Culinary delights: Food and beverage segment is supported by high disposable incomes

Dining out is a national pastime in Kuwait, and restaurants catering to a variety of tastes have sprung up in the capital over the past few years. Chinese, Japanese, Thai, Italian, Indian, American and Lebanese food are all heavily represented. With high levels of disposable incomes, Kuwaiti families provide a steady flow of customers to restaurants and cafés.

Social networking sites have sprung up to feed the craze. Set up in 2010, Yallawain.com is a Kuwaiti site focused on the local dining scene that rates and reviews restaurants. Like other such sites, users add their own reviews, ratings and suggestions for various establishments, including those in malls such as The Avenues, 360 Kuwait, Marina and the Salhia commercial complex. Users can follow their friends and contacts on the site to see where they prefer to eat out. Such activity has led to a sustained level of growth in the Kuwaiti food and beverage segment. Many have regarded the food and beverage sector as immune to recession during the economic downturn.

MARKET BREAKDOWN: According to data from independent business intelligence agency Business Monitor International (BMI), the food and beverage segment contributed $2.54bn in sales for 2010, accounting for a 33.9% share of the overall retail sector. Vehicle sales – estimated at $3.2bn – led the study of the breakdown of each market segment, representing a 45.3% share. Consumer electronics, another traditionally strong sub-sector, came third, following vehicles and dining, with $720m and accounting for 9.6% of the market. Fourth on the list was over-the-counter pharmaceuticals, which produced sales of some $60m, representing a 0.8% market share.

OUTLETS: Kuwait’s mall infrastructure is one of the main drivers behind the success of the food and beverage sub-sector. In The Avenues, food outlets are heavily represented. Out of a total of 417 stores, 104 are food- and beverage-related, including restaurants, cafés, sweetshops, the food court and the Carrefour supermarket. “Over the course of 2010 the food and beverage segment – the kiosks, cafés, restaurants and hypermarkets – all accounted for about 25% of our business,” Steve Bunce, the mall director at The Avenues, told OBG. “Food and beverage as a sector is well represented in phases one and two, and we plan to focus on other segments when phase three opens.”

Food and beverage outlets will nonetheless have even more space under the mall’s phase three expansion programme. The extension will be split into six districts, including the Prestige, the Grand Avenue, the Mall, the Soku, the Souk and the Bazaar. The Soku district is designed as a homage to New York’s SoHo quarter and will offer more restaurants and cafés spread out among art galleries and other retail outlets. The Souk is modelled on a traditional Kuwaiti souk and the Bazaar area will take its inspiration from the Grand Bazaar in Istanbul, with a concentration on antiques, furniture, carpet and household accessory stores. Phase three will add a further 95,000 sq metres of gross leasable area (GLA) to the existing 166,697 sq metres of phases one and two.

After the fourth and final phase is complete, contributing 110,200 sq metres, The Avenues will have a total of 371,897 sq metres of GLA for retailers. This is a significant chunk of the overall retail space available in Kuwait, a total which Kipco Asset Management Company (KAMCO) puts at some 570,900 sq metres. Following the completion of malls such as Symphony, Mall of Kuwait, Olympia and the third phase of The Avenues, the total GLA available in the country is set to rise by 61% to 918,900 sq metres.

OTHER TRENDS: Of course upmarket malls are not the only options available to food and beverage retailers. Fast-food outlets and drive-throughs in the city centre have proliferated, as eating out is not considered expensive given the high level of per capita GDP.

The IMF sets the 2011 per capita GDP estimate at $45,757, which is expected to rise to at least $52,267 by 2014. In addition, consumer spending per capita is estimated to have reached $13,886 in 2011 and is set to increase to $17,085 by 2014. Unemployment remains at a low 2%, thanks in large part to the predominance of public sector employment.

INFLATION: However, there are some worries on the horizon, as costs in Kuwait are starting to rise. According to BMI, Kuwait has the second-highest rate of consumer price inflation in the GCC region. Data from the World Bank recorded consumer price inflation at 5.5% in 2007, with the figure jumping to 10.6% at the height of the downturn in 2008 and falling to 4% in 2009. In late December 2010 inflation rose to 5.9%, due largely to a sharp rise in food prices to 12.3%, according to BMI. Average inflation in 2011 was estimated at 4.8%, again assisted by rising food costs.

This may be driving consumers to seek alternative outlets for their food purchases. In January 2011 the Kuwait Times reported that lower prices on food items nearing their expiry date were drawing large crowds of shoppers to the Shuwaikh industrial zone area of the capital. Customers from areas such as Fahaheel and Jahra were purchasing in bulk to avoid the high prices of leading high street and supermarket stores.

MASS GROCERY RETAIL: As of June 2011, the food segment on the Kuwait Stock Exchange (KSE) had a market capitalisation of only KD746m ($2.69bn). Due to the domination of privately-owned firms in the industry just six firms are listed on the exchange. Listed food processing and manufacturing companies include Livestock Transport and Trading Company and Kuwait United Poultry, as well as food retailers Kuwait Foods (Americana) and Kout Food Group.

Away from the stock exchange, recent data on the industry for 2011 showed the mass grocery retail market was on track to contribute up to KD550m ($2bn) to total retail sales. Overall sales were expected to rise to $8.41bn in 2011 and $11.92bn by 2015. Grocery retail sales are set to rise by 16.3% to KD640m ($2.3bn) by 2014, according to research carried out by BMI. Supermarkets are expected to contribute KD60m ($216.3m) in 2011, convenience stores KD30m ($108.2m) and hypermarkets a sizeable KD130m ($468.7m), but the majority of the sector’s revenues come from its smaller cooperative stores and grocery shops, which are set to provide KD330m ($1.2bn).

FIRMS: There are five main firms operating in the mass grocery sector. The Union of Consumer Cooperative Societies (UCCS) stands out with a 61% share of the market. Set up in 1971, the UCCS is a government-run network of local supermarkets, grocers and convenience stores. The UCCS has the power to control price rises of consumer commodities and set prices in all cooperative stores. The union’s dominant position in the market is mainly due to the fact that its members have exclusive rights to operate in residential areas whereas private supermarkets and retailers are restricted to commercially designated zones.

Next in line after UCCS is the Sultan Centre. Despite reporting a net loss of KD34.4m ($124m) in 2010, the company retains a 15% market share. Although it is a food retailer like Kout and Americana, Sultan is listed in the services sector on the KSE. The firm is a local brand that has expanded to other countries in the region, including Lebanon, Jordan and Bahrain.

City Center (a local brand) and Carrefour each have a 4% share of the market total, according to BMI. City Center operates two hypermarkets, one in Shuwaikh and another in Salmiya, and has recently opened a branch in northern Iraq. Carrefour entered the local market in 2007 in a joint venture with its partner, UAE-based Majid Al Futtaim. Located in The Avenues mall, the firm has plans to expand into other areas of the city, including Salmiya and Fintas. Finally Abu Dhabi-based EMKE Group has a 3% share of the market. The group opened a second Lulu hypermarket in Al Qurain Commercial City in July 2010.

Although not the largest in the region, the Kuwaiti food market makes a significant contribution to the country’s retail sector. According to KAMCO, Inflation has risen in Kuwait and is currently the highest in the region, but the food and beverage industry overall – including restaurants and supermarkets – is buoyed by the country’s high disposable incomes and can be relied upon as a constant contributor of revenues.

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The Report: Kuwait 2012

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