Food inflation leads to rise of Gulf discount operators

Creative Commons/Saudi Scoop

• Shoppers seek cheaper food
• UAE discounters grow 20%
• Private label quality improves

Rising food costs in the Gulf over the last two years have spurred an increase in the number of discount operators entering the market. 

The food and beverage category of the UAE’s consumer price index rose from 100.3 in 2021 to 107.5 in 2022, and is forecast to rise further to 111.8 in 2023, according to government statistics. 

“The discount retailers are seeing traction, especially as consumer prices are increasing and the quality of private labels continues to increase,” Sandeep Ganediwalla, partner at Redseer Consulting in Dubai, told AGBI.

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He highlighted the example of Viva, a discount supermarket chain launched by the UAE’s Landmark Group in February 2018.

“They are a private label discount retailer which primarily sells eastern European products in the UAE and has been gaining market share,” he said.

According to data from Redseer, food discounters in the UAE have experienced a compound annual growth rate (CAGR) in sales of more than 20 percent over the past two years compared to an CAGR of 5-6 percent in the overall UAE grocery retail sector.

Factors supporting this growth include the overall rising cost of living, selling products at prices 30-40 percent lower than those found in mainstream supermarkets, proximity to residential areas and private label-driven sales.

Supermarket chains such as Carrefour and Lulu have recently intensified their focus on private labels, with private label growth reaching 10-15 percent in 2023 compared to the previous year, noted Redseer.

“Initially Carrefour’s private label was a relatively mass positioning,” said Ganediwalla.

“They have steadily created a Carrefour branded private label with higher quality and positioning but which is still cheaper than the international brands.

“The margins are better there and they have been gaining market share, with the breadth of their offering continuing to increase.”

Garrett Walsh, CEO of Mezzan Holding, a Mena food distributor and manufacturer based in Kuwait, said: “Discount operators is a channel that really didn’t exist here a couple of years ago, whereas today it has a completely differentiated range offering good products at good prices on a daily basis.”

Walsh was speaking as part of a webinar held by research company Alpen Capital on Tuesday to launch its GCC food report. 

“I see demand for that continuing to grow. Price increases have been exponential in the UAE over the last two years, and I would imagine that that will continue,” he added. 

Alpen Capital’s report also noted that it expects multinationals to increasingly focus investment on the region given its favourable demographics.

More than 60 percent of the GCC’s population is aged between 15 and 49 years – in contrast to the population decline taking place in developed economies. 

“I’m confident that we will see more multinationals putting much more focus into this region, bringing the learning they have in terms of changing consumer demographics to the market in a much more aggressive way,” said Walsh. 

“I think we will see those bigger players worldwide striving to become bigger players locally as well.” 

Alpen Capital forecasts that food consumption in the GCC will grow at a compound annual growth rate of 2.8 percent to reach 56.2 million metric tonnes by 2027 from an estimated 49 million in 2022. 

In 2021, the GCC consumed 48.7 million metric tonnes of food produced, with Saudi Arabia and the UAE accounting for 72.6 percent of consumption.

The GCC’s population is estimated to have reached nearly 56.2 million in 2022. Young and working-class professionals account for 84 percent, while expats comprise about 51 percent, according to Alpen Capital’s report.