/ takeaway format.

Rapid Uptake of Food-trucks and Mobile Operators

Monitoring the success of the food truck industry in the US, foodservice operators see

the food truck phenomenon building momentum in the UAE and across the GCC. While

the concept of food trucks is still a novice in the region, operators expect a huge uptake

in the concept due to its convenient access and maximized visibility on the road.

Inspired by American fuel stations and food joints of the 1950s, Last Exit, a 1,500 sqm

24/7 and seven days a week food truck park opened in July 2016 on the Dubai-Abu

Dhabi road. The destination, with both dine-in and drive-through options being

available, features popular food outlets repurposed to offer their very own signature

street foods that span across a variety of Latin American, International, Middle Eastern,

American, and Italian cuisines. The first of its kind in the UAE, the place has over 12 food

trucks, all serving up mobile dishes from a range of already established local eateries.

Among others in the park, include Baja Fresh, Burger Pit, Big Smoke Burger, Clinton St

Bakery, Operation Felafel, Poco Loco, Il Café de Roma, The Brass, and Starbucks.

Flip International, a F&B management company, has just launched Food Truck Co., which

has three trucks operating in the soft launch phase with plans for eight more in early

2017. Another company - The Foodsters, which currently has six food trucks that operate

throughout the UAE, added another four by November 2016. ROUNDUP, a subsidiary of

Dubai-based 54⁰ East, launched the first food truck marketplace in October 2015,

including Calle Tacos, MOB and Gobai. The company further plans to expand business

across Middle East with a goal of 1,500 trucks.

Similarly, the Boardwalk, a newly-opened 11-kilometre waterfront promenade on Palm

Jumeirah, Dubai is expected to be lined with around 20 food trucks and 30 kiosks.

Currently, there are five food vans along the walkway, and the destination is already a

venue to popular joints such as Bob’s Fish & Chips. With eventual plans on

serving everything from fish and chips to falafel, spaghetti and shawarma, the AED 150

million project has transformed Palm Jumeirah’s crescent into a vibrant destination for

fitness, leisure, shopping and dining.

Food truck businesses in the GCC, especially in the UAE, are expected to grow further as

entrepreneurs seek a cheaper way to start restaurants. Currently, plans are undergoing

to expand the Last Exit and additional 10 food truck locations with the aim of promoting

similar upscale destinations in different areas across Dubai. The launch and

development of these plans are conceived in-line with the region’s tourism vision and

Kiosk formats gaining high prominence due to increasing rentals in up-scale retail space

Places such as the Last Exit, the Boardwalk, amongst others are facilitating the growth of food truck operators across the region

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20


the government's ongoing commitment to provide innovative experiences across the

emirate.

Rising Health Awareness Giving Rise to Fast Casual Segment

Obesity and diabetes in the GCC have reached epidemic proportions and is becoming an

increasing burden on public healthcare. This has resulted in rising health awareness in

the country, largely driven by governmental campaigns. As a result, premium operators

are adding healthier options to their menus such as salads, whole-wheat dough and

organic ingredients in an attempt to stay in line with this rising trend. California-based

Lemonade recently opened two branches in Dubai, Richy’s offers custom-made salads,

while Circle has been expanding its presence offering salads and bagels. Competition

from these premium chains is encouraging mass chains to offer more gourmet and

healthier food options and improved service levels. The big chains have also started

adjusting their menus to protect market share amid declining sales and higher costs.

Exhibit 29: High Obesity Rate in GCC Countries (2015)

Source: WHO, Al Masah Capital Research

As health trends become more global, restaurateurs and QSRs are experimenting with

new concepts to attract young consumers with new, healthier takes on traditional local

cuisine, highlighting local flavours that increase the value of the dining experience. This

is a growing trend being adopted by premium operators towards upscale fast food in

order to distinguish themselves away from the crowd. According to Glee Hospitality,

currently the increased focus of the industry is on providing a wide variety of healthier

eating options in the premium, fast food category, causing health conscious customers

to shift to fast casual brands with an added luxury of proper dining in an upscale decor.

According to Euromonitor, the UAE’s fast casual dining sector, which accounts for

around 9% of overall QSR market, is expected to grow at a CAGR of 20% with burger

chains set to see the highest increase.

Technology Fuelling Demand, Dine-Out and Online Ordering

Technology is completely reinventing the modern dining experience and it has been

more prevalent in QSR segment. It has enabled operators to engage consumers in new

and exciting ways, enhance convenience and improve and fasten services for consumers.

Modern foodservice operators are providing technology that caters to the preferences

of the modern consumers, such as convenience, digital platform functionality, enhanced

customisation and engagement through rewards and loyalty programmes.

75% 69% 62% 57% 50%

Kuwait Saudi Arabia Qatar UAE Oman

Premium operators are adding healthier options to their menus as people become more diet conscious

Technology is empowering consumers to make wiser decisions in selecting foodservices options

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21


Exhibit 30: Usage of Smartphones for Foodservices in the UAE (KPMG 2016 Survey)


In the UAE, the share of mobile internet subscriptions rose from just 10% in 2010 to 72%

in 2015, while the household penetration rates for smartphones soared from 22% to

71% over the same period, thus creating a fertile growth environment for third-party

online ordering/delivery services. In a KPMG 2015 UAE Food & Beverage Survey Report,

nearly 60% of the respondents in the UAE order takeaway at least once a week.

Similarly, delivery/take-away subsector contributes 23% of the total food service market

in Saudi Arabia.

Online ordering in the UAE still remains nascent, accounting for less than 1% of overall

value sales in 2015. However, sales grew rapidly by 74% and is thus creating growing

competition for 100% home delivery/takeaway from other channels, particularly full-

service restaurants. While online ordering accounted for just 1% of value sales in full-

service restaurants, this channel dominated overall online orders, accounting for 84%

value share. This trend is thus posing strong competition for 100% home

delivery/takeaway, which saw 5% current value decline in 2015 over the previous year.

Exhibit 31: Share of Online/Offline Ordering in UAE Foodservices Sales


7

19

178

55

112

124

238

17

39

75

182

125

142

146

22

42

76

127

149

209

126

0 100 200 300 400 500 600

Write restaurant reviews

Book tables at restaurants

Order meals

Read restaurant reviews

Look for discount, promotions &…

Look for directions to restaurants

Find restaurants to try

Choice 1

Choice 2

Choice 3

99.9% 99.5% 99.2%

0.1% 0.5% 0.8%

0%

20%

40%

60%

80%

100%

2013 2014 2015

Offline Online

Online ordering in the UAE still remains nascent, accounting for less than 1% of overall value sales in 2015

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22


Food Delivery Platforms Re-shaping the Regional F&B Market

Online ordering, mobile payments and delivery service together form the foundation of

the long-term growth opportunities in global foodservice. It is rising rapidly in the UAE

due to increasing internet and smartphone penetration. The local on-demand food

delivery market is a lucrative and highly competitive one, with big money being spent on

acquisitions and restaurant partnerships to own the space. Leading players in this area

include foodonclick.com, zomato.com, talabat.com and 24h.ae, with these not only

offering convenience in terms of ordering and delivery but also enabling consumers to

easily search the range of consumer foodservice offers in their area.

Online food-delivery platforms are expanding choice and convenience, allowing

customers to order from a wide array of restaurants with a single tap of their mobile

phone. With food orders placed online and through apps per month ranging in the

thousands, the trend of online food ordering has caught on in the UAE and expanding to

other countries in the region too.

Exhibit 32: Top Foodservices Web Portals in GCC

Online/ Web Portals Users (mn) Orders per Month

Talabat >1.5 >200,000

Foodonclick >0.1 >90,000

Eateasily >0.15 >18,000

UberEats 2.6* NA

Deliveroo 4.2* NA

Source: Thomson One Banker, Al Masah Capital Research,* Monthly visits as of Nov’16

New players are also continuing to enter this segment, with 2015, for example,

witnessing the launch of Deliveroo with a focus on swiftly-delivering meals from full-

service restaurants such as Toko, Fumé and Mythos. The recent acquisition of UAE’s

24h.ae by global online food delivery company - Food Panda, and acquisition of Kuwait-

based talabat.com by Rocket Internet highlights the market interest and growth

potential in online food ordering business.

The business of delivering restaurant meals to the home is undergoing rapid change as

new online platforms race to capture markets and customers across the GCC. With the

launch of several new apps such as UberEats and Deliveroo, competition in this space

has been intensifying, making the user experience of finding, ordering and getting food

delivered as fast and efficiently as possible becoming the basic differentiator amongst

the players. With the stakes this high, the end-to-end ordering process is a huge source

of competitive advantage.

Online food-delivery platforms are expanding choice and convenience, allowing customers to order from a wide array of restaurants

http://www.smh.com.au/it-pro/business-it/sydney-startup-suppertime-acquired-by-food-delivery-giant-20150930-gjyp5v.html

http://www.smh.com.au/it-pro/business-it/sydney-startup-suppertime-acquired-by-food-delivery-giant-20150930-gjyp5v.html

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GROWTH DRIVERS FOR GCC FOODSERVICE SECTOR

Resilient Economy

Though the recent drop in oil prices since mid-2014 have weakened the GDP growth in

the short term, the GCC economy is expected to revive on the back of supportive

economic policies and growth in non-oil sector. Over the last decade, it has grown at a

CAGR of 7.5% and is estimated to reach USD 1.9 trillion by 2021.

Exhibit 33: GDP, Current Prices (2010-2021P)


Despite growing population, the continued GDP growth in the region has led to higher

personal income levels, supporting the market for foodservice providers. Over the last

decade, the GCC’s per capita income grew at 3.4% CAGR, highlighting the region’s rising

affluence levels. This in turn has drawn international as well as local F&B providers to

establish and expand their presence in the region.

Exhibit 34: Per Capita Income (2015)


Favorable Demographics

The region's rising population, well supported by its oil wealth and the government's

efforts toward economic diversification, is one of the key drivers of food consumption in

the GCC. During 2005-15, the GCC population grew at 4.1% CAGR, double the rate

0.0

0.5

1.0

1.5

2.0

2010 2011 2012 2013 2014 2015 2021P

Saudi Arabia UAE Qatar Kuwait Oman Bahrain

1.1

1.41.6 1.6 1.7

1.9

1.4

(USD tn)

18.3

20.6

24.9

27.4

40.4

68.9

26.8

32.5

37.7

43.8

41.4

55.8

0 10 20 30 40 50 60 70 80 90 100

Oman

Saudi Arabia

Bahrain

Kuwait

UAE

Qatar

GCC

Japan

France

UK

Germany

US (USD ‘000)

Continued GDP growth in the region has led to higher personal income levels, supporting the market for foodservice providers

GCC GDP is estimated to reach USD 1.9 trillion by 2021 from USD 1.4 trillion in 2015

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24


witnessed in MENA and considerably higher than the world average of 1.2%. Moreover,

almost 37% of the region's population is aged between 15 and 34 years, mainly

comprising the young and the working, which supports the market’s shift in taste for

international brands and preference towards convenient and high quality food services.

Exhibit 35: GCC’s Young Population Base (2015)

Source: UN Population, Al Masah Capital Research

The region is also home to expatriates from over 200 countries, which account for

almost 80% of the workforce in the Gulf. The busy lifestyles of expatriate groups help

create demand for dining out, especially the casual restaurants and fast food outlets.

Rising International Tourism

Most of the GCC nations have been developing their tourism industry as a part of their

economic diversification strategy, which has helped drive demand for the foodservice

sector, particularly in Saudi Arabia and the UAE. On an average, these two countries

receive more than 30 million tourists annually, accounting for more than 75% of the

total tourist arrivals in the GCC in 2015. Further, according to The World Travel &

Tourism Council, the tourist arrivals in the region are expected grow at a CAGR of 5.7%

during 2016-2026.

Exhibit 36: International Tourist Arrivals in GCC

Source: The World Travel & Tourism Council; Al Masah Capital Research

9%

15%

37%

20%11%

5% 2% 100%

0%

20%

40%

60%

80%

100%

0-4 5-14 15-34 35-44 45-54 55-64 Over 65 All

Age in Years

32.3

20.2

8.0

30.9

15.8

7.1

10.2

6.5

6.3

0 10 20 30 40 50 60 70 80 90

2026P

2016E

2005

KSA UAE Bahrain Qatar Oman Kuwait

23.4

83.4

47.7

(in mn)

Saudi Arabia and the UAE receive more than 30 million tourists annually; together accounted for more than 75% of the total tourist arrivals in the GCC in 2015

~37% of the region's population is aged between 15 and 34 years supporting the market for foodservice providers

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INDUSTRY CHALLENGES

The GCC foodservice industry is growing at a rapid pace, and with the advent of new

cuisines, themes and concepts, the segment is becoming a lucrative business option,

attracting global restaurateurs and investors alike. But despite a ostensibly bright future,

shortage of skilled staff, high real estate and manpower costs, and inadequate supply

chain infrastructure are some of the key roadblocks that have plagued the industry’s

development over the years.

High Dependence on Imports

GCC heavily relies on food imports to meet its growing consumption requirements due

to the shortage of arable land and water. Data from the Arab Organization for

Agricultural Development (AOAD) suggests that GCC’s agricultural imports (including

food and non-food items) totaled USD 34.2 billion in 2011, while food imports alone

totaled to USD 27.2 billion.

Exhibit 37: Value of Food & Agricultural Imports (2011)

Source: AOAD, Al Masah Capital Research

Given the high dependence on imports, securing a steady supply of food remains a key

challenge for the GCC governments. While several steps are being undertaken by

regional governments to improve the food supply, they are still at a nascent stage.

Shortage of Skilled Human Capital

Availability of human capital is a significant issue affecting the GCC foodservice market,

primarily due to shortage of skilled chefs. Moreover, with the large influx of malls and

foodservice outlets in the region, retention of skilled staff workers has become difficult

as employees tend to ride high on better opportunities from competitors.

Scope for Improvement in the Supply Chain

Weak supply chain infrastructure is one of the key drivers of food inflation in the GCC,

resulting in wastage due to lack of storage and transportation facilities, which in turn

adversely affects efficiency and leads to higher foodservices costs. Delay in

transportation and unavailability of specialized logistics services have made sourcing a

challenge for even seasoned chefs. For restaurants that use top quality or imported

products, food costs shoot inconceivably high. The situation is getting worse with rising

16.9 17.1

6.1

10.3

0.9 0.91.3 1.9

0.6 0.61.5 1.6

0

4

8

12

16

20

Food Agricultural

(USD bn)

57%28%

5%5%

3%

2%

Saudi Arabia UAE Kuwait

Qatar Oman Bahrain

Weak supply chain infrastructure and shortage of skilled staff are one of the key roadblocks that have plagued the industry’s development

GCC heavily relies on food imports to meet its growing consumption

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26


food consumption, necessitating the requirement for a robust supply chain network.

According to World Bank’s Logistics Performance Index (LPI) 2016, most GCC countries

rank well below developed and some emerging markets indicating a huge scope for

development.

Exhibit 38: Logistics Performance Index (2016)

Country LPI

Rank

Logistics Compet

ence

Infra-structure

Customs

Int. Ship-ments

Tracking & Tracing

Time-lines

GCC Countries

UAE 13 18 13 12 7 18 18

Qatar 30 29 28 21 26 35 35

Bahrain 44 33 48 41 41 44 51

Oman 48 38 34 61 40 57 57

Saudi Arabia 52 54 40 68 48 49 53

Kuwait 53 70 56 56 24 53 55

Developed Countries

Germany 1 1 1 2 8 3 2

Netherlands 4 3 2 3 6 6 5

Singapore 5 5 6 1 5 10 6

UK 8 7 5 5 11 7 8

US 10 8 8 16 19 5 11

Japan 12 12 11 11 13 13 15

France 16 19 15 17 20 15 13

Developing Countries

China 27 27 23 31 12 28 31

India 35 32 36 38 39 33 42

Brazil 55 50 47 62 72 45 66

Russian Fed. 99 72 94 141 115 90 87

Source: The World Bank; Al Masah Capital Research

High Rentals/ Occupancy Costs

In the past 5 years, the growth in GCC retail market has led to decline in retail vacancy

rates except few markets like Jeddah, which has led to the rentals increase considerably,

particularly in Dubai, the food capital of GCC. Moreover, prime commercial locations, the

most preferred sites for foodservice outlets, command a premium due to high footfall.

Exhibit 39: GCC Retail Vacancy Rates (2012-Q3 2016)

Source: JLL, Al Masah Capital Research

Rent/lease expense is a major cost, the largest fixed expense, for foodservice companies

in the GCC. Therefore, short supply of prime locations and augmented rentals are

2%

15

%

10

%

4%

2%

12

%

12

%

8%

2%

8%

10

%

7%

2%

8%

8%

11

%

2%

8%

7%

10

%

0%

2%

4%

6%

8%

10%

12%

14%

16%

Abu Dhabi Dubai Riyadh Jeddah

2012 2013 2014 2015 2016

Fall in vacancy rates have inevitably led to the rise in retail space prices across the major GCC cities

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27


increasingly weighing on them. While several F&B outlets, particularly chained

restaurants, are engaging in lease models that allow revenue sharing to decrease costs,

small and mid-size foodservice retailers who do not have multiple lines to boost their

sales remain the most affected.

Exhibit 40: GCC Retail Rental Rates (2012-Q3 2016)

Source: JLL, Al Masah Capital Research

Increasing Competition Across All Segments

GCC restaurants are operating in an increasingly tough environment, as the foodservice

market is highly competitive across all segments and companies need to continuously re-

invent themselves (by developing new products, adjusting pricing strategies and

expanding geographically) to drive footfall and attract consumers to gain market share.

As per Agriculture & Agri-Food Canada, the total number of outlets in the UAE

foodservice sector stood at over 5,818 in 2013 and is expected to rise to around 6,933

outlets by 2018, growing at a CAGR of 3.6%. By subsector, QSR establishments had the

most number of outlets with 2,325, followed by Cafes & Bars (1,631 outlets) as of 2013.

Exhibit 41: UAE Foodservice Outlets by Subsector (2013-2018F)

Source: Agriculture & Agri-Food Canada (UAE Foodservice Profile), Al Masah Capital Research

*Others include Home Delivery/ Takeaway, Street Stalls/ Kiosks, and Self Service Cafeterias

The current market growth model is primarily focused on geographic expansion of

outlets but as the market matures, regional players will require more sophisticated

strategies to remain competitive in the near term.

63

3

93

2

68

3

64

0

65

3

77

4

66

9

60

8

66

2

1,3

31

74

3

79

7

66

2

1,3

31

75

2

82

4

66

2

1,3

36

77

8

72

3

-

200

400

600

800

1,000

1,200

1,400

1,600

Abu Dhabi Dubai Riyadh Jeddah

2012 2013 2014 2015 2016

(USD per sqm)

2,3251,631 1,615

247

5,818

2,7542,088 1,815

276

6,933

0

2,000

4,000

6,000

8,000

Fast

Fo

od

/ Q

SR

Caf

és/

Bar

s

FSR

Oth

ers*

Tota

l Co

nsu

me

rFo

od

serv

ice

2013 2018F

UAE foodservices outlets are expected to grow at 3.6% CAGR to ~6,933 outlets by 2018

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28


CAPITAL MARKET ACTIVITY

Defensive Industry

The region is highly dependent on hydrocarbon sector, hence significant movements in

oil price will have a direct impact on the regional economies, government revenues and

private sector activity. Consequently, a similar impact will also be observed in the

regional equity markets as well as investor sentiments. Despite the slowdown in broader

economy, the region's food services sector has continued to deliver healthy growth over

the past couple of years. This was primarily driven by favorable demographic profile

coupled with rising participation from the private sector.

Exhibit 42: GCC Equity Index Performance (Rebased to 100) 1

Source: Thomson Reuters, Al Masah Capital Research

As a result of increase volatility and decline in oil prices, portfolio managers have clearly

preferred to rebalance their portfolios by including defensive sector stocks, especially

the foodservices sector. Moreover, the sector also acts as a hedge against the cyclical

sectors, which are highly correlated to the oil prices, such as banking and real estate

sector.

Since the beginning of 2014, oil prices have nearly halved, while the leading GCC indexes

were down by around 23% as regional equity markets have a larger weightage of

petrochemical and banking sector, both of which are cyclical in nature and are highly

correlated to movement in oil prices. On the contrary, the food & beverage (F&B) sector,

which is defensive in nature, has dropped by 12% during the same period,

outperforming the broader index by around 10%. The outperformance is even more

profound during the record low oil prices during the year 2015 as it reached as high as

38%, while a low of 18%.

1*Dow Jones GCC Index measures the stocks in the region that are accessible to local investors and represents approximately 95% of the underlying market capitalization of the six countries. **GCC food service index has been calculated based on market capitalization of following companies: Kuwait Food Co, Herfy Food Services, Fawaz Abdulaziz Alhokair, Danah Al Safat Foodstuffs, United Foodstuff Industries Group, Almarai, Juhayna Food Industries, Agthia Group, Halwani Brothers, Savola Group, and Saudi Airlines Catering.

20

40

60

80

100

120

140

160

Dec

-13

Feb

-14

Mar

-14

Ap

r-14

Jun

-14

Jul-

14

Au

g-14

Oct

-14

No

v-14

Dec

-14

Feb

-15

Mar

-15

Ap

r-15

Jun

-15

Jul-

15

Au

g-15

Oct

-15

No

v-15

Dec

-15

Jan

-16

Mar

-16

Ap

r-16

May

-16

Jul-

16

Au

g-16

Sep

-16

No

v-16

Dow Jones GCC Index* GCC F&B Index** Oil Prices

F&B sector plays as a hedge against volatile oil prices

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29


DEALS IN GCC’s FOODSERVICE SECTOR

Private Equity Deals (Acquisitions by PE Companies)

PE activity in foodservices market has gained momentum in the recent years, with 15

deals struck in the region since 2013 as compared to a total of 21 deals clocked between

2006-2016. Over the last decade, NBK Capital was the most active fund in foodservice

sector with execution of five deals since 2012, including three deals in casual dining and

two in bakery. The second most active fund was AWJ Investments with execution of

three deals in 2014 in casual dining segment.

In terms of deals by country (of target company), UAE led the PE activity with a total of

10 deals, followed by Saudi Arabia (8), Kuwait (1), Qatar (1) and Bahrain (1). Casual

dining was the most active segment accounting for 12 deals, followed by seven deals in

the fast food segment (QSR), and two in the bakery segment.

Exhibit 43: PE Deals in GCC’s Foodservices Sector (2005-2016)

Year Company Country Fund Category

May 2006 Rotana Hotel Management Corp UAE Shuaa Partners Fund I Casual Dining

Apr 2010 Intercat Hospitality UAE QInvest Capital QSR

Oct 2010 International Food Services Saudi Arabia Growthgate Capital QSR

Jan 2011 Hassan Mohammed Jawad and Sons Bahrain Standard Chartered PE Casual Dining

Dec 2011 Alamar Foods Saudi Arabia The Carlyle Group MENA Fund QSR

Aug 2012 Sanabel-Al-Salam Saudi Arabia NBK Capital Bakery

Feb 2013 Hungry Bunny Saudi Arabia International Investment Bank & Tharawat Invest House

QSR

July 2013 Chef Middle East UAE GC Equity Partners II Casual Dining

Oct 2013 Shakespeare and Co UAE NBK Capital Casual Dining

July 2014 Al Faysal Bakery Kuwait NBK Capital Bakery

Mar 2014 Awani UAE Awj Investments Casual Dining

Mar 2014 Bahria UAE Awj Investments Casual Dining

Mar 2014 Operation Falafel UAE Awj Investments Casual Dining

Jan 2015 Bateel International Saudi Arabia L Capital Asia Casual Dining

Apr 2015 Kudu Corp Saudi Arabia Abraaj Capital; TPG Capital LP QSR

June 2015 Al Safadi Restaurants UAE Audacia Capital Ltd Casual Dining

June 2015 Al Faris Restaurant (Johnny Rockets) UAE Diamond Lifestyle (Al Masah Capital) QSR

July 2015 Amo Hamza Seafood Restaurants Co KSA NBK Capital Casual Dining

Sep 2015 Shater Abbas Rest Intl Qatar First Investor QSC Casual Dining

Apr 2016 Amo Hamza Saudi Arabia NBK Capital Casual Dining

May 2016 Cravia Inc UAE Fajr Capital QSR, Café

Source: Zawya, Thomson One Banker

A total of 21 PE deals were clocked between 2006-2016 in the GCC foodservices sector

X

30


Mergers & Acquisitions (within F&B Groups)

Owing to the burgeoning growth in the GCC foodservice sector, several investors have

turned their focus towards the industry to bolster their strengths by building onto

established core brands. A total of 26 M&A deals took place in the GCC’s foodservice

sector during 2010-16, of which 13 deals took place since the beginning of 2015.

Notably, UAE was the most attractive destination, accounting for 13 deals during 2010-

16, followed by Kuwait with three deals and Qatar with one deal. Of the total, nine were

outbound deals, of which five were recorded in the UK. The 26 deals were well spread

between QSR (8), Cafes/Bars (5), Casual Dining (5), Fine Dining (4), and Bakery (4).

Exhibit 44: M&A Activity in GCC’s Foodservices Sector (2010-2016)

Year Target Company Target

Country Acquirer Company

Acquirer Country

Deal Size (USD mn)

Segment

Jan 2010 Model Restaurants Co PLC Jordan Global MENA Macro Fund Co Bahrain NA QSR

Apr 2011 800 Pizza UAE Belhasa Hospitality UAE NA Casual Dining

Apr 2011 Al Oumara Bakery Co Lebanon Al Meera Consumer Goods Co

Qatar NA Bakery

Dec 2011 Leila Restaurant UAE Pinnacle Restaurant Management Co

UAE NA Casual Dining

May 2012 Banquets New Chicken Ltd UK Kout Food Group Kuwait 4.0 QSR

Sep 2012 Model Restaurants Co Jordan Jemball Holding Co Bahrain 1.9 QSR

Mar 2013 Galadari Brothers Group UAE Dunkin’ Brands Group US NA Bakery

May 2013 Marco Pierre White Grill Steak UAE Rmal Hospitality PJSC UAE NA Fine Dining

Aug 2013 Little Chef UK Kout Food Group Kuwait 23.0 QSR

Aug 2013 South West Coffee UK Kout Food Group Kuwait 4.9 Cafe

Aug 2013 Gourmet Gulf UAE MAF Ventures UAE NA QSR

Jan 2014 Sushisamba UK Leemar Investments FZE UAE NA Fine Dining

May 2014 Reem Al Bawadi UAE Marka UAE 85.8 Casual Dining

Jul 2014 Coffee Snobs UK Kout Food Group Kuwait 8.2 Cafe

May 2015 Reem al Bawadi Group UAE Marka PJSC UAE 85.8 Casual Dining

June 2015 Al Oumara Bakery Co Qatar Qatar Quality Food Qatar 0.8 Bakery

July 2015 Billionaire Facilities Management Services

UAE African & Eastern LLC Oman NA Bars

July 2015 Bulldozer Group Investment UAE African & Eastern LLC Oman NA Fine/Casual

Dining

July 2015 VIP Room Facility Management UAE African & Eastern LLC Oman NA Bars

July 2015 Gourmet Gulf Food - Morelli's Gelato

UAE Marka PJSC UAE 8.4 Cafe

Sep 2015 Aamal Holding Co Kuwait Zima Holding Co KSC Holding Kuwait 6.0 QSR

Oct 2015 United Foodstuff Industries Group Co

Kuwait Advantage Holding Co Kuwait 8.0 Bakery

Jan 2016 Novikov Restaurant UAE African & Eastern Kuwait NA Fine Dining

Mar 2016 Al-Thiqa Restaurants Co Kuwait Baynunah for Investment Co Oman 19.0 QSR

June 2016 Sushi Art Group UAE Eathos UAE NA Casual Dining

Sep 2016 Mcdonalds Corp-South Africa Business

South Africa

MSA Holdings UAE NA QSR

Source: Thomson One Banker, Al Masah Capital Research

26 M&A deals took place in the GCC’s foodservice sector during 2010-16, of which 13 deals took place since the beginning of 2015

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31


Al Masah Capital Management Limited

Level 9, Suite 906 & 907 ETA Star - Liberty House Dubai International Financial Centre Dubai-UAE P.O.Box 506838 Tel: +971 4 4531500 Fax: +971 4 4534145 Email: [email protected] Website: www.almasahcapital.com Disclaimer: This report is prepared by Al Masah Capital Management Limited (“AMCML”). AMCML is a company incorporated under the DIFC Companies Law and is regulated by the Dubai Financial Services Authority (“DFSA”). The information contained in this report does not constitute an offer to sell securities or the solicitation of an offer to buy, or recommendation for investment in, any securities in any jurisdiction. The information in this report is not intended as financial advice and is only intended for professionals with appropriate investment knowledge and ones that AMCML is satisfied meet the regulatory criteria to be classified as a ‘Professional Client’ as defined under the Rules & Regulations of the appropriate financial authority. Moreover, none of the report is intended as a prospectus within the meaning of the applicable laws of any jurisdiction and none of the report is directed to any person in any country in which the distribution of such report is unlawful. This report provides general information only. The information and opinions in the report constitute a judgment as at the date indicated and are subject to change without notice. The information may therefore not be accurate or current. The information and opinions contained in this report have been compiled or arrived at from sources believed to be reliable in good faith, but no representation or warranty, express, or implied, is made by AMCML,as to their accuracy, completeness or correctness and AMCML does also not warrant that the information is up to date. Moreover, you should be aware of the fact that investments in undertakings, securities or other financial instruments involve risks. Past results do not guarantee future performance. We accept no liability for any loss arising from the use of material presented in this report. This document has not been reviewed by, approved by or filed with the DFSA. This report or any portion hereof may not be reprinted, sold or redistributed without our prior written consent.

Copyright © 2015 Al Masah Capital Management Limited

http://www.almasahcapital.com/

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