A version of this article was originally published in Logistics Middle East.

The grocery retail landscapes in the Gulf Cooperation Council (GCC) and Europe have evolved separately, shaped by diverse cultural backgrounds, purchasing power, and trade environments. However, in today’s era of rapid globalization and increasingly demanding consumers, both regions can benefit from looking at each other for solutions to common challenges. By sharing best practices and catalyzing improvements, GCC and European grocers can enhance their competitive prospects and contribute to the ongoing transformation of the sector.

For the first time, our Customer Perception Map (CPM) — which tracks customer perceptions and preferences in the grocery sector in different regions around the world — includes insights from the United Arab Emirates (UAE) and the Kingdom of Saudi Arabia, widening the lens on innovative approaches that could modernize and drive efficiencies across the industry.  The results suggest that there is an important competitive advantage to be gained for grocers that can successfully blend new methods and insight from both regions.

Optimizing value chains for improved operational efficiencies

The cost of labor hugely influences grocery retailers’ operational efficiencies, with high costs driving more streamlined and efficient processes that minimize time, money and environmental waste.

In Western Europe, retailers have honed operational processes to fine margins. Labor models are highly flexible, adapting in real-time to demand and delivery schedules, and cost management extends through the entire supply chain.

Conversely, the GCC — where labor costs are relatively low — tends to place less emphasis on stringent efficiency measures. Suppliers often bear a significant portion of the value-chain expenses, covering everything from direct store deliveries to merchandise management, and food waste. This practice, however, obscures true cost efficiency from a retailer’s perspective. Because retailers are not burdened with the cost of food waste, they tend not to take responsibility for it, contributing to waste levels that can be up to two times higher than necessary. Meanwhile, suppliers anticipate additional costs and accordingly mark up their selling price to retailers.

The GCC could greatly optimize its end-to-end value chain by following the European model of taking a holistic perspective on in-store operations, logistics and supplier interactions, and promoting a culture of continuous improvement.

Discount dynamics could reshape grocery retail in the GCC

Value retailing, driven by discount retail models, is a relatively new concept in the GCC with only a few retailers offering such a proposition. In Europe, however, discount retailing is deeply ingrained in the market landscape, particularly in Germany where chains like Aldi and Lidl have revolutionized affordability. European consumers have access to high-quality, low-cost options, making discounters a significant part of the retail landscape.

There is enormous potential for discount models in the GCC, which shows high consumer interest in price-sensitive shopping. According to our CPM, 80% of consumers in Saudi Arabia would shop at a discounter at a discount level of 20% or more. Of those who are familiar with Aldi or Lidl, more than 90% indicate that they would shop there “at least occasionally” if they were available locally. Findings from the UAE are similar, and the entry of discount concepts like Viva into Dubai suggests there is room for growth in this area. The first movers could reshape GCC market dynamics by setting new standards for efficiency and pricing, putting margins under pressure for the industry, and creating greater affordability for the consumer.

The discounting evolution in Europe offers valuable lessons for GCC retailers aiming to scale discount operations, as well as for full-range supermarkets and hypermarkets that want to understand how to compete successfully. For instance, European retailers have demonstrated success with strategies such as a strong price-entry own-label offering and localized product assortments to counter highly standardized discount models.

Leveraging technology and tailored services to meet consumer demand

E-commerce is growing rapidly, with digital platforms increasingly catering to a varied consumer base. Personalization in digital retail, powered by artificial intelligence (AI), is becoming a critical differentiator in the sector, enabling retailers to offer tailored shopping experiences that resonate with a diverse demographic.

In the GCC, a young and diverse population coupled with high consumer spending provides fertile ground for digital retail innovation. Notably, GCC consumers are enthusiastic about AI-enabled services such as personalized promotional offers. Our survey indicates that 63% of consumers in Saudi Arabia and 71% in the UAE are excited about tailored recommendations, compared with 56% in the United States. Additionally, 56% of consumers in Saudi Arabia and 43% in the UAE are comfortable with grocery retailers accessing their social-media activity, compared with only 11% in the US. This openness to data sharing positions the GCC as a prime region for implementing advanced technological retail solutions.

Europe’s experience with digital grocery retail, meanwhile, varies with several quick commerce ventures struggling to find profitability. While many omni-channel grocery concepts have tried and are struggling in Europe, the fast-developing concepts in the GCC provide valuable lessons. The GCC’s innovative approach to digital retail, as well as its openness to data sharing and rapid adoption of new technologies, has created a dynamic retail environment. By studying these models, European retailers can craft strategies that balance operational efficiency with customer satisfaction, potentially overcoming the challenges faced in the region.

Putting the customer at the center and reshaping supplier relationships

Whereas growth in European grocery retail had previously been achieved through expansion, there was a shift to like-for-like growth — attracting customers from competitors and growing the share of wallet of existing customers — at the turn of the millennium.

To succeed amid the resulting wave of consolidation, retailers had to significantly upgrade their capabilities, making their assortment, placement, pricing, and promotions truly customer centric. This, together with a stronger focus on end-to-end profitability, also shifted relationships with suppliers. Retailers limited the influence of suppliers on key commercial decisions, banned their representatives from the stores, and renegotiated conditional terms to achieve lower purchasing prices.

GCC grocers can learn from this transition. Many retailers still rely heavily on high back margins, with a large share of profitability coming from shelf rentals or other conditional terms. These practices limit their flexibility in making the best commercial decisions from a customer perspective.

By integrating these insights, the retail and consumer sectors can develop a more nuanced understanding of regional dynamics, and leverage strengths from both the GCC and Europe. This collaborative approach encourages the exchange of ideas and strategies, leading to innovative growth and operational improvements. Stakeholders are encouraged to explore these diverse models, fostering a global dialogue that can drive the retail industry towards greater efficiency and customer satisfaction.

Read the original piece here.