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Battle of the brands

BATTLE OF THE BRANDS

Opportunities and challenges for international retailers in MENA in 2015.

March 2015

Without a doubt, the Middle East & North Africa (MENA) region is home to some of the world’s most dynamic retail markets and possesses immense growth prospects over the coming years.

According to A.T. Kearney’s 9th annual Global Retail Development Index (GRDI), the MENA region exhibits the most exciting retail growth opportunities for international retailers today. The study ranks the UAE, Kuwait, Saudi Arabia and Oman as number 4, 8, 16 and 17 respectively.

With a growing and young population, strong GDP growth and high levels of consumer spending power, it is not surprising that many MENA markets attract the attention of global retailers looking to capitalise on the favourable market conditions.

High levels of tourism act as a further driver of the retail industry, says Matthew Jay, Associate Director, Retail & Agency at CBRE, UAE. He envisages the retail markets of Saudi Arabia, Egypt and Qatar to experience the most significant growth across all sectors in the near term, given the amount of proposed new schemes in the pipeline.

Retailers’ favourite

As mentioned previously, A.T. Kearney’s GRDI tipped the UAE, Kuwait, Saudi Arabia and Oman as MENA’s top markets for retailer expansion in 2014.

CBRE’s Jay says Saudi Arabia is one to watch in particular for the coming year. “A lot of the already successfully established brands in Dubai will continue to roll out across the Kingdom in the various new retail schemes,” he says.

As the Dubai market saturates, retailers take the opportunity to expand from the UAE into other MENA markets, and Saudi Arabia holds a range of promising factors. “With the largest economy in the Gulf region and a market largely untapped by modern formats, Saudi Arabia remains fundamentally attractive to retailers looking to expand,” says A.T. Kearney in its 2014 GRDI.

And given the Kingdom’s unsaturated market, various types of retailers are now taking the opportunity to expand with the assistance of their local franchise partners, Jay from CBRE explains.

For example, Centrepoint, owned by Dubai-based Landmark Group, has unveiled aggressive expansions plans across the Middle East with Saudi Arabia being at the top of its expansion list. Grocery however remains KSA’s largest retail sector as Saudi consumers are demanding healthier, fresher food and international brands (A.T. Kearney). UAE-based LuLu Hypermarkets plans to open around 50 stores in the region, including in Saudi Arabia.

Current trends

According to A.T. Kearney, the Kuwait retail market continues to show an appetite for luxury brands and is drawing new high-end retail developments, with premium brands such as Chopard and Louis Vuitton expanding their footprint.

Egypt has always been tipped as an attractive market for international retail. Now, with the return of political stability and economic reforms expected to generate positive impact, Egypt’s retail outlook is bright. The F&B sector in particular is poised for significant growth; Swiss food giant Nestle has announced earlier this year that it plans to invest about 1 billion Egyptian pounds (USD 137.93 million) in Egypt in the next few years and believes economic reforms could deliver results. Other food and beverage retailers such as Coca-Cola Co, PepsiCo and Saudi Arabia’s Almarai have announced investments worth hundreds of millions of dollars in Egypt.

On a general level, the entire MENA region is expected to benefit from retailer expansion during 2015.

“There will continue to be a huge influx of brands coming to the region to take advantage of the tried and tested franchising model,” CBRE expert Jay says.

UAE, a saturated market?

The UAE ranks 4th in A.T. Kearney’s 2014 GRID study, making it the top market for retail in MENA. Schemes such as the Dubai Mall showcase a variety of international brands, making Dubai a hotspot for retailer expansion. With the infrastructural development and announcement of major mega projects it is expected that Dubai will continue to attract global retailer attention, JLL MENA says.

But this also means that the UAE market suffers from saturation. A 2014 report by CBRE titled ‘How Global is the Business of Retail’ revealed that the UAE ranks second as the most penetrated market by international retailers with 54.5% of global retailers present.

Naturally, this creates challenges to developers as well as retailers who are forced to come up with ever increasing innovative concepts to outpace competition.

According to CBRE’s Jay, the food and beverage sector will continue to see the most successful new entries in the UAE, as there is still a huge appetite in the UAE for new and exciting international concepts in this sector.

Whilst retailers face varied challenges in MENA as they continue to enter or to expand their footprint, depending on unique market conditions in each country, there is one major aspect which will determine their success, believes CBRE’s Matthew Jay concludes.

“The main challenge for retailers is choosing the right franchise operator, to ensure they are able to secure the best locations in a particular market and that their brand is operated in the same manner as in its home market,” Jay concludes.

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