Big supermarkets are losing their allure in Europe, where the major retailers are cutting back on the large hypermarket format .
But in the Middle East, the hypermarket remains popular, even as smaller convenience stores continue to crop up in new neighbourhoods.
Dominant supermarket chains such as Carrefour, Lulu and Géant are rolling out a number of big hypermarkets in the region this year, encouraged by strong sales from current stores.
"The market has been coming back," says Arif Shaikh, the managing director for Géant at Retail Arabia, the brand's franchise partner in the Gulf. "The sales have picked up across all segments, hypermarkets and supermarkets."
Average spending per customer at the Géant Hypermarket in Dubai has grown to Dh180 (US$49) from about Dh168 last year, says Mr Shaikh, and sales are up 7 to 8 per cent on a like-for-like basis this financial year, which ends on June 30, compared with last year
Géant's rosy picture contrasts starkly with the performance of hypermarkets in Europe, where Carrefour is scaling back its planned roll-out of revamped large stores.
Last month, after five previous profit warnings, the world's second-biggest retailer said profit for last year would be at the low end of expectations as weakened household spending had impaired sales.
Mr Shaikh does not believe, however, that the woes of European hypermarkets will spread to the Middle East, despite the increased demand for smaller stores.
There are so many different brand-name supermarkets and hypermarkets in the UAE and wider Gulf region. How can a supermarket ever differentiate itself?
Basically, in the food business, 90 per cent of the time, you are competing on the same food brands. A Nestlé product is a Nestlé product, a Lipton is Lipton. There's no real differentiation. The differentiation is in your service, your fresh produce and your assortment, that's where we try to be different vis-à-vis the competition.
What do you mean by assortment?
We are not in the business of giving you just one option in one product. We have 20 types of apples from everywhere across the world. My customer wants choice. When I give him apples from Turkey or from Chile, he has choice. It's not about piling up one block of apples and saying this is an apple.
So price is not even a factor in differentiating your brand?
We have one of the lowest baskets in terms of price. We work on ensuring that the customer gets the best value across all products rather than just some product segments.
Most [retailers] in the market operate in a category. They will kill a category and bring the prices down. But what happens with that is just because one category is being killed, it brings their basket down.
How many stores does Retail Arabia operate around the Gulf?
We operate in various brands. We have Géant, GulfMart, Le Marché, Géant Easy across three hypermarkets and 24 supermarkets.
And you are adding stores?
Yes, we are definitely looking at an additional 35 stores in the next couple of years, which would be another 2,500 staff coming on board. At the moment we have got about 4,500 staff.
Who shops at Géant's flagship hypermarket at Ibn Battuta Mall?
We serve Dubai Marina, Jumeirah Beach Residence, Tecom, Jumeirah Lakes Towers, Discovery Gardens, The Meadows. We have a huge customer base. It is so diversified because most of this area is expat-dominated. We have a very wide assortment from Asian, to South East Asian, to Europeans, to Russian and the eastern European belt. Our customer profile is right across.
Are more people shopping closer to home now though, rather than traipsing to the hypermarket?
What we have realised in the last couple of years is that there a clear shift to the supermarket business.
Why do you think that is?
Due to the population and traffic, the convenience business is on the rise, supermarkets and convenience stores. Markets which are expat and young-expat-dependent, they prefer convenience. Where a market is family-driven, they prefer hypermarket, but on a day-to-day level, bread and milk, they rely on the supermarket.
What is the difference between a hypermarket, supermarket and a convenience store?
In supermarket format they are usually 1,500 to 3,000 square metres, and in convenience it is 500 to 900 square metres. Our hypermarket in the UAE is 12,000 square metres.
So are we going to see the death of the hypermarket?
Hypermarkets will definitely stay in the Middle East. We will just see huge growth in supermarkets. We definitely need a mix [of hypermarkets and supermarkets] because of the expat population and [the] large proportion of young people. Young people do not want to drive up, find parking for the car at the hypermarket. Young people also tend to go into the shop knowing what they want. Hypermarkets will be there. The visits to hypermarkets may be three visits a month, but due to the population growth, the convenience business is on the rise.
You agreed last year to fix or lower the prices of hundreds of basic commodities after the UAE Government asked you to do so. Are you implementing the same policies this year?
The Government is not stipulating to us to do so, but we anyway make sure the commodities are well priced, whether there's stipulation from the Government or not. Whenever they ask, we are always in compliance. For the basic commodities, whether there's compliance required or not, we want to be low.
Does it affect your margins when you have to sign up to these schemes?
Definitely it affects your margin when the stipulation comes and you just have to abide. It just depends what portion of your business [is accounted for by] those commodities.
What proportion of Géant's sales is made up of basic commodities?
It's not really high. I would say that those commodities are 7-8 per cent. It marginally affects the profit margin.