As the grocery retail landscape in the Gulf Cooperation Council (GCC) becomes increasingly saturated, the need for differentiation has never been more critical. Retailers face the challenge of driving like-for-like growth in a market where consumer priorities are shifting dramatically.
Our report, “The Affordability Imperative: Capitalizing on Value-Led Grocery Retail in the GCC,” delves into the transformative potential of value-led grocery retailing in the GCC. This strategy not only addresses the pressing demand for affordability but also offers a pathway for retailers to disrupt the market landscape. We explore the diverse spending power and evolving consumer behaviors that shape this dynamic environment, presenting key strategies for success.
Opportunities in value-led grocery retail in Saudi Arabia
Disposable income is shrinking in Saudia Arabia. Roughly 31% of households reported a drop in income in 2024, and 40% reported a drop in savings, according to Oliver Wyman Forum’s 2024 Saudi Arabia Consumer Trends Survey. As a result, consumers make more cost-conscious decisions: 48% of those surveyed say they compare prices, while 46% actively seek stores offering lower prices.
It is no surprise then that value — price and promotions — is the most significant factor for Saudi customers (51%). Furthermore, 80% of consumers in Saudi Arabia say they shop at a discount offering 20% or more than larger retailers, according to our Customer Perception Map Survey (CPM).
All of this underscores the need for retailers to have a firm grasp on consumers’ spending habits, especially as economic conditions continue to evolve. The entry of established international players or new local brands prioritizing value-driven strategies could further transform the competitive landscape and exert pressure on margins throughout the value chain.
Key learnings from global leaders in value-led grocery retail
Successful international value-led grocery retailers offer critical lessons for navigating the evolving grocery retail landscape. These players thrive by leveraging three key strategies:
A two-step strategy — build value, then enhance offerings
A two-step approach is often deployed to build and enhance value offerings. Initially, the focus is on establishing a perception of value through low prices, a basic yet sufficient assortment, and simple, cost-effective store formats. This strategy secures operational efficiency and attracts budget-conscious consumers.
Once this value perception is established, retailers enhance their offerings by improving product quality, expanding assortments, and upgrading store environments to meet diverse consumer demands. This approach secures market share by reinforcing value dominance while continuously evolving to offer a comprehensive, consumer-centric experience, thus increasing competitive pressure on existing retailers.
The role of differentiation in retail success
While delivering value is a key differentiator, grocers can also set themselves apart through unique strategies across four critical dimensions: pricing, product assortment, operational efficiency, and customer engagement. The report analyzes the approaches of some key players across Europe and the United Kingdom.
How to win value-led grocery retail models in the GCC
While many principles from Western models are relevant and can provide valuable insights, success in the GCC requires careful consideration of regional dynamics. Such factors as the cultural diversity of the clientele, the prevalence of baqalas (an Arabic term for grocery stores which sell fruits, vegetables, and seeds) and traditional markets, largely varying price levels across the region, the consumers’ preference for service-oriented shopping, and the underdeveloped private-label market make the region unique and require a nuanced response.
Certain global success factors align well with the region, while others require stronger adaptation, making understanding these nuances essential for success. Despite the difficulties associated with value-led grocery retail in the GCC today, the precedents set in European markets demonstrate that the landscape can shift rapidly once value-driven concepts begin to gain traction. To succeed as a value-led grocery retailer in the GCC, focusing on several key dimensions is essential. Offering an attractive proposition requires careful decisions on pricing, product assortment, promotions, loyalty programs, and store formats to appeal to price-sensitive consumers.
Streamlined operations are equally important, emphasizing sourcing strategies, end-to-end operational efficiency, labor management, and logistics. The integration of digital technologies can further enhance operations and customer engagement, which ensures competitiveness in the market.
Finally, scaling effectively and adapting to local markets involves developing a clear brand message, optimizing store designs based on demographic insights, and strategically planning geographical expansions.
By addressing all the above dimensions, retailers can build a model that meets market demands, fosters customer loyalty, and supports sustainable growth.
Four value-led archetypes for successful grocery retailer setup
We identify four potential archetypes that can be used to establish a value-led grocery retailer in the GCC successfully:
The neighborhood discount model
This model emphasizes providing essential grocery items at low prices through local stores. It focuses on accessibility, catering specifically to the everyday needs of nearby residents, ensuring convenience in shopping.
Basic discount model
The second archetype introduces a no-frills shopping experience. It prioritizes efficient operations and offers limited private-label products alongside fresh items at attractive prices. Stores under this model are designed to be pragmatic, focusing on delivering value with simplicity.
Mature discount model
As the business evolves, the mature discount model enhances its offerings while maintaining core principles of value and efficiency. This model introduces differentiated private-label products and fresh items, along with upgraded store aesthetics, to attract a broader customer base.
Full basket value-led model
Finally, the full basket value-led model encompasses comprehensive grocery solutions. It boasts a wide assortment of products at competitive prices, incentivizing bulk purchases. Loyalty programs and value offerings further encourage customer retention, fostering a more engaged shopping experience.
The neighborhood discount model is often the most scalable due to its simplicity and accessibility, followed by the basic discount model. In contrast, the full-basket value-led model is more complex to establish but leads in profitability, followed by the mature and basic discount models, with the neighborhood model being the least profitable in the long run.
The archetype or model that a retailer sets as a target must align with the specific market context. For example, large low-income markets may favor simpler models, while more mature markets such as the UAE and Saudi Arabia might support more sophisticated approaches.
Ultimately, retailers must choose their model carefully and consistently apply the strategy across dimensions such as store size, pricing, promotions, product range, private-label share, and fresh products.
Shaping the future of value-led grocery retail in the GCC
Unlocking the potential of value-led grocery retail in the GCC requires a strategic, consumer-focused approach that resonates with the region’s diverse demographics. By drawing insights from global leaders and adapting successful strategies to the unique characteristics of the GCC market, retailers can effectively meet the rising demand for affordable, value-driven shopping experiences.
As the grocery retail landscape continues to evolve, now is the critical moment for retailers to redefine value in ways that align with consumers' needs and preferences across the region. Those who act decisively and invest in the right strategies will not only thrive but also set new standards for value-led grocery retailing on a global scale.
Written in collaboration with the Retail Leaders Circle Global Forum.
