Grocery retailers in the United Arab Emirates (UAE) and the Kingdom of Saudi Arabia (KSA) find themselves at a pivotal moment as market competition and evolving consumer behaviors redefine the landscape of the sector. This insight comes from a comprehensive report by Oliver Wyman, a global management consulting firm and part of Marsh McLennan.
The Oliver Wyman Customer Perception Map (CPM) survey, which has monitored customer perceptions and behaviors in grocery retail for several years in mature Western markets, now includes KSA and the UAE for the first time. The findings aim to assist grocery retailers in understanding consumer attitudes toward their brands and positioning, as well as in crafting effective strategies for success.
Market growth and competitive challenges
The grocery retail markets in both nations are substantial and on an upward trajectory, with the current market size estimated at $62 billion in KSA (2023) and projected to grow at a CAGR of 4.2 percent over the next five years. In the UAE, the market stands at $40 billion, with an anticipated CAGR of 6.5 percent. Despite this growth, the report emphasizes that complacency is not an option for retailers. The retail sectors in KSA and the UAE are increasingly resembling those of mature Western markets, where rising saturation is prompting the emergence of more differentiated offerings. This trend is particularly evident in the UAE, where the competitive landscape is already heating up as retailers strive for “like-for-like” sales growth. Conversely, KSA holds considerable growth potential through expansion, but the report advises retailers to begin implementing differentiation strategies now to safeguard their businesses as competition intensifies.
Adapting to market evolution
“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.
Differentiation strategies in action
“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.
Emerging concepts in the retail sector
In these increasingly competitive settings, the report identifies three key concepts that are likely to emerge from an anticipated wave of consolidation. These include discount retailers, which offer a limited range of products or services at excellent value; offer specialists, which prioritize premium customer experiences and unique or niche products; and well-adapted incumbent retailers, who succeed by addressing the specific needs of their local customer base.
Understanding consumer preferences
To create a genuinely differentiated offering, it is essential for grocery retailers to grasp their customers’ needs and expectations. The survey revealed the factors influencing consumers’ choice of shopping locations. Value emerged as the most significant factor in both KSA (51 percent) and UAE (53 percent), while ‘Quality’ ranked higher in the UAE (20 percent) than in KSA (18 percent). In KSA, ‘Range’ was the second most important consideration (20 percent), compared to 18 percent in the UAE.
The rise of discount models
The emphasis on value is further highlighted by the strong interest in discount models, with approximately 70 percent of respondents in KSA and 60 percent in the UAE expressing a preference for shopping at discount formats. Notably, for those familiar with Aldi and Lidl from international markets, over 90 percent in KSA and around 75 percent in the UAE would shop at these stores if they 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.
Opportunities in local products
Moreover, the strong interest in local products presents an opportunity for offer specialists. With over 90 percent of shoppers in both countries actively seeking local fruits and vegetables during their grocery trips, retailers can capitalize on this demand by providing distinctive, high-quality local and fresh items to set themselves apart.
Engaging the tech-savvy consumer
Finally, the young, diverse, and tech-savvy populations in KSA and the UAE present a significant opportunity for innovative retailers to better meet their needs. This could involve tailoring stores to local preferences, implementing personalized promotions, and adopting technology-driven solutions. Insights from the customer survey indicate that 63 percent of respondents in KSA and 71 percent in the UAE are interested in personalized promotions, while 60 percent in KSA and 57 percent in the UAE favor just-walk-out transactions. These figures are notably higher than those found in Western markets, where consumers are generally more cautious about new technology, particularly regarding personal data.
Strategic recommendations for retailers
“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, partner and 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.”
About the research
The Customer Perception Map (CPM) survey comprised around 100 questions, evaluating various quality aspects, satisfaction with product range and pricing across different categories, attractiveness of promotions and loyalty programs, as well as multiple elements of the shopping experience, including employee service, checkout experience, and cleanliness. Additionally, the survey captured customer sentiments regarding private labels, online shopping, technology and data, the appeal of discount models, and the relevance of local products.
The survey included over 20 grocery retailers from the UAE and 15 from KSA, representing various formats, both online and offline. Oliver Wyman conducted the survey with a representative sample of 1,000 individuals in the UAE and 1,200 in KSA through an online questionnaire administered between February 22 and March 19, 2024.
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