UAE grocers are not starving for sales

Armina Ligaya

• Last Updated: November 24. 2009 3:38PM UAE / November 24. 2009 11:38AM GMT

UAE supermarkets continue to thrive in spite of the downturn. Randi Sokoloff / The National

While many retailers are probably counting down the days until 2009 is over, those selling groceries continue to have a bumper year; in many ways better than last year.

In July last year, supermarkets were caught between rising food prices globally – with the cost of rice hitting 25-year highs – and government-imposed price caps on staple foods to protect consumers.

But food prices are now 26 per cent lower than last year’s peak. In Ramadan, traditionally the biggest season of the year for grocery retailers, food prices were down 30 per cent compared with the holy month last year.

“When the prices stabilise, and the prices are coming down, there is always a feel-good factor,” says V Nandakumar, the corporate communications manager for Emke, which runs Lulu Hypermarkets.

“[Customers] tend to buy more and tend to shop more. We had a very, very good year, contrary to what people had perceived the slowdown might do.”

Grocery sales across the UAE are expected to hit US$7.7 billion (Dh28.28bn) this year, up 10.5 per cent from last year, the market intelligence firm Euromonitor says. Business Monitor International (BMI), a research firm based in London, predicts sales growth of 9 per cent.

Shoppers are more budget-conscious and sales are not as robust as the year before, where they rose 16 per cent, Euromonitor says, but it is still promising during tough economic times.

“Although it has been a tougher year, the industry does not appear to have been too badly affected in comparison to most of the developed world,” says Shonil Chande, a food and drink analyst at BMI.

“Looking beyond 2009, the supermarket segment and wider mass grocery retail industry, for that matter, is likely to regain its pre-downturn momentum fairly quickly.”

In fact, it should grow. By 2013, sales at mass grocery retail outlets such as Spinneys and Carrefour are expected to grow by 80.1 per cent, BMI says.

New players also see opportunity. The latest is the French retailer Auchan, which opened its first supermarket in the GCC at Dubai’s Dragonmart last month.

In partnership with Retailcorp World, formerly Nakheel Retail, Auchan plans to open 15 hypermarkets and 40 supermarkets across the GCC in the next decade.

There is also an unnamed upscale French grocery retailer that will open an outlet in Abu Dhabi, when Tamouh’s Paragon Bay shopping centre opens on Reem Island.

And rumours abound of Tesco’s move to enter the Middle East. Officials at Tesco declined to comment on the reports.

As foreign chains seek a beachhead in the Gulf, home-grown retailers are also expanding.

SouqExtra, a line of small shopping and community centres featuring a grocery store and services such as dry-cleaning and fast-food outlets, is preparing to open its first centre in Dubai’s Ewan Residences. It has plans for at least 10 more in the UAE, and a total of 75 across the region in the next decade.

Aswaaq, a chain of grocery stores and community centres launched by the Dubai Government, has opened five outlets in Dubai this year, the latest in Al Rigga.

Lulu Hypermarkets has opened five stores this year, three in Abu Dhabi and one each in Bahrain and Saudi Arabia, Mr Nandakumar says. It plans to open four more in Saudi Arabia and one in Abu Dhabi next year.

Spinneys is opening four new stores next year: two in Abu Dhabi, one in Dubai and one in Muscat, says Jannie Holtzhausen, the chief executive of Spinneys Dubai.

Sales at Spinneys began to slow in August but have recovered in the past two months and Mr Holtzhausen expects to end this year on par with last, boosted by the upcoming holiday season.

“You may not see people buy expensive gifts as they maybe bought in the past, but will me and my family and friends get together like we did in the past? Sure we will,” he says.

But grocery retailers do acknowledge a shift in consumer sentiment. UAE residents are looking to cheaper grocery brands to stay within budget, Nielsen’s most recent Consumer Confidence Index says.

Georges Mojica, the general manager of the Abu Dhabi Co-operative Society in Abu Dhabi Mall, says consumers have been shopping more wisely, and looking at offers and private labels.

In turn, the co-op has added more products to its in-house brand each month and expanded the line by 20 per cent this year, Mr Mojica says.

He expects to end the year with single-digit sales growth compared with last year, a slower rate in part due to the major road construction around Abu Dhabi Mall.

Mr Nandakumar says Lulu Hypermarkets has also aggressively expanded its line of private-label goods to almost all categories, from frozen food to cooked foods. It has helped to boost Lulu’s sales to grow 15 per cent this year compared with last year, he says.

Globally, it is grocery and food and beverage retailers that are the most optimistic about next year. Retailers in those sectors are more aggressive in increasing their networks of stores, with 27 per cent adding outlets next year, a recent survey of 220 international brands conducted by CB Richard Ellis shows.

But across all sectors of retail, the biggest proportion say they are looking to acquire no more than five stores by the end of next year.

Restaurants and supermarket retailers are much more bullish, with more than half of those surveyed aiming to open more than 20 stores next year. One driving factor is the ability, at this time, to secure large retail sites at cheaper rates than before, CBRE says.

While most of these grocers and food retailers are setting their sights first on the emerging markets of Europe, such as Poland, they are also looking at sites in the MENA region, with the UAE likely to be their first stop, CBRE says.

Laurent-Patrick Gally, a retail analyst with Shuaa Capital in Dubai, says retailers are rushing to establish themselves in the country because it is still largely comprised of small, local grocers, and the mass grocery retail segment is still underdeveloped.

“There is a lot of potential and room for international operators to come in the cities and establish themselves, and capture quickly a sizeable local market share,” Mr Gally says.

With supermarkets, a convenient location is key and there are still pockets of the UAE where a grocery retailer can set up shop and make a profit, he says.

Mr Holtzhausen says he is not worried about the grocery market in the UAE being too crowded.

“Someone said to me the other day that there are too many supermarket groups in the UAE,” he says. “I said, ‘What are you talking about?’

“Take Britain. It’s a little island. You have the co-ops, you have Tesco, you’ve got Waitrose, you’ve got Morrisons. Each one of them has hundreds of stores.

“You have lots of names here, but each one has (at most) five, six, seven or eight stores.”



aligaya@thenational.ae