Differentiation holds the key to success in UAE grocery sector

Competition in the UAE’s grocery sector has heated up so much over the past years that differentiation is emerging as the key to success, according to a report from management consulting firm Oliver Wyman.

A rapidly growing population and a buzzling expat community has for long been a key driver of growth for the UAE’s grocery sector. But with market saturation now reached in most segments of the sector and regions, capturing market share has evolved into ahat is known as a like-for-like game – meaning: while one wins, another loses.

Winning customers from competitors is however not easy, with customers typically acquainted to their ‘favorite’ shops and routines. The key to success therefore more than before lies in differentiation, in some form or another, highlights the Oliver Wyman study.

“As competition continues to escalate, brands will need to make progress towards a truly differentiated proposition in order to be successful in the long run,” stated Joe Abi Akl, partner and the head of Oliver Wyman’s Retail & Consumer practice for India, the Middle East, and Africa.

In addition to market dynamics, the growing need for differentiated is also triggered by consumers. Oliver Wyman’s study found that customers in the UAE have developed differentiated preferences compared to their peers in other GCC markets. “Various customer segments now clearly prioritize different factors in their choice of retailer. In response to these changing preferences, a stronger differentiation of formats is emerging.”

How that differentiation is achieved depends on the strategy and positioning of a grocery chain / store. “Some brands are focusing on a truly differentiated proposition supported by a premium customer experience, while other retailers are striving for a balance between value and quality of products. Only rare exceptions can successfully balance both, to stay competitive,” said Abi Akl.

Spinneys and Waitrose for example focus on high-quality fresh products and offering unique products and own labels, while Viva, on the other side of the spectrum, focuses on value. Meanwhile, the large hypermarket chains like Carrefour, LuLu and Nesto try to balance both by offering large assortments and attractive promotions.

“In this context, undifferentiated players are likely to struggle. Those that can best innovate and differentiate themselves from their rivals are most likely to prosper,” said Alexander Poehl, partner at Oliver Wyman.

Getting it done

So what needs to be done to transition towards a more differentiated offering? Poehl: “It will require retailers to upgrade their category management capabilities and revisit their relationships with suppliers. Just selling shelf space and promotions to the highest bidder will no longer be good enough. Winners put the customer at the center of all decisions on format, assortment, space, price, and promotions.”

In putting the customer centrefold, a deep understanding of their preferences is essential. A survey of UAE consumers by Oliver Wyman found that satisfaction is driven to 53% by value (price and promotions), 20% by quality, 18% by range and 9% by service.

“Given the relative importance of value, retailers might want to make sure to offer an attractive price entry range and own-label products, increase their pricing capabilities, or provide attractive promotions that drive customers to the store without destroying margin,” explained Poehl.

“Offer specialists might opt to take larger control of their supply chains and offer unique high-quality fresh products, satisfying the hunger of UAE customers for local products, with 92% of customers deliberately looking for fruit and vegetables produced in the UAE.”

Differentiation also includes beefing up personalization and engagement, through initiatives such as loyalty programs. “Enabling consumers to access products, promotions and services most relevant to them could deliver a significant market advantage.”

Demonstrating the potential, 60% of UAE consumers told Oliver Wyman that they would be interested in getting access to more services through their loyalty schemes, with food & beverage, payments and healthcare service being the most interesting options.

Abi Akl concluded: “Compared to Western markets, consumers in the UAE are much more diverse in terms of cultural background, purchasing power and languages spoken. For retailers, this opens an important opportunity for differentiation through personalization.”