Rapid development of the modern trade in Saudi Arabia is changing the relationship between suppliers, distributors and retailers.
Ramesh Lal, managing director of Unilever in Saudi Arabia, discusses recent trends in Saudi Arabia's FMCG retail sector, and how the traditional relationship between suppliers and vendors is changing as the retail sector modernises.
RNME: How is the hypermarket sector performing in KSA? Do you see any signs of over capacity?
Overall you could say that there were quite a few store openings last year. We had Panda and Al Othaim and we had Carrefour, Geant and many others. But a time comes when a new hypermarket opens and it takes business from the neighbouring supermarkets and not necessarily only from the small groceries. I think the pressure has to come from survival of the fittest in the hypermarket sector.
RNME: How does the development of the modern trade affect producers such as Unilever?
Our biggest challenge today as modern trade comes in is to manage this market in transition, which offers us challenges as well as opportunities. When the modern trade comes in we need a different organisation as a manufacturer. We need a different organisation ourselves to predict the rate of growth of this channel for the next two or three years.
For example, should we put in some small vans to service the retailers or should we put in some people who have quick capability to manage big customers and have knowledge of category management and knowledge of some supply chain logistics? Our ability to predict how the channel will behave in years to come really determines the organisation we have to build for tomorrow. People capability is key from our side and from the retailer side. I think that is always more difficult in this part of the world than in most other areas.
Certainly the shoppers like the ambience of the modern trade and ultimately they decide where to shop and that is something that most of us don't control. They like choice and the hypermarket has a better shopping ambience.
RNME: Is growth of the modern trade an advantage overall?
With hypers coming in you have pluses and minuses. One of the pluses is counterfeits become less. At the same time the modern trade means that customer service becomes more important because they don't keep much stock. A typical hypermarket would probably keep two or three days worth of stock in the back warehouse and some of them may or may not have a central warehouse, so the key thing is ordering execution.
RNME: As a producer, what sales trends are you seeing in the Saudi Arabian market?
The market for healthier products such as green tea is growing. We have maybe 30 to 40 variants of tea on the shelf and we find people are picking up a lot of green tea which has some advantage and is considered more healthy. There are also different types of toothpaste coming on the market for sensitive teeth, and whitening. They are segments that are emerging, but the consumer is king. In a hypermarket, choice is the most important thing. There is no such thing as one size fits all for anybody these days.
Consumer are becoming a bit different from before and size and range is important. The good thing here is we are growing very strongly in Saudi Arabia because the trading conditions are good and our company is doing well. We are also supporting a lot of money behind advertising and promotion.
RNME: Is it true that the performance of the stock market has a marked effect on retail sales in Saudi Arabia?
There have been times when shoppers in supermarkets have been less because that month the stock market was very difficult. In Saudi Arabia a large percent of the local population participate in the stock market. Whenever the stock market goes down the sentiment is dull so there are times when they struggle and times when they do well.
I think some of the answers mentioned at this discussion were not exactly matching to the questions raised, e.g. the answer to :How is the hypermarket sector performing in KSA? Do you see any signs of over capacity, we were expecting that a producer should know (from avialble market researches & business development plans) whether the hyper business reached KSA capacity and started to exceed or still the market is very attractive for more hypers to enter and compet. Also, we tend to agree that the growth of the Modern Trade is an advantage as it opens differnt channels and attracts more consumers rather than adding value to all products to be next to end users at a well structured pricing and distriution.