DUBAI // The small and medium-size food retail segment is in an "abysmal" state, according to retailers and industry analysts. "Just travel around the country and visit most of these smaller convenience stores and you'll see how abysmal they are," said David Berrick, retail general manger for Abela Supermarkets. "Their biggest problem is poor management, plus they work on cash purchases and they are individually owned."
Analysts say the explosion in the number of superstores and hypermarkets across the country is partly to blame. For every hypermarket in the UAE in 2006 there were 15 grocery stores, according to research by RNCOS, a New Delhi-based market research firm. That ratio has shrunk since 2003, when there were 20 grocery stores to every hypermarket. However, industry insiders suggest that what is more worrying is that hypermarkets and superstores hold a 50 per cent share of the local food industry.
"The Co-Ops, the Spinneys and the Carrefours of the world, they've done well because they are concentrating on supermarket formats or hypermarket formats, so customers know they will go there and find what they need," said Mr Berrick. "But the day is dawning when people will turn their attention to the convenience stores which offer quality, [are] clean, and well-managed." The urgent need for more high-quality convenience stores was cited by officials at Ras al Khaimah-based RAK Holding, as the rationale behind this week's announcement that it would develop a new convenience store chain in the UAE, to be called Near Buy.
The company plans to open 500 stores, each averaging 110 square metres, by the end of April next year. Part of its expansion will be driven by franchising, through which it will team up with independent shops that may be in need of financial support. Near Buy plans eventually to have a branch within 500 metres of every home in the country - some 2,000 altogether - each one stocking its shelves differently, based on the profile of the local population.
"Some of the products that you find in our stores in Jumeirah, for example, will not be in stores next to the labour camps in Sharjah," said Rajeshwar Prasad, the chief executive of RAK Holding. Some retailers are sceptical, saying such an initiative is easier said than done. "The reality of running and opening these stores are two different and challenging things," said Jannie Holtzhausen, the chief executive of Spinneys in Dubai. "Finding the physical real estate that works is a huge challenge, as is finding a formula that enables you to get logistics right and a viable economic model. I've opened 15 of these stores and it's not easy."
Analysts say that there is great potential for a strong, well-managed convenience store chain, particularly given traffic congestion in many of the emirates. "Even though the average spend [per customer] is not high at convenience stores, their volumes are good," said Naeem Ghafoor, the chief executive of Skyline Retail Services Consultancy. "You're not going to drive several kilometres [to a supermarket] to buy a bag of crisps."
Officials heading the Near Buy project estimated that the chain would capture a 30 to 40 per cent share of the domestic market. While they stressed that their intention was to complement, and not compete with the existing market, Mr Ghafoor said this announcement did not bode well for traditional convenience stores. "I think the corner convenience stores are definitely going to be hurt by this," he said. If they [Near Buy] are going to stock their shelves to cater to the ethnic diversity of the country then it will be an added advantage for them," he said.
Mr Berrick said the competition would be good for the whole sector. "What it does is force existing convenience stores to tidy themselves up." @Email:firstname.lastname@example.org