A version of this article was originally published in Economy Middle East.
The Kingdom of Saudi Arabia’s (KSA) grocery market — the largest market in the GCC by some distance — is changing. Urbanization, shifting consumer preferences, and the transformative potential of new technology on outlets and customer experience are combining to open significant opportunities both for existing local retailers and new entrants. These are among the findings of our latest Customer Perception Map (CPM) survey, which tracks customer perceptions in the grocery sector in countries around the world, and now includes insights from Saudi Arabia for the first time.
Growth and differentiation in Saudi grocery retail
The survey, part of our "Market Pulse 2024 — Grocery Retail Trends In The UAE And Saudi Arabia" report, reveals a grocery retail sector in Saudi Arabia that is highly fragmented, and reliant on growth through geographical expansion, albeit with a clear opportunity to differentiate through unique, future-proof propositions. One of the key findings is that Saudi Arabia’s retailers can gain valuable insights from more mature grocery markets, which are seeing successful penetration by “offer specialists” and “value specialists”. Offer specialists have a truly differentiated proposition, focused on a premium customer experience, with unique assortments, high quality, and service, while value specialists provide customers with a limited assortment and service, but good value for money.
There is a clear opportunity for a truly value-led retailer to disrupt the market. While 13% of Saudi customers in our survey indicated they already shop at a discount grocery retailer, another 55% said they would be interested in doing so. Of the respondents familiar with European discounters Lidl and Aldi, 93% indicated that they would shop at these stores if they came to Saudi Arabia.
While several homegrown brands are already pushing to stand out in this sector, the opportunity exists for greater competition, according to the CPM findings. The grocery retail sector is still highly fragmented, with the current market share captured by the top 10 retailers remaining relatively small in comparison with more developed markets. However, as retail markets modernize, opportunities for growth through pure expansion tend to diminish, which makes differentiation and diversification of offerings even more important.
Understanding the KSA retail customer to enhance shopping experience
In Saudi Arabia, value, in the form of pricing and promotions, accounts for 51% of customer satisfaction, while assortment, or breadth of choice of products, accounts for 20%. The quality of products accounts for 18% of customer satisfaction, and service accounts for 11%, the CPM analysis shows. Not surprisingly, getting the basics right by putting the customer at the center for all commercial decisions is key.
Given the relative importance of value, retailers might want to ensure they offer an attractive price entry range and own-label products, and utilize customer data to design and execute effective discounts and offers that drive customers to the store without destroying margin for the retailer. Offer specialists might opt to take greater control of their supply chains in an effort to satisfy the 90% of Saudi customers who deliberately look for fruit and vegetables produced in the Kingdom.
The diverse population of Saudi Arabia offers a unique differentiation opportunity for local retailers. By personalizing their offer based on the purchasing behavior of their customers, retailers can significantly enhance the shopping experience and increase traffic and sales with their customers. Approaches include fully individualized promotion programs and communications, unique omnichannel experiences, and localized in-store experiences.
This view was supported by survey respondents who felt technologies such as artificial intelligence (AI) can help boost their overall online and in-store experience: 63% said they would be interested in personalized promotional offers, and almost 60% would be interested in AI-assisted services such as customer service chatbots and recipe recommendations. Saudi consumers also appear to be more willing to engage with new technology than their Western counterparts. For instance, they are three times more interested in using customer service and shopping assistant chatbots than US customers.
Recognizing the AI opportunity in retail
One of our recent reports, “Why Generative AI-Powered Stores Are The Future Of Retail”, shows that generative AI could also streamline store operations considerably. Retailers can use the technology to automate routine tasks such as employee scheduling, predictive maintenance, customer inquiries, and onboarding new employees. This frees up store associates to focus on higher-value activities like customer interaction and sales. Generative AI also acts as a copilot for store associates, aiding in complex customer queries and supporting inventory management and production planning decisions.
Ultimately, generative AI can elevate store management by shifting its focus from task execution to validation and action-taking. It can automate reporting analysis, summarize insights, and assist in action planning based on daily performance reports, compliance issues, waste reduction opportunities, and fraud detection.
Saudi Arabia’s retail landscape is currently one of the most exciting market opportunities. The data captured in the CPM shows that grocery retailers must innovate, differentiate, and embrace technology to enable them to better understand and serve their customers. By developing and deploying the right strategy based on sound research, retailers can improve their performance, find niche areas of the market for expansion, and tap into growth opportunities.
Read the original piece here.