Retail Leaders Circle February 2020

D R A F T

Retail Leaders Circle

February 2020

Retail trends in Saudi Arabia

2Retail trends in Saudi ArabiaIST

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)


Back to growth

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

Source: SAMA

VAT

2019 +4.7%


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


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


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


Appeal for ‘deals’ is especially strong in Saudi

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

V A L U E


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


The quest for experiences open many new opportunities in Saudi

E X P E R I E N C E S

Under-developed categoriesMega-malls Innovative concepts

Saudi spent twice

as much time

shopping vs

Western

counterparts


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


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


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

D I G I T A L


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


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


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

Documents

Retail Leaders Circle February 2020