Combining high incomes, growing populations, and a thirst for new restaurant experiences, the markets of the Gulf Cooperation Council (GCC) have become a true centre of foodservice demand.
Led by Saudi Arabia and the United Arab Emirates, the six nations of the GCC (which also includes Bahrain, Kuwait, Oman, and Qatar) combined for US$20 billion in foodservice sales in 2011, according to soon-to-be-published Euromonitor International data. What's more, chains account for a significant (and growing) percentage of this total, with a wealth of seasoned, well-funded local operators looking for the right concept from anywhere in the world, regardless of size. More than any other region, the highly-diverse culture of the Gulf makes it a potential growth driver for any chain, anywhere in the world, offering the right combination of service, experience, and social appeal.
Growth, diversity, and youth
The GCC states are incredibly diverse in terms of population, with expatriates a majority (in the case of the UAE and Qatar, a vast majority) in four out of six markets. Even in Saudi Arabia, with the lowest expatriate population, fully one-third of residents are non-nationals. Of these, South Asians form the largest single expatriate community, actually forming an absolute majority in the UAE, with Arabs from elsewhere in the Middle East and Europeans the next largest groupings. In addition, the population of the GCC states is quite young—out of a total regional population of 45 million, around 40% are between the ages of 15-34, a percentage which approaches 50% in UAE and Qatar. What's more, 30% of GCC residents are under the age of 14, twice the percentage found in markets like China or Russia, suggesting a consumer class which will continue to grow for years to come.
The combination of a diverse, adventurous, and young population is fertile ground for chained foodservice expansion in any region, yet even the statistics above fail to fully capture the size of the opportunity in the Gulf. Population growth in the GCC is simply unprecedented, due in part to vast migration inflows—since 2006, the population of the UAE has doubled, while in Qatar and Kuwait it has grown by 80% and 55%, respectively, largely due to immigration, while high birthrates have contributed to better than 10% growth in both Saudi Arabia and Oman. Finally, tourists increasingly account for a large and growing portion of demand, particularly in the UAE, which saw 9.7 million arrivals in 2011, as well as Saudi Arabia, with nearly 13 million arrivals, with the latter country drawing millions of visitors each year making the pilgrimage to the holy city of Mecca.
Where the shopping (and the eating) never stops
Cultural and environmental factors also serve as important demand drivers in the Gulf. In a region where summer temperatures can approach 50° C (122° F), a great deal of social activity takes place indoors out of sheer necessity, often in one of the region's many shopping centres. Once inside, mall patrons are presented with a vast array of foodservice options, with a large, diverse portfolio of brands and eating options a key element of strategy for shopping centre operators across the Gulf. Coupled with the complete absence of income taxes or VAT, shopping is something of a national pastime in many of the Gulf States, and drives a great deal of per capita spending on eating out.
Just as importantly for chained operators, foodservice outlets are the preferred destination for socialising and business meetings in a region which remains relatively conservative in many respects. While Saudi Arabia is in a category of its own in this regard, with its total ban on alcohol and laws to ensure gender separation—restaurants in Saudi Arabia have separate sections for families and single men, for instance—alcohol is either illegal or strictly regulated in every GCC state. Where bars do exist, they are generally found only in major hotels.
What this means in practice is that the vast range of social occasions served by bars in many markets are served by other categories, cafes and specialist coffee shops above all, but also fast food outlets and full-service restaurants. In cities such as Dubai, restaurants of all kinds remain open far into the night, with specialist coffee shop chains like Starbucks and Costa Coffee as well as coffee-centric bakery chains like Tim Horton's drawing crowds of patrons, young and old, expatriate and local alike. In Saudi Arabia, where large families remain the centre of social life for many, child-friendly environments are key, combined with a strong level of service and outlet appeal. None of this is to say that convenience and service speed are irrelevant—rather, it indicates that the GCC is a region where there is often an element of “full-service” to every successful category, with eating out still less about grab-and-go, much more about meeting with friends and family, seeing and being seen.
The growth to be had in the Gulf is real, with the GCC states overall expected to average 6% annual growth in constant terms between 2012 and 2016, surpassing US$26 billion in sales by the end of the forecast period. In terms of average sales growth, this is ahead of projected foodservice expansion for Brazil and relatively close to the 7% constant annual sales growth expected for China, two markets with per capita incomes well below any of the GCC states. And chains are unquestionably in the driver's seat—Gulf consumers demand recognized brands, offering experience and quality as good as that found anywhere on Earth.
Yet with opportunity comes bruising competition—every chain in the world wants to be in the Gulf right now, and with good reason. Combining a highly diverse population with a long history of importing items from around the world—even convenience stores in Dubai will often feature brands from every continent, for instance—any chain, from any market, can work in this region given the right concept and the right service model. This is especially true given the presence of truly massive retail/foodservice operators such as Kuwait's MH Alshaya Group, UAE's Majid Al-Futtaim Group, or Olayan Group in Saudi Arabia, all of which have a presence in a vast array of industries across the region. What this means is that even a smaller brand can find a partner with the resources to build out on a very large scale, very quickly—smaller operators like US-based Smashburger and Potbelly Sandwich Works, France's Paul, or New Zealand's Burger Fuel have all carved out a presence in the Gulf, thanks in part to the presence of well-funded partners with experience importing brands, products, and know-how from around the world.
In other words, it's anyone's game—success is not simply a matter of arriving with a notable brand, but of building a unique experience, in a region where eating out is a primary form of entertainment and social life, and where the operators of some of the largest shopping centres on Earth scour the globe to find the next big thing. To stand out, foodservice operators must double down on service, on outlet appeal, and on quality, knowing that even value-priced brands like Dunkin' Donuts have positioned themselves as more upmarket café-style destinations for consumers looking to linger and socialize in an appealing environment. Ambition wins—chains willing to truly press ahead with ambitious outlet designs, upmarket service models, with creating a unified, coherent experience across every aspect of the brand are the ones who will succeed.