The executive board of Almarai Company, one of Saudi Arabia’s largest food and beverages groups, has approved an investment of SR405m ($108m) to expand its bakery division.
The investment plan will be financed by the publicly-listed company’s internal cashflows and is expected to be completed over two years.
Almarai wants to expand the capacity of its fresh-bakery business, as well as enter the frozen bakery segment in Saudi Arabia and other markets.
The company’s current bakery portfolio includes various breads, cupcakes, muffins, and pastries under the L’usine and 7Days brand names.
The increased capacity has also been billed as a contribution to the kingdom’s food security objectives, as set out in its Vision 2030 plan. Despite being the largest sovereign state in western Asia and the largest in the Gulf region, Saudi Arabia has long imported the lion’s share of its food (up to 80% of its supply, according to the United States Department of Agriculture).
Capitalising on the growing global and Saudi bakery segment
The latest investment reflects growth in the global and local Saudi bakery segment. Baked goods account for approximately 13% of Almarai’s revenue and constitute the company’s second-fastest-growing segment, with revenue growth of 9% and profit margin growth of 12% in the second quarter of this year. Announcing those results, Almarai said “continued growth of both bread and single-serve product sales resulted in strong profit growth.”
In a SWOT analysis of Almarai, research and intelligence group GlobalData, Just Food's parent, says the company stands to gain from “the positive outlook for global bakery and cereals market”, which has been driven by factors such as “preferences for organic and naturally baked goods”, “demand for sugar-free bakery products”, “increasing urbanisation” and “hectic lifestyles”.
GlobalData also notes Almarai has been focussing on enhancing its factory capacity for a while. In November 2022, the company announced an investment of SR4.5bn to expand its poultry production in the Hali region, and in December 2022, it ploughed SR1.2bn into developing a poultry hatchery production facility in the Al-Jouf region.
Almarai reported revenues of SR18.7bn for the fiscal year ended December 2022, an increase of 18.1% over 2021. In 2022, the company’s operating margin was 12.2%, compared to an operating margin of 12.7% in the previous year. For the second quarter ended June 2023, the company reported revenues of SR4.8bn, a decrease of 5.4% over the previous quarter.
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