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Saudi Arabia’s demographics and retail attractiveness
Saudi Arabia or the Kingdom of Saudi Arabia (KSA) is the largest economy in the GCC region with a GDP of USD 800 billion. Retail sales generate about 7% of the country’s GDP. That translates to USD 56 billion and per capita retail spending at USD 1697 per annum. These are interesting numbers for supermarket retailers as it reflects a decent amount of spending on retail purchases.
With a population of about 33 million, KSA is the most populous country in the region with no other GCC country standing anywhere close to this number (next is the UAE with a population of about 9.5 million). As a whole, the country offers a large retail customer base for supermarket retailing.
KSA has about 50% of its population in the age group of 25-54 years. This section represents the working and earning class. And also, the spending class. This could be also inferred that half of the country’s population qualifies to be certain supermarket retail customers.
The country is divided into 13 emirates with population density being highest in the regions of Medinah, Makkah, ‘Asir, Al-Bahah, Jizan, Al-Qassim, and Riyadh. These seven regions occupying about 40% of the total land area is home to approximately 76% of the country’s population. These are the regions which retail and eCommerce players should contemplate upon for further assessment of their supermarket projects.
Saudi Arabia ranks 62nd in the world and 2nd in the GCC in terms of ease of doing business. With the establishment of the one-stop-shop solution for several pre and post-registration procedures, starting a business has now become easier in the country. Now it is also easier to get construction permits and electricity connections under new rules. Even credit accessibility has been made easier under new laws.
Starting a supermarket business in Saudi Arabia
As supermarket business consultants for Saudi Arabia, we are highlighting below some of the most important decisions you will have to make in the journey of starting a supermarket in Saudi Arabia.
Identify the right market and market research
Saudi Arabia is a large country. As mentioned earlier, the population is concentrated in a selected few regions - Medinah, Makkah, ‘Asir, Al-Bahah, Jizan, Al-Qassim, and Riyadh. This is a relevant consideration for a supermarket business especially if it is intending to cover a wider market. In densely populated areas, supermarket businesses get access to a larger customer base at a relatively lesser cost of acquisition. But for each targeted market region, they will have to identify its characteristics to comprehend market potential, customer behaviour, the intensity of competition, pricing factors, the performance of different channels of distribution, locational feasibility, etc. And most importantly, they need to conduct market research with the objective of coming up with actionable insights for informed decision-making.
Develop a competitive supermarket business model
The objective for developing a sound business model is to figure out what offering constitutes ‘value’ to customers, why customers would be motivated to buy from your supermarket stores(s), what will differentiate your supermarket business from the rest of the competition, and how you are going to create that value and deliver it to your customers. The better your business model is the better are your prospects of attracting and retaining your customer base. This converts to steady sales and a steady flow of revenue. Thus, you must be able to identify and create the right UVP for your target market and map how you would create and deliver that UVP to your customers, consistently and profitably.
Develop a sound supermarket business plan
Assessing a business idea or project for its commercial viability is one of the prerequisites of starting a new business venture or project. This involves assessment and projection of the financial costs and revenue which is to be incurred (attracted) in the setting up and running of the supermarket. It includes the capital expenditure and the repayment and cost of capital to be covered over years, expected turnover over a projected time frame, inventory and purchase planning to meet the anticipated market demand, return on investment and break-even estimations etc. An underlying benefit of such financial planning is that it also serves as a financial action plan and not just evaluating the financial viability of a business project.
Decide on product category and maintaining the inventory balance
Based on the area-size of the store and the profit margins associated with different products, supermarket retailers have to finalize what products they will deal in. In a supermarket, there are two main categories of products - food and non-food. In general, the margins with food products are lesser than the non-food category. But to maintain a healthy overall revenue, supermarkets need to maintain the right balance between these two categories as customers come for purchase of both food and non-food products.
Build the organization structure
To ensure appropriate staffing, unity of command, proper flow of communication, sustenance of authority-responsibility relationships, clarity of roles and responsibilities, and due adherence to rules and regulations, it is important to design the right organization structure for your supermarket business. For instance, you should not be holding your purchase manager responsible for a lapse in store security. There should be a position for looking after store safety and security. This is also true the other way round. If customers complain about poor shopping assistance in a supermarket, it could be possible that the sales team is understaffed. The ‘organization’ provides the rules of the house. If the rules are poorly planned, it will be evident in the disorderly internal functioning of a business enterprise whether it is a single-store supermarket or a supermarket chain.
Plan the layout
Real estate space is already a big constraint for retail supermarket businesses. So, the available space needs to be utilised in the best possible manner. Various factors and objectives that come into play here are space optimization for maximum inventory, planogram and visual merchandising, easy movement of customers and staff, maintenance of safety and security protocols, etc. This involves deciding the entry and exit points, location and position of the cash counters, queue management, counter for product returns, rack planning and aisle spacing, product-wise shelf planning, etc. A good supermarket layout plan helps in optimizing the inventory levels, achieving more sales and profits per square feet, creating attractive merchandising for more sales, and building a pleasant physical environment where customers are motivated to spend a longer time.
Identify the right business software requirements
Running a supermarket is quite different from running a large grocery store. In a supermarket, there are multiple business processes and operations involved, both at the back end and the front end. And to effectively and efficiently manage complex supermarket operations, using the right software platform has become the norm of the day. A simple example would be the billing counter. Going manually could take longer to execute the billing and payment operation. In peak hours and holidays, it can become a frustrating experience for the customers. But with the right software and fully/partially automated solutions like scanners and digital payments, the process can be brought to a matter of a few minutes even in the case of bulk purchases. At the back-end also, integration of business processes significantly helps various departments to keep them aligned to one another and carry out their respective operations to keep the supermarket running as planned.
Operations (Supermarket SOPs)
Various departments in a supermarket include purchase and inventory, accounts and cash, security, housekeeping, sales, IT, HR, marketing, etc. And each department has a role to play and multiple operations within. It is important to ensure that every business operation in every department is carried out as it should be. Thus, the operations must be defined and mapped in advance so that there is absolute clarity of what needs to be done – by whom, how, when, and where. The ‘why’ is determined by the bigger business and functional goals. The solution to achieve this is SOP manuals (Standard Operating Procedures).
Staff Training
To effectively and efficiently carry out the assigned duties and responsibilities, providing the right training to employees makes a big difference. In a supermarket, you may not have time to mend any core operational setback. Thus, employees got to be doing everything as planned. And to be able to do that, employees must be made convergent not only with their routine duties but also responses to be adopted in the event of any operational lapse staying within the realm of planned operations.
We are a boutique retail consulting firm. To know more about our supermarket business consulting services for Saudi Arabia or if you have any service-related query, drop us a message and we will get back to you.