GCC F&B Sector Report - ARDENT Advisory

1 1 ARDENT AdvisoryGCC F&B Sector ReportThe GCC F&B SectorAn Enticing OpportunityApril 20172 ARDENT AdvisoryGCC F&B Sector Report3 ARDENT AdvisoryGCC F&B Sector ReportTable of ContentsForeword4 Key Takeaways5F&B Market Overview7 GCC F&B Market Size8 Average Spend on Food ServiceCategories9 InvestmentThesis 11 Demand Drivers11 Key Risk Factors14M&A and PE Deals16 Trends in F&BSector in the GCC19 Country Profiles23 United Arab Emirates23 Saudi Arabia28 Qatar31 Oman34 Kuwait36 Bahrain38 Major F&B Players in the GCC41 Kuwait Food Company 41 Kout Food Group42 Herfy Food ServiceCompany434 ARDENT AdvisoryGCC F&B Sector ReportForewordWhenthinkingaboutthemostla vishandexoticFoodandBeverage(F&B)markets intheworld, ,whichhasbenefiteditsfoodservicemarketan dstrengtheneditsfootholdintheF& economicdiversificationdrive,whereinthet ourismsectorhasbeenallocatedsubstantialf unding, $ ,makingtheGCC sF& ,asthegrowthoftheGCCeconomiesiscloselyli nkedtooilrevenues,theglobaloilpricerouth asnegativelyaffectedtheregion ,theGCCpopulationisfavouringfastfoodandc afesoverfull-servicerestaurants(FSRs).

2 Moreover, ,weremainoptimisticaswebelievethatanexpe ctedoilpricerecoveryduring2017 ,theUAE sF&Bmarketexpandedthefastestduring2010 2015,ataCAGRof12%; , ,anincreasingpopulationisoneofthemajordr iversofhugedemandforfoodandbeverages, , ,aspeoplebecomemoretech-savvyandbegintov alueconvenienceandspeedofservice, sF&Bmarketintermsofvalue,Qatar,Kuwait, ,majorinternationalF& ,theGCCF&Bmarketissettowitnessstronggrow thtoreachavalueofUS$ Bhandari Managing Partner5 ARDENT AdvisoryGCC F&B Sector ReportKey Takeaways TheGCCF&Bsectorhaswitnessedrobustgrowth, drivenbyanincreasingpopulation,growingto urismandrisingdisposableincome. Dubai,beingtheUAE sgastronomiccapital,isgrowingatastrongpa ce,closelyfollowedbySaudiArabia,whichisw itnessingincreasedpreferenceforfastfooda mongitspopulation. Despitetheoilpricedecline,SaudiArabia sF&Bsectormaintaineditsgrowthpaceasitspo pulationshowedincreasedpreferenceforfast foodsoverFSRs.

3 Aswesternisationinfluencespeople sdietaryhabits,Emiratisareincreasinglyop tingforwesterndiningconcepts. Withrisinghealthawareness,peoplearewilli ngtopaymoreandshifttowardshealthyfoodopt ionssuchasgluten-freeproductsandorganicf oods. Thesurgingdemandandtheeaseofentryintothe GCCF&Bmarkethaveintensifiedcompetition,l eadingtoariseinthenumberandvarietyoffood outlets. Toboosttheretailandtourismsectors,thegov ernmentisinvestingintheconstructionofmal ls,themeparksandresidentialproperties. WithvariousupcomingeventssuchastheExpo20 20 DubaiandFIFAW orldCup2022,significantresourcesarebeing investedtoboostthehospitalitysector,with F&Bbeingthefrontrunner. Thecultureofconsumingcoffeehasbecomestro nglyingrainedamongtheGCCpopulation,espec iallyintheUAE,SaudiArabiaandQatar,leadin gtoasignificantriseinthenumberofcafesint hesecountries. ApartfromtheleadingGCCeconomies,countrie slikeQatar,KuwaitandBahrainalsoofferapro misinginvestmentdomaininthefoodservicese ctor,whichisevidentfromtherisingnumberof F&Bclustersinthesecountries.

4 FoodfestivalsacrosstheGCCarecapturinghea dlinesforintroducingnovelconceptssuchasc elebritychefs,foodtrucksand diningintheair ,thuscreatingauniquediningexperience. Risingrealestatepricesandashortageofskil ledchefsaresomeofthemajorchallengesfaced bytheGCC sF&Bsector. AstheGCC sF&Bsectorwitnessesrapidgrowth,severalin vestorsareeyeingamarketsharethroughM&Aan dprivateequity(PE) ARDENT AdvisoryGCC F&B Sector Report7 ARDENT AdvisoryGCC F&B Sector ReportFineDiningCafes/bakeriesHakkasan,L aPetiteMaison,Nobu,Zuma, ,mostoftheserestaurantsareoperatedbyMich elin-starredchefs, ,featuringGaryRhodes, Bateel,Starbucks,PAUL, , ,SaudiArabiaandparticularlyinQatarowingt ohighdemandforapremium, s,TheCheesecakeFactory,TGIF riday s(TGIF), , , s,Subway,KFC,Wendy sandPapaJohn , FoodsFull ServiceRestaurantsCafes and BakeriesLounges and Bars52,855 Source: Euromonitor, ARDENT AdvisoryIn2015,QSRshadthehighestmarketsh areof43%, ,SaudiArabiahasthehighestdemandshareinth etotalF&Bmarket,withmorethan30, 1: The GCC F&B market by number of outlets under each category (2015) FoodsCafes and BakeriesFull ServiceRestaurantsUS$ BnSource.

5 Euromonitor, ARDENT AdvisoryFigure 2: The GCC F&B market size by value of each category (2015) CasualDiningMarket OverviewThe Food and Beverage (F&B) market in the GCC includes full-service restaurants (FSRs; fine dining and casual dining), fast food/quick service restaurants (QSR), and cafes and bakeries 8 ARDENT AdvisoryGCC F&B Sector s/barsFull-service restaurantsFast foodGrowingpopulationandrisingtouristfoo tfallledtorapidexpansionoftheGCC sF&Bmarketin2010 , ,boostingthenumberofF& ,themarkethaswitnessedstronggrowthinallf oodservicecategories,includingfinedining ,casualdining,QSRs, ,anexpandingmulticulturalyoungpopulation andrisingincomelevels,theGCC sF&BsectorwasvaluedatUS$ ,theUAE sF& , , , ,thefranchisemarketintheGCChasdisplayedh ealthygrowth, ,andtheoverallF&Bfranchisesforallcategor iesareexpectedtogrowby25% ,anythrivingindustryfaceschallengesatsom epoint,andtheGCCF& ,growingcompetition, , ,theGCCF& $ 3: The GCC F&B market size (US$ Bn) Source: Respective Government site, ARDENT Advisory $ $ 12 BnFigure 4: F&B market size 2015 (US$ Bn) Source.

6 Euromonitor, ARDENT Advisory UAES audi ArabiaThe UAE and Saudi Arabia account for approx. 90% of the F&B market in the GCC Note: f-forecasted9 ARDENT AdvisoryGCC F&B Sector ReportGrowingincomeandimprovinglivingsta ndardshaveincreasedaveragespendonfoodand drinksAsperasurveyconductedbyCatererMidd leEast,intheArabworld,theaveragespendper persononrestaurantfoodwasUS$40 60in2014,upfromUS$20 , ,followedbycasualdining,cafesandbakeries , 5: Average spend on fine dining (US$)AFigure 6: Average spend on casual dining (US$)AFigure 7: Average spend under QSR/fast food (US$)AFigure 8: Average spend under cafes and bakeries (US$)ADubaiisoneofthemajortouristattract ions, ,thoughthedemandforfinediningconceptishi gh,QSRandcasualdiningareamongthepreferre dF& ,preparationsinDoha sF& ,thehotelrestaurantsandcatering(HORECA)s egmentissettogrow,whichinturnwouldleadto thelaunchofseveralnewF& PriceLowest DhabiRiyadhJeddahKuwaitHighest PriceLowest DhabiJeddahKuwaitRiyadhHighest PriceLowest DhabiDohaRiyadhJeddahHighest PriceLowest PriceNote A -Average Spend (cost for 2).

7 The price ranges are from secondary sources such as Zomato, Roundmenu, and Tripadvisor. 10 ARDENT AdvisoryGCC F&B Sector Report11 ARDENT AdvisoryGCC F&B Sector ,withQatarhavingthehighestproportionofyo uthpopulationintheregion,at84%, ,marketersarefocusedmoreoncreatingnewcon ceptsandbrandsintheF& ,withaconcurrentgrowthintheworkingpopula tion,theinstancesofbusinessmeetings, ,asthesefavourabledemographictrendsconti nue,thedemandfortheF& ,consumersarewillingtospendmoreonfoodand drinksLeveragingitsoilandgassector,theGC Cecon0mywitnessedstronggrowthtoreachaval ueofUS$ ,theregion sper-capitaincomegrewfasterthanthatofoth erdevelopingnations,thusboostingdemandin itsF& , ,thepopulationgrowthintheGCCisoneofthefa stestintheworld, ,seventimeshigherthaninChina, ,theregion , smulti-culturalpopulationisattributedtot hevastexpatbaseconstitutingabout52% ,withexpatscomprising88%ofthepopulation, followedbyQatar(85%),Kuwait(70%),Bahrain (52%),Oman(44%)andSaudiArabia(33%).

8 Moreover, Thesis Growing population, increasing disposable income and burgeoning tourism industry are driving the growth of the GCC s F&B marketFigure 9: Population growth rate (2000 2014)Source: IMF, World Economic Outlook Database275%220%70%68%65%50%13%18%16%8%3 %QatarUAEK uwaitBahrainOmanKSAUSAI ndiaBrazilChinaGermanyFigure 10: Age breakdown (% of population) + Mn20152020fSource: Economist Intelligence Unit, + MnNote: f-forecasted12 ARDENT AdvisoryGCC F&B Sector ReportThedevelopmentofvariousurbancentre sisanotherfactordrivinggrowthoftheF& ,DubaiandAbuDhabiarethethreerichestcitie sintheMiddleEast,withRiyadhhavingresiden tswiththehighestdisposableincome, ,withthefallinoilrevenues, , ,theGCC seconomyisexpectedtobeworthaboutUS$ 11: GDP, per capita current prices (US$)GrowingtourismandeventssuchasExpo20 20 DubaiandFIFAW orldCup2022haveacceleratedF& sfinesthotelsandtourismfacilities,thereg ionhasreceivedanincreasednumberofvisitor s,andthisprovidesampleopportunitiesforat hrivingF& , , , , 12: Tourist arrivals in the GCC (in million)Source: WTTC22,259 32,110 26,480 21,288 26,725 2012201420152016e2018fSource: IMFGCC citiesTotal disposable income (US$) millionDisposable income per capita (US$)Riyadh67,77211,700 Jeddah38,92510,234 Dubai29,69512,543 Abu Dhabi17,78013,496 Doha10,91111,046 Muscat 7,5006,520 KuwaitCity 3,97811,429 Table 1: Top richest cities in the GCC, 2014 Source: Zawya ResearchNote: e-estimated & f-forecastedNote: f-forecasted13 ARDENT AdvisoryGCC F&B Sector ReportExpo2020 Dubaiisexpectedtoattractaround25milliont ouriststoDubai,70% ,inQatar.

9 Therefore,theQatarTourismAuthorityhasall ocatedUS$ , , ,LegoLandandMotiongate(aHollywood-inspir edthemepark).Further, ,IMGW orldsofAdventure,theworld slargestindoorthemepark, , MalloftheWorldinDubai,theUAE,planstoadd2 0,000roomstothecityacross80hotelsand20ho telapartments. RasAl-Hadd,aneco-themedprojectinOman,wou ldfeaturefive-starhotels, ,50hotelvillas,150residentialvillasandan areaof7,000m2foramarketsouq. DeiraIslandsinDubai,theUAE, ,000hotelkeysand31,000apartmentkeystothe city. JeddahGate,SaudiArabia,isamixed-useproje ctspreadover413,000m2,featuringhospitali tyoutlets. DubaiCreekHarborattheLagoonswouldfeature 22hotels,with4,400roomsapartfromotherest ablishments. PlaceVendome,Qatar, ,serviceapartmentsandentertainmentunits, andupto400retailoutlets. HeartofEurope,Dubai,theUAE,wouldhousesix hotelsandvariousF&Bbrands. PalmBoardwalk,Dubai,theUAE,isashoppingan ddiningdestination,featuringcafesandrest aurants, , ,therebyboostingthedemandforvariousF& projects across the GCC boosting the F&B industry14 ARDENT AdvisoryGCC F&B Sector ReportGrowingpopularityofglobalF&Bbrands isdrivingdemandforwesternfoodintheGCCW ithover75%ofthepopulationlivinginurbanar eas, ,KuwaitandBahrainareashighas98%,92%and88 %, ,thusincreasingthedemandforF& , (DFF)

10 IsthetrulycitywidefoodfestoftheMiddleEas t, , ,certainchallengescontinuetodecelerateth esector sF&BsectorTheGCC sF&Bsectorislabour-intensiveandinvolvesp eopleatalllevels, ,thedemandisconstantlyhighforchefs, ,workershavenumerousjoboptionstochoosefr om, ,AsiancountriessuchasIndiaandChinaoffera ttractivesalariestoexpats, , ,thegovernment ,F&Bmarket sgrowthpatternischangingWithagrowingappe titeforF&BintheGCCcountries, , ,F&Bvendorsaregoingthetechnologyway, ,asnewfoodconceptsarenowbeingdevelopedfr equently, ,variousF& , ,theF&Bgrowthpatternischangingasmoreandm oreF&Boutletsclusteraroundluxuryresident ialcomplexes, ,Tom&Serg,acasualdiningoutletthatopenedi n2013inDubai, ARDENT AdvisoryGCC F&B Sector ReportHighdependenceonfoodimportsmakesth eregionsusceptibletoglobalpricerisksTome etthegrowingconsumptionneeds, , , ,totalfoodimportsreachedUS$ , ,SaudiArabiawastheleadingfoodimporter, ,followedbytheUAE( ),Kuwait(9%),Oman( ),Qatar( )andBahrain( ).