GCC food retail industry potential for $23bn growth by 2017, GCC consumer spending on food valued at $106bn according to A.T. Kearney

Food accounts for 28% of the total consumers spend in 2012. This large dominance of food in the GCC consumer expenditure is explained by the "emerging nature" of GCC consumers as exhibited by their shopping segments, indicated by A.T. Kearney's recent global Consumer Wealth and Spending study. This group is expected to continue spending on more basic items (like food, education) as opposed to discretionary items (like leisure, jewelry), thus confirming the future for food. Saudi Arabia and the UAE together account for around 75% of the total food retail market.

"While an exciting opportunity of $23bn exists, there are many changing dynamics in the grocery retail sector. Regional retail has experienced Hyper Speed evolution in past years growing very rapidly when compared to retailing in many mature economies such as the US and Europe. Retailers like Panda and Lulu have taken a third of the time to open 100 stores when compared to Western counterparts, such as Morrisons, Waitrose and Sainsburys", said Dr. Martin Fabel, Partner, A.T. Kearney."

Despite the rapid growth experienced by regional players, the increased presence of competition increases the competitive intensity and need to re-think key strategic opportunities for continued successful regional retailing. Also with growth having been focused on expansion in the past, the maturity levels of regional players is low, requiring sophistication of retail capabilities in the near term to remain competitive. Product proliferation is an example of an opportunity for regional retailers often time having 30% of the assortment generating less than 5% of sales implying complexity, expiring and costs.

Further, the trend towards consolidation in the retail market is imminent as the share of top players steadily increases (UAE-24%, KSA-12%) and will inch towards mature markets where top 3 players enjoy up-to 45-55% share. This will have rippling effects upstream, with distributors having to overcome rationalization risks and international and local manufacturers requiring speedy and effective go-to-market strategies to balance the increasing power of retailers.

"During recent years retail has acted as a key driver of growth in the region; with intense competition prevailing, we have highlighted key areas affecting the growth potential for those operating in the food retail sector - namely an emphasis on convenience and fresh food, format diversification and private labels," said Emanuele Savona, Principal, A.T. Kearney.

UAE food retail sector, in particular, is dominated by the modern retail sector which has around 60% share due to UAE's unique demographic profile of an 80% expatriate population. This has created a nascent demand for convenient food preparation and consumption - fresh ready-to-cook products such as pre-cut vegetables and pre-marinated meats have a stronger demand compared with ready-to-eat meals. In contrast, Saudi Arabia, sees a burgeoning requirement for fresh food.

While all food retail formats, spanning large hypermarkets to small convenience stores, have witnessed solid growth, it is the larger sized stores, such as hypermarkets, which are set to dominate GCC market share over the next five years. Large stores are typically viewed as a source of entertainment for the whole family, with shoppers placing value on easy access to the outlets. However, diversification across formats will also be important - supermarkets cannot be undermined especially with top-up grocery visits inevitable and the rise of fresh food and ready-to-cook products likely to impact the visit frequency. Convenience of access (i.e. easy parking, location close to main traffic areas,...) and shopping is of essence to match the needs of the increasingly busy young expats.

Another area representing a large untapped opportunity for GCC retailers is the use of private labels. Private labels in the GCC account for 3% of total sales, varying from 5% in the more mature retail economies like UAE to less than 3% in economies like Saudi Arabia. However, this is in sharp contrast to mature countries across the world where private labels have become an integral part of retailer's value proposition at 15-20% of sales in 2011.

"GCC food retailing is set for growth and offers a $23bn opportunity for the regional retail industry to leverage, but it will require players to move first, move fast and make the right move. Adopting a clear, differentiated strategy and implementing global best-practices to achieve sustainable competitiveness and growth is critical to overcome impending threats in the market, and capture a share of growth without losing market share and profitability," concluded Dr. Martin Fabel.