The UAE Grocery Retail market has long been dominated by several Hypermarket Chains at the top end, with a combined market share of over 60 % ! These large format Hypermarkets cater to several specific demographic segments - The Lulu Group has the large Subcontinent population as its most important client segment, the Spinneys Group caters largely to the western expatriate population, the West Zone group to the Filipinos, the Coops to the Local and Expat Arabs and so on. Their product offerings, to a large extent, reflect their demographic positioning or target market.
The large format Retailers, over a course of time, have adopted policies which have discouraged Brand owners and Distributors from launching new brands and even brand extensions. These include exorbitant listing fees, unreasonable rebates or discounts, unaffordable display rentals and persistent demands for promotions and offers. Another aspect is that even in the case of every day essentials such as Cooking Oil, Rice, Flour etc, the retail prices have remained at high levels since the Brand owners and Distributors are reluctant to pass on any price benefit to the Retailers since it is virtually impossible to raise the Prices again ! Thus, we see Basmati Rice on the shelves at 2008 price levels, when the price of Basmati Rice was at an all time high of $2400/ Ton, whereas currently the price is down almost 40 % in the global markets but the shelf Retail Price remains the same high levels of 2008, with consumers none the wiser !!
The advent of VAT in the GCC and the general tightening of the economy due to the prevailing low oil prices has resulted in GCC Consumers also becoming more value conscious ! The consumers in this region, who were notorious for their extravagance and wasteful ways, have started tightening their purse strings and are increasingly looking at bargains and value for money. This is perhaps the right time for a Value Retailer or Discount Retailer to enter this lucrative market as the mainstream retail with its rigid trade practices will be unable to meet this consumer demand. Discount Retail, a phenomenon common in Europe, can certainly gain a foothold in UAE - perhaps starting with areas such as Sharjah and Northern Emirates, where most of the low to middle class population reside. The tightening economy has meant that consumers are no longer looking at frills but the best possible value for their hard earned money. If a Discount Retailer can offer a no frills, value for money shopping experience, they can take a sizeable chunk of market share within a short time !