Retail trends in Saudi Arabia Retail Leaders Circle February 2020 D R A F T
Retail is an important sector but is under-developed in Saudi Arabia Consumer spend by object (SARB) 2.1m jobs (2 nd largest in private sector) Source: GOSI, National Statistics Center 2 IST Retail trends in Saudi Arabia
Back to growth YoY evolution of ATM cash withdrawals and debit card spend (%) 2019 +4.7% VAT Source: SAMA 3 IST Retail trends in Saudi Arabia
Expectations are increasingly positive Growth expectations of FMCG companies in KSA However significant headwinds remain • Subsidy cuts will continue till 2023, though more slowly • Expat levies will rise from about $26 to just over $100 - • Tax including excise and VAT may increase over time • Greater employment of Saudi, notably women • Lower interest rate + • Repatriation of some of the Saudi spend abroad thanks to modernization of retail infrastructure (mall, brand…) • Growth of entertainment • Tourism target 30M visitors p.a. vs 8M today Source: Middle East Advisor survey of CFO, Dec 2019 4 IST Retail trends in Saudi Arabia
Five major retail trends in Saudi Arabia 1. Re-definition of value 2. Experiences Retail trends 3. Modernization of 5. Cost & profit pressure traditional trade 4. Digital 5 IST Retail trends in Saudi Arabia
Shoppers are redefining value, creating demand for both “good deals” and “worth it premium” V A L U E …BUT ALSO WILLING TO PAY A PREMIUM SHOPPERS IN CONSTANT SEARCH OF A GOOD DEAL… WHEN IT MATTERS Fastest growing Luxury Fashion growing Fast Luxury fashion brand at +7% in 2018 Fashion Goods Promo intensity Premium Grocers Quality Promo reaches 55% performing well Value means… Fine dining Extreme value Experien Low explode in trends in QSR ce price Riyadh Personal- Pre-owned ized Source: Litsearch, Bain analysis 6 IST Retail trends in Saudi Arabia
Appeal for ‘deals’ is especially strong in Saudi V A L U E Source: Bain research on apparel purchase online, 2019, N=3000 7 IST Retail trends in Saudi Arabia
Experiences outgrow goods in the USA and Saudi Arabia E X P E R I E N C E S In last 2 years, restaurant expenditures on debit Experiences are the highest growing categories in the card has grown at 2X grocery United States Source: Bureau of Economic Analysis USA; Bain Analysis 8 IST Retail trends in Saudi Arabia
Saudi spent twice as much time The quest for experiences open many new opportunities in Saudi shopping vs Western E X P E R I E N C E S counterparts Mega-malls Under-developed categories Innovative concepts 9 IST Retail trends in Saudi Arabia
Modernization of retail under way as TT lost 6pts of market share in last 5 years although share seems to stabilize in 2019 M O D E R N I Z A T I O N Grocery channel share in Saudi Arabia Beyond grocery • Independent telecom stores – From 60% share to less than 36% in 3 years • Independent garages • Independent eateries • Independent jewelry stores • … Elimination or modernization? How to best modernize independent stores across categories? 10 IST Retail trends in Saudi Arabia
Ecommerce is booming in the region D I G I T A L MENA e-commerce market Key insights • E-commerce market grew at 29% p.a. 2017 to 2019 to reach $14.3B • Electronics is the biggest 29% category followed by Fashion, grocery and beauty • Market quite concentrated (top 3 > 50%) • Pure play won the first battle for ecommerce with 85%+ share Share of ecommerce 67% in total retail growth in KSA (17’ - 19’) Note: e- commerce categories extrapolated for ‘Other MENA’ Source: Expert interviews; Forrester; eMarketer, Euromonitor; Bain experience 11 IST Retail trends in Saudi Arabia
Shoppers are happy with online promotions but still feel gaps in delivery experience D I G I T A L 12 IST Retail trends in Saudi Arabia
Online Food delivery is also booming with a high penetration rate D I G I T A L Mature market Emerging market Note: for non-KSA markets, assumed 20% increase in penetration rate between 2016 and 2017 Source: Euromonitor; company data; World Bank; UBS; Bain analysis 13 IST Retail trends in Saudi Arabia
The cost inflation combined with subdued growth and price pressure have affected corporate profitability both in retail and CP, with increasing volatility P R O F I T P R E S S U R E LISTED GCC FOOD COMPANIES PERF. 2016-18 PROFIT MARGINS OF LISTED GCC RETAILERS Given continued price pressure, companies need to manage cost AND/OR innovate to go back to higher profitability Note: Include all listed retailers in KSA (Fawaz Al Hokair, Jarir, eXtra, Othaim plus Panda…) and UAE ( Foodco, Marka, Dubai refreshment plus MAF Retail), Database of 52 listed food companies in GCC ,Source: Capital IQ 14 IST Retail trends in Saudi Arabia
There are opportunities to catch up with the NTP target for the retail sector R E G U L A T I O N S Four priorities to bridge the gap Gap between NTP growth target and actuals • How to accelerate the modernization of the traditional trade sector? • How to make the sector more attractive for investment? – Sector specific rules, transversal rules, opening hours… • How to activate major retail destinations for tourists and residents and develop missing specialty retail segment? – Mega-malls, shopping festivals, price convergence • How to transform Saudi Arabia into a ecommerce hub? – Convert cross-border into local ops, turn KSA into exporting hub 15 IST Retail trends in Saudi Arabia
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