Qatar and some other developed markets in Mena already share many of the same features as other Western retail sectors; BMI Research said and noted the regional mass grocery retail sector remains largely underdeveloped, with the exception of a few wealthier markets in the GCC.
“We are starting to see increased levels of investment in the industry, as well as some markets become more open to foreign ownership of retailers. Combined with rising incomes, this should help spur formalisation from a low base throughout the Mena region,” the Fitch Group company has said in a report.
Formalisation is well-established, with the sector currently dominated by the hypermarket and supermarket store formats, BMI Research said. As is the case with the broader GCC region, most outlets are not stand-alone units but are adjacent to large shopping malls, with this store model likely to continue to dominate for the foreseeable future.
High income levels, large expatriate communities and strong urbanisation have helped fuel the development of mass grocery retail (MGR) outlets across these markets.
These countries are increasingly following the trends of markets in Western Europe and North America, as consumers increasingly favour the ‘neighbourhood retail’ concept offered by convenience stores. These formats are more easily able to penetrate urban residential areas, fitting with consumers that do not enjoy weekly trips to larger stores but smaller, more frequent visits.
“With costs of retail real estate rising rapidly in places like the UAE, hypermarkets are becoming less efficient to run,” BMI Research said. Convenience stores have the benefit on the retailer side of cutting costs through smaller stores, while charging a premium mark-up on products for urban consumers.
With more women entering the workforce in comparatively liberal countries, the demand for smaller, frequent trips is growing. For example, the UAE-based retailer ‘ZOOM’ announced extensive expansion plans to open an average of 30 stores annually to reach a total of 500 outlets in its domestic market in 2025.
Additionally, given the strength of logistics networks and Internet usage, BMI forecasts an increase in online food retail sales. In May last year, Doha Sooq partnered with leading supermarket chain Grand Mart to launch the first online supermarket in Qatar. In some of the less developed markets, regulation and lack of foreign investment has hindered the growth of mass grocery retail.
However, BMI noted the “tide seems to be turning”, particularly in relation to Saudi Arabia and Iran, both of which hold huge potential opportunities. Saudi Arabia is less developed than the likes of Qatar and the UAE but still represents the largest food retail market in the region.
The kingdom presents the strongest growth opportunity, given its combination of growth rates and scale. Saudi Arabia’s decision to end the 75% limit on foreign ownership in the retail sector will boost investment during the current economic slowdown.
Regional giant LuLu Group and international player Carrefour MAF will be among the largest contributors to food retailing in Saudi Arabia. The Iranian mass grocery retail sector is still in its infancy as a result of limited investment, a legacy of the sanctions it encountered.
“We expect retailing growth will be gradual due to low margins but the market offers some of the greatest long-term potential in the region,” BMI said.