While Covid-19 will mostly be remembered for sweeping the world off its feet, there’s something else it deserves credit for: accelerating the use of technology. From virtual events to online shopping, the pandemic accelerated the pace of technological adoption faster than any analyst ever imagined.
Let’s zoom in to the grocery sector for a bit, specifically the UAE grocery market. Prior to the pandemic, grocery shopping accounted for only 5% of ecommerce sales in the UAE. During the lockdown, that figure rose to 24%, an almost fivefold jump.
The UAE was in lockdown until May 2020. For many consumers, this period marked their first interaction with various online channels – enabling a high degree of familiarity even amongst infrequent users. As a result, demand for e-groceries shot up overnight, leaving retailers scrambling to manage massive order volumes in a timely manner.
UAE retailers have been quick to invest in digital sales channels, developing a catalog of online products and services catering to changing customer needs. Multiple new players – like Noon Daily, Dubai Store, Sharaf DG, and Areem – entered the online grocery retail segment while existing players such as Spinneys, Mrsool, and Nana invested in rapid digital expansion.
A leading grocery delivery app in the country witnessed a 70% increase in app downloads, a 50% increase in daily orders and a 60% increase in basket value, around mid-March.
Does this increase in online grocery shopping mean hypermarkets and supermarkets will become a thing of the past? Certainly not. On the other hand, this new reality presents an exciting opportunity for UAE’s grocery retailers to increase sales, optimize marketing and customer experience by leveraging the best of online and offline worlds.
The key thing to remember here is – in the coming days having an online presence will become the norm for all grocery retailers. Once this baseline is achieved, it will become critical for brands to create a differentiation in the form of Customer Experience and focus on retaining customers for the long run. This will be especially challenging in a low-margin, brand-agnostic segment.
In the subsequent sections, we unpack major trends in grocery retail in the UAE, as well as how retailers can overcome challenges in the space.
Key Challenges for UAE Grocery Retailers
The major roadblocks for grocery retailers in the UAE are not starkly different from those faced by hypermarkets around the world: legacy systems, low margins, personalizing experiences, logistics, and building customer loyalty.
Let’s dig into each of these in detail.
Supply chain issues
The perishable nature of groceries makes them susceptible to wastage and losses. Customers demand the best quality of fruits, vegetables, and dairy products. This means produce cannot be stored for too long and must be sold within a given timeframe.
Adding to the complexity is the fact that the UAE is heavily dependent on imports for agricultural produce, due to limited arable land and scarcity of water. Thus, specialized storage and transportation systems become even more essential.
As data shows, in developing countries, 60% of food wastage takes place due to poor handling, production, and storage.
To capitalize on consumer’s new-found comfort with online grocery shopping, retailers must invest in robust supply chain management of produce to minimize waste. Optimizing the supply chain can solve one of two of the biggest sources of consumer complaints in the UAE: long delivery times and missing items in a delivered order. Retailers must also work with multiple suppliers and have stringent Quality Control measures in place to ensure consumers receive the best quality at all times.
To meet consumer’s demands, online and offline, grocery retailers need to plan, deliver, and track inventory in a more efficient way.
Adapting to the accelerated digitization
The push for digitization in the UAE is mainly consumer-led, and not business-led, as is the case with other economies.
The penetration of smartphones in the UAE, Bahrain, and Qatar is more than 100%, while social media penetration is more than 70%. This is higher than even the United States.
As far as business digitization is concerned, the Middle East lags behind benchmark countries such as Norway, Singapore, and the UK.
The future looks promising though, as the government plans initiatives to boost digital adoption among businesses. Through initiatives such as the Dubai Internet of Things Strategy, the government seeks to improve technology infrastructure in the region, improve access to talent and venture capital funding for tech startups, and improve business agility.
Enhancing customer loyalty & engagement
Groceries and FMCG are low involvement purchases that don’t lend themselves easily to customer loyalty. Most people don’t wake up in the morning and go – ‘Today, I am going to buy milk from XYZ store’. Customers simply want fresh fruits and vegetables quickly at a good price point, and the source/store is of little importance.
Moreover, grocery retailers operate on razor-thin margins, limiting the value of the rewards and benefits payouts they can offer to customers. How then, can grocery brands boost customer loyalty for their business? The key is to leverage customer data to craft personalized experiences/promotions tailored to customers’ purchase habits/product preferences, map customer purchase cycles, and deliver a seamless shopping experience on all channels.
According to a Bond Report, “Top programs differentiate and lead by prioritizing the program experience over the end reward itself”. This statement holds especially true for grocery retailers looking to retain customers for the long run.
Along the same line, grocery retailers will need to rethink their in-store and digital engagement strategies and how it ties into their loyalty marketing.
Last mile delivery
A recent panel discussion about ecommerce and logistics in the Middle East revealed some interesting insights. Madhav Kurup, CEO of Hellman Worldwide Logistics noted how last-mile delivery and returns were major bottlenecks in the Middle East.
What is the major reason for these problems? Ali Thabet from DHL Express Middle East explained that customers often fail to register their delivery address correctly or are unavailable to collect an order when it’s delivered. The issue is compounded by the strong prevalence of Cash on Delivery in the region.
One of the ways companies can avoid this is by adding an extra verification step during checkout, but retailers fail to do this, as they feel it might be cumbersome for customers. Thus, the last mile delivery problem prevails.
The panel also noted how Dubai and Hong Kong have similar infrastructure and regulations, and still, they fail to offer same day or one-hour deliveries. Even though there are more than 130 ecommerce companies in the region, merely two of them offer same-day delivery. Again, incorrect delivery locations, inefficient planning, and management are the major roadblocks.
The pandemic has further compounded these challenges. As one study shows, the delivery time for omnichannel grocery stores such as Lulu Hypermarket increased to ten days, while marketplaces such as El Grocer and Instashop took two days to fulfill customer orders. The reason? A shortage of vehicles and drivers during the lockdown.
In times of uncertainty, it’s important for companies to look to alternative ways of delivery. For instance, Lulu Hypermarket, which generally used their temperature regulated vehicles for delivery, partnered with various logistics companies providing deliveries on bikes and taxi fleets for faster deliveries.
Dark stores will be another major factor in fixing the Last Mile delivery issue for grocery retailers in the UAE. Carrefour, which is operated by Majid Al Futtaim in the region, recently opened its biggest dark store in Garhoud. Spanning 5,000 square meters, it was built in five weeks and can handle up to 3,000 daily orders.
Changes in customer behavior
To say the pandemic changed customer behaviors would be a gross understatement. It literally brought about a massive overhaul that would otherwise have taken years.
Take payment methods, for example. According to research by Dubai Police, Dubai Economy, and Visa, 71% of customers reported using digital payments for in-store shopping, while 61% of users even opted to pay with digital wallets and cards, and not Cash on Delivery.
But here’s what’s most important for grocery retailers to note: 48% of customers stated they would continue using digital contactless payments, even after the pandemic.
This fundamental change in the way customers shop and pay for goods presents some unique challenges for grocery retailers.
First, they must set up a robust digital payments infrastructure on their website and in-store. Then, they must also ensure 100% security of Customer Data, as cybersecurity is a major concern for customers. Finally, all digital processes must be as seamless as possible.
Companies that fail to keep pace with these developments risk losing customer trust and brand value. For instance: 58% of UAE consumers cited authentication delays and payment failure as major reason for cart abandonment. Of those who abandon their cart, 32% do not purchase the product at all, while a vast majority purchase the product from another online or offline store.
For a largely non-sticky product purchase such as groceries, this trend is even more alarming and important. If customers abandon their basket for some reason, the chances of them returning are slim. This trend also emphasizes the criticality of Win Back and Reactivation engagement strategies for grocery retailers in the region.
Grocery Retail Trends in The UAE
Considering these challenges and changes in consumer behavior, here are some of the important trends that are likely to shape the grocery retail space in the UAE:
Consolidation and partnerships
In the UAE, there are about 25 grocery retail players across the marketplace, pureplay, and omnichannel models. Of these, Carrefour, Lulu Hypermarket, and Choithrams are the major omnichannel players, Instashop, Bawiq, and El Grocer are major marketplaces, while Amazon, Noon, and Kibsons follow the pureplay model.
To establish a stronger foothold, several larger players are looking to consolidate with smaller players. We expect more consolidations in the space, akin to the acquisition of 26 Geant hypermarkets by Carrefour in 2017.
Berlin-based global food (and grocery) delivery giant Delivery Hero has been on an acquisition spree in the region (Zomato, Carriage, and now InstaShop). Analysts expect the company to scoop up more grocery and food delivery businesses in the region to create a massive hyperlocal network.
There’s also a cross-vertical partnership that grocery retailers will look to establish: strategic partnerships with logistics companies. This can help optimize the supply chain and reduce the wastage of food and resources. We have seen an example of this earlier with Lulu Hypermarket.
Focus on omnichannel play
Large traditional players such as Carrefour and Lulu are gearing up to improve their omnichannel presence in the UAE and worldwide.
The Carrefour 2022 strategy lays out the ambitions of the French hypermarket giant. According to the report, the hypermarket giant plans to launch a separate ecommerce website for each country, expand home delivery, and open 3000 convenience stores by 2022.
Here are a few ways UAE grocery retailers can boost their omnichannel strategy :
This comes straight from Carrefour’s omnichannel playbook. The grocery giant partners with local technological influencers to boost penetration in certain countries. For instance, in China, it has partnered with Tencent to develop digital payments, while in France, it partnered with Google to develop a speech-enabled shopping assistant.
The idea is to harness any technological solutions and synergetic partnerships that allow your brand to meet customers where they are.
Choose the right marketing channels
Your ideal customers are likely to be present across Facebook, Instagram, Snapchat, and WhatsApp. These are lucrative opportunities to get your brand in front of them, no matter where they are. However, to get your message across at optimized marketing spend, it’s important to pick the right channel and promotion. Capillary leverages advanced algorithms to automatically identify the right channels for your business, delve into consumers’ browsing habits, as well as gauge the level of engagement a customer has on a specific channel.
Take advantage of customer data
Personalization plays a key role in winning customer loyalty. Grocery retailers opting for an omnichannel presence must make use of customer data such as their birthday, and other special occasions and shopping habits to provide them with a more tailored experience. After all, who doesn’t love receiving a birthday surprise, or coupons as a gift for their purchase?
Traditional grocers seeking to establish their digital presence must seek to improve their website browsing experience, their payments options, and delivery times, so customers can get a truly magical experience.
Granular Understanding of Customers & Purchase Lifecycle
To provide a hyperpersonalized experience, a large number of grocery brands are seeking to get a granular understanding of how their customers shop for groceries.
This includes :
- Creating micro-segments: Customers are segmented on several behavioral and transactional attributes like demographic data, such as age and marital status, and purchase data such as basket size, frequency of purchase, and time of purchase.
- Analyzing customer behavior: This helps brands identify upsell and cross-sell opportunities. For instance, customers who purchase non-food items may be more receptive to offers related to them. Similarly, an uptick in the demand of certain products, such as the purchase of masks during the pandemic, signals an opportunity for stores to capitalize on.
- Tracking new and lost customers: Data about new and lost customers helps grocery stores send targeted promotions as well as communications related to a specific product or category. This can help increase conversions for new customers and win back lost customers.
Improved customer experiences and personalized engagement
Brands are using multiple data points from customers to improve their overall experience, online as well as in-store. This includes:
Personalized in-store experiences
Customer behavior insights help grocery stores generate dynamic vouchers at checkout for customers. These are based on customers’ purchase history, store locations, and product preferences.
Stores offer custom promotions to customers based on actions such as the purchase of certain products or the overall transactions. For instance, a store might offer a greater number of loyalty points on the purchase of fresh fruits and vegetables. Point-based promotions traditionally generate high returns on investment for hypermarkets.
To increase the basket size for customers and get them to repeat purchases, grocery retailers are sending targeted messages based on their purchase behavior over a period of time. For instance, if certain customer shops for a specific set of products at the beginning of each month, stores can prompt them on the last day of each month to complete their purchase. These kinds of promotions can lead to a 12% increase in Average Bill Value.
We hope this article provides you with insights about UAE’s grocery retail sector. Which trends do you think are most important for retailers to note? Do let us know in the comments!