RIYADH: Gulf Cooperation Council retailers faced increasing pressure to stand out as competition in the region’s retail sector intensifies, according to a recent report. 

US-based management consulting firm Oliver Wyman highlighted the rising significance of value-led grocery retailing in the region in a recent analysis titled “The Affordability Imperative: Capitalizing on Value-Led Grocery Retail in the GCC.”

“As the grocery retail landscape in the Gulf Cooperation Council becomes increasingly saturated, the need for differentiation has never been more critical,” the report said, adding that shifting consumer priorities and rising demand for affordability provide an opportunity for retailers to reshape the market by adopting cost-conscious strategies. 

Saudi Arabia’s grocery sector undergoes transformation

The Kingdom, the largest market in the GCC, provided a critical case study in the transformation of grocery retail. According to a 2024 survey by Oliver Wyman on Saudi Arabia’s consumer trends, more than half of the nation’s households experienced a shift in income levels throughout the year. 

“Around 31 percent of households reported a drop in income during 2024, with 11 percent seeing declines of more than 50 percent,” the study said.

Additionally, 40 percent of consumers saw a decrease in their savings, while only 23 percent managed to increase theirs. 

Consumers prioritize affordability in shopping choices

Consumers have responded by adopting new shopping behaviors. Nearly 48 percent of surveyed individuals compare prices before making purchases, while 46 percent actively seek out stores offering lower prices. 

The Oliver Wyman Customer Perception Map Survey found that 51 percent of Saudi consumers prioritize value— including price and promotions— when selecting their primary retailer. 

Private-label products have gained traction as a cost-saving measure, with 80 percent of consumers reporting regular purchases. 

Meanwhile, 68 percent of shoppers expressed interest in discount grocery retailers, and 97 percent of those familiar with international discount brands such as Aldi and Lidl stated they would consider shopping at these stores if available locally. 

Three key strategies driving success in value-led grocery retail

The study identified several fundamental strategies employed by successful international value-led grocery retailers. 

One strategy is maintaining an attractive proposition through competitive pricing, a strong private-label presence, and a streamlined product assortment. This approach allows retailers to maximize cost efficiency while appealing to budget-conscious shoppers.

Another critical factor is operational excellence, which can be achieved by optimizing supply chains, enhancing private-label and fresh product management, and fostering a cost-effective corporate culture.

Lastly, leading discount retailers prioritize rapid expansion by maintaining a low capital expenditure model, leveraging deep market knowledge, and reinvesting profits into further growth.

The two-step approach to long-term success

The report highlighted a two-step approach used by successful value-led retailers.

The first step focuses on establishing a strong value perception through low prices, limited assortments, and simple store formats. Once a solid foundation is built, the second step involves enhancing offerings by improving product quality, diversifying selections, and upgrading the shopping experience. 

While affordability is a key factor in value-led grocery retail, successful retailers differentiate themselves through pricing models, product assortment, operational efficiency, and customer engagement. 

International discount chains influence GCC market trends

Internationally recognized brands such as Aldi and Lidl rely on an “everyday low pricing” strategy, while retailers like Colruyt implement a lowest-price guarantee within their market areas.

Discount retailers commonly emphasize private-label products, automation, and digital engagement tools to drive sales. 

The GCC region presents distinct opportunities and challenges for value-led grocery retailers, the report highlighted. 

Challenges and opportunities in the GCC grocery sector

The market is shaped by a variety of demographics. In the UAE, expatriates comprise 89 percent of the population, significantly impacting consumer behavior. In Saudi Arabia, the growing middle class influences spending patterns and drives demand for new products.

Traditional grocery stores, or “baqalas,” continue to compete with modern trade, which accounts for 83 percent of FMCG sales in the UAE and 52 percent in the Kingdom. 

Private-label market penetration remains underdeveloped, standing at just 3 percent in the UAE and 1 percent in Saudi Arabia, leaving significant room for growth. 

Price levels vary across the region, requiring a tailored approach, while centralized sourcing could help retailers manage costs. 

Consumer behavior in the region is also influenced by a strong preference for service-oriented shopping, with 56 percent of UAE consumers and 33 percent of Saudis prioritizing speed and convenience in their grocery shopping experiences. 

Emerging models for value-led grocery expansion

Oliver Wyman’s report identified four potential models for value-led grocery retail expansion in the GCC. 

The neighborhood discount focuses on small, local stores offering essential products at low prices and is exemplified by retailers such as BIM and Kazyon. 

The basic discount adopts a no-frills approach with a limited product range and competitive pricing, similar to Netto and Biedronka. 

The mature discount builds on strong value and operational efficiency foundations while enhancing private-label dominance, fresh product offerings, and store aesthetics, as seen with Aldi and Lidl. 

The full-basket value-led model offers a comprehensive grocery solution catering to bulk shoppers and price-sensitive consumers, represented by brands such as Colruyt and S-Market. 

The research suggests that while the neighborhood discount example is the most scalable due to its accessibility and simplicity, the full-basket value-led model offers the highest long-term profitability. 

Retailers in the GCC face operational challenges

A comparative analysis of profit and loss statements between Western and GCC grocery retailers revealed structural differences. 

Value-led retailers in Europe achieve high sales productivity and net operating profit after taxes through optimized cost structures, whereas GCC retailers face inefficiencies in supply chain management and lack the scale to maximize gross margins. 

“Despite the difficulties associated with value-led grocery retail in the GCC today, the precedents set in European markets demonstrate that the landscape can shift rapidly once value-driven concepts begin to gain traction,” the report emphasized.

Key strategies for success in the GCC market 

To successfully implement value-led grocery retail models in the GCC, Oliver Wyman outlined key dimensions for consideration. 

Retailers should focus on competitive pricing, efficient product assortments, and compelling promotions to attract consumers.

Streamlining supply chain operations and leveraging digital technology will enhance cost management and operational efficiency. Growth strategies should be aligned with demographic insights and geographic expansion plans to ensure scalability.

The future of value-led grocery retail in the GCC

The study underscores the growing significance of value-led grocery retail in the GCC. As disposable incomes fluctuate and consumer preferences shift toward affordability, retailers have a unique opportunity to establish themselves in this evolving sector. 

By leveraging global best practices, adapting to regional nuances, and prioritizing operational efficiency, value-led grocery retailers can reshape the industry and drive long-term growth.

RIYADH: The UAE’s non-oil economy maintained steady growth in January, driven by a rise in new orders, ‘favorable market conditions,’ and easing cost pressures, according to S&P Global. 

The Emirates’ Purchasing Managers’ Index stood at 55, slightly down from December’s nine-month high of 55.4. 

A PMI reading above 50 indicates growth in the non-oil sector, while a below 50 signals contraction. 

The sustained expansion of non-oil business activity across the Middle East, including the UAE, highlights the region’s economic diversification efforts. Saudi Arabia posted a PMI of 60.5 in January, its highest level in a decade. Kuwait recorded a PMI of 53.4, followed by Egypt at 50.7, and Qatar at 50.2. 

“The UAE PMI signalled another good month for the non-oil private sector in January, with the headline figure falling only slightly from December’s nine-month high,” said David Owen, senior economist at S&P Global Market Intelligence. 

He added: “Robust expansions in activity and new business, as well as lower input cost inflation, suggest the economy is in a healthy position.” 

S&P Global said non-oil businesses in the UAE experienced a sharp rise in sales volume, primarily driven by strong domestic demand. 

Price pressures also eased, with input costs rising at their slowest rate in 13 months. The slowdown in inflation enabled firms to increase their purchases of inputs at the start of the year. 

The PMI survey said favorable market conditions and strong client relationships led to faster delivery times among UAE non-oil businesses in January. 

However, companies only recorded a modest increase in staff numbers, though the pace of hiring was the fastest since August. 

“A persistently low rate of employment growth suggests that firms are lacking the ability to hire in order to tackle backlog issues,” said Owen. “Input resources similarly remain weak, which seems to be aggravating capacity pressures as work-in-hand rose at the quickest pace in eight months in January.” 

Despite the positive trends, surveyed firms were less optimistic about their future outlook, with only 9 percent expecting growth over the next 12 months. 

According to these firms, intense competition in the UAE’s non-oil sector was a key factor in dampening confidence. 

“The broad decline in business confidence over the past few months will therefore be a surprise to some. Notably, total confidence was at its lowest level since December 2022,” said Owen. 

He added: “Strong competition and cash flow concerns arising from heavy backlogs have appeared to sow doubt among firms that they can continue to boost their revenues, underlining efforts to reduce the gap between output and input prices.” 

The survey said continued capacity strain was due to heightened demand and administrative challenges, such as slow client payments. 

The rate of backlog accumulation accelerated to its fastest pace in eight months, it added.

Due to strong demand pressures, non-oil companies in the UAE raised their selling prices for the first time in four months. 

S&P Global said business conditions in Dubai’s non-hydrocarbon sector remained promising, with the emirate’s PMI reaching 55.3 — slightly below December’s nine-month high of 55.5. 

Non-oil firms in Dubai saw robust activity expansion in response to greater new business inflows. 

Cost pressures also eased, with input price inflation slipping to a three-month low. 

Employment and inventory levels saw fractional increases, reflecting a subdued outlook for future business activity. 

Regarding future expectations, business confidence in Dubai’s non-oil sector dropped to its lowest level in over four years.