When the economy slows, consumers can postpone buying a car, moving to a larger home, or replacing furniture. But dinner usually does not make it onto the list of deferred purchases. This simple fact is the economic foundation behind one of the food industry’s most important characteristics: demand for food is more stable than that for many other sectors. In Saudi Arabia, this stability is reinforced by population growth and industrial expansion, making food not merely a consumer good but an asset class that attracts the attention of both investors and financiers.

It is not difficult to understand why people like food. It is slightly harder to understand why investors might like it.

For a portfolio manager, bank, or financier, the appeal of a dairy plant or bakery company does not lie in the fact that its products are exciting. The most exciting investments are usually found in technology, real estate, or megaprojects.

Food’s advantage is quieter: people continue buying it when economic conditions deteriorate.

In market language, this characteristic is called defensive demand. “Defensive” does not mean that the sector cannot lose money or that its companies’ shares cannot fall. Rather, it means that underlying demand for its products tends to withstand economic volatility better than goods consumers can do without or postpone buying.

The report “The Food Industry in the Kingdom of Saudi Arabia” places this characteristic at the heart of the sector’s investment appeal. The market is valued at approximately SAR 200 billion and includes more than 1,900 factories, while direct employment exceeds 120,000 jobs. But the sector’s strength comes not only from its size; it also comes from the nature of the demand behind it.

A Car Can Wait... Milk Is Less Able to

Suppose a household suddenly comes under pressure on its income.

It may postpone buying a new car for another year. It may put off replacing its furniture. It might even delay buying a home, particularly if interest rates rise and installments become more expensive.

But food spending cannot fall in the same way.

A household can switch from a more expensive restaurant to a cheaper one, move from a premium brand to a budget alternative, or cut back on some food luxuries. But it will not reduce food consumption to zero.

This characteristic is linked to an economic concept called price elasticity of demand.

Simply put, elasticity measures how much the quantity people buy changes when price or income changes. The more essential the product, the less able consumers are to give it up.

That is why demand for many food products is described as relatively inelastic.

If income falls by 10%, for example, that does not mean a household will eat 10% less. For goods such as cars or furniture, however, purchases may decline sharply because consumers can wait.

This small gap is where the investment story begins.

What Matters to Investors Is Not Just Sales, but the Ability to Forecast Them

A real estate company can experience a huge boom when interest rates are low and liquidity is abundant, then face a sharp slowdown when financing costs rise.

Car sales can benefit from years of income growth, then decline when households become more cautious.

Food, by contrast, usually moves within a narrower range.

For investors, this has significant value.

The more predictable sales are, the easier it becomes to forecast cash flows. The more regular cash flows are, the easier it becomes to finance the company, price its debt, and plan its factories, inventory, and distributions.

That is why investors do not like food because it always delivers the highest growth.

Sometimes they like it precisely because it does not need the highest growth to be useful within a portfolio.

In investment, stability can be a financial product in its own right.

Saudi Arabia Adds Another Element: The Market Itself Is Growing

Defensive appeal exists in most food markets, but the Saudi market adds an important factor.

The consumer base itself continues to expand.

The report is based on a population of approximately 35.3 million in 2025, with projections that the number will approach 40 million by 2030. The population is also young: people under 30 account for approximately 63% of citizens, while nearly 92% of the population lives in cities.

This creates an unusual combination:

Essential demand that is difficult to dispense with + more consumers + continuous changes in what they consume.

Food companies in the Kingdom are therefore not betting solely on each person eating more. They are betting on additional consumers entering the market and spending shifting toward higher-value products, such as healthy foods, frozen products, ready-made meals, and specialty coffee.

Here, the sector shifts from being purely “defensive” to a combination of defense and growth.

Almarai Offers an Example of What Capital Is Looking For

Almarai’s financial figures help explain the idea.

According to the report, the company’s revenue exceeded SAR 21 billion in 2025, while net profit reached SAR 2.456 billion, an increase of approximately 6% from the previous year.

But profit alone is not the important figure.

Almarai sells a broad range of products that form part of recurring daily spending: dairy products, juices, baked goods, poultry, and more.

This means the company is not waiting for an exceptional purchase made by consumers once every few years. The relationship is closer to a series of small purchases repeated millions of times.

This nature is one of the secrets of consumer-goods companies.

The price of each package is relatively low, but purchase frequency is high.

When a strong brand is combined with a vast distribution network and recurring sales, the company has what investors and lenders alike value: cash flow that is more readily visible.

SADAFCO Explains Why Defense Does Not Require Scale Alone

SADAFCO offers a different model.

According to the report, in 2025 it recorded a gross profit margin of 34.6% and a net margin of approximately 15%, with net profit of SAR 477.4 million and cash balances exceeding SAR 670 million.

The model’s secret is not owning the largest portfolio in the market, but focusing on a limited number of categories and managing their economics efficiently, including long-life milk, which does not require an expensive cold chain in the same way as fresh milk.

This is an important case because a “defensive sector” does not mean that every company within it is necessarily good.

Stable demand gives companies a stronger foundation, but what turns that foundation into shareholder returns is margin, pricing, operational efficiency, brand strength, and capital management.

Bread is a necessity, but a poorly managed factory remains a poorly managed factory.

Why Does Food Matter to Banks Too?

The issue is not limited to stock buyers.

For a bank or sukuk investor, the central question is slightly different: Can the company generate enough cash to repay its debt on time?

Here, food’s defensive nature becomes attractive once again.

The report describes the working-capital cycle in food companies as short and recurring: the company buys raw materials, manufactures the product, sells it, and then repeats the cycle within a relatively short period.

“Working capital” is the money a company needs to finance its day-to-day operations before receiving the proceeds from its sales—for example, buying grains, oils, or packaging, paying operating wages, and then waiting to collect revenue.

The more regularly this cycle is repeated, the clearer the cash-flow picture is for the financier.

In addition, the food industry owns tangible assets that can be financed: factories, production lines, refrigerated warehouses, and transport fleets.

That is why the report views the sector as suitable for a wide range of Islamic financing instruments, from murabaha financing to purchase inputs, to ijara for assets and sukuk to fund major expansions. It also notes that Almarai was among the first Saudi non-bank companies to use sukuk issues worth billions of riyals.

The reason is not only religious or structural.

There is also a credit rationale: recurring demand + tangible assets + relatively stable cash flows.

But Food Is Not a Government Bond

Defensive appeal has its limits.

If people continue buying food, that does not mean companies’ profits are protected from shocks.

The price of wheat, sugar, oils, or animal feed may rise. Energy, transport, and refrigeration costs may increase. The company may not be able to pass the full increase on to consumers.

The result: sales remain, but the margin shrinks.

This is a fundamental distinction.

In 2025, for example, Almarai disclosed an impact estimated by the report at approximately SAR 200 million as a result of higher diesel prices. In a sector that relies on transporting daily products across a broad network, energy becomes a direct part of the profitability equation.

Saudi Arabia also imports significant quantities of grains, animal feed, oils, and other inputs, linking the cost of locally produced goods to global commodity markets.

Therefore, defensive demand protects revenue more than it guarantees profits.

This is an important point for any investor.

Consumers May Not Stop Eating, but They Can Change What They Eat

There is also another, more subtle risk.

The need for food is stable, but product loyalty is not.

During periods of financial pressure, consumers can switch from an expensive brand to a supermarket private label. When dietary culture changes, they may move from sugary drinks to healthier options, from a traditional restaurant to a new delivery app, or from one entire food category to another.

The report uses Herfy’s experience to illustrate part of this. The company has faced losses since 2022 as competition intensified and some demand shifted toward delivery, before signs of improvement emerged in 2026.

This reveals an important paradox:

Demand for food may be defensive, but demand for any particular food company is not.

The sector can remain strong while a company loses market share.

That is why a professional investor does not stop at asking: “Does this business sell an essential good?”

They also ask: “Does it sell that essential good in the way consumers want it now?”

Food Versus Real Estate and Cars: The Difference Is the Timing of Spending

Comparing food with real estate and cars helps simplify the issue.

Buying a home or car is usually a major decision that requires financing and is heavily influenced by interest rates, economic confidence, and expected income. If borrowing costs rise, consumers can simply postpone the decision.

Food purchases, by contrast, are smaller and more frequent.

A household does not need a financial meeting to decide to buy milk in the morning.

This nature gives the food sector relatively lower sensitivity to the economic cycle, but it does not eliminate it. During a recession, eating out may decline or households may switch to lower-priced products, while basic volumes remain more stable.

This also explains why “food” should not be treated as a single homogeneous sector.

Flour and milk are not the same as specialty coffee. A supermarket is not the same as a fine-dining restaurant. Bread is not the same as a high-priced beverage.

The closer a product is to an everyday necessity, the more defensive its characteristics tend to be. The closer it is to an experience or luxury, the more sensitive it is to income.

Investors Look for Profitable Boredom

In financial markets, some companies attract attention because they may rapidly double their revenue. Others attract capital because they can do something less exciting but extremely valuable: sell the same product every day to millions of people, then repeat it the next day.

The food industry generally belongs to the second category.

In Saudi Arabia, population growth, localization policies, and industrial expansion add another dimension to this story. The sector, valued by the report at approximately SAR 200 billion, is based not only on stable demand but also on efforts to shift more value toward local factories, with a target of localizing 85% of food industries by 2030.

That is why food’s appeal to investors can be understood through a simple equation:

People do not stop eating, sales recur quickly, and the Saudi market itself continues to grow.

But the statement always needs a second line.

Food may be defensive, but profit is not.

The winners in this sector are not simply those who sell something people need, but those who can source their inputs efficiently, manage their factory, inventory, and distribution, protect their margin, and persuade consumers to buy from them—not just once, but again and again.

And that, ultimately, is what investors like more than food itself: revenue that can return tomorrow.