Insights

Retail innovation in the GCC region

Middle East Forecourt Convenience

Posted on 20 May 2022 in ; ;

Shopworks Regional Director for the Middle East, Nikolay Vylegzhanin shares with us the reasons why the GCC (Gulf Cooperation Council) region is fast becoming a global centre for growth and innovation, especially in the areas of digitalisation, sustainability, energy transition and international brand presence.

Retail Innovation in the region

Retailers in the region have been evolving their operations and customer interactions.

A global trend that several regional retailers are following is cashierless, frictionless stores.

Among those testing AI-enabled solutions are Carrefour in Dubai, ADNOC in their head office building in Abu Dhabi, and Oman Oil in collaboration with Omantel launching their Smart Ahlain store in Omantel’s HQ.

There is a lot of innovation happening in the types of retail formats in the region.

Shell Oman has launched its first mega hub on the Muscat Expressway connecting UAE and Oman with a variety of food, coffee and vehicle care offers, beginning a fuel offer launched in phase one.

Neighboring Emirati retailers, on the contrary, are developing smaller, more flexible formats.

Emarat has launched a sub-brand, E2, with a smaller footprint station with fewer fuel pumps and offering only core products inside the convenience store. The company sees this sub-brand as a way to reach more consumers in more neighborhoods when land availability is limited.

ENOC has also developed two new petrol station formats.

One is a small, prefabricated modular station with fuel and a small c-store offer. The other, based on their fuel delivery sub-brand ENOC Link, has the Zoom convenience offer in addition to mobile fuel stations. Both formats contain everything expected from a petrol station, but instantly popped up in a building’s car park.

Sustainability & Energy transition

Car fleet electrification might seem like something distant for this oil-rich region, but it’s quickly approaching. In 2021, 20,000 new electric vehicles were registered in the MENA region. The projection is to have 45,000 additional EVs registered by 2026.

Currently, the UAE is leading the region with the number of EVs on the road, but the Kingdom of Saudi Arabia is planning to quickly catch up. Saudi Arabia’s Ministry of Finance is planning to purchase up to 100,000 Lucid EVs over the next 10 years. Lucid is opening its first international assembly line in the Kingdom with a maximum output of 150,000 vehicles per year, giving a major boost for EV adoption in the country and in the region.

Saudi Arabian retailers are ready to support the electrification transition. Electromin, a subsidiary of the Petromin Corporation, announced a plan to install at least 100 EV chargers across the country.

Alternative liquid fuels are also gaining popularity in the MENA region. UAE’s ADNOC is planning to expand its LPG and CNG businesses in the region and has opened its first CNG-only station in the UAE.

Additionally, consumers in the GCC (Gulf Cooperation Council for the Arab States of the Gulf) are getting more sustainable not only in the way they drive, but also in the way they shop and eat.

Carrefour has opened its first BIO store in the UAE region, supporting more sustainable choices and carrying locally grown produce. The concept offers more than 3,000 healthy and organic products, and the retailer’s first ever café and in-store hydroponic farms.

International Brands presence

The Middle East has been historically welcoming to international brands and today, many more food and beverage brands are entering or expanding their presence.

Arabica, a third wave coffee shop chain from Kyoto, recently opened its flagship roastery location in Riyadh continuing their growth trajectory in the GCC.

Canada’s Tim Hortons is continuing its major regional expansion in KSA with a set of different formats including inside malls, clip-on to other retail brands, and stand-alone drive-thrus.

Dunkin Donuts is also growing its footprint in Saudi Arabia and recently opened 17 new locations and Krispy Kreme, operated by Americana, recently entered the Egyptian market with fourteen stores.

Costa Coffee is planning to re-enter Oman under a new franchisee after exiting the country a year ago. And last, Copenhagen’s Joe & The Juice coffee shops and juice bars  has announced a partnership with UAE-based Lavoya group to enter the region starting in Dubai and extending across the GCC.

International visitors will happily enjoy the variety of convenience and food offers in the region while attending any number of large-scale events taking place this year including Expo 2020, FIFA World Cup in Qatar in November, Formula 1’s three Grand Prix races in 2022 in Bahrain, Jeddah and Abu Dhabi, and the Jeddah seasons festival of music, art and watersport events is taking place in Saudi Arabia.

Digitalisation

Middle Eastern customers are becoming more digitally savvy and connected.

Mobile apps are prevalent in banking, insurance, car rental, dry cleaning and retail. But the most relevant element of the digital landscape for convenience retail is in e-commerce.

The delivery business is growing in the region as one of the few places in the world where last-mile delivery economics are successful with serious buying power and relatively low costs.

There are both international operators present including Deliveroo, Uber Eats, and Talabat as well as local delivery brands like noon Food, Careem and recent startup, Yalla Market. Yalla Market is particularly interesting with its innovative approach to the delivery business paying drivers per hour and not per delivery and accepting cryptocurrency as mean of payment.

Retail challenges in the Region

Retail business prospects in the Middle East are very positive, but not without major challenges.

The GCC region, in particular, has very young population with sixty to seventy percent of citizens under 30 years old in many countries, who are not only fickle consumers, but also employees. There is a growing trend in the GCC labor market to develop and nurture local talent, however retail jobs, especially in petrol retail professions, are far from their preferred career paths.

Energy transition is another challenge on the horizon that convenience and fuel retailers will need to eventually solve, particularly how, where and when the EV transition will take place. Will the B2C or B2B sectors be first to act and how will both eventually evolve. The question remains whether retailers should invest in their existing assets or seek alternative assets to address the future needs of EV drivers in order to remain relevant for them.

Retail network development is also increasingly tricky in the region.

It is a dilemma whether to open more locations to follow numerous developments and dilute sales volumes or to keep the network development slow with a risk to lose market share. This challenge is relevant not only for the petrol retail industry but F&B businesses as well. Each new retail location may need to have stricter cost control and tougher profitability scenarios in order to stay profitable.

While higher petrol cost might drive short-term profitability for fuel retailers, it creates long-term challenges with increased costs. Especially challenged are the e-commerce players, where for the first time they witnessed driver strikes to increase rates to address the rising cost of fuel.

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