Retail trends in Saudi Arabia Retail Leaders Circle February 2020 - - PowerPoint PPT Presentation

D R A F T

Retail Leaders Circle February 2020

Retail trends in Saudi Arabia

2

Retail trends in Saudi Arabia IST

Retail is an important sector but is under-developed in Saudi Arabia

Source: GOSI, National Statistics Center

Consumer spend by object (SARB)

2.1m jobs (2nd largest in private sector)

3

Retail trends in Saudi Arabia IST

Back to growth

YoY evolution of ATM cash withdrawals and debit card spend (%)

Source: SAMA

VAT

2019 +4.7%

4

Retail trends in Saudi Arabia IST

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

5

Retail trends in Saudi Arabia IST

Five major retail trends in Saudi Arabia

• 1. Re-definition of value
• 5. Cost & profit pressure
• 2. Experiences
• 3. Modernization of

traditional trade

• 4. Digital

Retail trends

6

Retail trends in Saudi Arabia IST

Shoppers are redefining value, creating demand for both “good deals” and “worth it premium”

Value means…

Luxury Goods Quality Experien ce Personal- ized Fast Fashion Promo Low price Pre-owned

Source: Litsearch, Bain analysis

SHOPPERS IN CONSTANT SEARCH OF A GOOD DEAL… …BUT ALSO WILLING TO PAY A PREMIUM WHEN IT MATTERS

V A L U E

Fastest growing fashion brand Luxury Fashion growing at +7% in 2018 Promo intensity reaches 55% Premium Grocers performing well Extreme value trends in QSR Fine dining explode in Riyadh

7

Retail trends in Saudi Arabia IST

Appeal for ‘deals’ is especially strong in Saudi

Source: Bain research on apparel purchase online, 2019, N=3000

V A L U E

8

Retail trends in Saudi Arabia IST

Experiences outgrow goods in the USA and Saudi Arabia

Experiences are the highest growing categories in the United States

Source: Bureau of Economic Analysis USA; Bain Analysis

E X P E R I E N C E S

In last 2 years, restaurant expenditures on debit card has grown at 2X grocery

9

Retail trends in Saudi Arabia IST

The quest for experiences open many new opportunities in Saudi

E X P E R I E N C E S

Under-developed categories Mega-malls Innovative concepts

Saudi spent twice as much time shopping vs Western counterparts

10

Retail trends in Saudi Arabia IST

Modernization of retail under way as TT lost 6pts of market share in last 5 years although share seems to stabilize in 2019

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?

M O D E R N I Z A T I O N

11

Retail trends in Saudi Arabia IST

Ecommerce is booming in the region

29%

Note: e-commerce categories extrapolated for ‘Other MENA’ Source: Expert interviews; Forrester; eMarketer, Euromonitor; Bain experience

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

category followed by Fashion, grocery and beauty

• Market quite concentrated (top 3

> 50%)

• Pure play won the first battle for

ecommerce with 85%+ share

67%

Share of ecommerce in total retail growth in KSA (17’-19’)

D I G I T A L

12

Retail trends in Saudi Arabia IST

Shoppers are happy with online promotions but still feel gaps in delivery experience

D I G I T A L

13

Retail trends in Saudi Arabia IST

Online Food delivery is also booming with a high penetration rate

Note: for non-KSA markets, assumed 20% increase in penetration rate between 2016 and 2017 Source: Euromonitor; company data; World Bank; UBS; Bain analysis

Mature market Emerging market D I G I T A L

14

Retail trends in Saudi Arabia IST

The cost inflation combined with subdued growth and price pressure have affected corporate profitability both in retail and CP, with increasing volatility

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

PROFIT MARGINS OF LISTED GCC RETAILERS LISTED GCC FOOD COMPANIES PERF. 2016-18

P R O F I T P R E S S U R E

15

Retail trends in Saudi Arabia IST

There are opportunities to catch up with the NTP target for the retail sector

Gap between NTP growth target and actuals Four priorities to bridge the gap

• 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

R E G U L A T I O N S