Boston, MA -- (SBWIRE) -- 03/31/2014 -- We expect the Saudi Arabian economy to perform well throughout the coming quarters, on the back of minor gains in oil output and the continuing strength of non-hydrocarbon private sector economic activity. Leading indicators of economic activity point to continued buoyancy in private consumption, and we forecast growth of 5.0% in 2014, from an estimated 6.0% in 2013. We maintain our medium-term bullish outlook on the retail and trade sector, with sales benefiting from rising disposable incomes, favourable demographics, and increasing urbanisation.

Headline Industry Data

- 2014 food consumption growth in local currency = +8.0%; compound annual growth rate (CAGR) 2013 to 2018 = +7.6%
- 2014 confectionery value sales growth in local currency = +6.9%; CAGR to 2018 = +6.5%
- 2014 mass grocery retail sales growth in local currency = +10.3%; CAGR to 2017 = +9.6%

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Key Company Trends

Almarai Acquires Mead Johnson's Stake In JV: Saudi food company Almarai has finalised the acquisition of a stake held by US paediatric nutrition company Mead Johnson in US-Saudi Arabia joint venture International Pediatric Nutrition. Almarai is now the sole shareholder in the JV by paying US $4mn to buy out Mead Johnson. The move follows the two companies signing an agreement forming a 50:50 joint venture in 2010 to sell infant nutrition products. The companies had decided to review the venture after three years, which led to the current restructuring of the JV.

Room For Growth Across Soft Drinks: As the Gulf region's largest economy by some distance, it is no surprise that Saudi Arabia's soft drinks industry is also the Gulf's largest in volume terms. By volume, we believe that it accounts for about two-thirds of the region's soft drinks sector. In per capita terms, consumption of soft drinks, which by our definition includes bottled water, carbonates, juices and functional drinks (energy drinks), increased from 217 litres in 2004 to nearly 253 litres in 2012. In value terms, the size of the industry grew from US$5.5bn to US$8.5bn over the period, with bottled water and carbonates between them making up about 80% of sales.

Retail Sector Dealing With Expat Void: Saudi retailers are having to hire local staff in order to fill the void created by the end of the amnesty the kingdom was granting to illegal workers, which saw more than 1mn workers leave the country. Locals make up only about 16% of the 1.5m people who work in the Saudi retail sector, one of the kingdom's three largest non-oil industries, according to figures published by Arab News. The retail sector in Saudi Arabia is also the second largest in the region after the UAE.

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