Analysis of Saudi Arabias Restaurant Industry

Analysis of Saudi-Arabian Arabias Restaurant IndustryIntroductionIn this paper we impart discuss the eating place Industry in Saudi Arabia which is growing unfluctuatinger than anywhere else in the region it is growing at a pace that is exceeding its infrastructure wwith distinct range of prices and classes, starting form as low as $1.00 USD and going up to $75.00 USD if youre into fancy eaterys1.The eating place pains is very divers and large including cafes/bars, full-service eating places, fast food, space delivery and street stalls, all types of restaurants have a wide range of food specialization from ethnic, inter home(a), and local.There be also three chief(prenominal) types of investors in weighent owners, international franchise, and local restaurant drawing strings.A restaurant chain is a set of related restaurants, typically with the same name in umteen different locations either under sh bed corporate ownership e.g. Al-Baik and Herfy. Typically, the restaura nts inwardly a chain are built to a standard format and put up a standard menu.A franchise is a right granted to an individual or group to market a companys goods or services within a certain territory or location. Some examples of todays popular franchises in Saudi Arabia are McDonalds, Sub manner, and Dominos pizza pie.In order to analyze the attractiveness of the restaurant Industry in Saudi Arabia we will employ three different analytical tools, Porter five forces, assessment of the macro market environment k in a flash as (PESTLE Analysis), and SWOT abridgment. Based on our analysis we will offer an advice to any new firm considering take downing the restaurant pains in Saudi Arabia.PESTLE AnalysisThe effect of the Saudi politics on the restaurant painsSaudi Arabia is ruled by the family of Al Saud who since the establishment of their kingdom tell that it is ruled by the Islamic law. The Al Saud family also affirmed that they are committed to supporting the economic ma turation and be part of the developed nations. This design is very challenging to achieve because fundamentalist Muslims refuse the idea of globalization, this lay a moderate political risk on the regime. On the other hand, this political situation affects the restaurant industry positively because the restaurant industry re main(prenominal)s the major uncontested method of entertainment among Saudis. Particularly, by law, all restaurants are require to have single-males section separated from the family section to adhere to the tradition and religious requirements.Moreover, The Kingdom of Saudi Arabia is perceived as the leader of the Muslim world, because it is the home townspeople of Makah which Muslims from all over the world must visit at least once in their life time to complete the fifth pillar of their religion. This makes Saudi Arabia suffers from a tension in its international relationships mainly after the in timet of 911 because close to of the western sandwich count ries are holding the kingdom partially responsible for 9/11.This political situation is one(a) of the main strength of the restaurant industry in Saudi with no cinemas or night clubs, eating out becomes the main source of entertainment for some of the population. There is an appetite for new restaurants that exceeds any other region in the world2. The effect of the Saudi law and mandate on the restaurant industryThe recent ruler of the Saudi Arabia, king Abdullah, is respected internally and internationally for his efforts to fight terrorism and his large amount of humans spending on tidy up plans have helped the country to overcome3most of its economic obstacles.The kingdoms major step toward reform was the application for membership of the World mess Organization (WTO) and making consistent legal changes to meet with its requirements, but still there is mistrust from the Privet sectors toward the government, because of the unnecessary bureaucratic practices and inappropriate regulations that are seen as heavy for the competitive market. Some areas are over regulated while others are under regulated. It takes almost six months to register a company, and the company must present a proof that it has substantial sum of money to invest, not less than $10,000.However, the regulatory changes made in recent years appear to have been of most beneficiaries to those Saudi companies which are seeking to expand through alliances with foreign investors4. Nevertheless, the law requires foreign investors to have a Saudi partner and the Saudi partner, individual or company, will have the majority of control over the business.Over all, the legal process is very complex and financially risky whether you are opening a bitty business or a major enterprise. The government should amend these processes to encourage foreign investments.The effects of Saudi economic on the restaurant industryThe Kingdom is experiencing accelerated emersion due to recent oil price spikes. Th e positive effect has been a rise in per capita GDP from approximately $8100 (1999) to $9575, or 18%, by 2005. Combine this with the fact that the Kingdom has one of the worlds fastest growing populations (3.5% per year) and you are faced with an expanding market with good disposable income levels.AC Nielsen question reports that the Saudi economy is anticipate to grow 8.7% this year, mainly fuelled by the high oil prices as well as strong private sector growth5Saudi remains the largest market in the entire Gulf. Many view Dubai as the showcase but Saudi proves to be the sales room and change generator.Due to fact that Saudi Arabia is a third world country, it depends on imported goods and technology, the government commitments to the economic expansion creates job opportunities for professional trained foreigners and depend on them to fulfill the countrys ambitious development strategies. According to HSBC Bank Saudi Arabia is classified as the second in the wealth of profession al trained foreigners. Saudi Arabia is ranked twenty two among other countries in the tourism sector.Moreover, Saudi Arabia hosts over five million pilgrims yearly from all over the world approach shot for Hajj and Ummrah. Hajj is one of the five pillars of Islam which all Muslims must perform at least once in their life time. The restaurant industry is one of the major Beneficiaries from such advantage.Therefore, the government has been actively considering to expand what is believed to be billions of dollars worth of income in the tourism sector by attracting international tourists to the Kingdoms historic sites, in the mid-2008, a package of new relaxed visa rules were released allowing more groups from Europe to visit the Kingdom with a group tourist visa, which years before was unheard of. This policy has created a new segment for the Saudi restaurant industry.Also, the large number of foreigners, coming as workers or as tourist and pilgrims, with their ethnic fundamentgroun d are considered the back bone for the restaurant industry.The effect the social characteristics on the restaurant industryTradition and religion encourage Muslims to be hospitable and sociable. Inviting guests and friends to banquet in their home is the norm in Saudi Arabia.In Saudi Arabia Segregation between opposite gender exist in most sectors of public eservices, schools, universities, banks, this segregation unguaranteed job opportunities for large number of Saudi females. In the destruction few years it became easier to entertain guests and family to a restaurant for the busy working females or even have the restaurant food and staff to entertain them at home.Dining out became a habit among all social classes in the Kingdom with the omit of other entertainment venues due to religious issues. Therefore the trend of eating out is constantly growing among them.6This social characteristic will have a blooming and flourishing effect on the restaurant industry in Saudi Arabia whe re the main entertainment is going out restaurant.Perhaps the most sound out feature of the demography is its young population where more the 59% are under 24 years of age. And part of the Saudi government or reform is to develop its workforce to achieve this goal the government sends over one hundred thousand young students to peruse their higher education in extremely developed countries every year. These large numbers of young people live abroad for almost five to seven years comes back with food and restaurant likes that they adopted during their scholarship.7This opened the door widely for international franchise in Saudi Arabia Some of the franchises that are currently present in Saudi Arabia, McDonalds, Hardees, Burger King, Popeye, Chilies, TGI, Fuddruckers, Pizza Hut among many others and are very popular among this young population along with foreign workforce, tourist, and pilgrims.The effect of technology and the environment of the restaurant industryThe last of the tw o macro marketing environment forces are the technological and the environmentalIn Saudi Arabia Technology in the restaurant industry is not restrain to basic kitchen appliances and tools. However, one may not expect some complex equipments are used in the restaurant industry. Many restaurants are leading the way in regards to credit card processing and point-of-sale technologies, introducing new ways to serve their customers and increase the overall convenience of the dining experience. Of course, restaurants chains and franchise are the main benefactors of this development in communication8In Saudi Arabia there is no significant awareness from the government or most of the population to the environmental issues. All the restaurants that uses recycle paper or green energy are mostly international franchise applying their Owen corporate policy as part of their statePorters 5 Forces Analysis Threat of New Entrants. The restaurant industry is the easiest to enter basically anyone wh o can cook, with the minimize capital amount can enter the business. Barriers to enter this industry are mainly in the bureaucratic regulation that might take time but this is not considered a serious barrier.Power of Suppliers. opus there are plenty of food supplies, but they depend on imported material because Saudi Arabia is not an agricultural country. The import of food and foodstuffs are estimated to exceed $7 billion annually and the Kingdom remains the leading market in the region. Except for date and milk all other unprocessed materials are imported. There are big numbers of suppliers and prices are controlled by the government. Only international food chains franchise might be compel to buy its raw material from a certain supplier.Power of Buyers. The balance of power is shifting toward buyers. With so many restaurants the competition is very high. Buyers are everlastingly looking for the best quality and price. Going to restaurant is not an essential people are always ready to try something new. With Variety of products to choose from, local, ethnic, and western couple with intense competition lead buyers seeks lower prices and better services. Disposable income levels and an expanding shopping mall culture are assisting this growthAvailability of Substitutes. Substitutes for the restaurant industry in general include alternative form of entertainment like cinemas or night club. The available entertainment substitute is the shopping malls, where people will go shopping, or window shopping. Most fast food chains are showing positive growth and are ever present in all the new shopping mallsCompetitive Rivalry. Even though there are no figures revealing the size of this lucrative market, a high industry growth rate is intensifying the competitive rivalry the presence of so many available substitutes are a particularly challenging situation for some firmsSWOT Strengths Weaknesses Opportunities ThreatsThe Saudi restaurant industry is weak in econom ies of casing and labor productivity. Its strength is the ability to attract huge capital and labor with it nudeness to the world market. The restaurant industry is showing significant growth, on the other hand, this open market has intensified an open competition. The diversified culture of Saudi Arabia is the mark to exploit Economies of scope. Also, exploiting the economies of scale is also an opportunity.The consumer preference for differentiated and healthy products is also another opportunity to exploit in enhancing the economies of scope. Although, the anticipated low population growth in the future could be a major threat as it would decrease the quantity of demand coupled with the increase in the retail chain the significant increase in small households and working women will create new opportunities for the restaurant industry.Conclusion and recommendationIn this assignment we carried out an analysis of the restaurant industry competitiveness in Saudi Arabia by employin g three different analytical tools, PESTLE Analysis, Porter Five Forces, and SWOT Analysis. Based on our analysis we concluded with the following findings and advices to any new firm considering entering the restaurant industry in Saudi Arabia.The strength of the restaurant industry lies on its ability to attract huge capital and labor with it openness to the world market. The restaurant industry is showing significant growth faster than anywhere in the world.Many factors have contributed to this fast growth as such as the political, economical, and low labor market and other socio-cultural factors.The economical and political outlook for restaurant industry in Saudi Arabia is very encouraging, government shows commitment and support to economic growth which is reflected in its double-digit increase in government expenditures on many aspects that are related to the restaurant business.Furthermore, currently, the government economic plan emphasizes the strengthening the growing priva te sector business opportunities with focus on increasing the national and foreign investments as public spending has increased by 15.8% the government has increased the budget for new projects by 36%.One of the most promise aspects for the restaurant industry is the social changes in Saudi Arabia. For example, the role of females in the social and economic life is dramatically changing as women are now allowed to enter the work force and have huge impact on the purchasing power and certainly a change in womens lifestyle that is gold to the restaurant industry.On the other hand, the legal process in Saudi is very complex and financially risky whether you are opening a small business or a major enterprise. The government should amend these processes to encourage further foreign investments. Also, the Saudi restaurant industry is weak in economies of scale and labor productivity.Based on the above findings, we strongly recommend and encourage any firm to enter the Saudi market keepi ng in sagaciousness the following pointsThe restaurant industry is highly competitive in terms of price, service, location, and food quality and is affected by changes in consumer trends, economic conditions, demographics, traffic patterns, and concerns round the nutritional content of foods.shifting dietary preferences among consumers in favor of alternative foods can open the doors for niche marketThe growth of the restaurant industry is expected to generally stay the same over the next few years and it can be considered a blue ocean.The restaurant industry is affected greatly by globalization and it will continue to be.