Union Coop's GM discusses opening the world's biggest hypermarket and fighting price hikes.
Union Coop's GM speaks candidly about opening the world's biggest hypermarket, moving into malls and fighting price hikes.
Khalid Humaid Bin Diban Al Falasi, general manager of Dubai's Union Coop is confident that the retailer is tough enough to stand up to rivals and dodge price hikes in the future.
But can he deliver? In his defensive armoury, Al Falasi has the knowledge that Union Coop is on track to deliver profits after reporting an impressive 28% growth in sales for its stores across the city last year.
He reveals the company, which opened its first store in Satwa in 1984, hopes to open the biggest hypermarket in the world. The store, to be located in Al Barsha, is tipped to open in May next year, and its size will soon be revealed in Retail News Middle East.
Our plan is for private labels to account for 70% of our total sales within five years.
Wal-Mart is opening a new store in the US, but we will not know the size of that until the end of this year, so we are aiming to be the largest in the world or the Middle East," he says.
Union has devised a new format, Super Coop, as part of a joint venture with electronics retailer Sharaf DG, and the stores will boast spacious furniture and electronics sections and a supermarket under one roof. The company currently operates eight stores, and three more are set to open within a year.
"We currently have two styles: supermarkets and hypermarkets, but we are going for something new called Super Coops, the first to be located in Al Barsha and Al Muhaisnah. We have not yet chosen a furniture company to work with.
The Super Coop will feature cashier sections on both sides of stores, will be "the only hypermarkets built in that style and located in the middle of the mall, rather than in the corner," and the first will open its doors in October this year.
"Totally different, unique, offering the best prices in the market and the most elegant stores." This is Al Falasi's proposal for the stores under development, and as he leafs through a plethora of blueprints and official documents at his Ras Al Khoor office, his poise is venerable for a man on the verge of steering his business into brand new territory.
The raft of plans illustrates stores featuring striking Italian designs, set to implement state-of-the-art flooring and lighting systems. "There are no other stores here like them, even Spinneys will not be up to these standards. We are taking the hypermarket business to a new level.
Part of that elevation could come from a shift into a broader geographical and selling area, aided by a string of new partnerships. He reveals, "we are now talking about a having a joint venture with another Dubai-based supermarket chain Emirates Co-Op. "We are still negotiating that deal, but the plan is for us to become one coop.
Another extension of the retailer's portfolio will be the roll out of Neighbourhood Malls. Owned by Union Coop, these "smaller malls" will have up to 120 stores.
The existing store in the Jumeirah area has proved to garner the chain's strongest business, and it will open a new branch this month. "We are trying to secure more stores in the area, and shoppers there are by and large a mix of Europeans and locals.
Al Falasi has engineered a strategy for the growth of the company accelerated by local expertise. "We are 33% local in terms of employment, and we are trying to help local businessmen as ideally we would like 50% of our suppliers to be local, so we are assisting them with reduced listing and visibility fees."
Fully locally owned by shareholders in the private sector with all stores carrying the same prices on items, the retailer currently employs an all-local team of top management, while 80% of mid-management are UAE nationals and 30% of low management. "These figures represent the highest localisation in a private company now.
Private labels are another major project for the retailer, and Al Falasi intends to stretch the current 19% of sales in the category to 70% within five years. The Union brand has been extended across the product categories, and the objective is to market its association with quality.
Like any retail boss in Dubai's increasingly competitive industry, Al Falasi has a tightrope to tread. However, he is keen to point out that Union Coop has positioned itself as one of the biggest single contributors to lowering inflation in the emirate.
The retailer has just signed a groundbreaking Memorandum of Understanding with the UAE's Minister of Economy H.E. Eng. Sultan bin Saeed Al Mansouri, in an explosive move that will witness the retailer roll out a program aimed at preserving 2007 prices of many basic food items in 2008.
We are 33% local in terms of employment, and we are trying to help local businessmen, as we would like 50% of our suppliers to be local.
In a bid to maintain low prices for shoppers, the retailer has sharpened its relentless focus on corporate social responsibility, and its latest feat matches the Ministry's efforts to stabilise prices, reduce inflation, sustain market balance and protect consumers against possible price jumps.
The initiative is part of Union Coop's mission to maintain price stability for the retail sector in Dubai. How does the retailer stand apart from others in the emirate? "Other companies don't pay attention to inflation. This is one of the major differences," he claims.
"Our ethics, our beliefs and our strategic plan are totally different, and we build our plans according to the Dubai's Government's plan.
"Union Coop is an extremely strong believer in social responsibility. We believe in being fair on prices, rather than the tricks of marketing.
"Part of our job is to balance price increases, which may have otherwise trebled or more with inflation. We have interfered here, although most of the private companies love increases. From our experiences with other retailers, they are happy for the suppliers to do it, whereas we are trying to stop it.
The retailer has invested AED 57 million (US $15.5 million) in the move, Al Falasi reveals, and "we will go below cost and continue to be a lot cheaper than other retailers, a lot of other coops cannot afford to do that." He admits Union Coop will face major problems including suppliers stopping deliveries.
So what about the company's huge investment plans? Al Falasi says it is currently, "probably the strongest coop in the UAE," and represents 40% of total sales. Investment in the community will be extended as part of Union Coop's plans to support the Minister of Education and the Minister of Health this year, and it will make significant donations to schools, hospitals and charities across the UAE.
Changing the image of Union Coop is high on this year's determined agenda, according to Al Falasi, as "we used to do things in a quiet way, now we've really come outside and spoken in the market."
One issue he is quick to speak out on is egg prices. The retailer imported eggs from Holland and Brazil to combat rising prices, and in turn flooded the market and lost money, yet prices came back down again.
The urgency to provide social benefits stems from Union Coop's research into the work of other coops globally, particularly Italian stores, which have greatly aided the country's farming industry and assisted local businessmen.
In a bid to combat inflation, Union Coop's Al Falasi has decided to purchase major food items and put them in storage for up to a year.
"Before we had a 14-day stock level, now it's a year. We will invest more than AED 100 million ($27.3 million) capital hold on these items, for example containers of rice will be sold for the same price as 2007," Al Falasi reveals.
In a bid to increase storage, the retailer will approach the Government to call for more land.
Al Falasi's great obstacle as he charges forward with plans is the Co-Op Law, which prevents the retailer from growing its reign beyond Dubai and into parts of the UAE and the region.
We currently have two styles: supermarkets and hypermarkets, but we are now going for something new, a format to be called Super Coop.
"The No-Law, that's what I call it. We hope that the Government will look into that, as it was developed in the 1970s, and has stopped us from entering other emirates, and we are fighting to get access to other regions.
"We should cover other areas, as Dubai has a very limited landscape and opportunities in Bahrain, Qatar and Saudi Arabia have already been presented to us. There is the private law attracting global companies, they give me a law that could kill me, and I'm sure 99.9% of people at other coops would agree with me.
The retailer is also concentrating on winning the opportunity to open its inaugural store in the emirate of Ajman, "where the local Government is pushing hard to bring us there.
"The retail industries are growing in the other emirates, and access to them would mean allowing us to invest in different businesses," he explains.
As Falasi brings our meeting to a close to prepare for another round of negotiations, it seems Union Coop could have a far-reaching role in the play in shaping the retail landscape of the future.For all the latest retail news from the UAE and Gulf countries, follow us on Twitter and Linkedin, like us on Facebook and subscribe to our YouTube page, which is updated daily.