SAUDI ARABIA

Stiff competition forces big chains to shut down neighborhood stores

February 04, 2019
Stiff competition from expat shopkeepers forced many grocery stores operated by major food supply chains to close down.
Stiff competition from expat shopkeepers forced many grocery stores operated by major food supply chains to close down.

Saudi Gazette report

JEDDAH —
A number of marketing experts and businessmen attributed the reason for several retail chains leaving the market to their inability to compete with random shops run by expatriates in residential neighborhoods under the tasattur, or cover-up, arrangement with Saudi nationals.

This, according to them, is addition to the high costs of running the business and bad management, Al-Riyadh Arabic newspaper reported.

One key reason for their exit is that the tasattur operations run by expatriates attract customers because they give credit by allowing them to purchase their needs and pay by the end of every month, an arrangement that does not exist in the chain stores. These shopkeepers maintain a “debt book” to keep track of their customers.

Dr. Wasif Kabli, a member of the business committee at Jeddah Chamber of commerce and industry, said one reason behind the failure of grocery chains managed by big companies is their lack of ability to compete with expat shopkeepers.

Several retail companies began establishing chain stores inside neighborhoods in an attempt to win their market share a couple of years ago. They hoped that the shops operating by expats under cover-up arrangements would eventually close down. This, however, did not go as planned.

Kabli said the small grocery shops managed to keep their customers using many ways, including allowing credit to customer who will pay at the end of the month. The expats were also able to reduce their operational costs by working long hours whereas workers in chain stores managed by big companies have fixed hours.

He said the municipality officers are lenient when dealing with these small grocery shops, which sell their products at very competitive rates, something the chain stores were not able to cope with.

Kabli said there was a proposal in the past to open the door for investment in the grocery sector to put an end to cover-up business activities under certain conditions, which included the size of the place and the number of employees. The proposal failed to materialize.

Nashwa Taher, a Saudi businesswoman, pointed out to an important factor. She said supermarkets and grocery shops controlled by companies imposed additional charges on products, such as the costs of renting shelves and additional fees for billing. That does not happen in small grocery shops and that gave them the edge to sell at lower prices and attract more consumers.

Taher points out that measuring the retail sector is very complicated because of the intense competition among certain nationalities that control the market.

Official statistics show that there are over 200,000 licensed grocery stores in the country and and 54,000 of the licenses are to sell foodstuffs. More than 90 percent of these stores are believed to be under the full control of foreign workers running them.

Most foreign workers in Saudi Arabia are in the retail sector and the percentage of Saudization in small and big grocery stores is low. The authorities are aiming to raise the Saudization rate in retail stores to 50 percent by the end of 2020.

Expat grocers survive by selling on credit, working long hours


February 04, 2019
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