The Kuwait restaurant industry is shaped by a number of factors, including macroeconomic conditions, technological trends, and the investment/M&A climate. As incomes rise and the tourism sector is set to expand, the country’s F&B sector is set for further growth.
Below, a few of the factors affecting the Kuwait restaurant industry:
POPULATION AND GDP CONTINUE TO GROW
Kuwait’s population continues to grow steadily, at 4.8% in 2016 (a record since 2007) and more than four times the global population growth for that year. A growing population bodes well for the retail and restaurant markets. Dining out is a primary activity throughout the GCC, where options for entertainment are often limited. Even at malls, fully one-third of visitors are driven primarily by food, not shopping.
GDP is on the rise, as well, growing 2.9% annually since 2010 — below the values of emerging markets but still high in comparison to advanced economies. GDP per capita is closer to that of advanced economies than to emerging markets (in 2015, Kuwait’s was $35,490, compared to an average of $4,770 for emerging markets and $42,560 for advanced economies), but has been decreasing since 2013.
Kuwait’s per capita income had been rising steadily since the 2008-09 global financial crisis, though it took a hit in recent years, due to the sagging oil prices throughout the Middle East. Greater spending power will help sustain the expansion trend in restaurants.
UNEMPLOYMENT IS LOW
Unemployment has been decreasing since 2011, though it’s still above the historical average (since 1990) of 1.5%. According to a 2015 labor survey, some 87% of Kuwaitis work in the public sector. Efforts to Kuwaitize the private sector, however, have been largely unsuccessful, with estimates suggesting that 58% of unemployed Kuwaitis are unwilling to work in the private sector. Due to shorter working hours (and typically less demanding work), the public sector remains a more attractive segment.
Many employed by the restaurant industry in Kuwait, however, aren’t Kuwaiti nationals. According to some estimates, foreigners make up more than 70% of Kuwait’s 4.4 million population. There are efforts to crack down on the increasing number of foreign workers, with one MP proposing a 10-year limit on foreign workers staying in the country and the restricting of dependent visas to parents only.
The tourism sector could create an increasing need for workers and will underpin the expansion of new retail outlets and eateries. While this will provide new opportunities, it will also lead to increased competition and require existing food and beverage operators to upgrade their locations, so as to keep pace with the new players in the market.
FOOD COSTS IN KUWAIT ARE GROWING SLOWLY
Food inflation has been lagging behind consumer prices since April 2016, and some months have even brought deflation in food prices. The trend could be good for restaurants (i.e. lower food costs), though groceries will also be cheaper, as well.
Between 80 and 90% of the existing food supply in GCC states is imported, making the prospects for food security (and therefore food prices) dire. Kuwait is one of the biggest food-importers in the region, a situation that could see some relief with programs to increase domestic food production.
The country has made moves to strengthen its food security – and thus the supply chain for restaurants – through efforts to boost local farming and commodities, through a mix of incentives and subsidies. There are also plans to open more land for food production. Until those food security issues can be more fully resolved, though, those in the restaurant and hospitality sectors remain exposed to external shocks of price fluctuations.
WESTERN DINING HABITS ARE GROWING IN POPULARITY
Along with the use of technology, several other habits are beginning to take shape in Kuwait — namely, the growth in popularity of a Western diet. As oil revenues began to drastically transform Kuwait over the past few decades, wealth and modernization led to a flood of fast food.
For Western restaurant chains, this has been a boon. Hardee’s first came to Kuwait in 1981, with McDonald’s following 13 years later. Today, nearly every major chain has a home in Kuwait — even some Western brands that have fallen on hard times in the states have found success in the country. Boston Market, for instance, opened its first Middle East outpost in Kuwait in 2017, with plans to open dozens more in the region.
The booming industry shows no signs of slowing. McDonald’s expects sales to grow some 12% in 2017 alone. And while fast food in Kuwait has not yet reached its saturation, there are some troubling aspects. According to the International Diabetes Federation Atlas, 20% of adults (ages 20 – 79) in Kuwait are diabetic, ranking among the highest in the world for rate of diabetes per capita. (Some projections put the rate closer to 40%.) The rise of diabetes and obesity will most likely force operators to adapt by increasing their use of fresh produce and healthier options.
TECHNOLOGICAL TRENDS ARE INFLUENCING DINERS
Like much of the Middle East, Kuwait’s use of technology is on the rise. More than 57% of the country’s population is on Facebook, and some 80% is connected to the Internet. That number has more-than doubled since 2010, when less than half of the population (39.4%) used the Internet. Technology is quickly reshaping every industry and restaurants are no exception. Food delivery, in particularly, is hugely popular in the Middle East.
Kuwait-based e-delivery app interface Talabat helped pioneer that trend in the region. The company — which says it has placed 10 million orders by more than 500,000 registered users with over 1,700 restaurants across the region — has expanded since its inception in Kuwait, now offering delivery in Bahrain, KSA, Qatar, UAE, Oman and Jordan. In 2015, Talabat was acquired by German e-commerce company Rocket Internet SE for $170 million — at the time, reported to be the largest Internet technology transaction in the Arab world. Around the same time, Rocket acquired a stake in Berlin’s Delivery Hero, and began operating Talabat under the Delivery Hero name.
Other players have cropped up, too, with the food delivery market becoming increasingly heated. Food delivery startup Carriage was acquired, too — also by Delivery Hero — in May, in an effort to expand the presence throughout the Middle East. A new wave of technological trends (online ordering, food trucks, kiosks) will further fuel the demand for QSR options in the region.
RESTAURANT M&A DEALS ARE PICKING UP
Private equity has found a home in the Middle East restaurant industry. As food and beverage chains continue to enter the local market, investors are looking to cash in on the ongoing consumer boom.
Kuwait-based Global Investment House made headlines in 2016, upon announcing that it had completed the acquisition of a 10% stake in Yum Yum Tree Food Court Co., one of the largest quick service restaurant managers in the Gulf region. Another major deal of 2016 was that of food conglomerate Kuwait Food Company, known as Americana. Prominent Dubai businessman Mohammed Alabbar bought a controlling stake (69%) in the restaurant and food company for $2.4bn, marking the biggest Middle Eastern M&A deal of the year.
In 2017, American fast-casual chain Blaze Pizza announced expansion plans for the MENA region through a development agreement with Kuwait-based M.H. Alshaya Co., which plans to build and operate 100 of the pizza restaurants in 11 countries. The first five locations — in Kuwait and the UAE — are scheduled to open in 2018.
CONTINUED GROWTH IS EXPECTED IN KUWAIT
Despite the growth that’s occurred in just a short time in Kuwait, continued potential remains on the horizon, particularly in the food and beverage sectors. Multinational suppliers certainly see the potential in the region.
In 2016, Alghanim Industries opened the first Wendy’s restaurant in Kuwait, as part of a strategic collaboration to expand the US brand across the Middle East. In March 2016, Nestlé Toll House announced that its Café by Chip concept would open two new cafés in Kuwait, bringing the brand’s overall count in the Middle East to 50 locations.
As societal norms and consumer behaviors shift, Kuwait will continue to be a platform for international restaurant franchises and technological platforms that enable convenience for restaurant guests.
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ABOUT AARON ALLEN & ASSOCIATES:
Aaron Allen & Associates is a leading global restaurant industry consultancy specializing in growth strategy, marketing, branding, and commercial due diligence for emerging restaurant chains and prestigious private equity firms. We work alongside senior executives of some of the world’s most successful foodservice and hospitality companies to visualize, plan and implement innovative ideas for leapfrogging the competition. Collectively, our clients post more than $100 billion, span all 6 inhabited continents and 100+ countries, with locations totaling tens of thousands.