Discounters in Saudi Arabia

PROSPECTS

Discounters becomes attractive during periods of economic restructuring

Following austerity measures in 2017, consumers continued to face the impact of economic restructuring during 2018, with Saudization policies and implementation of Value Added Tax in addition to dependent fees impacting disposable incomes, cost of living and thus purchasing behaviour characterised by consumers rethinking their spending habits. A large share of adults in Saudi Arabia fall within low- and mid-income groups, with the highest share held by the low-income segment.

Bigger households and lower average incomes open potential for discounters

Larger households are quite common in Saudi Arabia with an average household consisting of six members. Therefore, local households have higher average monthly budgets to fulfil their household needs.

Efficient category assortment - an important factor to maintain low costs

Successful players in discounters have followed simpler store formats and selected a variety of products within each category to offer competitive prices. Therefore, efficient category assortment ensures high-quality products for customers as well as high product turnover.

COMPETITIVE LANDSCAPE

Al Dukan is the sole discounter

Al Dukan continued to be the only discounter chain in Saudi Arabia and thus enjoys a monopoly in the channel. Its business model, although simple, is difficult for others to replicate with the same level of efficiency.

Frequent promotions in hypermarkets impact sales of discounters

As existing hypermarkets continued to grow throughout Saudi Arabia and new international players such as Spar entered, competition continued to intensify, which has led to massive offers and promotions including price discounts and bigger price promotions of bulk packages. Such aggressive discounts by hypermarkets is likely to impact sales of discounters due to competitive pricing.

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