While Saudi Arabia and the UAE together account for three-quarters of the food retail market in the region, a report said, highlighting opportunities for supply chain consolidation in the GCC food & beverage sector.

The top five retailers account for around 13 per cent of the market share in Saudi Arabia and 36 per cent in the UAE, added the recent report by Farrelly & Mitchell, a specialist international food and agribusiness consulting firm with a base in Riyadh.

The report identifies the accelerated entry of global retailers into the region as the principal driver of supply chain consolidation.  According to the report, the region’s food and beverage supply chain is at a point of transition with existing players in danger of permanently losing market power.

Launching the report, Farrelly & Mitchell’s managing director, Malachy Mitchell said: “Increasing multiple retailer concentration, will create significant growth and investment opportunities for existing and new players, who can invest and adapt to the demands of these customers.”

The report draws parallels with the early development of the food supply chain industry in other high income regions such as the USA and Europe.  It details the increasing pace of industry consolidation in recent years and predicts that this trend is set to intensify as global retailers expand their footprint in the region; for example, Saudi Arabia had 40,435 retail outlets at the end of 2013, with growth expected across all grocery formats.

The report also highlights that many family food and beverage groups within the region have failed to invest adequately in their supply chain infrastructure and systemisation in recent years.

“Quite frankly, after years of underinvestment, many of the family business we work with in the region now find themselves in a position where their supply chain infrastructure is no longer fit for purpose.  In the absence of investment these companies will struggle to retain existing business and win new supply contracts in the emerging retail landscape.” said the report’s lead author Mohammed Hajjar, regional director, Farrelly & Mitchell.

The report points to the enormous growth and investment opportunities available to family owned food groups which can adapt successfully to the new environment. Strategic options, such M&A’s, partnerships or joint ventures, can transform businesses delivering the necessary scale and know-how to compete.

Saudi Arabia’s number of hypermarkets is already projected to increase by nearly 70 per cent (from 197 units to 333), while supermarkets are estimated to grow in number by 54 per cent (from 678 units to1046) during 2013 to 2018.

Formal collaborations with an international partner who will transfer technologies and expertise can also be a good solution for a family owned firm.

“We see immense opportunities for innovative outward looking family owned food and beverage companies to take advantage and capitalise on the ongoing industry consolidation.  By adopting a strategic approach, businesses can position themselves to be the beneficiary and not the victim of supply chain consolidation,” concluded Mitchell. – TradeArabia News Service