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Saudi Arabia’s BinDawood Group, the owner of the Danube & BinDawood supermarket brands, is gearing up for an aggressive online and offline expansion within the kingdom, and is also looking at opportunities to grow physical stores beyond the Saudi borders, the group’s chief executive has told Zawya.
Despite the fact that many physical retail companies are struggling worldwide, BinDawood Group’s CEO Ahmad A.R. BinDawood believes that there is still room for traditional retail to grow, especially in Saudi Arabia, where the lifting of the ban on women driving ‘offers a rare opportunity for Saudi retailers’.
And while the CEO expects a minimal negative impact from a combination of last year’s value-added tax, the introduction of expat dependents’ fees and a Saudisation drive in retail, he believes this could play into the hands of stronger companies, with more consolidation in the sector anticipated in 2019, especially among small retailers in the kingdom.
Creating in-store value
“In terms of offline and physical presence, the BinDawood Group expanded significantly in 2018; our plan for 2019 is to continue this expansion aggressively,” BinDawood told Zawya in an email interview.
“We currently have 68 stores across the kingdom, with 18 more store openings planned between 2019 and 2020,” he said.
“So far, our offline plans have been focused in Saudi but we are currently exploring opportunities in other regions, including the UAE and Egypt,” he added.
In terms of expansion in Saudi, the group is investing heavily in store expansions and enhancing its presence across the major cities of Makkah, Jeddah, Riyadh, Khobar and Damman. New store openings are also planned across multiple other cities including Taif, Hail and Buraidah, with eight new hypermarket stores opening this year, according to BinDawood.
“We are vigilantly aware of the trend of global decline in offline retail, which is quite tragic and there is a cost to the community when stores that are communal focal points close down,” he said.
He added that a key element of its strategy is that “our stores serve as a focal point in the communities we operate”. For instance, he said that in 2018 the company commissioned a survey amongst Hajj pilgrims from six countries that it serves through stores in Saudi Arabia’s two holy cities, with a view to promoting health awareness during their pilgrimage.
BinDawood also hosted many in-store events throughout the year, such as a French Food Festival that hosted famous chefs to teach customers about French cuisine, and a campaign to celebrate Saudi National Day.
“The crux is, we engage with, and provide a focal point for, communities. We are a partner to them. We want to serve them and meet their needs, and we emulate this strategy in our online platforms,” he added.
Tapping online sales
The Middle East, North Africa and South Asia region had an estimated $51 billion worth of e-commerce sales in 2017, accounting for 3 percent of global e-commerce sales, according to a report launched by Dubai CommerCity last month.
But the region is set to witness aggressive e-commerce growth, the report added, at a rate of 24.6 percent through to 2020 - higher than the projected global rate of growth of 20.6 percent. (Read more here).
The CEO said that BinDawood brands were among the first movers in the Kingdom's e-commerce grocery space, with millions of monthly users in 2018 shopping on the Danube Online and Danube App platforms.
“Growth factors included a young, internet savvy population, entrepreneurship and growing government support, which we have seen in the kingdom with the establishment of the e-commerce council last year,” BinDawood said. (Read more here).
The group plans to improve the customer experience of its current apps, and also launch BinDawood stores online in 2019. Interestingly, the heaviest users of the Danube App are female millennials ordering groceries, according to the CEO.
“So we, in observation, can deduct from this fact that grocery shopping online is a great option for them as their role continues to transform in the Kingdom,” BinDawood said.
But he noted that as the economy in Saudi Arabia continues to grow and women are empowered to drive to malls themselves in 2019, retailers have once-in-a-lifetime chance to create an experience that “today’s more sophisticated and demanding customers expect”.
“Saudi Arabian retailers have a rare chance to redefine what it means to shop in-store and online,” BinDawood said.
Reform drive impact
Despite an uncertain consumer outlook and changing behaviours in 2018, BinDawood said that the group has successfully responded to the various headwinds it faced last year.
“We maintained and grew our position as the second-largest grocery retailer in the kingdom, increasingly leveraging the symbiosis of our BinDawood and Danube brands, online and offline. We reported strong growth in FMCG (fast moving consumer goods) in 2018 and we expect to see more progress and momentum this year,” he said.
BinDawood said that retail markets remain highly competitive.
“It is expected that the Saudi retail sector will witness further consolidation in 2019, and this forecast is attributed to the increasing Saudisation levels, mostly around smaller retailers, but also in alignment with global trends of demand for more modern retail formats,” he said.
A report by NCB Capital (NCBC) last month said that consolidation in the retail sector in Saudi Arabia will benefit larger players as Saudisation “will negatively impact smaller shops due to higher costs and difficulties of hiring of Saudi nationals”.
Traditional grocery retailers in Saudi continued to face decline in 2018 with continuous development of modern retail throughout the kingdom, rapid urbanisation and changing shopping habits, according to the latest Euromonitor International report, along with the impact of economic reform.
“Young and urban Saudi Arabians who belong to the mid- and higher-income groups prefer modern grocery retailers. One of the unique selling propositions of traditional grocery retailers used to be home delivery through a phone call, but since the introduction of internet retailing by all major retailers, the traditional format also lost some ground on this aspect,” the report said.
The Saudi government has been tightening controls over employment at retail businesses, and last year added a new list of jobs and activities that are off-limits to expatriates in the kingdom. (Read more here).
“Initially, there were increases in costs to train Saudi nationals in the retail roles, but overall when you consider the visa costs etc. of hiring expats, the costs to hire are similar,” BinDawood argued.
BinDawood dismissed the impact of thousands of expatriates leaving the kingdom last year or sending their families back home as living costs rose, noting that “Saudi's retail industry is actually forecast to rise steadily to $119 billion by 2030, with store-based retailing set to continue to dominate, according to Euromonitor International report in December 2018”.
Growth in groceries
According to the Euromonitor report, the Saudi grocery retail segment is expected to grow to $48.7 billion by 2023, an increase from $41.1 billion in 2018.
The overall growth in Saudi Arabia’s population means the kingdom is likely to be the least-affected market in GCC when it comes to expat migration, according to Zeeshan Sajid Amin, a business executive who launched the B4U Aflam channel in Saudi Arabia and who works with Saudi retailers looking to advertise with the channel.
“The retail sector in Saudi is consistently improving since the fourth quarter of 2018 with first month of 2019 having improvement over 2018,” he told Zawya in emailed comments.
“Early Ramadan in 2019, along with improved confidence, will see more stability in 2019 which will be perceived as growth. This will help performance in the first half of 2019 and will increase (the) confidence of corporates to loosen their spending and payments flow which was paused for the past several months,” he added.
BinDawood Group is a ‘family business born out of entrepreneurship’ according to the CEO, which started out with the BinDawood superstores chain, then the subsequent acquisition of the Danube retail business 17 years ago.
As for the group’s strategy on product range, BinDawood said its focus revolves around quality and evolving with new retail trends.
“We continually review our product offerings and one of the major changes we have seen in recent years is as customers have more access to information, their needs and tastes change. That has led us to change the way we do things in supermarkets,” he said.
“For example, last year we launched a department selling food items for people who have allergies. In addition, we are the largest seller of organic products in Saudi Arabia. We also operate the first organic bakery in Saudi Arabia.
“With the demand for healthy eating options growing, last year we added a superfood section to our stores that features products such as quinoa and chia seeds, as well as various high protein food produce,” he said.
Despite initial apprehension, the impact of value-added tax on consumer confidence was quite muted overall, according to BinDawood, but he noted that the logistics around implementing VAT was not an easy task for the country’s businesses.
“At the beginning of 2018 specifically, I believe inflation rose to 3 per cent year-on-year in January '18. Everyone expected retail prices to climb, and the perception was generally that consumers would pay more. Of course, that was not the case necessarily; in our industry the price elasticity of demand is high,” BinDawood said.
Overall, consumer markets in Saudi Arabia have stabilised in 2018, especially in the second half, according to Cyrille Fabre, a partner at Bain & Company Middle East, who told Zawya that overall spending grew by 5 percent, in line with VAT.
“Going forward, we expect to see some moderate growth in 2019, although still well below the high growth seen between 2004 and 2014,” Fabre added.
(Reporting by Nada Al Rifai; Editing by Michael Fahy)
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