Kuwait Food and Drink Report Q2 2008

Food price inflation continues to be a key concern in Kuwait, as discussed in BMI's recently published Kuwait Food & Drink Report for Q208. The country's main retailer, the government-funded retail group Union of Co-operative Societies (UCS), has warned that Kuwait consumers will have to deal with major increases in food prices in 2008. The UCS, which operates across a variety of store formats, dominating the country's mass grocery retail sector, has said that the price of some food items will increase by 100% in the face of rising food price inflation. The chairman of the UCS has also said that rising prices will force importers to turn to cheaper, low-quality imports from Asia rather than more costly products imported from the Euro zone. Prices rose sharply in 2007, along with general inflation, which reached 4.6% in July. With food prices increasing so drastically, there will be mounting pressure on the government to do something to ease the impact on consumers Kuwait is known as an oasis of stability in the volatile Gulf region. Thanks to the high standard of living enjoyed by Kuwaiti citizens, as well as the strict control exerted over the large expatriate workforce, the risk of widespread social discontent has remained low. However, political stability in the Gulf hinges on this high standard of living that generous government spending provides. Evidence from neighbouring Gulf states suggests that there is widespread and growing dissatisfaction with inflation, with recent riots in Dubai being a prime example. Although our core scenario remains one of broad stability, both political and economic, for Kuwait, the risks to both categories are rising thanks, primarily, to inflation. On the political front, Kuwait is still relatively turbulent compared with the rest of the region, albeit not to an extent that should worry investors at present. Economically, inflation is the only blip on an otherwise very positive horizon: Kuwait looks set to record very strong real GDP growth this year and next, with only a mild cyclical slowdown anticipated further out in the forecast period.

Despite this current period of turbulence, many foreign countries are moving ahead with their investment plans for the country. In February UK-based Coffee Republic, an independent coffee and deli bar operator, announced that it reached a franchising agreement with Aquila Food Company to enter the Kuwait market. Aquila is a wholly owned subsidiary of Jassim Al-Sayegh Sons & Co. a Kuwait-based company, and has been established solely for the purpose of opening the Coffee Republic franchise in Kuwait. Under the terms of the agreement, Aquila will roll out a minimum of 14 units over the next five years. Western-style coffee shops have grown increasingly popular in Kuwait over the past decade, with a number of international majors having already established their presence, meaning that Coffee Republic will face considerable competition, along with the challenge of rising food and drink prices.