The fast-moving consumer goods (FMCG) subsector has come in for special focus in recent times, with Dubai seeking to reduce its bills for imported food and beverages (F&B), while also growing its own business and employment opportunities – and by doing so, also tackling growing concerns about food security.
Yet expanding this local industry is a challenging task. Dubai is home to a wide variety of nationalities and F&B tastes, with much of these satisfied by imported items – a recent report into the F&B sector by Dubai Small and Medium-sized Enterprises (Dubai SME) suggested food sold in local outlets consisted of 75-80% imported, consumer-ready products. Major multinational companies (MNCs) have established large facilities in the free zones, mainly for export and re-export, but also to supply local needs, often squeezing out local producers. At the same time, the emirate lacks the kinds of economies of scale and climate that would make a foray into mainstream agriculture viable. Competition from nearby or neighbouring low-cost processed food producers, such as India and Saudi Arabia, also makes gaining a foothold in the mass F&B market in the emirate highly challenging.
Benefits
Yet Dubai does have a number of major advantages to leverage in growing its F&B sector. The emirate’s logistics and transport infrastructure is one of these, as it enables F&B firms in the emirate to turn around products rapidly and ship them quickly, with a global as well as local network already in place. This transportation infrastructure is also closely linked to the industrial zones, which are able to offer manufacturers a range of incentives and benefits.
At the same time, Dubai also benefits from the Greater Arab Free Trade Area agreement, which provides Customs-free exports to 18 Arab countries – many of which, in the Gulf in particular, are also highly dependent on imports for processed FMCGs.
“FMCGs in Dubai benefit from the fact that many of the UAE’s largest export markets have trade agreements, which helps keep transportation costs below 5% of the total cost of production,” Sudhir Chavan, managing director of London Dairy, in Dubai, told OBG.
Product Differentiation
One way local firms can potentially secure a place is via the production of more high-value, niche products. The local market is a sophisticated one, with F&B lines such as organic, health food and fortified food becoming increasingly popular.
In addition, another area of increasing popularity is sharia-compliant halal foods. In Dubai Industrial City (DIC), a 6m-sq-foot halal cluster was launched in 2014, hoping to capitalise on what the Dubai Chamber says was a $1.1trn industry, worldwide, in 2013.
The Dubai Chamber’s expectation was for a 6.9% compound annual growth rate (CAGR) for the sector in the lead-up to a $1.6trn total by 2018. The chamber also reported that the UAE halal market alone was worth some $20bn in 2012, with packaged food likely to be worth Dh14.08bn ($3.8bn) by 2018.
DIC has recently become one of the most active locations for F&B, too, while the traditional base has been at Al Quoz. JAFZA was also an early location, with the emirate’s F&B sector first beginning there with Mehran’s Pure Foods plant, back in the 1980s.
By 2013, however, some 20 companies, covering over 3.5m sq feet of land were located at DIC in its F&B cluster, according to local press reports. This number was increased in early 2015, when boutique Lebanese chocolatier Patchi announced plans to build a 10, 000-kg-per-day-capacity factory there, highlighting an expanding niche area – Euromonitor International figures suggest the UAE’s confectionary market will expand from $289.6m in 2014 to $319.2m in 2015 – while also underscoring a shift to higher value-added products.
Indeed, with most of the MNC confectionary manufacturers in Dubai catering to the mass market, the growing number of niche-based concepts are developing a clear competitive advantage. Such outfits’ higher-value, niche products may therefore be the way ahead for the F&B segment – leaving the MNCs to cater to the emirate’s lower-value FMCG mass market.
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