A view to the east

Donut-King-OutletAustralian food and beverage giant Retail Food Group is leaving little doubt in the minds of investors that its long-term future will be truly globalised, after recently pulling the trigger on a “breakthrough” partnership that it says will catalyse growth in the Middle East.

The business has inked a deal on joint ventures with United Arab Emirates (UAE) based businesses Al Hathboor Group and HKO Group to realise what it sees as a “significant untapped” opportunity in the ME and North Africa.

RFG will look to expand its Brumby’s Bakery, Donut King and Crust brands into United Arab Emirates (UAE) and Saudi Arabia in conjunction with the new partnership, alongside a number of new brands it plans to create specifically for the region.

RFG’s head of international Mike Gilbert says that extensive market research had revealed an opportunity to bring high quality food and beverage offers to the Middle East.

“We’re presenting a quality of product that’s not really easily accessible in the Middle East. Those populations are going through a transformation where they’re [increasingly] seeking high quality products,” Gilbert explains.

RFG, which maintains a 50 per cent stake in the ventures, already operates coffee chain Gloria Jeans in the UAE, but the latest partnership will establish a coffee roasting and brand licensing hub that will enable RFG to build a training and compliance model in the region – enabling its focus on quality.

Managing director Andre Neil described the joint venture as a “breakthrough” in a note to shareholders, sharing his confidence in the capability of the local partners, both of which have withstanding experience operating food and beverage businesses.

There are no specific timelines yet for RFG’s Middle Eastern plans, but the company, which IRW revealed last month is embarking on a Europe wide expansion with Donut King, believes the UAE and Saudi Arabia are just the beginning.

“Starting there [UAE and SA] and being visible will bring attention to the rest of the region,” Gilbert says. “The population has a real appreciation for food and beverage … it’s the biggest form of entertainment in Saudi Arabia.”

Weighing up the opportunity

Retail Food Group isn’t the only Australian food and beverage brand which is looking to the Middle East for expansion. Local desert brand Gelatissimo has been expanding in the region for several years and despite taking things slow and steady, the business has notched up a sustainable operation with local franchise partners.

According to CEO Filipe Barbosa, the brand’s presence in Saudi Arabia and Kuwait has showcased the significant opportunity for food and beverage brands that exists in the region.

“You’ve got some very critical key indicators that suggest [food and beverage] businesses should do quite well in that part of the world,” Barbosa says, singling out favourable weather patterns, the economic status of consumers and a disposition towards food retail in key markets.

“The retail price that we can charge in order to be able to make a profit is in line with what the consumers will pay.”

While the Middle East remains one of the most politically unstable regions in the world, former Myer supply chain executive turned retail educator, Prakash Menon, who is based in the UAE, said key markets are well and truly open for business.

“Every brand known to mankind is in Dubai,” he says. “Because of the nature of the geography and the climate, there are massive malls that have just come up…where we might think of going to a restaurant, they’d [dine] within the mall.

“If you want to go skiing, you go inside the mall. If you want to go ice skating, it’s inside the mall. Everything is indoors, so it’s really an attractive proposition.”

Unlike many western states with ageing populations, the Middle East maintains a younger demographic with growth in disposable income driving spend opportunities.

More than 450 million people live in the 8.8 million square metres of land that makes up the Middle East. In comparison, 24 million people live across 7.6 million square kilometres in Australia.

Menon notes that the centrality of the region means that a five to seven hour plane ride exposes the region to billions of travellers, with Dubai serving as a key stopover point for international flights.

Distinct markets require distinct offers

There are, however, intricacies and cultural norms that need to be adhered to, some of which change drastically, depending on which part of the region one trades in.

RFG is currently embarking on an extensive product localisation program for its expansion into the region, having already signed off on a fully halal pizza range for Crust and the planned addition of local fruits into its baked products to be sold at Brumby’s.

Barbosa says he’s found that key flavours such as mango, chocolate and vanilla seem to be universally popular, but that distinct flavours such as Turkish delight and pomegranate have been released to appeal to the locale palate.

Flavours aside, Gelatissimo has considered everything from the staff they employ to the layout of stores to keep with local customs.

“The segregation of men and women in the Middle East is different to what it is in western culture…we have to consider that in terms of the store fit-out, as well as who works behind the counter. Typically we tend to employ a primarily male driven service staff,” Barbosa says.

Menon says the Middle East also has distinct trading periods that differ wildly to other parts of the world, noting that people are much less likely to eat out during Ramadan through mid-May to mid-June, including the weeks leading up to it.

“You have to be mindful of the two to three months that lead up to Ramadan when nothing really happens in that part of the world,” he says. “It’s going to be a lean period, no-one dines out during the day – it’s so bloody hot.”

“[Local retailers] make up during the evening after 7pm, but there’s things you can’t offer on the menu during that time.”

 

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