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Mon 1 Aug 2005 04:00 AM

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Connecting with the customer

If you can’t match the French hypers on price and don’t have the ‘ambience’ of Spinneys, how does a homegrown retailer like Union Co-Operative Society compete? Its general manager, Marwan Ahmad Essa Althani, says it’s all about connecting with the customer

|~|feature-2-L.jpg|~|Marwan Althani: “When we feel that prices are increasing more than is acceptable, we will stop working with the supplier.”|~|Union Co-Op has recently become more prominent in the media. Why are you raising your profile now?
Marwan Ahmad Essa Althani: As a co-op, we realised we had to make some decisions and a strategy was put in place in 2002 after studying the market and our position in it. We started at management level, increasing and improving manpower. We reached our targets for 2005 in 2004, so we are actually one year ahead in our overall strategy. We believe we are on the right track.

What were those targets; were they training or revenue-related?
It was revenue, training and management development. We reached all the targets together; you cannot increase sales without having the people in position.

Did you replace a lot of the management, did you train the management and how did you change your internal structures?
It has been part change, part restructuring. We have created more departments. We continue to build up our internal structures, we are achieving our targets, and in the coming three years we will [strengthen] our position in the market by growing our network of branches and building up our strong brand name. We are also reviewing how we can change co-op policies to help us achieve even greater strength. Trade is becoming global and [joining] the WTO will change the economic realities and we have to be ready for that. We have to adapt to the changes in the market, especially since new competitors and new players will come in.
We have to match the competition on many different levels, starting with manpower but also with good planning and good locations, and by increasing our knowledge of the market. We’re using all means that could help us achieve our targets and I think I can say that we are on the right track. But it needs constant work because the market is not standing still, it is changing day by day, especially in Dubai. Our vision is to be a leader in Dubai.

How do you see yourself positioned in the market? Do you want to be a direct competitor to Geant or Carrefour. Do you want to be a premium retailer like Spinneys?
We will compete with the hypermarkets. This is our aim.

How do you compete with their buying power, and their ability to offer low prices?
It’s not necessarily about competing directly with prices and purchasing power, there are other ways in which we can compete. We have a philosophy and it has succeeded for the last three years, and I think we can compete with them without necessarily having the strength that they have — we have our own technique.

What is it? Why would a consumer come to Union-Co-op instead of Geant or Carrefour?
I will give you an example. Choithram’s is next to us in Jumeirah. When you ask people, whether it be European people, Indians or Arabs, why they are coming to Co-op, and also Choithrams next to it, they say they feel ‘comfortable.’ This is the word they use. There are many factors that contribute to this. A level of trust has been built between us and the consumer. Because we are a shareholder company, we are very tightly linked to the consumer. We know them, what they need and we listen to them and their problems and take action directly. Our link with the consumer is very strong. This is the most important thing that we have.

But don’t you think that the consumer nowadays is only interested in price?
I don’t think so. I think if you give the consumer the right quality in the right location with the right atmosphere, they will look at you. It is a complete picture. It is the culture of the Co-op itself that is totally different. We are responsible to the consumer; if something happens, like a price increase, who will talk about that? We are the first people talking about that and we feel this responsibility because the consumer is linked to us very tightly. We have to work very hard to keep the consumer close to us.

In local newspapers, you criticised some suppliers for putting up the irprices, but then Al Ittihad newspaper reported that your prices are higher than other supermarkets. What is your price policy?
I think there is some confusion on this issue. We have more than 20 co-ops in the UAE. If there is a problem with the prices in a co-op in Abu Dhabi, it will affect us. If there is a problem with a co-op in Sharjah, it will affect us. We are trying to encourage all the co-ops to do what we are doing. We are also trying to be close to the consumer. The policies of the other co-ops should be changed to compete in the market. I think the misunderstanding that has happened is that the Al Ittihad survey was done in a co-op in Abu Dhabi. We are ready to do a survey in Dubai and compare it with any hypermarket.

So exactly how will you price yourselves against the hypermarkets?
It is not always a price issue. Consumers want to feel comfortable. We cannot offer the same price because the hypermarket has their price book and we have our price book. You cannot match any hypermarket on their price book: they have policies; sometimes they decrease some items, sometimes they increase some items. It depends on their strategy, their section managers or their purchasing managers and they use different techniques to drive customers to them or keep the image that they are the lowest priced. Our aim is different.

So you don’t have a policy of lowest price or matching them?

And you don’t want to get involved in price-cutting to win market share?
No. This is not the only thing necessary to win market share. We are doing a mix of things, it’s not just one solution.

You have dropped some suppliers because they put prices up too much. What is your policy? Will you keep out big names if you feel they are putting prices up too much?
It’s a very simple policy: I am with the consumers.
When we feel that prices are increasing more than is acceptable, we will stop working with the supplier. Also, the suppliers have to realise that the increase shouldn’t affect the consumer. The consumer is more intelligent, more understanding and if he feels the supplier has been increasing the price without any reason or without adding any value for him, he will change and purchase other items. The supplier will lose, so we are protecting the supplier from himself! I know the suppliers have a target and they want to reach it — this is part of their strategy, but I think the consumer should be part of the strategy.
How many suppliers have recently put up prices and by how much?
It was around 80 suppliers. The increases were different from different suppliers: altogether, it was around 10-15%.

Is that not justifiable with the increasing cost of operating in Dubai?
The problem is in the different levels of increase. Some of these increases are acceptable; some are not acceptable. Sometimes, you have to wait. If you increase everything at the same time, the consumer will be affected strongly because the salary has not been increased at the same time.

But the government salary was increased [by 25% for nationals].
What about the rest? You can change your price book and in ten minutes it will affect your business. We told suppliers: wait a little bit and review your increases, because the consumer is very important to us. Our trust with the consumer is very tight, and if it affects them, it will reflect very badly on our name as Union Co-Op. We have to be sure that price increases are undertaken very carefully and monitor the increases. Sometimes, the product has been produced in Dubai, with no taxation, but they are increasing the price because it was announced that the salaries have been increased. We do not like this. We are trying to take share in the market, but not only by price cuts but the link with the consumer. We are not going to increase prices if it affects the consumer.

How many suppliers came back and how many remain dropped?
Most of them still supply. A few of them have been stopped because they have increased prices for hypermarkets and thought we would do the same. We told them we are different, that we are linked to the consumer and it will affect us badly. This increase must be gradual, you have to stop it until salaries have caught up. If inflation is at 20% and salaries have not yet been affected, it will be very dangerous so we have to wait.

How many of your suppliers are out completely?
They are not out, they themselves have stopped [supplying]. We have not fired them, we stopped supplying from them. They tried to increase the price, we said we are not going to increase the price, so they said: ‘We are going to stop supplying to you.’

How many?
Four to five companies, big names. It does not apply to all their goods, just some of them. We have had discussions with Nestle and they understand our issues, for example.

You have a commitment to local manufacturers. As you become bigger, will you have to reduce this commitment?
We have to have one policy for everybody. They have to come up to our standard. They have to increase their standards to match global standards. If there are small companies, they have to merge to make stronger companies that can compete in the market because there are new economic realities coming. It’s no more for small companies, it will be only for strong companies up to international standards. If you cannot compete to international standards, you will not succeed in the market.

Do you encourage local producers to consolidate?
Yes, to become stronger and better.
Is it true that you plan to turn all your stores into hypermarkets?
Our new stores will mostly be hypermarkets. Small stores will be converted to supermarkets. It depends on the location. There will be supermarkets and hypermarkets.

Tell me about your opening and refurbishment plans?
In 2005 we will [upgrade] two supermarkets, and in 2006 there will be a new hypermarket in Al Barsha [reportedly the region’s largest to date], and in 2007 we will open a hypermarket in Al Muhaisen near Mirdif.
We will invest around AED 200 million in these projects. Finance will come from ourselves.

Given recent public health concerns, do you believe it is your responsibility to encourage healthy eating, or is this entirely a customer choice?
We are responsible, but before we put healthy products in our outlets the awareness should be there. However, the awareness is very low and the cost of the items is so high that they are not visible in the market. We have to transfer knowledge to the consumer and once they start asking about it, we have to implement it in the market.

Do you have ambitions to expand outside the UAE?
Within three years, no.||**||

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