By Fiona Briggs
Still a fledgling industry in the Middle East, convenience retailing is poised to fly with several grocery retailers and leading oil brands launching new formats in the near future. U.K. research company Planet Retail reports that the number of convenience retailers in the Middle Eastern region — which includes the GCC States and Israel, Iraq, Jordan, Lebanon and Syria — is currently limited to a handful, and was worth about $65 million in 2008. But the company forecasts that the industry could reach $100 million in 2014.
According to Planet Retail’s retail analyst for the Middle East and India, Manu Ghai, Israel and the GCC States are the catalyst for this strong growth in convenience retailing.
The region’s grocery market has evolved from traditional, open plan markets or souks, to embrace modern supermarkets and hypermarkets such as Casino and Carrefour, as well as service stations from international petroleum brands like BP and Shell. Today, they compete with indigenous players in both the supermarket arena and on the forecourt.
Israel and the emirates — Dubai in particular — are home to the most developed convenience offers to date. Business Monitor International (BMI) reported convenience retailing contributed just 4.4 percent to total mass grocery retail sales in the United Arab Emirates (UAE) in 2008. However, convenience sales are forecast to grow by 71.4 percent through 2013, according to BMI.
The economic climate largely defines BMI’s bullish outlook for the region. While the region has not escaped the effects of the worldwide credit crunch, it has held up well.
“Although consumer confidence has wavered, the tremors have been felt most vociferously in the non-food retail segments,” the group reported. “The economic meltdown has not brought the UAE’s premium-end mass grocery retail sector to its knees quite as emphatically as in a number of western markets.”
Planet Retail’s Ghai agrees. “Cautiously optimistic is how I would describe the grocery market in the Middle East,” she said. “Grocery retailers have money, and although they are not unaffected by the global economic downturn, they have held up better than others. They are also more protective than retailers in other markets.”
While the hypermarkets and supermarkets dominate the UAE grocery retail sector (BMI reports hypermarkets accounted for 70 percent of total mass grocery retail sales in 2008), convenience retailing is the next phase of development. Evidence for this shift comes from several areas.
Spinneys, the UAE’s largest premium grocery retailer, recently announced plans to launch 10 new convenience stores over the next two years. It is collaborating with Souk Extra!, a new chain of neighborhood mini-malls which are designed to help communities meet their daily needs without having to drive to big supermarkets. Souk Extra! outlets typically occupy 50,000 to 100,000 square feet and feature integrated services, including a pharmacy, fitness center, laundry, salon, kids’ play area and entertainment activities. Spinneys will operate the convenience store element within the complex.
BMI believes the move gives the retailer first advantage in an underdeveloped retail segment. “Spinneys’ community convenience store strategy should be well received by consumers,” the research group said.
“Although they are likely to be pricier than hypermarkets, the stores will be housed in high-income residential areas and will rely largely on their proximity to consumers. …Most of the country’s major retailers have not pursued the convenience segment, which is to Spinneys’ advantage,” it said.
Spinneys extends across the UAE and has helped introduce Waitrose, a premium U.K. retail brand, to the region by stocking its private label products since 2004. In November 2008, Waitrose built on that brand awareness with the launch of a store in Dubai — its first outside the U.K.
In a separate licensing partnership, Waitrose teamed up with Fine Fare Food Market to open the Waitrose-branded stores. The first opened in the Dubai Mall, in downtown Dubai, next to the world’s tallest building, the Burj Dubai. It occupies 55,000 square feet and offers a variety of fresh foods and groceries as well as delicatessen, meat, fish and cheese counters and homewares from Waitrose parent company, John Lewis.
A second, 26,000-square-foot store opened in January 2009 in the Dubai Marina Mall, another prestigious retail development. According to Ghai at Planet Retail, Waitrose is planning 20 stores in the region in the next five to 10 years and its market entry is a landmark event.
Planet Retail also rates EMKE Group, one of the biggest Indian-owned retail groups in the Gulf. Headquartered in Abu Dhabi, EMKE operates the Lulu chain of supermarkets and hypermarkets and boasts a 32 percent share of the total retail market within the GCC States. “EMKE is one of the most promising retailers,” said Ghai, “it is a big hit with customers and offers a good range of private labels.”
The group is also making a foray into convenience retailing with the recent launch of a Lulu Express Supermarket in Mussafa, Abu Dhabi. According to EMKE, it caters to the local region and offers food and non-food merchandise, fresh fruit, vegetables and seafood — all with convenient parking.
U.K. industry think tank, the IGD, shares BMI’s optimism for the region. Jonathan Gunz, senior business analyst at the IGD, said: “The convenience sector in United Arab Emirates is expected to see strong growth as retailers such as EMKE and Spinneys seek to tap into this new opportunity with smaller store formats.” Back at Planet Retail, Ghai highlights two leading Israeli retailers — Shufersal and Blue Square — that are focusing on convenience. “They are leading in hypermarkets and supermarkets in Israel and are now looking at convenience,” she said.
In such an oil rich market, it is no surprise to find convenience taking shape on the forecourt. Again, countries in the GCC lead the field. Andrew Bradley, partner at Dublin-based brand consultancy Bradley McGurk, recently visited the region and found a market with plenty of potential. “I do think it’s going to be a busy marketplace,” he said. “There are lots of garages and they are full service with a lot of car offers. The stores are big, well-presented and clean and tidy. There’s no reason why you would not buy a meal in there.”
Store development is crucial, Bradley maintains. “The major oil companies have realized that there is no money in retailing oil — you can’t use your credit card to buy fuel, for instance, because the margin is too tight, but you can use your credit card in the store.”
“The big issue for forecourts is the low conversion rate — only 12 to 15 percent are going into the shop. I’ve seen queues for coffee at vending machines, so there is an appetite,” he said, adding that the stores are architecturally strong and well presented, but they lack personality. “Customers in any part of the world want to be talked to,” Bradley said.
Emarat, the leading petroleum brand in the UAE, is the best of the bunch for many industry observers. Emarat operates 170 service stations and 85 convenience stores in the UAE, plus six service stations in Egypt. It recently launched a standalone convenience format called Fresh Plus, which offers fresh, food-to-go in busy metropolitan environments, supported by a range of top brands and staple items.
Fresh Plus is the company’s third convenience store development in 13 years. Emarat has also developed the Bakeria (bakery) and Café Arabicca (coffee) franchise brands. “Later we will develop other brands into the franchise model and potentially the complete service station,” said Darren Smith, manager retail marketing support at Emarat. “Fresh Plus will initially open in commercial locations with residential locations to follow,” he said.
Emarat competes with ENOC, the Emirates National Oil Company, and a wholly owned Dubai government company, which trades under the ENOC and EPPCO service station brands in Dubai and the Northern Emirates. These stores offer a one-stop shop for fuel, car care, fast food, groceries, newspapers, ATMs, phone cards and mobile phone accessories. EPPCO, now Retail ENOC, claims to be UAE’s convenience store pioneer, having opened its first outlets in 1988. Today, it operates 55 Aqua Marts, 48 Star Marts and 37 Mini Marts, serving about 600,000 customers a week.
In Oman, supermarket and convenience retailer Enhance manages 43 forecourt convenience stores under the Quick Shop brand at Omanoil gas stations across the sultanate. Business is brisk, according to Ahmad Abbas, general manager of retail solutions. “Total business in the Enhance-operated c-stores was over RO (Omani Rial) 9.5 million [more than $24 million in U.S. dollars] last year with projected growth of 15-20 percent for 2009,” he said. “The c-store sector is the fastest growing retail industry in Oman.”
The signs look good. And, if forecourt sites can begin to engage the consumer they may do even better, according to Bradley. “They just need to understand what it is about being local and then be more creative in how they communicate it,” he said.
Fiona Briggs is a retail business journalist and editor of NACS/Insight Global Convenience Store Focus, a monthly online newsletter. She is also consulting editorial director at a U.K. PR company, Cirkle. She can be reached at fionalbriggs@gmail.com.