Bahrain Food & Drink Report 2011

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com
Q1 2011
BAHRAIN
FOOD & DRINK REPORT

INCLUDES 5-YEAR FORECASTS TO 2014
ISSN 1749-2599
Published by Business Monitor International Ltd.
BAHRAIN FOOD & DRINK REPORT Q1 2011

INCLUDING 5-YEAR INDUSTRY FORECASTS BY BMI
Part of BMIs Industry Report & Forecasts Series

Published by: Business Monitor International Copy deadline: October 2010
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Bahrain Food & Drink Report Q1 2011
Business Monitor International Ltd
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CONTENTS
BMI Industry View ............................................................................................................................................ 5
SWOT Analysis ........................................................................................................................................................................................................... 7 Bahrain Food Industry SWOT ............................................................................................................................................................................... 7 Bahrain Drinks Industry SWOT ............................................................................................................................................................................. 8 Bahrain Mass Grocery Retail SWOT ..................................................................................................................................................................... 9
Business Environment .................................................................................................................................. 10

BMIs Core Global Industry Views ........................................................................................................................................................................... 10 BMI Food & Drink Core Views ........................................................................................................................................................................... 11 Middle East Food & Drink Business Environment Ratings ...................................................................................................................................... 12 Regional Food & Drink Business Environment Ratings ...................................................................................................................................... 14 Bahrains Food & Drink Business Environment Rating ........................................................................................................................................... 15 Macroeconomic Outlook ........................................................................................................................................................................................... 16 Table: Bahrain Economic Activity .................................................................................................................................................................... 19
Industry Forecast Scenario ........................................................................................................................... 20

Consumer Outlook .................................................................................................................................................................................................... 20 Food.......................................................................................................................................................................................................................... 22 Food Consumption............................................................................................................................................................................................... 22 Table: Food Consumption Indicators - Historical Data & Forecasts .................................................................................................................. 23 Trade ................................................................................................................................................................................................................... 23 Table: Bahrain Sectoral Trade Balance - Historical Data & Forecasts .............................................................................................................. 24 Drink......................................................................................................................................................................................................................... 24 Soft Drinks ........................................................................................................................................................................................................... 24 Table: Drinks indicators ...................................................................................................................................................................................... 25 Mass Grocery Retail ................................................................................................................................................................................................. 25 Table: Bahrain Mass Grocery Retail Sales - Value by Format - Historical Data & Forecasts ........................................................................... 26 Table: Bahrain Grocery Retail Sales By Format, 2009 & 2019........................................................................................................................... 27
Food ................................................................................................................................................................. 28
Key Industry Trends and Developments .................................................................................................................................................................... 28 Increasing Interest In Processed Foods ............................................................................................................................................................... 28 Continued Government Investment ...................................................................................................................................................................... 28 Growing Investment Interest From Non-Regional MNCs .................................................................................................................................... 29 Market Overview ...................................................................................................................................................................................................... 30 Agriculture ........................................................................................................................................................................................................... 30 Key Food Processors ........................................................................................................................................................................................... 30 Halal Food........................................................................................................................................................................................................... 31 Table: Muslim Populations In Selected Middle East & Africa Countries, 2009 .................................................................................................. 32
Drink ................................................................................................................................................................ 33
Key Industry Trends and Developments .................................................................................................................................................................... 33 Carbonates Still Strong ........................................................................................................................................................................................ 33 Diversifying Towards New Product Categories ................................................................................................................................................... 33 Market Overview ...................................................................................................................................................................................................... 34 Soft Drinks ........................................................................................................................................................................................................... 34 Alcoholic Drinks .................................................................................................................................................................................................. 35 Hot Drinks ........................................................................................................................................................................................................... 35
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Mass Grocery Retail ....................................................................................................................................... 36

Key Industry Trends and Developments .................................................................................................................................................................... 36 Growing Investment In Convenience Retailing .................................................................................................................................................... 36 Catching the Eye of Foreign Investors ................................................................................................................................................................. 36 Market Overview ...................................................................................................................................................................................................... 37 Table: Structure Of Bahrains MGR Market Number Of Outlets, 2004-2009 ................................................................................................... 38 Table: Structure Of Bahrains MGR Market Sales By Retail Format, 2004-2009 (US$mn) ............................................................................. 38 Table: Structure Of Bahrains MGR Market Sales By Retail Format, 2004-2009 (BHDbn)............................................................................. 38 Table: Value Of Sales Per Outlet, 2008e ............................................................................................................................................................. 38
Competitive Landscape ................................................................................................................................. 39

Table: Key Players in Bahrain's Food & Drink Sector ........................................................................................................................................ 39 Table: Bahrains MGR Key Players .................................................................................................................................................................... 40
Company Monitor ........................................................................................................................................... 41

Food.......................................................................................................................................................................................................................... 41 Bahrain Flour Mills Company ............................................................................................................................................................................. 41 General Trading And Food Processing Company (TRAFCO) ............................................................................................................................. 42 Kraft Foods MEA................................................................................................................................................................................................. 43 Delmon Poultry Company.................................................................................................................................................................................... 44 Drink......................................................................................................................................................................................................................... 45 Awal Dairy Company........................................................................................................................................................................................... 45 Mass Grocery Retail ................................................................................................................................................................................................. 46 EMKE Group ....................................................................................................................................................................................................... 46 Fu-Com International/Gant ............................................................................................................................................................................... 47 Carrefour MAF .................................................................................................................................................................................................... 48
BMI Methodology ........................................................................................................................................... 49

Food & Drink Business Environment Ratings .......................................................................................................................................................... 49 Table: Returns ..................................................................................................................................................................................................... 50 Table: Risks ......................................................................................................................................................................................................... 51 Weighting .................................................................................................................................................................................................................. 51 Table: Weightings ................................................................................................................................................................................................ 52 BMI Food & Drink Industry Glossary ...................................................................................................................................................................... 53 Mass Grocery Retail ............................................................................................................................................................................................ 53 BMI Food & Drink Forecasting And Sourcing ......................................................................................................................................................... 55 How We Generate Our Industry Forecasts .......................................................................................................................................................... 55 Sourcing............................................................................................................................................................................................................... 56
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BMI Industry View

The Bahraini economy does appear to be showing signs of improvement, although we do not see what will drive the recovery beyond government spending. As such, our forecasts are somewhat conservative. However, despite the subdued outlook for the economy, the food and drink industry continues to illustrate considerable potential, as it is far from maturity. For most residents, personal wealth growth is likely to remain subdued throughout the forecast period, with a concomitant effect on retail sales. Falling property and stock prices will have damaged savings, not to mention consumer confidence, and will add to the effect of job losses and pay cuts. However, while BMI estimates that consumer spending in 2009 was flat, we expect a rebound to 5.0% growth in 2010 and 6.0% in 2011.
Key Company Trends Online Grocery Shopping Debut In August 2010, Bahrains first virtual supermarket was launched. Called Cart, the company has started a new grocery shopping website (cart.com.bh) in Bahrain. The website helps the company to deliver food orders directly to shoppers' doorsteps, with the site having received about 250,000 visitors since its launch in July 2010, making it the seventh most visited website in the country, according to visitor tracking website Alexa Rank. Project Development Co-Ordinator Ebrahim Haroon said the retailer aims to deliver 100 orders per day in three months. Haroon added that the company is also looking to expand its service outside of Bahrain. The initial success of Cart reflects the growing importance of convenience in consumers shopping decisions, particularly with increasingly modern lifestyles and longer working hours.
Investments By Local Player In October 2010, local retail operator BMMI announced its plans to launch a major retail expansion in Bahrain. The retailer said that it plans to have opened five large supermarkets as well as five neighbourhood stores in the country within five years. The first large supermarket will be opened shortly in Amwaj under the Alosra banner. The Alosra supermarket chain specialises in sourcing Western brands and specialty products, and the company plans on also carrying prepared salads, sandwiches and sushi which will be offered as both take-away and at the in-store cafes, as BMMI looks to target high-spending and health-conscious consumers who value quality and convenience.
Key Risks To Outlook National Debt Growing Bahrain has already doubled its national debt (to 25% of GDP) and earned itself a ratings downgrade by Moody's. Any problems in the financial industry could further delay a privatesector recovery and derail investor and consumer confidence, leaving the government in charge of growth, which is all well and good as long as oil prices stay high. However, as Moody's pointed out recently, the breakeven price has been getting higher and higher. We estimate Bahrain needs an average oil price of US$72/bbl just to balance its books, with anything lower than that likely to entail deficits and further borrowing.
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A drop in oil prices While a drop in oil prices does not look likely at the moment, it is certainly not beyond the realm of possibility if BMIs double-dip global downturn scenario plays out. Bahrain will muddle through if the oil price stays high, as is our core scenario, but if it drops again, making the implementation of income tax necessary, then there are serious risks to growth, the size of the expatriate population and the financial sector.
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SWOT Analysis
Bahrain Food Industry SWOT
Strengths

Consumers are brand-loyal and susceptible to new products and innovations. Rising incomes and the development of the mass grocery retail sector has benefited the packaged and processed food industries. The country has a large high spending expatriate population. Food consumption growth in Bahrain is forecast to outperform the wider Gulf Cooperation Council region to 2015. Bahrains regulatory environment is business-friendly and has succeeded in attracting a number of multinational food companies. The dinars peg against the US dollar shields multinational companies from adverse exchange rate movements. Companies looking for long-term volume gains will be limited by Bahrains small population of under 1mn. A relatively low GDP per capita means that consumers are price conscious by regional standards. Similar to the wider region, Bahrain runs a large food and drink trade deficit. The outlook for the agricultural sector is limited by the small size of the country and the hot, arid climate. Many key food ingredients need to be imported. A number of segments remain fairly fragmented, creating opportunities for new product launches. Opportunities for premiumisation will return as the downturn passes. Demand for packaged and convenience foods will continue to pick up as lifestyles get busier and eating habits become more Westernized. Bahrain has a Free Trade Area (FTA) with the US. Consumer confidence remains lower than pre-downturn levels, which is affecting demand for higher value products. As the dinar is pegged to the US dollar, weakness from the latter is leading to imported inflation. Despite the countrys wealth, there is high unemployment, particularly among the Shia community, which is a persistent source of unrest.
Weaknesses

Opportunities

Threats

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Bahrain Drinks Industry SWOT
Strengths

Consumers are brand-loyal and susceptible to Western consumer trends. Per capita consumption of soft and hot drinks is high. Alcohol consumption is fairly high by regional standards, driven largely by the tourism sector. Bahrains regulatory environment is business friendly. The dinars peg against the US dollar shields multinational companies from adverse exchange rate movements. At under 1mn, Bahrains small population deters investors seeking long-term volume gains. Consumers are relatively price-conscious by regional standards. Although fairly dynamic by regional standards, the alcoholic drinks industry is highly unlikely to attract major investment due to the small market and strict sale regulations. All soft drinks categories have yet to saturate. The bottled water category will continue to provide opportunities. Demand for healthier fruit juices, energy drinks and other value-added products will continue to increase. Further premiumisation potential exists across all soft drink segments. Non-alcoholic malt drinks could replace beer and provide a niche market. The downturns negative effect on Bahrains expatriate population, and therefore the size of the market, is likely to affect the wider drinks industry. There is ongoing talk of banning or severely restricting alcoholic drinks sales, as many Bahrainis are growing increasingly unhappy with the level of tolerance of Western cultural imports such as alcohol consumption.
Weaknesses

Opportunities

Threats

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Bahrain Mass Grocery Retail SWOT
Strengths

Consumers are brand-loyal and susceptible to Western consumer trends. The MGR sector continues to grow, with consumers increasingly favouring modern retailing. The market entry of regional majors Carrefour, EMKE and Waitrose will fuel MGR growth and convert more shoppers to modern retail formats. Bahrains regulatory environment is business friendly. The entry of discounters is unlikely as most consumers perception that discounted goods lack quality remains intact. Bahrains small population, even by regional standards, means it will probably remain a supplementary rather than growth market for regional retailers. Downward price trends as a result of the global economic slowdown have put pressure on the margins of retail operators and their suppliers. All MGR categories have yet to saturate. Private label products are more popular in Bahrain than in most Gulf countries, with the economic downturn having increased their popularity and allowed private labels to establish themselves. The end of the real estate bubble has made it easier to locate appropriate retail space and could speed up the transition from attached-mall to standalone retail outlets. Mirroring the latest developments in the UAE, the underdeveloped convenience store segment could be boosted by the development of community stores. The downturns negative effect on Bahrains expatriate population, and therefore the size of the market, is likely to affect the wider retail industry. The relatively limited long-term volume potential of the sector means likely entrants will be pressed to enter sooner rather than later.
Weaknesses

Opportunities

Threats

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Business Environment
BMIs Core Global Industry Views
Developments within the global food and drink industry in the past three months have continued to reflect and support BMI's core industry views. In major developed markets, fiscal austerity measures and slow recovery in employment continue to weigh on our expectations for growth in the medium term. However, over the last quarter, emerging markets have again demonstrated their ability to outperform the wider market and have continued to attract investment. One major trend during the quarter has been the increased role of private equity groups in the food and drink sector, which we think is indicative of its safe haven status and the uncertainty surrounding the strength of the wider economic recovery.
In many markets the strength of the recovery has disappointed, with little sign of resurgence in consumer demand across the US, Western Europe or emerging markets that were particularly hard hit by the downturn, such as Venezuela and Romania. In line with our wider economic outlook and our core shortterm view, we believe the recovery in demand will continue to be muted. Our caution can be traced to the fact that unemployment in many markets remains high and shows little sign of retracing, with companies still wary about the strength of the recovery and holding back on hiring. Meanwhile, many consumers who are still in employment have yet to be hit in the pocket by the downturn, but this is set to change as fiscal austerity measures are implemented.
Over the last few months, emerging markets have again shown their importance, delivering significant outperformance over their developed market peers, in line with our core long-term view. However, even in those markets that bounced back strongly from the global downturn, such as Brazil and China, we remain cautious, due to signs of slowing growth in H210 as the knock-on effects from a weaker US and eurozone weigh on global demand. Despite this relatively subdued short-term outlook, the long-term picture is undoubtedly favourable and investment continues to flow into the most attractive regions.
Our core view that government legislation will continue to play a role in marginalising unhealthy foods and drinks has come to the fore in the alcoholic drinks sector over the latest quarter, with a rise in excise duties in several key markets. This trend is likely to have been accelerated by a drop in tax revenues as a result of the downturn, with excise duties an easy way for governments to help prop up their tax income. Perhaps the most significant movement has been in Russia, where restrictions on the sale of alcohol and hefty tax hikes have led to higher average prices and a significant drop in consumption, while other markets hit by tax hikes include Turkey, Greece and Spain.
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BMI Food & Drink Core Views
Short-term Outlook
Consumer demand in developed markets remains too weak to support a strong rebound in sector growth A stuttering recovery in the US and Eurozone will increasingly way on the performance of emerging markets Commodity price volatility will continue to affect producer earnings Premiumisation will remain on hold Private labels and off-trade alcoholic drinks will outperform their respective sectors Discount grocery retailers will continue to gain market share Government fiscal policy austerity will be unsupportive of industry growth Government monetary policy the reduced likelihood of further rate hikes will help limit demand destruction Major takeovers will remain scarce, leaving room for the private equity sector to step in We continue to favour private consumption-led economies, over export-oriented states for consumer goods investment
Long-term Outlook
Companies with strong emerging market exposure will continue to outperform Emerging market multinationals will increasingly pursue frontier market investments Tension between producers and retailers will remain Investment in innovation will increase as producers seek differentiation; emphasis will be placed on protecting innovations Brand builders will continue to leave sectors under threat from private labels Government legislation will play an increasing role in marginalising unhealthy food and beverage products; notably alcohol Demand for convenience in retail and food will continue to grow Functional foods will be the highest growth sector in developed markets Consolidation will continue as producers seek greater efficiencies Beverage companies will continue to invest in diversification away from carbonated beverages and into healthier subsectors
Source: BMI
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Middle East Food & Drink Business Environment Ratings

UAE Tops Ratings But Egypt The Real Story With the exception of the UAE, the Middle East and North Africa (MENA) has by in large not been dramatically affected by the global economic weakness that has pervaded over the past two years. Although outlandish premiumised spending has been reined in within the Gulf, the evolvement of consumer spending in absolute spending and taste terms in some of the frontier MENA markets (Egypt in particular stands out) has largely continued apace.
While the sheer weight of growth (most of it led by energy) racked up by most of the Gulf region over the past decade has pushed up per capita GDPs in the UAE, Kuwait and Qatar to the upper echelons of the global economy, the atypical pace at which this has taken place has meant that the development of the food and drink industry was bound to lag behind. With key industry indicators such as organised retails proportional contribution to absolute retail sales still comfortably lagging most developed economies, even in the UAE, investment from both Gulf and foreign-based companies is likely
As a result, even though with the exception of Saudi Arabia, which makes up about two thirds of the Gulf consumer market, the region lacks long-term scale, perpetually evolving tastes and preferences dictates that the Gulf should retain its attractiveness to non-regional food, drink and retail companies. Moreover, markets like the UAE and Bahrain in particular continue to serve as exciting export bases into the wider MENA region.
Egypt Closes On UAE Notwithstanding the fact that disposable incomes in the Gulf region remain considerably higher than in the rest of the MENA region, the Gulfs dominance of the top positions in BMIs regional food and drink business environment ratings no longer appears as secure. Egypt has pushed into second place behind the UAE and looks very well placed to assume top position in the near future. Even though its food and drink industry is clearly not nearly as sophisticated as the UAEs, this does in fact count in Egypts favour from a ratings point of view.
Egypts push into second place reflects our industry and macroeconomic expectations. We like the longterm promise of the Egyptian domestic demand story, which backed by a population approaching 82mn, provides dynamic long-term growth potential. Comparing historical and forecast annual per capita food consumption growth in both Egypt and the UAE highlights Egypts outperformance in this regard (see chart). Its economy is growing strongly and is expected to continue doing so, as reflected in our outlook to 2015.
Egypts position as the standout frontier market in the MENA region is largely uncontested. Iran and Iraq, two of the other potential rivals for this tag, for a variety of reasons cannot match Egypt, certainly when it
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comes to pulling in investment from Gulf and Western companies alike. From an investment point of view, Egypts trade links are also important. In addition to smooth access to the Gulf Cooperation Council (GCC) region, Egypt is a major net exporter to the emerging Common Market for Eastern and Southern Africa (COMESA).
Therefore from both a ratings and competiveness standpoint, Egypt uniquely combines a strong long-term economic and subsequently consumer spending outlook, with an unusually large market by regional standards and an ability to attract foreign investment. It will therefore be increasingly difficult for the UAE to maintain its hold on first position.
Assessing The Rest Of The Gulf Saudi Arabia is the big underperformer in this quarter. Placing sixth does not do it justice as the Gulf regions most promising long-term growth. It is the only Gulf market that combines scale with a strong scope for long-term growth. Its lowly ranking comes despite an above average Risk score and clearly emphasises the fact that a much stronger Industry Reward score is necessary for Saudi Arabia to push up the ratings table. Saudi Arabias size and the fact that on a per capita GDP basis disposables incomes are reasonably high suggests that it has the potential to move the ratings, possibly eventually settling into the top three alongside the UAE and Egypt, although for now this remains only a distant possibility.
Fundamentally speaking and momentarily looking over nuances, Kuwait and Qatar are in essence less dynamic versions of the UAE from a ratings point of view, if only particularly in the latters case because they have smaller populations. It will be difficult for them to distinguish themselves and move much higher up the ratings than where they currently find themselves. Third placed Bahrain largely benefits from the fact that in addition to having the regions strongest Risk score, some of the key indicators within its food and drink industry are poised for fairly strong growth to 2014 from a lower base than the UAE, Kuwait and Qatar.
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Regional Food & Drink Business Environment Ratings
Reward Industry Reward UAE Egypt Bahrain Kuwait Qatar Saudi Arabia Oman Lebanon *Israel 67 63 53 34 41 31 29 32 49 Country Reward 60 55 53 58 52 60 46 46 45 Industry Risk 70 50 70 65 65 60 60 45 70
Risk Country Risk 39 62 66 71 66 66 72 51 76 Food & Drink Risk/Reward Rating 60.0 58.4 57.3 52.6 52.1 50.8 46.4 41.9 55.2 Regional Ranking 1 2 3 4 5 6 7 8 *4
Reward 64 59 53 46 46 45 38 39 47
Risk 51 57 68 69 65 63 67 49 74
*Israel has been included for comparative purposes only. Had it been ranked, it would have scored fourth respectively. Source: BMI. Scores out of 100, with 100 highest. The Food & Drink BE Rating is the principal rating. It is comprised of two sub-ratings Reward' and 'Risk'', which have a 70% and 30% weighting respectively. In turn, the 'Reward' Rating is comprised of Industry Reward and Country Reward, which have equal weighting and are based upon growth/size of food/alcohol and soft drinks industry (Market) and the broader economic/socio-demographic environment (Country). The 'Risk' rating is comprised of Industry Risk and Country Risk which have a 40% and 60% weighting respectively and are based on a subjective evaluation of industry regulatory and competitive issues (Market) and the industry's broader Country Risk exposure (Country), which is based on BMI's proprietary Country Risk Ratings. The ratings structure is aligned across the 14 Industries for which BMI provides Business Environment Ratings methodology, and is designed to enable clients to consider each rating individually or as a composite, which the choice depending on their exposure to the industry in each particular state. For a list of the data/indicators used, please consult the appendix at the back of the report.
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Bahrains Food & Drink Business Environment Rating

Bahrain has dropped to third position from its previously held first in BMIs quarterly Food & Drink Business Environment Ratings for the MENA region. Displaced by the UEA and Egypt, which took first and second place respectively, we can see that the Gulf countries dominance of the top positions in BMIs ratings no longer appears as secure.
Despite losing its top place ranking, Bahrain nevertheless manages to do well, thanks to a winning combination of the regions highest F&D market score and one of the regions highest Risk scores. While spending on food and drink is relatively low compared to its Gulf peers, this low base gives Bahrain one of the regions strongest food and drink consumption growth forecasts, giving it a major competitive edge.
Bahrains strong business environment continues to be one of its key strengths, particularly compared to its regional peers. Despite significant economic progress over the past decade, business environments across much of the region remain fairly bureaucratic compared to Bahrain a fact that continues to draw investors to this stable country. Unsurprisingly, Bahrains Risks score is second only in the region to Kuwait.
However, there are some obvious drawbacks, such as the very small population of under 1mn, which significantly limits the long-term growth opportunities. GDP per capita is relatively modest by Gulf standards, which also weighs down the Country Reward score. These two factors are the main reasons why Bahrain lost its pole position this quarter. Nevertheless, the country remains an attractive proposition for Gulf and non-regional food and drinks companies, particularly given the lack of premiumisation in the local market, with the food and drink industry posed for fairly strong growth.
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Macroeconomic Outlook
Strong Q1 Figures Masking Weak Domestic Demand Picture
Uninspiring Real GDP Growth (%) and OPEC Basket Price (US$/bbl)
BMI View: We do not see what will drive the recovery for Bahrain, beyond government spending; and, as such, our forecasts are low. That said, we acknowledge that official figures may paint a rosier picture.
We remain concerned about the stability and health of the Bahraini services economy and private sector in general. Latest figures suggest that there was a substantial rebound in overall growth in Q110, but we see risks for the remainder of the year. Although fiscal stimulus plans
Source: Central Informatics Organisation, BMI
remain in place, they remain under threat from lower oil prices, while further turmoil in the financial sector is not out of the question. We could well see defaults from some of the over-leveraged investment companies, hitting banks' asset sheets and investor confidence more generally. Although the official numbers may come in higher than our projections, we believe that our low forecasts are a more accurate reflection of the state of the economy.
Our forecasts see a slowdown in growth in 2010 (to 1.5%) and only a mild uptick in 2011 (to 1.9%), with sub-optimal rates of expansion persisting throughout the forecast period. However, with 2009 growth figures having surprised to the upside (going against our own and anecdotal perceptions of growth in the Kingdom), the 2010 and 2011 figures could do the same. Overall GDP figures tell a different story to individual indicators. Our forecast figures are primarily being held back more by sluggish oil exports: we do see a moderate uptick in gross fixed capital formation and private consumption from 2009's low base.
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Contradictory Indicators Looking at Q1 results, the economy does appear to be on the rebound. Overall real GDP growth came in at an annualised 5.2%, compared with 2009's full-year outturn of 3.1%, with strong performances registered by hotels and restaurants (up 14.4%), onshore financial institutions (12.8%) and social and personal services (14.9%). The latter encompasses private health and education, which are mainly used by expatriates, as the government subsidises these services for Bahrainis. Even construction growth came in at 2.2% in Q1, after averaging -2.5% over Q109-Q409, Source: Bahrain Central Informatics Organisation
Call This A Recovery? Bahrain - Aluminium Output (metric tonnes)
with real estate managing the same rate.
The government also estimates that employment stood at 489,657 in Q110, up 1.2% on Q109, and accounting for 44.2% of the population. Although this could imply some decline in population in line with the view we have been promoting for some time we do not expect to see the government confirming this in official data. In any case, the percentage is the highest since the government's data series began in 2006. Against this backdrop, the outperformance of these three sectors suggests a strong global and expatriate consumer demand situation, which is, in theory, very good news for the Bahraini economy.
Indeed, this is in line with our forecasts. We do see private consumption growth of 3.0% for 2010, rising to 4.0% in 2011. Unfortunately, the government has not yet provided a breakdown of either Q110 or 2009 growth by expenditure, so we cannot compare it at this stage, but a 3.0% growth rate in real terms is not to be sniffed at in this climate. However, we also think that private consumption and the sectors highlighted above are also growing from the lowest bases. Indeed, while private consumption accounted for 45.2% of real GDP in 2006, we estimate that it made up just 42.0% in 2009 and 2010. Moreover, we think that enthusiasm over the double-digit GDP growth figures will be mitigated by (a) anecdotal evidence and (b) other indicators.
Among other reasons for concern, we see the bank lending growth rate as a sign that consumers have not gone back to their old ways: Bahrain's banks have seen the lowest loan growth in the Gulf region, with a
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y-o-y increase of 3.9% (against inflation of 2.4%) in May, compared with 27.0% y-o-y in Qatar. This compared with around 45% at its peak. True, personal wealth may have increased due to the apparent rise in employment, but given the extent to which credit fuelled spending during the boom years even now, retail banks' client loans per capita amount to US$67,764 (although this includes business loans) it is hard to imagine the stagnation not having an effect. In addition, there are risks going forward: tax rises are more than possible after the elections, given the fiscal position.
Did Recovery Peak In Q309? That said, it is not just services that have driven Q1's impressive growth number. Goods exports are also doing well. Manufacturing apparently rose by 6.8%, quarrying by 8.9% and even oil and gas managed an upturn of 0.5%.
Again, though, individual data sets cast some doubt on these impressive outturns. In volume terms, oil output growth remains subdued, threatening to undermine our forecast for a 1.0% rise in volume terms in 2010. Bahrain ramped up oil output from its Abu Saafa oil field in Q309, in line with the price increase; but, unlike most of the OPEC countries, it has since reduced output again. Total output from the Abu Saafa and Bahrain oil fields came in at around 164,360 b/d in Q110, down from a nine-month high of 169,720 b/d in Q309. Refined oil output is coming from a lower base than crude, so y-o-y growth remains high (at 17.9%), but this also peaked in Q309 and was down 2.2% q-o-q in the first three months of the year. Aluminium followed the same pattern: output bounced to 213,224 metric tonnes in Q309, but remained lower in y-o-y terms, and then fell again in Q409 and Q110 (at a rate of 1.6% y-o-y, to 210,009 metric tonnes).
Meanwhile, global demand does not inspire much confidence either. As we move towards the end of the year, the global economic scenario we had envisaged for 2010 namely, a shaky and largely jobless recovery slowing in the second half, alongside continued deflationary pressures is playing out. This suggests sluggish demand going forward, and we forecast a slowdown in growth for all the major economies except the eurozone (which, in any case, is coming from a much lower base). Against this backdrop, we see downside risks to our oil price forecast (US$85/bbl for the OPEC Basket in 2011, rising to US$90/bbl in 2012), as well as lower demand for Bahraini industrial exports: we are pencilling in 0.8% average annual growth for the period 2010-13, outpaced by greater import growth (around 3.0%) as infrastructure spending pushes up the capital goods bill.
Fiscal Expansion To Continue On the government spending front, we expect growth to remain strong in 2010 and 2011, in spite of the fiscal difficulties, pencilling in real growth of 8.0% and 6.0% respectively. Indeed, from the tone of the Central Informatics Organisation's latest bulletin, there does not appear to be much impetus to pare down spending, unless it becomes urgent: the bulletin states that the better economic performance and higher oil prices in Q110 will afford 'greater discretion to the government over its spending plans and financial
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policies' implying that any austerity measures had more to do with financing ability than a desire to change tack.
Risks To Outlook This will keep growth robust, but does pose risks to overall stability. Bahrain has already doubled its national debt (to 25% of GDP), and earned itself a ratings downgrade by Moody's. Any problems in the financial industry could further delay a private-sector recovery and derail investor and consumer confidence, leaving the government in charge of growth, which is all well and good as long as oil prices stay high. However, as Moody's pointed out recently, the breakeven price has been getting higher and higher. We estimate Bahrain needs an average oil price of US$72/bbl just to balance its books, with anything lower than that likely to entail deficits and further borrowing.
Table: Bahrain Economic Activity
2005 Nominal GDP, BHDbn Nominal GDP, US$bn

1,2
2006 6.0 15.8 6.7 21,320 0.7
2007 7.0 18.5 8.4 24,320 0.8
2008 8.2 21.9 6.3 28,240 0.8
2009e 7.7 20.6 3.1 26,026 0.8
2010f 11.1 29.6 1.3 36,164 0.8
2011f 12.0 31.9 1.9 37,921 0.8
2012f 13.5 36.0 2.5 41,119 0.8
2013f 14.1 37.5 2.6 42,258 0.8
2014f 14.9 39.5 16.6 49,276 0.9
5.1 13.5 7.8 18,499 0.7
1,2
Real GDP growth, % change y-o-y 1,2 GDP per capita, US$ Population, mn 3
1,2
Notes: e/f-BMI estimate/forecast. GDP For 2010 confirmed, breakdown by expenditure not yet available; Source: 3 Central Informatics Organisation, BMI, World Bank/BMI
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Industry Forecast Scenario

Consumer Outlook
Bahrains consumer outlook appears fairly weak over our five-year forecast period as the economic slowdown has affected consumer confidence. While the official numbers suggest an economic recovery is in place, with real GDP growing by 3.1% in 2009 according to the CIO, other indicators such as bank lending, the stock market, house prices and consumer confidence suggest otherwise, indicating that the real picture is somewhat bleaker. There is also a degree of public discomfort with their governments relentless pursuit of foreign investment. In a bid to attract foreign business, Manama has allowed an increasingly liberal leisure environment and many Bahrainis are unhappy with the level of tolerance of Western cultural imports such as alcohol consumption, which could mean a long-term risk for the alcoholic drinks industry.
Bahrain has one of the most open economies in the Middle East and is home to a large financial services sector. Developing the service economy has been a top priority for the government given Bahrains relatively small, and dwindling, oil reserves, and the financial services sector has emerged as a major driver of economic growth. The small size of the local population is a significant limitation for the growth of mass retail but tourism plays an important part in boosting retail sales in the region. In Bahrain, tourist arrivals have risen by an average of 10-15% annually over the past three years and are projected to rise by an average of 2.5% a year over the next decade, according to the Ministry of Culture and Informations tourism affairs division. Bahrain also remains a popular weekend shopping destination for many Saudi consumers, who cross the King Fahd Causeway, boosting local retail sales.
BMI estimates that consumer spending in Bahrain was flat in 2009 due to low consumer confidence and high levels of unemployment, but we expect a rebound to 5.0% growth in 2010 and 6.0% in 2011. While private consumption is now growing again, we believe that this growth is starting from a low base. Indeed, while private consumption accounted for 45.2% of real GDP in 2006, we estimate that it made up just 42.0% in 2009 and 2010. Currently, we
Bahrain GDP & CPI 2008-2019
Source: CIO, CBB, BMI forecasts (2010-2019)
see private consumption growth of 3.0%
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for 2010, rising to 4.0% in 2011. Unfortunately, the government has not yet provided a breakdown of either Q110 or 2009 growth by expenditure, so we cannot compare it at this stage, but a 3.0% growth rate in real terms is not to be sniffed at in this climate.
The local retail sector is characterised by an increased tendency on the part of consumers to trade up to higher value products, a trend that slowed significantly during the downturn as consumers turned to more economically priced food and drink products. Despite the countrys wealth, unemployment remains a problem, particularly among the Shia population, where unemployment can exceed 30% and is a continual source of unrest. However, looking at Q1 results, the economy does appear to be on the rebound. Overall real GDP growth came in at an annualised 5.2%, compared with 2009's full-year outturn of 3.1%, with strong performances registered by hotels and restaurants, up 14.4%.The government also estimates that employment stood at 489,657 in Q110, up 1.2% on Q109, and accounting for 44.2% of the population. Although this could imply some decline in population in line with the view we have been promoting for some time we do not expect to see the government confirming this in official data. In any case, the percentage is the highest since the government's data series began in 2006. Against this backdrop, the outperformance of these three sectors suggests a strong global and expatriate consumer demand situation, which is, in theory, very good news for the Bahraini economy.
Looking further ahead we are projecting very modest GDP recovery as the financial and real estate sectors remain very subdued. This is in line with the view that we expressed at the beginning of 2009: for all the talk of the importance of economic diversification over recent years, and despite the drop in oil prices, it will be the economies that are least diversified that will emerge from this particular crisis strongest in the short-to-medium term. Bahrains oil resources and revenues are relatively low compared with its neighbours and there is little scope for major increases in production. With a very hefty financial sector, Bahrain is very vulnerable to volatile global financial sentiment and overseas demand. While economic growth is expected to return to positive territory from 2010, averaging around 2.8% over 20152019, we expect a spurt of 16.4% in 2014 on the back of an increase in oil output from the Abu Saafa fields, which will then boost the export sector in real terms.
The 10-year outlook for Bahrain is similar to its fellow GCC members. As long as political stability is maintained, robust government spending and oil-based liquidity will keep it a relatively attractive destination for investment. However, the last few years have been a boom time and we do not see growth returning to the levels posted over 2001-2008 (7.8% on average). Attracted by the countrys stability and positive business environment, a number of major international retailers, including Carrefour and Waitrose, have been drawn to the Bahraini market, investing in new store openings. Such investments will bring a wider range of food and drink products to market, thereby driving demand and boosting sales. The Bahraini retail market will also continue to benefit from events such as the annual Formula One grand prix in Sakhir, which has generated hundreds of millions of dollars in revenues since it became a fixture on the racing calendar in 2004.
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Risks To Outlook The clear downside risk to this scenario is a drop in oil prices, which is not beyond the realm of possibility if BMIs double-dip global downturn scenario plays out. Bahrain will muddle through if the oil price stays high, as is our core scenario, but if it drops again, making the implementation of income tax necessary, then there are serious risks to growth, the size of the expatriate population and the financial sector.
The government is going all out to promote its business environment with its worldwide Business Friendly marketing campaign. However, we note substantial risks to the investment climate emanating from the worsening fiscal situation. In October 2009, it was reported that the government was considering increasing corporate tax for Bahraini and foreign businesses, although there have been no further details since then. Meanwhile, the business community is already up in arms about the expatriate workers tax. Furthermore, Bahrain has already doubled its national debt (to 25% of GDP), and earned itself a ratings downgrade by Moody's. Any problems in the financial industry could further delay a private-sector recovery and derail investor and consumer confidence,
Food
Food Consumption
BMIs current outlook for the Bahraini economy is rather subdued, although we are continuing to forecast steady growth in headline food and drink consumption. We remain concerned about the stability and health of the Bahraini services economy and private sector in general. Latest figures suggest that there was a substantial rebound in overall growth in Q110, but we see risks for the remainder of the year. Although fiscal stimulus plans remain in place, they are under threat from lower oil prices, while further turmoil in the financial sector is not out of the question.
e/f = BMI estimate/forecast. Source: Bahrain Monetary Agency, Bahrain Centre for Research & Studies, Gulf Cooperation Council Secretarial General, BMI
Food Consumption 2005 - 2015
Currently we are forecasting that total food consumption will grow by 10.9% between 2010 and 2015 to reach a total value of BHD0.214bn. We do believe that good growth opportunities remain, despite the small size of the market at just under 1mn. While this size does significantly limit long-term growth opportunities, there nevertheless remains considerable room for growth in most segments of the wider
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food industry. With the economy having expanded at such a rapid rate in recent years, the food industry is still continuing to catch up with this growth, which accounts for our solid forecast figures. With the market still far from saturation, further investments will continue to be made in the processed food sector, thereby fuelling food consumption growth.
Bahrain benefits from a large expat population with high spending on food and drink products, although disposable incomes and spending on food across the general population is lower than in its Gulf neighbours. However, the fact that the food and drink industry is still far from maturity and saturation means that growth opportunities across most of the food industrys core segments such as edible oils and dairy have yet to be exhausted. This is highlighted by the fact that while per capita food consumption was estimated at BHD239 (US$635) in 2010, a figure lower than in a number of other Gulf countries, this indicator is forecast to experience growth of 1.72% to 2015.
Table: Food Consumption Indicators - Historical Data & Forecasts
2005 Food consumption (US$bn) Food consumption (BHDbn) Per capita food consumption (US$) Per capita food consumption (BHD) Total food consumption growth (y-o-y) Per capita food consumption growth (y-o-y) Food consumption as % GDP 0.418 0.157 574.9 216.2 4.85 2.56 3.11
2006 0.441 0.166 593.3 223.1 5.46 3.20 2.78
2007 0.466 0.175 613.0 230.5 5.53 3.31 2.52
2008 0.504 0.190 650.0 244.4 8.28 6.04 2.30
2009 0.547 0.206 691.5 260.0 8.54 6.38 2.66
2010e 0.513 0.193 635.4 238.9 -6.29 -8.12 1.73
2011f 0.531 0.200 645.7 242.8 3.50 1.63 1.66
2012f 0.539 0.203 644.8 242.4 1.66 -0.14 1.50
2013f 0.546 0.205 641.5 241.2 1.25 -0.51 1.46
2014f 0.562 0.211 649.0 244.0 2.93 1.18 1.42
2015f 0.569 0.214 646.4 243.0 1.28 -0.41 1.21
Trade
Not surprisingly, Bahrains food and drink trade balance will become increasingly negative over our forecast period. The small island state faces major geographical restrictions, which, paired with the hot arid climate, mean that opportunities for agricultural output are highly restricted. While the government does work to support a number of agricultural projects, Bahrain will always be a net good importer and allocates its considerable wealth according to this reality. Between 2010 and 2015, the trade deficit is forecast to increase by 8.65% as imports continue to make up for the countrys domestic food production shortfall. Over the forecast period, exports are expected to grow by 7.6% to US$65.9mn, while imports are forecast to grow by 8.54%; however, this growth will be starting from a far higher base.
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Table: Bahrain Sectoral Trade Balance - Historical Data & Forecasts
2005 Exports (food, drink & tobacco) (US$mn) Imports (food, drink & tobacco) (US$mn) Balance (US$mn) 58.62 634.7 -576.1
2006 57.36 512.7 -455.4
2007 59.12 539.4 -480.3
2008 63.27 626.9 -563.6
2009 57.28 551.4 -494.1
2010e 61.20 532.7 -471.5
2011f 61.80 541.1 -479.3
2012f 62.72 549.8 -487.1
2013f 62.83 558.9 -496.1
2014f 65.73 568.4 -502.6
2015f 65.85 578.2 -512.3
Drink
Soft Drinks
As the countrys leading drinks sector, strong and steady growth is forecast for Bahrains soft drinks industry. Due to the severe restrictions on the sale of alcoholic drinks and the hot climate, soft drinks are very popular and play an important role in social occasions. Sales of soft drinks are forecast to experience growth of 40.4% between 2010 and 2015 to reach BHD47.99mn. While segmented soft drinks data is not available, BMI believes that higher-value segments such as fruit juices and functional drinks will begin to
NB Historical data are estimates, based on country sales as a % of total Gulf sales. Source: Company information, Trade press, BMI
Soft Drink Sales 2005 - 2015
outperform the more established and lower-cost carbonates segment, as premiumisation begins to play a stronger role in driving values sales over the forecast period.
Looking ahead, we see that the two key trends expected to be the main drivers of industry growth are rising health consciousness and premiumisation. Rising health consciousness will provide opportunities for carbonate producers as low-calorie substitutes will become increasingly popular. Higher value segments such as fruit juices and functional drinks are expected to continue to gain traction as the evolution of the wider industry and rising health consciousness trend plays out. The flourishing bottled water category and energy drinks are also expected to continue performing well. Non-alcoholic beers and other malt beverages are also benefiting from stronger demand, particularly among younger consumers that are keen to experiment with new products.
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Table: Drinks indicators
2005 Soft drinks sales (BHDmn) Soft drink sales growth, BHD, (y-o-y) Soft drinks sales (US$mn) Per capita soft drink spend (US$) 26.65 9.77 70.9 97.4
2006 27.99 5.04 74.4 100.1
2007 29.43 5.15 78.3 103.0
2008 30.98 5.25 82.4 106.2
2009 32.64 5.38 86.8 109.7
2010e 34.19 4.74 90.9 112.7
2011f 36.40 6.47 96.8 117.8
2012f 40.21 10.45 106.9 127.8
2013f 42.04 4.56 111.8 131.3
2014f 47.40 12.74 126.1 145.5
2015f 47.99 1.25 127.6 144.9
NB Historical data are estimates, based on country sales as a % of total Gulf sales. Source: Company information, Trade press, BMI
Mass Grocery Retail

While the small size of the local market places significant limitations on the potential growth of the Bahraini MGR industry, we are nevertheless forecasting strong growth ahead, as the informal sector currently still accounts for a large proportion of sales. Between 2010 and 2015, total MGR sales are forecast to increase by 47.0% to reach a value of BHD243.5mn. The main drivers will be the continued robustness of the local economy and the conversion of many shoppers from traditional to organized retail. While the small size of the
Mass Grocery Retail 2005 - 2015
population suggests that the opportunities for long-term growth will be fairly negligible, the fact that the informal sector still accounts for more than 50% of food and drink sales suggests there are still significant opportunities available through organic store growth.
MGR sales experienced explosive growth between 2002 and 2008 on the back of the countrys hydrocarbon-fuelled economic boom, increasing by over 95%. This rapid economic expansion attracted investment into the countrys underdeveloped retail sector, with operators targeting the spending power of the expatriate-heavy consumer base, the increasing preference for Western-style consumption trends and the subsequent desire for modern retailing.
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The hypermarket and supermarket segments will continue to be the main drivers of growth in the MGR sectors, with sales forecast to grow by 38.8% and 30.7% respectively between 2010 and 2015. Due to the vast selling power of hypermarkets, the addition of just one store (there are currently only five in the whole country) can significantly add to MGR sector sales. Meanwhile, supermarkets will continue to cater to those consumers seeking a more niche retail experience, as can be seen with the opening of the high-end supermarket Waitrose. It is the convenience sector that is forecast strong growth, with sales expected to rise by an impressive 97.8% to 2015. This is partly a reflection of convenience stores ability to penetrate urban residential areas far more easily than larger store formats, but also reflects the far lower base of the sales figures.
Looking further ahead, by 2019, we expect that the food retail sales split will shift to 65:35 in favour of organized retail, which should enable the annual headline MGR growth rate to remain strong past the 2015 forecast period.
Table: Bahrain Mass Grocery Retail Sales - Value by Format - Historical Data & Forecasts
2005 Supermarkets (BHDbn) Hypermarkets (BHDbn) Convenience stores (BHDbn) Total mass grocery retail sector (BHDbn) Total mass grocery retail sector growth, BHD, (y-o-y) Supermarkets (US$bn) Hypermarkets (US$bn) Convenience stores (US$bn) Total mass grocery retail sector (US$bn) 0.0417 0.0466
2006 0.0469 0.0542
2007 0.0515 0.0609
2008 0.0566 0.0664
2009 0.0613 0.0729
2010e 0.0641 0.0699
2011f 0.0682 0.0739
2012f 0.0725 0.0796
2013f 0.0769 0.0864
2014f 0.0825 0.0954
2015f 0.0838 0.0970
0.0132
0.0155
0.0199
0.0230
0.0268
0.0317
0.0371
0.0438
0.0513
0.0616
0.0627
0.1015
0.1165
0.1324
0.1460
0.1609
0.1656
0.1793
0.1960
0.2146
0.2395
0.2435
17.3913
14.7594
13.6032
10.3409
10.1992
2.9197 0.1705 0.1858
8.2333 0.1813 0.1967
9.3118 0.1928 0.2118
9.4950 0.2044 0.2298
11.5974
1.6708 0.2228 0.2579
0.1110 0.1240
0.1246 0.1441
0.1370 0.1620
0.1506 0.1766
0.1630 0.1938
0.2194 0.2537
0.0350
0.0411
0.0530
0.0612
0.0713
0.0842
0.0988
0.1166
0.1364
0.1637
0.1668
0.2700
0.3099
0.3520
0.3884
0.4280
0.4405
0.4768
0.5212
0.5707
0.6368
0.6475
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Table: Bahrain Grocery Retail Sales By Format, 2009 & 2019
2009 Organised/MGR Non-organised/Independent 48% 52%
2019f 65% 35%
f = forecast. Source: BMI
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Food
Key Industry Trends and Developments
Increasing Interest In Processed Foods
While traditional foods and diets are still very popular in Bahrain, a major shift has been occurring with processed foods and fast food restaurants becoming increasingly popular. These changing eating habits have seen consumers demonstrating a growing preference for processed Western foods and snacks. In line with this trend, snack food producers and chain restaurants have been ramping up their investments in the Bahraini market.
The end of 2009 witnessed a spree of investments from a number of food producers. In December Indiabased Britannia and Oman-based al-Sallan Food Industries relaunched the popular biscuit brand Bakers Pride in the Bahraini market, working with local distribution partner A. Latif al-Aujan Food International. The relaunch strategy for the Bakers Pride range, which is manufactured at the companys plant in Sohar, Oman, included an improved recipe and new packaging, designed to give the brand a new look and feel, while the sales price remained the same. The Bahraini biscuit market is estimated to be worth US$21.42mn annually, with per capita consumption of biscuits estimated at 5.65kg per annum. Meanwhile, the Auntie Annes pretzel chain opened its first location at the Seef Mall and stated that it will continue to expand in the country, with plans to open at least five stores over five years, and may eventually develop customized products to fit local taste profiles. The local operations in Bahrain are managed through a sub-franchise license by DaRosa Food Company.
Also, in late December 2009, Bahrains Global Banking Corporation announced that it established a new limited liability company called Diyafa Holdings Company to capitalise on opportunities in the food and beverage, hospitality and retail and business service sectors. The new company plans to target some of the leading international food and hospitality brands, while also creating and developing its own brands in specific market segments. Diyafa is expected launch two major restaurants in Bahrain and is also looking into the boutique hotel market.
Continued Government Investment

Bahrains food production industry is characterised by very high levels of government involvement. The government has made investing into the local food industry a priority, with this sector providing employment for its citizens, as well as a means of wealth redistribution. Furthermore, the country is highly dependent on food and drink imports due to its geographical restrictions and the very harsh local climate. More recently, these projects have gained growing importance as the country looks to decrease dependence on imports where possible and to keep inflation in check. To this end, in July 2010 it was announced that plans are underway for the establishment of a private poultry firm in the country as a part
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of a BHD10mn (US$26.6mn) investment project. The government is supporting an initiative spearheaded by the private sector with the aim of promoting the countrys food security. When completed, the facility is expected to produce up to 10mn chickens annually, which will go a long way in meeting consumer demand at affordable prices.
Growing Investment Interest From Non-Regional MNCs

While regionally based companies have a strong presence in the local food and drink sector, multinational companies operating in the Gulf region have also been seeking expansion into the wider Middle East and North Africa region.
In May 2010, Mars GCC launched a US$40mn manufacturing facility in Dubai as the Gulf Cooperation Council (GCC) region assumed greater strategic significance. As emphasised by the fact that the region has consistently posted double-digit sales growth since 2000, demand for Western chocolate brands (Mars produces its namesake and the Snickers brand) is widespread, with the demand for snack foods growing strongly, as discussed above. Companies such as Mars can also leverage off duty-free export opportunities to efficiently supply all six GCC markets (including Bahrain), as well the wider Middle East region.
Also in May, Nestl announced it was investing in four new manufacturing facilities across the Gulf, while bullishly forecasting 2010 sales growth of 10% year-on-year (y-o-y). Consolidated Nestl Middle East region sales reached US$1.4bn in 2009 from 17 factories, with the UAE accounting for between 10% and 11% of the total. Nestl is expanding organically from a position of significant strength, having established itself as comfortably one of the regions most well-invested firms.
In mid 2009, global dairy firm Fonterra announced that it expects the Middle East region (specifically the affluent GCC area) to be one of its key long-term growth engines, following this comment with full takeover of the outstanding 51% stake in its Saudi joint venture partner Saudi New Zealand Dairy Products Company from Saudi Dairy and Foodstuff Company (Sadafco) in a deal believed to be worth about SAR120mn (US$32mn). Based out of New Zealand, Fonterra has reported double-digit turnover growth in the region over the last three years.
American food and drink major Kraft Foods has long been a major presence in the countrys food and drink sector, having invested US$40mn in a manufacturing plant in the Bahrain International Investment Park. Having already established its presence in the country, Kraft is looking to develop further its operations and has been pursuing a drive to become more environmentally friendly. Paying particular attention to the water scarcity issue in Bahrain, in mid-2009 the company announced that it had reduced the amount of water used in manufacturing by 21% since 2005, having reached its targeted goal two years early.
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Market Overview
Agriculture
Given its geographical restrictions and desert climate, Bahrain is highly dependent on food and drink imports to meet the needs of its population. Most of these imports are sourced from the US and Saudi Arabia. The government has made some efforts to address this dependence, such as its investments in poultry farms, as it has generally sought to diversify the economy away from the oil industry. However, the countrys agricultural sector still only employs just over 1% of the population while contributing less than 0.7% to GDP.
The reality is that despite heavy government subsidies, which have prevented the country from falling even further behind in terms of self-sufficiency, the sector is held back considerably by a climate unsuitable for most forms of agriculture. Bahrain receives minimal rainfall, with annual harvests and outputs highly dependent on whether the sector has been fortunate enough to receive favourable weather conditions during the year. This lack of consistency prevents continual reinvestment in the sector. Similarly, the technological and harvesting techniques that need to be adopted to improve output in such conditions require considerable investment. Despite the governments commitment to diversification, it is unlikely to be persuaded into making such a risky and low-return investment, when returns elsewhere, not least in the oil sector, are so much greater. Another concern likely to curb future investment is the countrys limited fresh water resources.
However, the government has started to prioritise the countrys long-term food security in the face of rocketing global food prices. This is likely to lead to renewed investments in Bahrains agriculture sector within the industry sub-sectors where some growth is possible, such as poultry production. The seafood and fisheries industries have also been able to benefit from subsidies and have successfully expanded. Through the National Pisciculture Centre there have also been efforts to revive the Gulfs fish stock. The centre is looking to improve production technologies and add new breeds of local fish to the production cycle. It is also trying to encourage more fish farming as a means of reducing seafood imports and providing local employment opportunities.
Key Food Processors

Saudi companies such as Almarai and Saudi Dairy and Foodstuffs Company (SADAFCO) are major players in the dairy products segment, with their respective Almaria and Saudia brands widely available throughout Bahrain. Owing to the sophistication of Saudi farms, and their high production levels and extremely high quality products, Bahraini milk producers find it almost impossible to compete with Saudi Arabian producers. A number of Saudi milk producers supply Bahraini producers with raw milk. Dairy products are particularly popular across the Gulf region and make up an important part of the diet, with
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high consumption of yoghurt, laban, processed cheese and cream products. It is estimated that Bahrainis consume 65-70kg of dairy products per capita annually.
Among the countrys leading industry players are Awal Dairy Company (previously called Bahrain Danish Dairy), a manufacturer of dairy and juice products, and General Trading and Food Processing Company, a distributor working across a wide range of food and beverage subsectors. Changing diets have resulted in a rising demand for packaged Western foods, a demand that is being met by both local and international companies. Kraft Foods is also a major presence in the countrys food and drink sector, having invested US$40mn in a manufacturing plant in the Bahrain International Investment Park. The 60,000m2 operation produces Kraft cheese and Tang beverages for export across the Middle East.
Halal Food
The importance of the halal food industry is continuing to grow in the Middle East. According to the World Halal Forum (WHF), the value of the global halal food industry is expected to climb above US$650bn in 2010 as demand continues to pick up, in spite of the global financial meltdown. The longterm outlook for the halal food industry is captured by the fact that worlds Muslim population represents close to 25% of global population (over 1.6bn people). As investment into the industry increases, competition among producers will intensify, which will beef-up output of halal products.
While Middle Eastern consumers traditionally prefer fresh meat, health and hygiene scares have been a major driver in changing consumer habits and have ultimately benefited the packaged meat industry. Meat and halal products are now being imported from many countries, including Australia, New Zealand, Ireland, Brazil, Canada and the US. In fact, most distributors of halal products are not from Muslim countries, with many international producers having recognised the potential of the market and investing accordingly.
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Table: Muslim Populations In Selected Middle East & Africa Countries, 2009 Total Population Bahrain Egypt Iran Israel Jordan Kuwait Lebanon Nigeria Saudi Arabia South Africa Syria Turkey UAE 727,785 83,082,869 66,429,284 7,233,701 6,342,948 2,691,158 4,017,095 149,229,090 28,686,633 49,052,489 20,178,485 76,805,524 4,798,491 Muslim Population as % of Total 81.2 90.0 99.0 16.0 95.0 85.0 60.0 75.0 100.0 2.0 74.0 99.6 96.0 Muslim Population 590,961 74,774,582 65,764,991 1,157,392 6,025,801 2,287,484 2,410,257 111,921,818 28,686,633 981,050 14,932,079 76,529,024 4,606,551
Source: CIA World Factbook
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Drink
Carbonates Still Strong
Despite the increasing global interest in health-consciousness, carbonates still dominate the drinks sector in Bahrain. After holding prices steady for around 30 years, in early 2010 The Coca-Cola Company (TCCC) and PepsiCo raised prices of their core carbonate brands in Bahrain by 50%. The global giants finally made this decision on the back of strengthening raw material costs that have been placing significant pressure on margins. Across many of their emerging markets, the prices of PepsiCo and TCCCs core brands have historically not increased in line with inflationary trends, which have allowed TCCC in particular to build significant brand equity in some of the worlds poorest countries.
Historically, the Gulf and the Middle East region have been two of the few regions where PepsiCo has outperformed the emerging market specialist TCCC. In mid-2009, PepsiCo had announced plans to shift its Gulf headquarters to a new manufacturing facility in Jeddah, Saudi Arabia. PepsiCo has invested approximately SAR1bn (US$266.7mn) in the development, its largest in the Middle East and Africa region, as this region remains strategically very important due to PepsiCos rare dominance over TCCC.
While the market is dominated by the two global behemoths TCCC and PepsiCo, smaller regional players do still have a presence and a competitive advantage at times of rising anti-Western sentiments. One of the more successful local players had been Mecca Cola. Despite its initial success, Mecca Cola slowly disappeared from the market and in May 2009 announced plans to relaunch across the Gulf region. Having established that considerable demand existed for an alternative to the traditional carbonate juggernauts during its first stint, Mecca Cola will have to establish a stronger advertising and branding campaign in the Gulf this time round if it is to establish a long-term presence.
Diversifying Towards New Product Categories

While carbonates do continue to lead the drinks sector, due in part to the severe restrictions on the sale of alcoholic drinks and the hot climate, the Bahraini soft drinks industry is increasingly segmented, with new products launched on a regular basis. Leading players are continually launching new products within the core carbonate, bottled water and fruit juice segments.
In April 2010, PepsiCos UAE-based franchise bottler and distributor Dubai Refreshments Company (DRC) announced that it was in discussions to strengthen its product portfolio as it looked to strengthen its non-carbonate portfolio in the GCC region. In 2009, UAE-based al-Ain Mineral Water Company (a subsidiary of Emirates Foodstuff and Mineral Water Company) began manufacturing a range of
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Capri-Sun juice products, a move that allowed al-Ain to dip its toe into the lucrative fruit juice segment in the GCC market.
Other drinks sub-categories expected to experience strong growth are functional and energy drinks. According to a December 2009 report from Just-drinks, despite the economic downturn, the functional drinks category is forecast to experience strong growth over the coming four years, driven by emerging markets. Based on research published by global drinks consultancy group Zenith International, the report said that functional drinks sales grew by an average of 8% annually in volume terms between 2003 and 2008. Although sales growth did experience a slowdown in 2008, the medium-term prospects remain strong on the back of continued emerging market demand, with energy drinks forecast to experience particularly strong growth in the Gulf countries.
Across the Gulf region consumer tastes and preferences have evolved considerably over the past decade, with widespread disposable income growth at the forefront of the evolution. Although the 2009 downturn somewhat stemmed demand for higher-value industry segments like functional drinks and ready-to-drink teas, strong scope for long-term growth still remains.
Innovation and product development within bottled water has largely continued over the past year, with investment into new segments such as flavoured water gathering pace. In addition to outright new product investment, investment into the outperforming bulk water category has continued to gather pace across the Gulf.
Market Overview
Soft Drinks
Carbonated soft drinks remain the mainstay of the soft drinks market, with PepsiCo and the increasingly prominent The Coca-Cola Company dominating the subsector, although bottled water brands such as Masafi are prominent, owing to the year-round hot climate. Despite on and off competition from regional carbonate companies such as Mecca Cola and ZamZam (influenced by geopolitical tensions), Coca-Cola (bottled domestically by the Coca-Cola Bottling Company of Bahrain, which serves as its regional headquarters) and PepsiCo have managed to regain the majority of their market share. PepsiCo achieved this by investing in its brand in an effort to make it appear an international rather than American company. Its International Dairy and Juice joint venture with Saudi Arabias leading dairy company Almarai has bolstered the companys regional reputation and the goodwill generated could boost sales of its carbonate power brands. PepsiCo underlined its commitment to the Gulf region by announcing plans to invest SAR1bn (US$267mn) to shift its Gulf headquarters to a new manufacturing facility in Jeddah Saudi Arabias second largest city.
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On the functional drinks front, Red Bull leads the market. PepsiCo has also entered the energy drinks segment with its Pepsi X Energy Cola brand. It is aiming to leverage the popularity of its brand to develop a strong position in this high growth segment.
Alcoholic Drinks
Alcoholic drinks are available in Bahrain, although they are mainly sold in restaurants and hotels for consumption on site. Despite a ban on sales of alcohol to Muslims, Bahrain does a strong trade in sales of alcohol to Saudis travelling across the King Fahd Causeway for weekends. Many liberal Muslims, whether Bahraini or expatriates, purchase and consume alcohol in hotels, bars, nightclubs and restaurants. Non-alcoholic malt beverages and beers have also proved popular with local consumers. Notable nonalcoholic malt beverage brands include Laziza and Fairouz.
The Iraq war and Islamist resurgence in the Gulf and across the Middle East have led to a decline in tourist numbers from Western European countries and the US, which has dented sales in the alcoholic beverages and soft drinks subsectors. However, there has been an increase in Arab expatriates and tourists since the September 11 attacks, with Arab visitors preferring to holiday closer to home, and this has offset the decline slightly.
Although a potential ban on alcoholic drinks sales has been discussed and supported by most political parties during election campaigns, it has not come to fruition and is unlikely to be voted in and implemented any time soon.
Hot Drinks
The tea bag market is dominated by Unilevers Lipton tea brand. Lipton has been available in the Gulf since the 1960s and is particularly popular. Its ability to innovate and cater to developing consumer preferences sets it apart from its competitors. Lipton produces a variety of black and green teas out of its regional manufacturing headquarters in Dubai. Its Jebel Ali-based facility is the second largest teabag factory in the world with a production capacity of around 5bn tea bags per annum.
Lipton has also steadily introduced a range of fruit teas. Across the GCC, Lipton has a market share in excess of 70%. A steady rise in health consciousness is also expected to boost tea sales. Rising disposable incomes over the long-term will boost per capita tea consumption. While the coffee market is still dominated by traditional Arab coffee, Westernised styles are gaining popularity, particularly with the introduction of Western-style chain cafs throughout the region, with this diversity of offerings helping to drive consumption growth.
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Mass Grocery Retail

Growing Investment In Convenience Retailing
Significant development in organised retail channels over the past decade in the Gulf region has been led largely by the hypermarket segment. Typically attached or adjacent to malls, hypermarkets flush with a variety of value-added services are immensely popular across the Middle East and North Africa (MENA) region. The supermarket segment has also played an important role in fast-paced transition from largely the wet market dominated and largely independent grocery landscape to one where organised retail contributes to a major proportion of grocery sales.
In July 2010, Bahrains first virtual supermarket was launched. Called Cart, the company has started a new grocery shopping website (cart.com.bh) in Bahrain. The website helps the company to deliver food orders directly to the shoppers' doorstep, with the site having received about 250,000 visitors since its launch, making it the seventh most visited website in the country, according to visitor tracking website Alexa Rank. Project Development Co-Ordinator Ebrahim Haroon said the retailer aims to deliver 100 orders per day in three months. Haroon added that the company is also looking to expand its service outside of Bahrain. The initial success of Cart reflects the growing importance of convenience in consumers shopping decision, particularly with increasingly modern lifestyles and longer working hours.
In October 2010, local retail operator BMMI announced plans to launch a major retail expansion in the country, saying that it plans to have opened five large supermarkets as well as five neighbourhood stores in the country within five years. The first large supermarket will be opened shortly in Amwaj under the Alosra banner. The Alosra supermarket chain specialises in sourcing Western brands and specialty products, and the company plans on also carrying prepared salads, sandwiches and sushi which will be offered as both take-away and at the in-store cafes. Clearly BMMI is looking to target high-spending and health-conscious consumers who value convenience.
Catching the Eye of Foreign Investors

Bahrains MGR sector has also been increasingly receiving investments from international retailers looking to increase their presence in emerging markets. Most recently, in June 2010 British premium supermarket retailer Waitrose announced plans to launch its first store in Bahrain in a bid to strengthen its position in the high-spending Gulf region. The 2,0000m2 store will be operated under license by local operator Fine Fare Food Market at a new complex called The Lagoon and is a part of the retailers regional diversification strategy. Waitrose is attracted by the Gulf regions high-spending, expatriateheavy population and the fact that organised retail remains an only modestly developed channel, particularly outside Dubai. This is Waitroses second foray into the Gulf, having already launched two
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stores in the UAE in association with Spinneys Dubai. While Bahrain may not appear to be the most obvious choice of market after the UAE, it is an attractive market due to its positive regulatory environment and a high-spending expatriate community that arguably lacks retail options. Most of the investment into retail has so far focused on hypermarkets, which do not have the convenience and premium food and drink options of high-end supermarkets such as Waitrose.
International retail giant Carrefour opened its first outlet in Bahrain in September 2008, two years after announcing its intentions to enter the market. The hypermarket covers 16,066m2 and sells 35,000 products. It is located at the Bahrain City Centre mall, which has been developed by the Majid Al Futtaim Group (MAF Group), which runs Carrefours Middle East operations through a joint venture with the French company. Emirati retail group EMKE, which operates Lulu hypermarkets in the country, is another major presence, both regionally and in Bahrain. In July 2009, EMKE had announced plans to invest AED1.5bn in its operations over the next 18 months, with plans to expand its hypermarket presence in regional markets, including Bahrain. This was followed by the announcement in June 2010 by EMKE that it has made a major investment in the logistics of its Bahraini operations. EMKE is working with Ehrhardt + Partner to implement the Warehouse Management System LFS 400. Through such investments EMKE is looking to guarantee future compliance with international logistics standards and improve efficiencies.
Market Overview
Prices across Bahraini MGR are generally quite low by GCC standards, as Bahraini consumers tend to be relatively price-conscious. Low prices in supermarkets also help to stimulate sales from lower-income consumers, as they tend to prefer shopping at smaller, traditional stores.
Bahrains hypermarket category has only started to attract investment over the past few years. Until 2005 Bahrain had only one hypermarket Gant, jointly run by local company Fu-Com International and Groupe Casino of France. Fu-Com is itself a joint venture between Bahrain-based Retail Arabia and the Dubai-based al-Ghurair Group. However, in 2005 a group of Saudi investors, A.K. al-Muhaidib & Sons, introduced their Giant hypermarket concept to the country with the opening of one store. Carrefour finally opened its first outlet in September 2008 in association with its regional affiliate MAF Group, while EMKEs Lulu network continues to expand across the Gulf, having previously announced plans to invest AED3.2bn (US$0.87bn) in building 14 hypermarkets and shopping centres across the GCC region.
The most prominent supermarket retailer in Bahrain is Last Chance, run by Fu-Com, followed by AlJazira supermarkets (operated by Al-Jazira Group) and Jawad supermarkets (operated by Jawad Business Group). Jawad operates a network of 24-seven supermarkets that sets a benchmark for convenience. Other operators include Midway Supermarket, 24 Hours Market, the Alosra supermarket chain run by the Bahrain Maritime & Mercantile International Group and Mega Mart. In June 2010,
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British supermarket operator Waitrose opened its first outlet in Bahrain, targeting the high-spending section of the consumer market.
Table: Structure Of Bahrains MGR Market Number Of Outlets, 2004-2009 2004 Supermarkets Hypermarkets Convenience stores Total MGR stores 27 1 567 595 2005 27 2 576 605 2006 28 2 586 616 2007 30 3 598 631 2008 32 4 608 644 2009 33 5 615 653
Source: BMI
Table: Structure Of Bahrains MGR Market Sales By Retail Format, 2004-2009 (US$mn) 2004 Supermarkets Hypermarkets Convenience stores Total MGR sales 0.097 0.106 0.027 0.230 2005 0.111 0.124 0.035 0.270 2006 0.125 0.144 0.041 0.310 2007 0.137 0.162 0.053 0.352 2008 0.151 0.177 0.061 0.388 2009 0.163 0.194 0.071 0.428
Source: BMI
Table: Structure Of Bahrains MGR Market Sales By Retail Format, 2004-2009 (BHDbn) 2004 Supermarkets Hypermarkets Convenience stores Total MGR sales 0.036 0.040 0.010 0.086 2005 0.042 0.047 0.013 0.102 2006 0.047 0.054 0.015 0.117 2007 0.052 0.061 0.020 0.132 2008 0.057 0.066 0.023 0.146 2009 0.061 0.073 0.027 0.161
Source: BMI
Table: Value Of Sales Per Outlet, 2008e
US$mn Supermarkets Hypermarkets Convenience stores Total MGR sector 4.71 44.15 0.10 0.60
BHDmn 1.77 16.60 0.04 0.23
e = estimate. Source: BMI
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Competitive Landscape
Table: Key Players in Bahrain's Food & Drink Sector
Company Unilever Middle East Al Safi Dairy (Danone) General Trading and Food Processing Company (TRAFCO) Al Islami Foods (formally Co-op Islami) Awal Dairy Company** Delmon Poultry Company Bahrain Flour Mills Company Bahrain Dairy Coca Cola Bottling Company of Bahrain Kraft Foods Bahrain Saudi Dairy and Foodstuffs Company (SADAFCO)
Country Of Origin UK and Netherlands Saudi Arabia
Sub-sector Food & Drink Food - Dairy
Sales BHDmn na na
Sales US$mn 700e* 266 (e)
Fiscal Y/E na na
Number Of Employees na 2,000 (e)
Year Established na 1979
Bahrain
Food Processed Meat and Dairy
36
96
Jan-09
608
1978
UAE
Food - Halal Meat Food & Drink Dairy and Juices
na
76 (e)*
na
400 (e)
1981
Bahrain
11
29
Dec-08
240
1963
Bahrain
Food - Poultry
10.95
29
Dec-09
180+
1981
Bahrain Bahrain
Food - Flour Food - Dairy
na na
na na
na na
100 na
1970 na
USA USA
Drink - Soft Drinks Food & Drink
na na
na na
na na
na na
na na
Saudi Arabia
Food - Dairy
na
na
na
na
na
na = not available; e = BMI estimate; *Middle East Sales; **Awal is a subsidiary of TRAFCO, its sales are also included in TRAFCO's mentioned performance. Source: Company Results, Trade Press, BMI
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Table: Bahrains MGR Key Players
Company EMKE Group Fu-Com International/Casino
Country of Origin UAE/India Bahrain
Sales, BHDmn na na
Sales, US$mn 2,100* 115 (e)
Fiscal Y/E na na
Fascia Lulu
Format Supermarket/ Hypermarket
No of Outlets 29
Last Chance Le March Geant Carrefour/MAF Al-Jazira Group France/ UAE Bahrain na na 50 (e) na na na Al-Jazira Al-Jazira BMMI Group Mega Mart Jawad Business Group Bahrain Bahrain Bahrain na na na na na na na na na Alosra Mega Mart Jawad Carrefour
Supermarket franchise Hypermarket Hypermarket Hypermarket
3 1 1 1
Supermarket Distribution Company Supermarket Supermarket Supermarket
5 1 1 3 25
e = estimate; na = not available; * group sales. Source: company results, trade press, BMI
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Company Monitor
Food
Bahrain Flour Mills Company
Company Overview Established in 1970, Bahrain Flour Mills Company (BFMC) is majority-owned by the Bahraini government through Bahrain Mumtalakat Holding Co and is engaged in wheat grinding and flour marketing, supplying flour to the majority of the countrys bakeries. The Kuwait Flour Mills & Bakeries Company is another of the companys significant shareholders. Weaknesses Opportunities Threats BFMC supplies over 90% of Bahrains flour. BFMC has a first rate manufacturing facility. BFMCs export business is growing promisingly. Despite access to subsidies, significant investment will be required to compete on par with regional rivals. The companys business model is heavily dependent on government subsidies. BFMC reported a significant drop in net profit for H110, following solid results for 2009. Rising regional food consumption should continue to strengthen demand for flour. Exports are likely to play an increasingly important role over the coming years. Fluctuations in the price of flour could affect BFMC. Any revisions over the governments subsidy policy could severely undermine the company.
Strengths
Strategy
The company buys significant amounts of flour on the international market. It then sells this locally at lower prices and receives government subsidies to cover its losses. This makes the company one of the most heavily subsidised in Bahrain, as well as particularly vulnerable to the fluctuating price of flour in the international marketplace.
Company Data

Estimated Annual Sales: US$19mn Employees: 100 Annual flour production: 85,000 tonnes Net profit (H110): BHD586,843, 15% y-o-y decrease Net profit (Q110): BHD249,793, 33% y-o-y decrease Net profit (2009): BHD1.1mn, 15% y-o-y increase

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General Trading And Food Processing Company (TRAFCO)

Company Overview Established in 1978 as a public joint stock company as a part of an initiative to revolutionize the local food industry, TRAFCO is one of Bahrains leading food distribution companies. It has a wide and varied product portfolio, which includes the popular Rainbow milk brand, Sadia meat products and La Ronda confectionery. The company operates three subsidiaries Bahrain Danish Dairy Company, Food Supply Company and Kuwait Bahrain Dairy Company. The company also owns 100% of Bahrain Water Bottling and Beverage Company (up from 41%), and has stakes in Bahrain Livestock Company and Bahrain Fresh Fruits Company. Weaknesses TRAFCO counts on a large and well established product portfolio. Equity positions in a number of Bahrains most promising food and drink companies. Regional sales are increasing at a promising rate. Product diversification shields it from a downturn in any one subsector. TRAFCO has had to invest heavily in recent years to improve warehousing and efficiencies . The company imports fresh fruits and other raw ingredients and is therefore vulnerable to global fluctuations in food prices. Demand for processed meats is rising in line with shifting consumer preferences. Favourable demand triggers are expected to continue strengthening the bottled water industry, which should benefit TRAFCOs Bahrain Bottling and Beverage Company subsidiary. The company has a wide product portfolio, including a presence in the fresh fruits and bottled water categories, both of which should experience strong growth on the back of rising health consciousness. TRAFCO food processing products face increased competition from multinational food firms, such as Kraft, which operates its regional hub in Bahrain.
Strengths
Opportunities

Threats
Strategy
TRAFCOs aim is to become Bahrains leading food distributor, as well as widening its GCC reach. The company does plan to expand its product portfolio to achieve this aim. However, its philosophy is that being the best does not have to mean being the biggest. Accordingly, in addition to pursuing growth through product development, the company also targets consistent growth in terms of the value and service it offers. In April 2010, the company opened a US$13.3mn warehouse facility in Galili. The new warehouse can store up to 85,000 cubic meters of chilled, frozen and dry foods.
Company Data

Sales, year ending January 2010: BHD35.08mn (US$93.05mn) Sales, year ending January 2009: BHD36mn (US$96mn) Established: 1978 Employees: 608
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Kraft Foods MEA

Company Overview Kraft Foods is the second largest food company in the world, with operations in 140 countries and 2009 sales of US$40.4bn. Kraft has been marketing its products in the Middle East and Africa (MEA) region since the 1930s and over the past decade it started production in Morocco, Egypt, South Africa and most recently, Bahrain. The companys leading brands in the MEA region include Philadelphia spreadable cream cheese, Oreo cookies, Nabisco crackers, Toblerone and Cte dOr chocolate, Dream Whip, Jell-O, Tang powdered beverage and Maxwell House and Jacobs coffee. Krafts Gulf region sales have continued to perform well over the course of the downturn. Krafts spreadable cheese and Tang juice products are particularly popular. With its local manufacturing presence and Bahrain as its regional hub, Kraft is in a strong position cater to local preferences and customer demands. The dinars peg against the US dollar moderates the effects of currency fluctuations. The company has a strong corporate social responsibility programme which helps to increase brand awareness and also to offset potential anti-Western sentiments The company has had to invest heavily in its expansions and acquisition activities. Kraft also has to invest heavily in marketing as it continues to launch new products on a regular basis. Rising dairy and soft drinks consumption across the Gulf region should continue to support volume growth of Krafts core brands. Having a local production facility will allow the company to introduce a broader range of region-specific products. Kraft faces competition from Bahraini companies, a number of whom benefit from both government subsidies and domestic brand equity.
Strengths
Weaknesses

Opportunities

Threats
Strategy
Kraft has been expanding its MEA operations through a series of acquisitions and investments. In late 2006, Kraft announced plans to construct a 60,000m production plant, at an estimated cost of US$40mn, in Bahrains International Investment Park the first direct investment by Kraft Foods in the Gulf region. The plant produces Kraft cheese and Tang powdered beverages for export across the Middle East. Kraft has said that this new production plant is expected to contribute US$120mn annually in wages, raw and packaging materials and operations. This move is in line with the companys global strategy, which is to focus on high-growth developing markets, such as the Middle East, and away from lowgrowth, established markets, such as Europe and America. The company is also working towards making its operations more environmentally friendly, having recently announced major cuts in water usage in its local production.
2
Company Data
Global sales, year ending December 2009: US$40.4bn
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Delmon Poultry Company

Company Overview Delmon Poultry Company is a public joint-stock company engaged in poultry production and animal feed manufacturing. From its three manufacturing facilities in the country it produces the popular Farm Chicken brand as well as poultry feed. The company also has a broiler processing plant, rendering plant and hatchery. The government holds a 15% stake in the company. Weaknesses Delmon is a market leader in Bahrains poultry sector. Delmon benefits from government subsidies. Poultry is very popular in Bahrain as well as the wider Gulf region. Delmons will have to invest substantially in order to increase its export competitiveness against some of the Gulf regions leading meat processors. The frequent bird flu scares in the region have had a negative impact on the poultry sector Poultry consumption will continue to rise in Bahrain and the wider Gulf region on the back of forecast disposable income gains. Further regional diversification with a particular focus on value-added products will strengthen Delmons position relative to its regional rivals. Increasing health-consciousness will drive poultry sales in the short and long term Rising competition from GCC players both domestically and regionally could undermine sales. The small size of Bahrains population limits Delmons long-term domestic volume growth outlook.
Strengths
Opportunities

Threats

Strategy
Delmons strategy for pursuing growth includes establishing or investing in facilities for processing, packing and storing frozen chicken; feed factories and an integrated project for broiler meat. The company also invests in its distribution network to provide easy accessibility for consumers and is increasingly looking to expand operations abroad.
Company Data

Sales, year ending January 2010: BHD10.95mn (US$29mn) Sales, year ending January 2009: BHD11mn (US$29mn) Established: 1981 Employees: 190 Annual production capacity: 100,000 tonnes of animal feed; 6mn chickens
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Drink
Awal Dairy Company
Company Overview Formerly known as Bahrain Danish Dairy, Awal is one of Bahrains leading food and drink manufacturers. The company changed its name in March 2006 to end its affiliation with Denmark, after controversial cartoons showing the prophet Muhammad were published in a Danish newspaper. The company produces fresh and long-life milk and juices, soft drinks, tomato paste and ice cream. It is a subsidiary of TRAFCO, which holds a 51% controlling interest. Weaknesses Opportunities Awal is an established market leader within the fresh milk segment. Awal possesses a multi category product portfolio that also includes fruit juices and ice cream. Awal benefits from the financial strength of TRAFCO. The company will have to invest heavily to compete with a number of ambitious vertically integrated regional dairy companies. Awals sales and profit were negatively impacted by the economic downturn Demand for value-added dairy products in Bahrain and the wider GCC region is expected to continue rising at an encouraging rate. Demand for fruit juice is expected to continue strengthening in Bahrain and the wider Gulf region. Awal could target fragmented Middle East markets such as Jordan and Iran, which are less competitive than GCC states. The GCC (particularly Saudi Arabia)s dairy sector is increasingly competitive with a number of prominent companies competing for regional market share.
Strengths
Threats
Strategy
Following an image rebranding in 2002, which helped to consolidate its local position, the company is looking to pursue exports more vigorously. To this end, the company will invest in equipment to increase its capacity and will continue to seek distributors in overseas markets, as has been done in Qatar, the UAE and Jordan, in order to improve its operating efficiency in these markets.
Company Data

Sales, year ending December 2008: BHD11mn (US$29mn) Established: 1963 Employees: 280 Annual production capacity: 12,000 tonnes of fresh milk; 25,000 tonnes of juice; 43,000 tonnes of long-life milk; 75,000 tonnes of pasteurised milk
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Mass Grocery Retail

EMKE Group
Company Overview Abu Dhabi-based food and retail group EMKE operates the Lulu hypermarket chain in the Middle East the regions largest Indian-owned chain as well as a number of supermarkets. The company also has interests in shopping mall development and management. EMKE launched its first hypermarket in Bahrain in September 2007 and has a store network of 29 outlets. Weaknesses Lulu is Bahrains largest MGR by sales. EMKE has announced plans to strengthen its hypermarket footprint regionally. Lulus private label range is particularly popular in Bahrain. The company has continued to invest in logistics in order to improve operating efficiencies and profit margins. Lulu benefits from a strong brand reputation and from being a regional operator With Carrefour MAF and Fu-Com International/Casino present, further investment will be required in the hypermarket category. With the independent sector still contributing a high proportion of grocery sales, there are opportunities for further expansion in both the supermarket and hypermarket segments. Demand for cheaper private label is likely to continue strengthening as part of the industrys ongoing structural development. Despite its small size, the market is competitive with Carrefour MAF and Fu-Com International/Gant seeking to grow their market share Although real estate prices are declining, the limited availability of land together with the expansion plans of rivals will increase expansion costs.
Strengths
Opportunities

Threats

Strategy
EMKEs strategy for its Lulu hypermarket brand is simple. It intends to use the network to bring modern, organised retailing within reach of the entire Gulf population and beyond and plans to do so through an ambitious and expansive store-opening programme. The company is to invest around AED750mn in opening 12 new stores across the wider region, including outlets in Oman, Yemen and Kuwait, before eventually investing in expansion to Africa and India. Despite being expensive, the profitability and inevitable level of competition in the region in the coming years makes EMKEs rapid-growth strategy for the Lulu brand a sensible one.
Company Data
Estimated MENA sales: US$1,100mn
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Fu-Com International/Gant
Company Overview Domestic retail group Fu-Com International operates the Bahrain Mall, as well as the countrys first ever hypermarket in partnership with Casino-owned Gant and the popular Last Chance supermarket chain. The 14,000m hypermarket is in the companys 70,000m mall.
2 2
Strengths

Gant has a strong hypermarket presence in Bahrain. The company has established a strong reputation for quality With over 50 checkout counters and a product line that stretches above 60,000 Gant provides both quantity and convenience. Further investment will be required as competition from EMKE and Carrefour MAF increases. The company now faces greater competition in the supermarket sector from Waitrose and the new online retailer Cart Much of the grocery retail sector is still accounted for by independent retailers. Gant may opt to launch stand-alone outlets, particularly as real estate prices decline. Hypermarket sales are expected to continue growing as the size of the formal grocery retail sector expands. Many consumers continue to prefer shopping at informal independent stores. The growing presence of competitors such as Carrefour and EMKE could affect turnover growth.
Weaknesses

Opportunities

Threats

Strategy
The Fu-Com/Casino partnership, which led to the Gant hypermarket, benefits from the formers local retailing knowledge and the latters hypermarket expertise. Fu-Com adopts a no-frills strategy across its retail brands to ensure that it provides the lowest possible prices and will continue to focus its marketing campaigns on its low prices and value during this period of lowered consumer confidence.
Company Data
Gant hypermarket details: 65 checkouts; 400 staff; 65,000 product lines Bahrain Mall details: 120+ stores; 480,000 customers monthly
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Carrefour MAF
Company Overview French retailer Carrefour opened its first Bahraini hypermarket in September 2008 in association with its regional partner Majid Al-Futtaim Group (MAF). Carrefour MAF is also present in the UAE, Oman, Qatar, Kuwait, Egypt, Saudi Arabia and Jordan. Carrefour MAF sets the regional benchmark in terms of the variety and quantity of goods it sells at its outlets. Carrefour MAF has a strong reputation for the quality of its stores, which has also allowed it to launch a private label range, which appeals to Bahrains price-conscious consumers. Carrefour MAFs private label range is particularly popular during this period of lower consumer confidence. Operating only one store in Bahrain presently, Carrefour MAF will need to invest heavily to gain ground on EMKE and Fu-Com International/Casino. Much of the grocery retail sector is still accounted for by independent retailers. Carrefour MAF could benefit from launching standalone stores. Demand for private label products is expected to continue rising as the economic downturn allowed these products to establish a greater presence. Threats Carrefour is not the only retailer expanding in the Bahraini market, with regional rival EMKE also having opened its first hypermarket in the country Competition is also increasing from Waitrose, which recently launched a high-end supermarket, and the new online retailer Cart
Strengths
Weaknesses
Opportunities

Strategy
Carrefours strategy for the Middle East region has been to drive modernisation and create a demand for its brand rather than delay market entry until modernisation occurs. The company has tapped into a small, but constantly expanding, middle class, which has been enough to sustain it. As this middle class and the demand for Western goods has grown, Carrefour has been able to expand its store network. Carrefours strategy is also to diversify its in-store offering, providing toy corners, games areas and a wider variety of international products in order to set itself apart from local rivals who lack the floor space required to accommodate such features.
Company Data
Employees: 6,000
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BMI Methodology
Food & Drink Business Environment Ratings
Risk/Reward Ratings Methodology BMIs approach in assessing the risk/reward balance for food and drink industry investors globally is fourfold. First, we identify factors, in terms of current industry/country trends and forecast industry/country growth, which represent opportunities to would-be investors. Second, we identify country and industry-specific traits that pose or could pose operational risks to would-be investors. Third, where possible we attempt to identify objective indicators that may serve as proxies for issues/trends to avoid subjectivity. Finally, we use BMIs proprietary Country Risk Ratings (CRR) in a nuanced manner to ensure that only the aspects most relevant to the food and drink industry are incorporated. Overall, the system offers an industry-leading, comparative insight into the opportunities/risks for companies across the globe.
Ratings System Conceptually the ratings system divides into two distinct areas:
Rewards: evaluation of sectors size and growth potential in each country, and also broader industry/state characteristics that may inhibit its development.
Risks: evaluation of industry-specific dangers and those emanating from the countrys political/economic profile that call into question the likelihood of anticipated returns being realised over the assessed time period.
Indicators The following indicators have been used. Overall, the ratings use three subjectively measured indicators, and 41separate indicators/datasets.
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Table: Returns
Industry returns Food and drink consumption per capita, US$ Soft drink consumption per capita, US$ Alcoholic drink consumption per capita, litres Per-capita food consumption growth, five-year % growth Food and drink trade balance Country returns Economic structure Population size GDP per capita, US$ Rating from BMIs CRR. Evaluates structural balance of economy; evaluating issues such as over-reliance on single sectors/markets as well as past economic volatility. Proxy for potential market size. Large countries considered more attractive. Proxy for wealth. Size of population is important, but needs to be considered in relation to spending power. High income states receive better scores than low income states. Subjective rating based on level of industry development and level and strength of industry competition in a market. Mature and/or competitive markets get low scores. Indicator denotes overall breadth of market. Large markets score higher than smaller ones. Indicator denotes overall breadth of market. Large markets score higher than smaller ones. Indicator denotes overall breadth of market. Large markets score higher than smaller ones. Indicator denotes sector dynamism. Scores based on total growth over our five-year forecast period. Indicator denotes markets natural resources and dependency on imports for food and raw ingredient supply.
Market entry potential/maturity
Note: See Business Environment section for regional and country-specific ratings explanations. Source: BMI
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Table: Risks
Industry risks Barriers to entry Regulatory environment Country risks Short-term economic growth Short-term financial risk Short-term monetary risk Short-term external risk Characteristics of society Scope of state Institutions Market orientation Physical infrastructure Labour infrastructure Rating from BMIs CRR. It evaluates likely growth trajectory over two-year forecast period, based on BMIs forecasts and projections of business and consumer confidence. From CRR. It denotes risk of currency crisis and stability of banking sector. The former would hit revenues in hard currency; the latter would curtail investment funding. Rating from BMIs CRR. It denotes the risk of inflationary pressures and interest rate fluctuations, while taking into account the position of a countrys economic cycle. From CRR. It denotes the states vulnerability to externally induced economic shock, which tend to be the principal triggers of economic crises. From CRR. It evaluates impact of income distribution, poverty and ethnic division on broader stability. From CRR. Low state control markedly increases security risks, thereby increasing costs in certain states. From CRR. It evaluates the risks to business posed by official bureaucracy, the broader legal framework and corruption. Subjective rating from CRR to denote predictability of openness to foreign investment and trade. From CRR. Poor power/water/transport infrastructure act as bottlenecks to sector development. From CRR. Denotes cost/availability of labour. High costs will affect risk-returns calculations. Subjective rating based on the prevalence of industry-specific barriers that might impede investment and growth. States with many barriers receive low scores. Subjective rating based on the industry-specific regulatory environment and the presence of potentially restrictive legislation. Low scores reflect a regulatory environment.
Weighting
Given the number of indicators/datasets used, it would be inappropriate to give all sub-components equal weight. Consequently, the following weightings have been adopted:
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Table: Weightings
Component Returns Industry returns Country returns Risks Industry risks Country risks
Weighting, % 70, of which 50 50 30, of which 40 60
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BMI Food & Drink Industry Glossary

Food consumption: All four food consumption indicators (food consumption in local currency, food consumption in US dollar terms, per capita food consumption and food consumption as a % of GDP) relate to off-trade food and non-alcoholic drinks consumption, unless stated in the relevant table/section.
Off-trade: Relates to an item consumed away from the premises on which it was purchased. For example, a bottle of water bought in a supermarket would count as off-trade, while a bottle of water purchased as part of a meal in a restaurant would count as on-trade.
Canned food: Relates to the sale of food products preserved by canning; inclusive of canned meat and fish, canned ready meals, canned desserts and canned fruits and vegetables. Volume sales are measured in thousand tonnes as opposed to on a unit basis to allow for cross-market comparisons.
Confectionery: Refers to retail sales of chocolate, sugar confectionery and gum products. Chocolate sales include chocolate bars and boxed chocolates; gum sales incorporate both bubble gum and chewing gum; and sugar confectionery sales include hard boiled sweets, mints, jellies and medicated sweets.
Trade: In the majority of BMIs Food & Drink reports, we use the United Nations Standard International Trade Classification, using categories Food and Live Animals, Beverages and Tobacco, Animal and Vegetable Oils, Fats and Waxes and Oil-seeds and Oleaginous Fruits. Where an alternative classification is used due to data availability, this is clearly stated in the relevant report.
Drinks sales: Soft drink sales (including carbonates, fruit juices, energy drinks, bottled water, functional beverages and ready-to-drink tea and coffee), alcoholic drink sales (including beer, wine and spirits) and tea and coffee sales (excluding ready-to-drink tea and coffee products which are incorporated under BMIs soft drinks banner) are all off-trade only, unless stated in the relevant table/section.
Mass Grocery Retail

Mass grocery retail: BMI classifies mass grocery retail (MGR) as organised retail, performed by companies with a network of modern grocery retail stores and modern distribution networks. MGR differs from independent or traditional retail, which relates to informal, independent-owned grocery stores or traditional market retailing. MGR incorporates hypermarket, supermarket, convenience and discount retailing, and in unique cases co-operative retailing. Where supermarkets are independently-owned and not classified as MGR, BMI will state so clearly within the relevant report.
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Hypermarket: BMI classifies hypermarkets as retail outlets selling both groceries and a large range of general merchandise goods (non-food items) and typically over 2,500m in size. Traditionally only found on the outskirts of town centres, hypermarkets are increasingly appearing in urban locations.
Supermarket: Supermarkets are the original and still most globally-prevalent form of self-service grocery retail outlet. BMI classifies supermarkets as over 300m, up to the size of a hypermarket. The typical supermarket carries both fresh and processed food items and will stock a range of non-food items, most commonly household and beauty goods. In addition, the average supermarket will increasingly offer customers some added-value services, such as dry cleaning or in-store ATMs, etc.
Discount stores: Although most commonly between 500m and 1,500m in size, and thus of the same classification as supermarkets, discount stores will typically have a smaller floor-space than their supermarket counterparts. Other distinguishing features include the prevalence of low-priced and private label goods, an absence of added-value services often called a no-frills environment and a high product turnover rate.
Convenience stores: BMIs classification of convenience stores includes small outlets typically below 300m in size, with long opening hours and located in high footfall areas. These stores mainly sell fastmoving food and drink products (such as confectionery, beverages and snack foods) and non-food items, typically stocking only two or three brand choices per item and often carrying higher prices than other forms of grocery store.
Cooperatives: BMI classifies cooperatives as retail stores which are independently owned but club together to form buying groups, under a cooperative arrangement, trading under the same banner, although each is privately owned. The arrangement is similar to a franchise system, although all profits are returned to members. The term is becoming more archaic with fewer cooperatives remaining that conform to this model. Most cooperative groups now have a more centralised management structure and operate more like normal supermarkets and are thus classified as such within BMIs reports.
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BMI Food & Drink Forecasting And Sourcing

How We Generate Our Industry Forecasts
BMIs industry forecasts are generated using the best-practice techniques of time-series modelling and causal/econometric modelling. The precise form of model we use varies from industry to industry, in each case being determined, as per standard practice, by the prevailing features of the industry data being examined. BMI mainly uses OLS estimators and in order to avoid relying on subjective views and encourage the use of objective views, BMI uses a general-to-specific method. BMI mainly uses a linear model, but simple non-linear models, such as the log-linear model, are used when necessary. During periods of industry shock, for example a deep industry recession, dummy variables are used to determine the level of impact.
Effective forecasting depends on appropriately-selected regression models. BMI selects the best model according to various different criteria and tests, including, but not exclusive to: R2 tests explanatory power; Adjusted R2 takes degree of freedom into account;
Testing the directional movement and magnitude of coefficients;
Hypothesis testing to ensure coefficients are significant (normally t-test and/or P-value);
All results are assessed to alleviate issues related to auto-correlation and multi-co-linearity.
BMI uses the selected best model to perform forecasting.
It must be remembered that human intervention plays a necessary and desirable role in all of BMIs industry forecasting. Experience, expertise and knowledge of industry data and trends ensures that analysts spot structural breaks, anomalous data, turning points and seasonal features where a purely mechanical forecasting process would not.
Within the Food & Drink industry, this intervention might include, but is not exclusive to: significant company expansion plans; new product development that might influence pricing levels; dramatic changes in local production levels; product taxation; the regulatory environment and specific areas of legislation; changes in lifestyles and general societal trends; the formation of bilateral and multilateral trading agreements and negotiations; political factors influencing trade; and the development of the industry in neighbouring markets that are potential competitors for foreign direct investment.
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Example of Food Consumption Model: (Food Consumption)t = 0 + 1*(GDP)t + 2*(Inflation)t + 3*(Lending Rate)t + 4* (Foreign Exchange Rate)t + 5*(Government Expenditure)t + 6*(Food Consumption)t-1 + t
Sourcing
BMI uses the following sources in the compilation of data, developments and analysis for its range of Food & Drink reports: national statistics offices; local industry governing-bodies and associations; local trade associations; central banks; government departments, particularly trade, agricultural and commerce ministries; officially-released information and financial results from local and multinational companies; cross-referenced information from local and international news agencies and trade press outlets; figures from global organisations, such as the World Trade Organisation (WTO), the World Health Organisation (WHO), the United Nations Food and Agricultural Organisation (FAO) and the Organisation for Economic Cooperation and Development (OECD).
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FOOD & DRINK REPORT

BAHRAIN FOOD & DRINK REPORT Q1 2011

Part of BMIs Industry Report & Forecasts Series

Bahrain Food & Drink Report Q1 2011

Business Monitor International Ltd

Bahrain Food & Drink Report Q1 2011

Business Environment .................................................................................................................................. 10

Industry Forecast Scenario ........................................................................................................................... 20

Business Monitor International Ltd

Bahrain Food & Drink Report Q1 2011

Mass Grocery Retail ....................................................................................................................................... 36

Competitive Landscape ................................................................................................................................. 39

Company Monitor ........................................................................................................................................... 41

BMI Methodology ........................................................................................................................................... 49

Business Monitor International Ltd

Bahrain Food & Drink Report Q1 2011

BMI Industry View

Business Monitor International Ltd

Bahrain Food & Drink Report Q1 2011

Business Monitor International Ltd

Bahrain Food & Drink Report Q1 2011

Business Monitor International Ltd

Bahrain Food & Drink Report Q1 2011

Bahrain Drinks Industry SWOT

Business Monitor International Ltd

Bahrain Food & Drink Report Q1 2011

Bahrain Mass Grocery Retail SWOT

Business Monitor International Ltd

Bahrain Food & Drink Report Q1 2011

Business Monitor International Ltd

Bahrain Food & Drink Report Q1 2011

BMI Food & Drink Core Views

Business Monitor International Ltd

Bahrain Food & Drink Report Q1 2011

Middle East Food & Drink Business Environment Ratings

Business Monitor International Ltd

Bahrain Food & Drink Report Q1 2011

Business Monitor International Ltd

Bahrain Food & Drink Report Q1 2011

Regional Food & Drink Business Environment Ratings

Business Monitor International Ltd

Bahrain Food & Drink Report Q1 2011

Bahrains Food & Drink Business Environment Rating

Business Monitor International Ltd

Bahrain Food & Drink Report Q1 2011

Business Monitor International Ltd

Bahrain Food & Drink Report Q1 2011

Call This A Recovery? Bahrain - Aluminium Output (metric tonnes)

with real estate managing the same rate.

Business Monitor International Ltd

Bahrain Food & Drink Report Q1 2011

Business Monitor International Ltd

Bahrain Food & Drink Report Q1 2011

Table: Bahrain Economic Activity

2005 Nominal GDP, BHDbn Nominal GDP, US$bn

2006 6.0 15.8 6.7 21,320 0.7

2007 7.0 18.5 8.4 24,320 0.8

2008 8.2 21.9 6.3 28,240 0.8

2009e 7.7 20.6 3.1 26,026 0.8

2010f 11.1 29.6 1.3 36,164 0.8

2011f 12.0 31.9 1.9 37,921 0.8

2012f 13.5 36.0 2.5 41,119 0.8

2013f 14.1 37.5 2.6 42,258 0.8

Bahrain Food & Drink Report 2011

Bahrain Food & Drink Report 2011