09/07/2018 08:11 AST

Consumer goods companies in Saudi Arabia have been hit by the introduction of value added tax, higher energy costs and a fragile labor market. At the same time, changing patterns of consumption and inflationary pressures are rapidly reshaping product ranges.

“The GCC market environment remained challenging this quarter with overall negative consumer trends continuing from 2017,” Almarai said in a statement on Sunday.

“Macroeconomic challenges include structural economic changes driving higher costs in energy and transportation, changes in the retail landscape leading to the closure of more than 3,000 shops, the introduction of VAT, the introduction of the expatriate levy, lower export sales combined with a general slowdown in the GCC markets.”

The slowdown has “particularly impacted” the company’s discretionary categories, the company said. Still, Almarai is investing heavily in expanding production with an SR14.5 billion capital program running from last year through 2021, according to the company website.

The plan envisages creating 4,500 jobs for Saudi nationals — some 20 percent of them for women. Regional food groups such as Almarai are boosting production capacity to keep pace with the Middle East’s burgeoning population.

The GCC states have a combined population of about 52 million while the broader Middle East and North Africa (MENA) represents a market of 437 million consumers.

Food accounts for about 21 percent of consumer expenditure in Saudi Arabia valued at some SR185 billion. Packaged food represents about 53 percent of that, according to Almarai.

The company is adapting its business model to cater to changing social trends in Saudi Arabia and elsewhere in the region. Research released last year from Nielsen Retail highlighted a number of significant changes to shopper behavior in Saudi Arabia, such as consumers cutting down on essentials and making purchases when products were on promotion.

Research also showed that households were cooking less frequently with a move towards both healthier eating and food on the go. Almarai said the ready-to-eat trend is being driven by increased participation of women in the workplace.

It is responding to the trends by adding more pre-packaged meal options to its food range.

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