Saudi Arabia’s expanding food sector faces high costs

• Food sector growing with population
• Demand for full-service restaurants
• Overheads prove challenging

As the population grows and the economy swells, the food and beverage service industry in Saudi Arabia is expanding.

Half Million, a coffee shop chain that started in the capital Riyadh in 2018, now operates 59 stores across the kingdom. Its 60th recently opened on London’s Oxford Street.

Barn’s, a Jeddah-based coffee chain that already had 130 stores when Half Million started, now has more than 550 stores worldwide and ambitions to double that by 2030.

“It’s a growing market, it’s a new market,” says Tina Blackmon, a specialist in food and beverage at consultancy Keane. “There’s a lot of opportunities and gaps that can be leveraged.” 

Saudi Arabia’s population of almost 37 million is growing by more than 1.2 million per year, fuelled by relatively high birth rates and an expanding expatriate workforce.

Saudi Arabia’s population

The number of international visitors, too, including pilgrims to Islam’s holiest sites in Mecca and Medina, grew more than 9 percent last year to 30 million, as Saudi Arabia eases visa restrictions, encourages tourism from abroad and creates more attractions.

These developments are also encouraging Saudis to stay at home for holidays rather than spend their money abroad. Restaurant spaces are no longer divided by gender. 

In all, this could add another $5 billion to the food and beverage service industry in Saudi Arabia by 2030.

The biggest demand and opportunity is for full-service restaurants, “sit-down, menus-on-the-table restaurants”, according to Blackmon. 

These are projected to grow by about 8 percent annually over the coming years, she said.

The majority of food and beverage outlets in the kingdom are Saudi owned and Saudi branded, but skewed towards the lower and higher ends of the market.

Most of the expansion and opportunity then is likely to be in the mid-market, which for now is dominated by large international chains.

But there are challenges.

“There are guys like us, who are out looking to invest and try to find these people, try to find these brands, that are locally based, locally inspired,” says Mateo Ramos, CEO at Foodvest Holding. “But matching the capital with the creator; the methodology for that isn’t really present at this time.” 

In addition, Saudi Arabia’s relatively conservative banks appear reluctant to lend to an industry with notoriously high risk and low margins.

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“The data is saying that this is a very highly price-sensitive market,” says Ramos.

Richard Seidel, a development chef and partner in several high-end restaurants in Saudi Arabia – including his eponymous Ricci San in Jeddah – said there are opportunities for local brands but the challenges are significant.

“If you want to open a very nice restaurant here now, it costs you a fortune,” he says. 

Most equipment and ingredients need to be imported, which may cost even more in the coming months as the US dollar pegged Saudi riyal declines in value against most major currencies, including the euro and the pound.

In addition, Seidel has to adhere to a government policy of Saudisation, which sets quotas on the number of Saudi citizens sectors must hire. “Saudis cost a lot,” he said.

For restaurant staff, 40 percent must be nationals and for cafes it is 50 percent. 

“All of this goes into the cost and then you actually need to go and make the money,” Seidel says.