Retailers in KSA and the UAE must innovate and differentiate to prosper in fast-changing retail markets 

Grocery retailers in the United Arab Emirates (UAE) and the Kingdom of Saudi Arabia (KSA) stand at a crossroads as competition in their respective markets and changing consumer behavior reshape the future of the sector, according to a major new report from Oliver Wyman, a global management consulting firm and a business of Marsh McLennan (NYSE: MMC). 

The Oliver Wyman Customer Perception Map (CPM) survey, which tracks customer perceptions and habits in the grocery sector, has covered mature Western markets for several years and now includes KSA and the UAE for the first time. The research and insights in the report are designed to help grocery retailers understand customers and customer perceptions of their brand and positioning, and how to develop strategies for success.

The grocery retail market in both countries is sizeable and growing, with a current (2023) size of $62 billion and an expected CAGR of 4.2% in the next five years for KSA and a total of $40 billion and a CAGR of 6.5% in the UAE respectively. Despite the size of the markets, the report stresses that there is no room for retailers to become complacent. Indeed, the retail sectors of KSA and the UAE are on a similar trajectory to mature Western markets, with increasing saturation encouraging more differentiated propositions to emerge. This is especially true in the UAE, where competition between retailers is already intensifying in the quest for “like-for-like” sales growth. Meanwhile, in KSA, there is still significant growth potential through expansion – although the report indicates that retailers should start to implement differentiation strategies now to future-proof their businesses for when the fight for market share intensifies.

“While the retail sectors in KSA and the UAE are at different stages of retail evolution, both need to be cognizant of the tough competition for customers and share of wallet that have emerged in Western markets, and adapt their strategies to prosper in this environment,” said Alexander Poehl, Retail and Consumer Partner, Oliver Wyman.

“The UAE is already experiencing this process, as we see retailers beginning to differentiate, for example Viva focusing on value with a discount model or Spinneys focusing on offer through unique products and high-quality fresh categories. This process is yet to start in KSA, where major retailers still have significant opportunities to expand, yet now is the time for them to begin to work out how they want to position themselves to succeed as the market continues to mature,” he added.  

In these intensifying competitive environments, the report highlights three winning concepts to emerge from the expected wave of consolidation. These include discount retailers, which provide customers with a limited assortment of products or services but with exceptional value for money, offer specialists, which focus on premium customer experience, differentiated products or a specific niche and finally well adapted incumbent retailers, winning at each location by addressing the differentiated needs of their local customers.

To develop a truly differentiated proposition, it is also critical for grocery retailers to understand the needs and expectations of their customers. The survey revealed what lies behind consumers’ decisions to shop at their chosen outlet. Value emerged as the biggest single factor in both KSA (51%) and UAE (53%), while ‘Quality’ was ranked as more important in the UAE (20%) than KSA (18%), “Range” is the second most important factor in KSA (20%) compared to 18% in UAE.

The importance of value is underscored by the high interest of consumers in discount models with ~70% of respondents in KSA ~60% in UAE expressing interest in shopping at such a format. For those who know Aldi and Lidl from abroad, more than 90% in KSA and ~75% in UAE would shop there if these concepts were available locally.

“Discount or value-focused retail models have reshaped the grocery retail landscape in Western markets. Regional retailers should learn from their Western peers so that they are prepared when those models gain traction, putting the margin of the entire value chain under pressure.” Alexander Poehl points out.

On the other hand, the high interest in local product is an opportunity for offer specialists. With more than 90% of customers at least sometimes deliberately looking for local Fruits & Vegetables products when doing their grocery shopping in both countries, grocery retailers can build on this demand and offer unique, high-quality local and fresh items to differentiate themselves.

Finally, the young, diverse and tech savvy populations in KSA and the UAE offer a large opportunity for innovative retailers to address their needs in a more targeted manner. This ranges from a stronger adaptation of stores to the local demand patterns, to personalized promotions and AI and tech driven solutions. This is backed by insights from the customer survey with 63% of respondents in KSA and 71% in UAE expressing their interest in personalized promotions, or 60% of respondents in KSA and 57% in UAE being interested in just-walk-out transactions. These numbers are much higher than in Western markets where customers are typically more reserved vis-à-vis new technology, especially where this involves their personal data.

“With the UAE market already saturating and KSA set to move in the same direction, the time is ripe for retailers to assess their market position, embrace new technologies, and develop a strategy based on differentiation,” said Joe Abi Akl, a partner and the head of Oliver Wyman’s Retail and Consumer Practice for India, the Middle East, and Africa (IMEA). “It is essential for retailers to adapt to shifting consumer preferences and rising competition, and to consider today what they want to stand for in the future, to ensure their long-term success.”