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Why grocery retailers in the UAE and Saudi Arabia must innovate differently to prosper
Grocery retailers in the UAE and Saudi Arabia are beginning to wake up to the wave of innovation and differentiation in a highly competitive market.
Innovation in retail often focuses on glamorous segments such as apparel and beauty, which generate substantial global revenue each year. Yet, a less celebrated but equally critical segment—grocery retail—faces a pivotal moment in the UAE and Saudi Arabia in 2024. A recent survey by Oliver Wyman highlights the urgency for grocery retailers in these GCC markets to innovate and distinguish themselves to sustain their relevance.
The Oliver Wyman Customer Perception Map (CPM) survey examined consumer perceptions and behaviors in the grocery sector in the UAE and Saudi Arabia, marking the firm’s first foray into regional research after years of analyzing mature Western markets. Presented in a detailed report, the findings aim to guide grocery retailers in understanding their brand perceptions and market positioning within the GCC.
Key insights from the report spotlighted the importance of innovation and differentiation. Alexander Poehl, Retail and Consumer Partner at Oliver Wyman, emphasized the challenges retailers face, stating, “Grocery players must navigate intense competition for customers and their share of wallet, mirroring trends seen in Western markets, while tailoring strategies to thrive in this dynamic environment.”
The grocery retail market in Saudi Arabia and the UAE is substantial and experiencing rapid growth. In 2023, Saudi Arabia’s grocery retail market is valued at $62 billion, with an expected CAGR of 4.2% over the next five years. Meanwhile, the UAE’s market stands at $40 billion, projected to grow at a CAGR of 6.5%. Despite this impressive market size, grocery retailers “have no room to become complacent,” according to the report.
Both countries’ grocery retail sectors are following a path similar to that of mature Western markets, where increasing saturation drives the emergence of more differentiated retail propositions. In the UAE, the intense competition between retailers is particularly evident as they strive for “like-for-like” sales growth. Conversely, in Saudi Arabia, there remains significant potential for expansion. However, the report advises retailers to begin implementing differentiation strategies to prepare for the eventual intensification of the market share battle.
Decoding retail differentiation in the UAE and Saudi Arabia
The survey emphasizes that for grocery retailers in the UAE and Saudi Arabia to develop a truly differentiated proposition, understanding customer needs and expectations is essential. Key factors such as “value” and “quality” influence customers’ decisions when choosing between different retailers. Additionally, “range” is a critical deciding factor for consumers in these markets.
Poehl notes that the discount model, popular in Western markets, is gaining traction in the UAE and Saudi Arabia. The high consumer interest in discount models highlights the importance of value, with 70% of respondents in Saudi Arabia and 60% in the UAE expressing interest in shopping at discount retailers. Furthermore, for those familiar with brands like Aldi and Lidl, more than 90% in Saudi Arabia and 75% in the UAE would prefer to shop there if these stores were available locally.
Beyond the traditional discount model, retailers in both countries also have the opportunity to tap into the demand for specialist offerings. Over 90% of customers are regularly seeking locally farmed and sourced produce, presenting an opportunity for grocery retailers to differentiate themselves by offering high-quality, locally sourced, and fresh items that cater to this growing demand.
Embracing technology to drive profits
With the UAE and Saudi Arabia’s tech-savvy populations rapidly growing, grocery retailers have abundant opportunities to carve out profitable niches in an increasingly competitive retail market. This includes catering to local demand patterns and leveraging AI-driven solutions for personalized promotions. According to the survey, 63% of respondents in Saudi Arabia and 71% in the UAE expressed interest in personalized promotions, reflecting a strong appetite for innovative, data-driven retail experiences. These figures surpass those in Western markets, where customers are often more cautious about sharing personal data.
As competition grows and customer preferences shift quickly, grocery retailers in the UAE and Saudi Arabia must focus on innovation and standing out from the crowd. Insights from the Oliver Wyman CPM survey highlight the need for retailers to stay on top of emerging micro-trends to stay profitable and relevant in an ever-changing market.
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