Disruption, differentiation and digitization make Saudi Arabia’s grocery sector one of the world’s most exciting — and ripe for change
The Kingdom of Saudi Arabia’s grocery market — the largest market in the GCC by some distance — is changing. Urbanization, shifting consumer preferences, and the transformative potential of new technology on outlets and customer experience are combining to open significant opportunities for both existing local retailers and new entrants.
These are among the findings of the latest Customer Perception Map study by Oliver Wyman, which tracks customer perceptions in the grocery sector in countries around the world and now includes insights from Saudi Arabia for the first time.
KSA’s grocery retail sector
The report reveals a grocery retail sector in Saudi Arabia that is highly fragmented and reliant on growth through geographical expansion, albeit with a clear opportunity to differentiate through unique, future-proof propositions.
One of the key findings is that Saudi Arabia’s retailers can gain valuable insights from more mature grocery markets, which are seeing successful penetration by “offer specialists” and “value specialists”. Offer specialists have a truly differentiated proposition. They are focused on a premium customer experience, with unique assortments, high quality, and service. Meanwhile, value specialists provide customers with a limited assortment and services but good value for money.
There is a clear opportunity for a truly value-led retailer to disrupt the market. While 13 percent of Saudi customers in our survey indicated they already shop at a discount grocery retailer, another 55 percent said they would be interested in doing so. Of the respondents familiar with European discounters Lidl and Aldi, 93 percent indicated 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. The grocery retail sector is still highly fragmented, with the current market share captured by the top 10 retailers remaining relatively small in comparison with more developed markets. However, as retail markets modernize, opportunities for growth through pure expansion tend to diminish, which makes differentiation and diversification of offerings even more important.
Understanding the KSA consumer
In Saudi Arabia, value, in the form of pricing and promotions, accounts for 51 percent of customer satisfaction, while assortment, or breadth of choice of products, accounts for 20 percent. The quality of products accounts for 18 percent of customer satisfaction, and service accounts for 11 percent, the CPM analysis shows. Not surprisingly, getting the basics right by putting the customer at the center of all commercial decisions is key.
Given the relative importance of value, retailers might want to ensure they offer an attractive price entry range and own-label products and utilize customer data to design and execute effective discounts and offers that drive customers to the store without destroying the margin for the retailer. Offer specialists might opt to take greater control of their supply chains in an effort to satisfy the 90 percent of Saudi customers who deliberately look for fruit and vegetables produced in the Kingdom.
The diverse population of Saudi Arabia offers a unique differentiation opportunity for local retailers. By personalizing their offer based on the purchasing behavior of their customers, retailers can significantly enhance the shopping experience and 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 felt technologies such as artificial intelligence (AI) can help boost their overall online and in-store experience: 63 percent said they would be interested in personalized promotional offers, and almost 60 percent would be interested in AI-assisted services such as customer service chatbots and recipe recommendations. Saudi consumers also appear more willing to engage with new technology than their Western counterparts. For instance, they are three times more interested in using customer service and shopping assistant chatbots than US customers.
Recognizing the AI opportunity
A recent Oliver Wyman report, “Why Generative AI-Powered Stores Are The Future Of Retail”, shows that generative AI could also streamline store operations considerably.
Retailers can use the technology to automate routine tasks such as employee scheduling, predictive maintenance, customer inquiries, and onboarding new employees. This frees up store associates to focus on higher-value activities like customer interaction and sales. Generative AI also acts as a copilot for store associates, aiding in complex customer queries and supporting inventory management and production planning decisions.
Ultimately, generative AI can elevate store management by shifting focus from task execution to validation and action-taking. It can automate reporting analysis, summarize insights, and assist in action planning based on daily performance reports, compliance issues, waste reduction opportunities, and fraud detection.
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 market areas for expansion, and tap into growth opportunities.
Joe Abi Akl is a partner and the head of Oliver Wyman’s Retail and Consumer Practice for India, the Middle East, and Africa (IMEA).
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