Discounters in Saudi Arabia

2020 IMPACT

Essential status supports discounters sales

Despite the pandemic, discounters sales continued to rise during 2020 as such stores were given essential status by the government. Currently, there is only one discounter in Saudi Arabia, Dukan, which is similar to a local convenience store but branded based on the US discount supermarket chain, Aldi.

Challenging economy and political intervention represent potential threats

Discounters continue to be impacted by the government’s Saudization policy and VAT rises, impacting profitability. The combination of these factors has led to outlet closures in recent years.

Competitively priced large-scale formats attracting pandemic hit consumers

As existing hypermarkets continued to grow throughout Saudi Arabia at the end of the review period, and new international players such as Spar entered the market, competition continued to intensify. This led to massive offers and promotions being implemented, including price discounts and greater price promotions on bulk packages.

RECOVERY AND OPPORTUNITIES

Entry of new players to fuel further development

Towards the middle to end of the forecast period, it is expected that new brands will enter the market in discounters, especially via Western franchise agreements as part of the government’s Vision 2030 programme calling for an increase in foreign investment to diversify the economy away from total reliance on oil revenues. In 2021 and into the remainder of the forecast period, Dukan has plans to further develop its e-commerce platform and expand outlet numbers in the Western regional cities of Jeddah, Makkah and Madinah, where it is currently located.

Growing competition from ever expanding and more convenient hypermarkets

Given that groceries comprise one of the main areas of expenditure for any household, and customers showed a preference to reduce their expenditure on all fronts towards the end of the review period, they preferred to buy in bulk whenever they found attractive promotions and discounts. While this initially benefitted discounters, increasingly frequent promotions and aggressive discounts implemented by hypermarket players, and more convenient geographical locations, led to hypermarkets becoming more attractive alternatives.

Strong potential for discounters to extend consumer base over forecast period

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