Explainer: Is it a good time for international FMCGs to expand in the GCC?

Krishan Kumar Chutani, CEO of Dabur International, says that despite growing competition and changing consumer tastes, the regional market offers strong potential for growth



For global FMCG brands, does the GCC offer strong growth potential at present?
The non-food retail sector in the GCC is estimated to be worth $154bn with a projected growth rate of 4.7 per cent CAGR by 2023, according to a report by Alpen Capital. This growth is expected to be driven by an increasing population, rise in GDP per capita, higher penetration of organised retail, and emergence of e-commerce across the GCC countries.

The retail sector is facing challenging times due to the current economic factors, changing preferences, adoption of e-commerce and overall lower consumer spending. This has forced retailers to adopt aggressive promotional campaigns, by offering discounts to drive revenues. Though these short term strategies increase top-line growth, it has led to marginal pressures.

However, given the GCC’s large market size and the potential for rising spending capability, we expect the FMCG sector in the region to benefit immensely. The rate of expansion is important when assessing future opportunities and identifying growth potential.

The GCC is looking to boost FDIs while also building local capabilities. Do international firms face stiff regional competition?
With Saudi Arabia and UAE opening up the retail and wholesale sector for 100 per cent FDI, competition has intensified especially among international brands in the FMCG categories. On the other hand, consumer discretionary spends have come down on lower optimism of future financial prospects. They are now demanding more convenience, more health oriented options and locally sourced products. Brands that are on promotion, low priced private label and in-store brands are being chosen over their preferred brands.

To adapt to these evolving changes, international brands are adding more localised products based on deeper consumer insights, sharper targeting in communication, and smarter selection of media channels.

Dabur has its second biggest manufacturing plant in Ras Al Khaimah. Why open a manufacturing hub in the UAE?
The underlying rationale for this is to have a localised supply chain to reduce time to market and products that cater to the needs of the local population. Our factory produces 160 million units of health and wellbeing products annually, serving more than 50 countries across MENA, Sub-Saharan Africa, the US, UK, Europe, and Far East Asia.
Other factors that support our manufacturing investment in UAE are strategic location, state-of-the-art infrastructure, social and political stability and favourable business regulations.

Do you anticipate more international companies will set up manufacturing facilities in the GCC?
Companies with a long-term vision and growth expectations in the FMCG sector would consider serious investments in the region. The recent initiative to offer 100 per cent FDI in the retail and wholesale sectors can be an added reason to consider setting up facilities in the region.

Within the FMCG market, which are the segments/verticals witnessing the strongest growth in the region?
The beauty and personal care category in the MENA region is estimated to be worth $16bn, according to a report by Millennial capital. Hair care, accounting for 24 per cent of the pie, is projected to grow by a CAGR of 2.5 per cent by 2021. Other categories such as skincare and colour cosmetics are also expected to grow by a CAGR of 3 per cent each by 2021.

Dabur has also ventured into healthcare and foods to accelerate future growth in the region.

What is the future of the regional FMCG market? Is there space for more players or is consolidation the need of the hour?
Despite challenging times, long-term fundamentals such as economic revival, expanding consumer base, improving consumer confidence, increase in tourist arrivals, mega international events such as Expo 2020 and a growing e-commerce market will drive moderate growth in the region’s FMCG sector.

Increasing consumer awareness regarding the benefits of natural and organic products is driving demand of wellness products. An emerging trend is that consumers are going back to their cultural roots and traditions seeking natural solutions for everyday wellbeing. They are actively looking for products which are organic, natural and herbal especially in healthcare, home and personal care and food categories.