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UAE grocery retail market expected to grow at 6.5% annually for the next five years

Value emerges as the key factor in consumer choices

The grocery retail market in the UAE, valued at around $40 billion, is expected to expand at a compound annual growth rate (CAGR) of about 6.5 per cent over the next five years, a study showed.

In Saudi Arabia, the market is valued at around $62 billion, with an expected CAGR of 4.2 per cent in the next five years, according to a major new report from Oliver Wyman, a global management consulting firm.

Grocery retailers in the UAE and Saudi Arabia stand at a crossroads as competition in their respective markets and changing consumer behaviour is likely to reshape the future of the sector, the study shows. 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 the UAE and Saudi Arabia 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 survey revealed what lies behind consumers’ decisions to shop at their chosen outlet. Value emerged as the biggest single factor in both Saudi Arabia (51 per cent) and UAE (53 per cent), while ‘quality’ was ranked as more important in the UAE (20 per cent) than Saudi Arabia (18 per cent), ‘range’ is the second most important factor in Saudi Arabia (20 per cent) compared to 18 per cent in UAE.

The importance of value is underscored by the high interest of consumers in discount models with ~70 per cent of respondents in Saudi Arabia and ~60 per cent in UAE expressing interest in shopping at such a format. For those who know Aldi and Lidl from abroad, more than 90 per cent in Saudi Arabia and ~75 per cent 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,” said Alexander Poehl, retail and consumer partner, Oliver Wyman.

Despite the size of the markets, the report stresses that there is no room for retailers to become complacent. Indeed, the retail sectors of Saudi Arabia 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,” a statement said.

Meanwhile, in Saudi Arabia, 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 Saudi Arabia and the UAE are at different stages of retail evolution, both need to be cognisant 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,” Poehl points out. “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 Saudi Arabia, 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.

On the other hand, the high interest in local product is an opportunity for offer specialists. With more than 90 per cent 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 Saudi Arabia 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 per cent of respondents in Saudi Arabia and 71 per cent in UAE expressing their interest in personalised promotions, or 60 per cent of respondents in Saudi Arabia and 57 per cent 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 Saudi Arabia 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.”

The survey included more than 20 UAE grocery retailers and 15 Saudi Arabia retailers representing various formats both online and offline in the survey. Oliver Wyman surveyed a representative sample of 1,000 people in the UAE and 1,200 in Saudi Arabia through an online questionnaire, between February 22 and March 19, 2024.