Beyond coverage, crafting a unique grocery experience is a survival imperative, according to new report from Oliver Wyman
Key takeaways:
Almost 70% of KSA consumers would be interested in shopping at a discount grocery retailer, or already shop there
Personalization is a differentiation opportunity in KSA, with more than 60% of survey respondents saying they would be interested in personalized offers
90% of respondents deliberately look for fruit & vegetables produced in KSA when shopping
Saudi customers are four times more excited about AI services than their US counterparts
A major new report from Oliver Wyman, a global management consulting firm and a business of Marsh McLennan (NYSE: MMC), has identified key trends, opportunities and potential challenges in the Kingdom of Saudi Arabia’s grocery retail sector.
The latest Oliver Wyman Customer Perception Map (CPM) survey, which tracks customer perceptions and preferences in the grocery sector in different regions around the world, covers Saudi Arabia for the first time. The report reveals a grocery retail sector in the Kingdom that is highly fragmented, reliant on proximity and growth through geographical expansion, albeit with a clear opportunity to differentiate through unique, future-proof propositions. The report also highlights key lessons that can be learned from more developed retail markets.
In planning their growth, players in Saudi Arabia should already have a clear picture of what they want to stand for in the future to avoid costly mistakes. Top-of-mind should be an awareness that, as the market becomes more saturated and competitive, retailers will need to grow like-for-like (LFL), which will mean winning customers from competitors and increasing share of wallet for existing customers.
One of the key findings of the report is that Saudi Arabia’s retailers can gain valuable insights from more mature grocery markets. Indeed, the UAE’s grocery retail sector has already undergone first steps of consolidation and differentiation, with “offer specialists” or “value specialists” emerging. “Offer specialists” have a truly differentiated proposition, focused on a premium customer experience, with unique assortments, high quality and service, while “value specialists” provide customers with a limited assortment and service, but good value for money, reflected in competitive prices and additionally offering attractive promotions. “Multi-specialists”, on the other hand, provide broad appeal and good value-offer ratio.
An opportunity highlighted by the findings is the potential for a truly value-led retailer to disrupt the market. In total, 55% of Saudi customers said that they would be interested in shopping at a discount grocery retailer and 13% already shop at one. Of the respondents familiar with European discounters Lidl and Aldi, 93% indicated that they would shop at these stores if they came to Saudi Arabia. While several homegrown brands are already pushing to stand out in this sector, the opportunity exists for greater competition, according to the CPM findings. Experts at Oliver Wyman believe that it is only a question of time for such a concept to gain substantial traction in the region, eventually putting the margins of the entire value chain under increased pressure.
However, at present, the market is still rich in opportunity. “There are significant opportunities for the modern trade in Saudi Arabia, with footprint expansion still important given the size of the market and the current market share captured by the top 10 retailers, which remains relatively small in comparison to more developed markets. There is also a clear opportunity for retailers to differentiate their offerings, and – based on the trajectory of more developed markets – this will be an important strategy for Saudi Arabia’s retailers to observe and act upon,” 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).
The report also reminds retailers that as retail markets modernize, opportunities for growth through pure expansion tend to diminish, which makes differentiation and diversification of offerings even more important.
“As observed in more developed retail markets, the major supermarket groups most likely to prosper are those that can best innovate and differentiate themselves from their rivals,” said Alexander Poehl, Retail and Consumer Partner from Germany, who supported many Western European retailers in their transformations. Developing a differentiated proposition will require retailers to upgrade their category management capabilities and revisit their relationships with suppliers. “Just selling shelf space and promotions to the highest bidder will no longer be good enough. Winners put the customer at the center of all decisions on assortment, space, price and promotions,” Poehl added.
In developing a differentiated proposition, many approaches are possible, although a deep understanding of customer preferences is key. In Saudi Arabia, satisfaction is driven to 51% by value (price and promotions), 20% by assortment, 18% by quality and to 11% by service, the CPM analysis shows. Getting the basics right by putting the customer at the center for all commercial decisions is key. Given the relative importance of value, retailers might want to make sure to offer an attractive price entry range and own-label products, increase their pricing capabilities, or provide attractive promotions that drive customers to the store without destroying margin for the retailer. Offer specialists might opt to take larger control of their supply chains and offer unique high-quality fresh products, satisfying the hunger of Saudi customers for local products, with 90% of customers deliberately looking for fruit and vegetables produced in the Kingdom.
The diverse population of Saudi Arabia offers a unique differentiation opportunity for local retailers. Through personalizing their offer based on the purchasing behavior of their customers, retailers can significantly enhance the shopping experience and thus increase traffic and sales with their customers. Approaches include fully individualized promotion programs and communications, unique omnichannel experiences and localized in-store experiences.
This view was supported by survey respondents who said that they felt tech and Artificial Intelligence (AI) can help boost their overall online and in-store experience: 63% said they would be interested in personalized promotional offers, and almost 60% would be interested in AI assisted services such as customer service chatbots and recipe recommendations. In terms of technology, Saudi Arabia’s retailers may also have an advantage over their Western counterparts in that Saudi consumers appear to be more willing to engage with new technology, for instance Saudi customers are three times more interested in using customer service and shopping assistant chatbots than their US counterparts.
“Saudi Arabia’s retail landscape is one of the most exciting market opportunities of the moment. The data captured in the CPM shows that grocery retailers must innovate, differentiate, and embrace technology to enable them to better understand and serve their customers. By developing and deploying the right strategy, based on sound research, retailers can improve their performance, find niche areas of the market for expansion, and tap into growth opportunities,” Joe Abi Akl said.
Retailers need to revisit their relationship with suppliers and put the customer at the center of assortment, space, price and promotion decisions to win in the market