The Malaysian Reserve

Harnessing the business potential of halal food

Consumption of halal products should outpace gains for the overall global food industry over the next five to 10 years, as soaring demand moves beyond traditional categories such as meat.

Emerging categories such as baby food and snacks should see sales propel higher as changing social dynamics encourage more women to enter the workforce, according to a Bloomberg Intelligence report.

Population growth and an expanding middle class should underpin long-term growth in Indonesia, Bangladesh and Pakistan.

To capitalise on rising imported-food demand in Gulf Cooperation Council countries, more foodmakers based in Australia and Brazil will likely look to obtain halal certification, the report added.

It also noted that sales at Nestlé SA, Meiji Holdings Co Ltd and Mondelez International Inc should gain as they add more halal-certified products. Capitalising on population growth and a burgeoning middle class in Muslim majority countries will be critical to long-term earnings expansion as opportunities remain sparse in their home markets.

The report also looked at the impact of population growth, halal demand at Indonesia and Pakistan, as well as the growing demand for baby food in Saudi Arabia and Algeria.

Below are extracts from the report.

Halal Food

Halal food sales should benefit from Asian consumers trading up to more premium dairy, snacks and ready- meal offerings in the years ahead, particularly as the middle class in Muslim majority countries such as Indonesia and Malaysia skyrockets.

Spending on halal food should also be propelled higher by population growth during the next 10-20 years, fuelled by younger demographics and higher birth rates for Muslims compared to the overall world.

The median age of Muslims in 2015 was 24 years, versus a median age of 32 for non-Muslims. Asia is home to around one billion, or more than 60% of the world’s Muslim population. That number is three times larger than second-placed Middle East-North Africa. Sub-Saharan Africa ranks third at 15%, according to Pew Research Centre data.

Indonesia, India, Pakistan and Bangladesh will likely serve as the epi-centre of Asia’s halal-product demand during the next decade. These four nations make up about 70% of the region’s one billion Muslims, according to Pew Research Centre data. Their food sales should outpace global growth for the next several years as higher incomes and younger, expanding populations fuel gains.

Shoppers in more affluent nations such as Malaysia should also increasingly trade up to higher-margin, premium-priced offerings, particularly time-stretched consumers in urban areas.

Companies impacted: PT Indofood Sukses Makmur Tbk, PT Unilever Indonesia Tbk and PT Mayora Indah Tbk are among the largest packaged food companies in Indonesia. Britannia Industries Ltd, Ruchi Soya Industries Ltd and Nestlé are in the top 10 for India. Engro Foods Ltd, Mondelez and Westbury Group of Cos are market leaders in Pakistan.

Baby Food Boom in Saudi Arabia, Algeria

Indonesia’s booming US$190 billion (RM780.9 billion) halal food market could jump-start growth for European, North American and Japanese firms facing weak consumption in their home markets.

Baby food, dairy, snacks, soft drinks and other non-traditional categories will likely propel future expansion of the country’s halal market.

To capitalise on this trend, Calbee Inc, Morinaga & Co Ltd and Universal Robina Corp are developing halal-certified snacks to win over Asia’s growing number of affluent Muslim consumers.

Nestlé, Lotte Food Co Ltd, Otsuka Foods Co Ltd and other multinational firms will likely use Indonesia as a hub to make halal products for other Muslim-majority countries in the region, including Bangladesh, Malaysia and Pakistan. The need to obtain halal certification in each country could present a hurdle to growth.

Baby food sales in Saudi Arabia could soar 9% a year through 2022, as government initiatives aimed at encouraging more women to enter the workforce leads them to breastfeed less frequently.

A rising number of dual-income households will provide more families with the financial flexibility to trade up to higher-margin premium offerings such as organic and all-natural formula.

The sales bounce in Algeria should mimic Saudi Arabia’s as it undergoes similar social changes, underpinning demand in Algiers, Constantine and Oran. Population growth and higher wages will likely help to amplify growing demand for baby formula in these markets.

Nestlé, Ronesca, Danone, Abbott and Reckitt Benckiser Group plc are among the top 10 baby food companies in Saudi Arabia. Market share leaders in Algeria include Danone, Fasska, Lactalis and Nestlé.

Consumers in Pakistan and Indonesia will likely be more inclined to trade down to less-expensive regional brands and private label products during periods of high inflation than their peers in more affluent Muslim majority countries.

Shoppers’ budgets in these nations are extremely stretched, with food making up about 40% of household spending in Pakistan and a third in Indonesia, which limits their disposable income. Inflation in Pakistan could accelerate in 2018, according to economists’ forecasts.

Shoppers in Malaysia may be able to better cope with elevated inflation, with food spending accounting for only about 20% of household expenditures. Given their greater financial flexibility, Malaysian families will likely stick with products from Nestlé, Unilever, QAF Ltd and Yeo Hiap Seng Ltd , even during inflationary periods.

Halal Tourism

Halal-friendly tourism could surge to US$220 billion in 2020 from just US$155 billion in 2016, according to MasterCard-CrescentRating, with about 156 million Muslims projected to travel annually by 2020.

Middle-class travellers from Indonesia, Malaysia, Saudi Arabia, Turkey and the United Arab Emirates should help to fuel rapid expansion.

Hotels such as Fairmont in Singapore, Shangri-La in Manila and Park Hyatt in Tokyo operate halal kitchens that serve pork-and alcohol-free meals. Hotels are adding rooms with Qibla compasses and Qurans as prayer aids.

Travel sites such as crescentrating. com, halaltrip.com and islamictravels. com are also making it easier for consumers to book halal-friendly hotels, restaurants and tour packages.