On the Street: New Nestle Plant

April 1/BMI -- Underlining its commitment to the Middle East region (specifically the Gulf), Nestlé has launched a new plant in Dubai with an annual production capacity of 100,000 tons. Expected to largely produce powdered milk, the plant will also manufacture confectionery products and bottled water and ties in well with BMI's view that, notwithstanding the relatively modest size of the Gulf market, strong scope for branded-goods growth remains.

Although taken individually, the market size of most of the Gulf region (with the notable exception of Saudi Arabia) dictates that long-term volume growth opportunities are likely to be fairly modest, a combined non-Saudi Gulf Co-operation Council (GCC) population of about 14 million suggests a fairly promising market size. Outside of the Gulf and into the wider Middle East, frontier markets likely led by Egypt have become increasingly important to Nestlé's regional business, as strong anticipated disposable income momentum drives up demand for branded products.

While a high income market with a target audience of about 14 million would ordinarily provide modest upside, the atypical rate at which the Gulf region transformed into one of the world's most premiumized consumer regions means that more room for growth exists than would normally be the case. Demand for branded food and drink products is expected to continue strengthening promisingly over the coming years, as the industry continues to catch up to the sharp evolvement in tastes and preferences over the past decade.

Despite BMI's short-term view that premiumization will be on put on hold continuing to hold in the Gulf, particularly in Dubai, demand for high-priced goods should make a gradual return over the second half of 2010 (calendar) before a more marked pickup in 2011. Looking at the specific products Nestlé's new plant will manufacture, there is a particularly strong upside in powdered milk.

Although the Gulf region's dairy industry is competitive with a number of established players present and able to pursue expansion, high existing milk consumption across the Gulf and wider Middle East region and strong demand for Western brands bodes well for Nestlé. On the bottled water side, regional per capita consumption rates are among the highest in the world with the UAE and Qatar (both more than 100 liter per annum) standing out. While competition is rife, multinationals fare well at the top end of the market.

With its Middle East unit registering annual sales revenue in excess of $1.4 billion in 2009 from 17 factories, Nestlé is expanding organically from a position of significant strength having established itself as comfortably one of the region's most well-invested multinational firms.  

From the April 12, 2010, Prepared Foods E-dition