Frost & Sullivan’s Yearly Sectoral Analysis for Food & Beverage Segment

YEARLY SECTORAL ANALYSISFood & Beverage (F&B)

Authored by: Chaitanya GRK, Visionary Science Practice (Chemicals, Materials & Foods), Frost & Sullivan

Food and Beverage Industry Influenced by Changing Consumer Segmentation and Mega Trends in the GCC – Emerging Opportunities for Companies

A recent study analyses how consumer trends are shaping up to understand emerging opportunities

One of the key challenges for companies in the F&B industry is to understand consumer expectations and address their needs. Continuous tracking of consumer trends is imperative to validate and realign the companies’ strategy and vision. However, there are many factors, which continuously influence consumer behaviour and further define trends.

1. Factors Defining Consumer Trends

Backing on its rich and numerous engagements and advisories for many F&B clients in the region, Frost & Sullivan identified two set of factors influencing the consumer and further shaping up the F&B industry. Firstly, redefined consumer segments and secondly, influence of Mega Trends (Urbanisation, Disposable Income, ‘She’conomy and Global Exposure on these

1.1 Redefined Consumer Segments is an Early Indication of Immense Potential

There has been a significant change in consumer behaviour in the past 5 years with increasing importance of a specific consumer segment. Their expectations, purchase behaviour, and influence on the rest of the consumers are becoming increasingly crucial for companies’ success.

Consumer split by age group in the GCC is changing; the share of ageing population is increasing. In addition to this, influence of younger population on the purchase behaviour of the ageing population is growing. The overall scenario is changing consumer dynamics as the younger generation are becoming the representation of majority of the consumers. By statistics, for example, Generation X, typically born before the 80s (> 35 years) was 30% in 2005, increased to 38% in 2015 and is expected to reach 42% by 2020. Share of generation Y, typically born in the 80s and 90s and generation Z, born after 2000 (overall <35 years age) was 70% in year 2005. In a span of 10 years, it dropped to 61% in 2015 and is expected to drop further to 58% by 2020.

Generation Y and Z are unique from Generation X in life styles and characteristics, leading to a new set of consumer expectations. In addition to this, Generation X purchases are highly influenced by Generation Y and Z. With the largest share of population, growing influence of social media and technology driven lifestyles of Generation Y and Z, it is imperative that companies acknowledge this development and prepare for the next wave of opportunities.

1.2 Influence of Mega Trends

Mega Trends in the GCC will contribute to defining consumer needs and characteristics

Currently, the F&B industry is influenced by four key Mega Trends, namely Urbanisation, Disposable Income, Sheconomy, and Global Exposure

Urbanisation in the GCC Will Make the Consumer Look for Products that Offer Convenience and Optimum Nutrition

In the GCC, 85% of the population lived in urban areas in 2015, a number expected to reach 87% by 2020. Urbanisation in the GCC is more or less at par with developed countries like the US and the UK. Urbanisation is an outcome of the increasing economic migration to clusters. Hectic lifestyles, economic independence, living in clusters will lead to preference for convenient options for food. It can be in the range of ready-to-cook, ready-to-eat or any category, which minimises the effort and saves time. Growing lifestyle, health challenges and increasing importance of health will drive the convenience factor towards optimum nutrition. Time has become the most important factor for the consumer. With increasingly hectic lifestyles, preference to purchase at modern retail outlets will remain high, as it is a single platform to get a wide range of products of choice. However, the growing importance of mega cities will position the growth of small-sized modern retail stores, which are easier to access than large-sized hypermarkets.

Disposable  Income Will  Drive  the  Consumer  to  Look  for  Pleasure  in  Purchasing and Experiencing Products with Benefits

GDP (PPP) per capita in the GCC was around USD 60,000 in 2015, which is expected to reach USD 69,000 by 2020, this is equivalent to the US and more than the UK and Japan. High GDP per capita is a direct indication of disposable incomes. Broadly, this is expected to bring a new dimension into consumer behaviour, the ‘Hedonic Consumer’. This consumer is going to look for pleasure in purchasing and experiencing the products with a keen preference for taste, functional benefits, consumption experience, and packaging.

Increasing Participation of Women at Work Expected to Create Demand for Convenience and Premium Products

Increasing participation of women at work is an emerging trend in the region. This is one of the key factors with varied degrees of implication on consumer trends: it will create new opportunities and increase product penetration. Women account for 39% of the GCC’s population but only 17% of the work force. Tertiary school enrolment for females is 40%, which is higher than the male enrolment rate of 23%, which means, more female graduates and highly untapped female talent. Increasing women’s participation at work is expected to favour the market at two levels – active lifestyles leading to less time to cook and economic freedom leading to higher spending. Both factors together will drive the demand for convenience and premium products.

Multi-cultural Environment will Expose the Consumer to Health and Wellness Products

The GCC accommodates over 100 nationalities creating a multi-cultural environment and offers scope to adopt new food habits / cuisines. The expat community accounts for 49% of the total GCC population, which is significant in size. Additionally, tourism is one of the key industries in the GCC. The UAE and the KSA attracted nearly 27 Mn. inbound tourists in 2014, which is expected to reach 52 Mn. by 2020. Increasing number of tourists with varied cultural and economic backgrounds will also introduce new food habits. However, prevalence of lifestyle diseases in the region attracted the local consumer to adopt more healthy food habits. Demand for organic, gluten free, freedom foods like fat free, and sugar free products along with preference for functional products like probiotics and functional beverages is slowly increasing. The penetration of such functional foods is expected to increase in the next few years.

2. Derived Consumer Trends

New era consumer is curious about product experience and product benefits. The new generation consumer with non-traditional behaviour brought up in a socially exposed environment, clubbed with Mega Trends is defining the new consumer era. The new generation consumer is actively looking at products with two dimensions – Experience and Benefits.

Exhibit 1: Categorising Consumer Trends

                                                                                                                                                                                                                                                                                                                                                                   Source: Frost & Sullivan

3. Derived Opportunities

Opportunities Associated With Consumer Trends

Each of these consumer trends have a specific impact and further create an opportunity for companies to consider.

Innovations so far in the F&B industry in the GCC have been limited to areas of Good-for- you, product experience, functional products and packaging. However, going forward, the importance of functional products is expected to improve and become one of the core preference factors of the consumer. Especially, consumers are expected to give high importance to product benefits and accordingly purchase decisions are likely to factor that in.

Breakfast and Snacks Segments Offer Most Attractive Opportunities

Correlation of current consumer trends with future challenges increases the visibility of opportunities. So far, breakfast is an intensely fought battleground in the F&B industry globally and regionally. However, with the increasing habit of snacking among consumers, there is a bigger opportunity in this segment. The boundaries and scope are vast for companies to innovate and launch an abundant number of products. One of the important aspects for companies in the GCC is the growing concern of diabetes and obesity. Around 14% of the population in the GCC is diabetic, a number expected to reach 25% by 2035. Products that can address this concern will have an additional scope to win the   consumer.

With an in-depth understanding research on the global and regional F&B industry, Frost & Sullivan has identified some areas, which look attractive for innovations.

Exhibit 2: Defined Areas to Focus on Innovation in the GCC


Source: Frost & Sullivan

In the breakfast segment, incorporating ancient grains like Quinoa, Buckwheat, Chia, Millet, Spelt and Khorasan gives an edge and caters to one of the important concerns of fiber content and also nutritionally richer than simple traditional grains. In addition to this, freedom food like fat free and gluten free are gaining a lot of importance among health conscious consumers. Appeal and texture of the food products is getting a higher preference and it gives a new consumption experience. With highly active lifestyles, breakfast is one of the most neglected meals by many consumers. Breakfast products that offer ease of consumption on-the-go will benefit the consumer. Single servings of instant breakfast options have been highly appreciated by the consumers in the GCC – just another indication of consumer needs.

The snacks segment has scope for food as well as beverages. There has been a generic shift from carbohydrate-rich food to protein-rich food. Products that are protein-based or have   an appreciable balance between carbohydrates and protein will attract the consumer. Single serve snack products addressing the health-conscious consumer are an area which needs to be given greater attention. Beverages that offer functional benefits are already active in the market; however, products are mostly limited to energy drinks and vitamin-rich drinks. Functional beverages have much more potential beyond this and will attract more consumer attention going forward.

Specific Opportunities to Consider in the Breakfast and Snacks Category

Frost & Sullivan has identified specific opportunities for companies in the breakfast and snacks segment based on consumer trends and a detailed mapping of the gaps in the market. The combination of quick-serving, convenience, protein-rich and product benefits are the key consumer expectations from products in the breakfast category. This category of products is evolving and consumer needs are relatively unaddressed by current offerings. Considering active lifestyles and the market gap, the category has immense potential. Companies in the business of meat processing, bakery, breakfast cereals and beverages are better placed to address this specific need. Even though this category of products can target a complete consumer segment set; office goers who appreciate the offerings require special attention. Developing products specific to kids is another untapped area.

Products with benefits are the key consumer expectation in the snacks category. This can be in the area of functional beverages both dairy and non-dairy based, energy bars, protein-based snacks, nutraceutical products, which can be served as snacks. There is a significant potential to innovate offerings in this category and this has been more actively pursued by companies recently. The target consumer segments for this category of products are vast creating a larger pool of opportunity.

Conclusion

While the needs of the consumer are clearly identified, the channel to communicate is highly critical. Clear communication on product benefits has a phenomenal contribution to success. Making the message simple and positioning the consumption occasion makes the consumer associate with the product. Apart from product labelling, social media is the essential platform to communicate and interact with the consumer. Engaging Generation Y and Z consumers, particularly, in product awareness and product promotion are essential components to sustain innovations. With the change in consumer purchase behaviour, the retail industry is shaping up with a new set of concept stores. Strategic understanding of trends in modern retail will help to improve product availability for target consumer segments.

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