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Tue 7 Jun 2005 04:00 AM

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Thinking big

Geant Saudi Arabia is bringing about fundamental changes in the country’s retail landscape, according to its CEO, Mohammed Adil

|~||~||~|Mohammed Adil, CEO of Geant Saudi Arabia, believes that there is one very good reason why the arrival of the large hypermarket is good for Saudi Arabia: Customers are getting a better deal. Today, he says, the Saudi consumer can buy pretty much everything he or she needs in one place, at better prices than before and with around 500 products on promotion at any one time.

That, he argues, is in sharp contrast to how things were before. “They [supermarkets] were poor quality, low standard,” says Adil. “Today, when a consumer goes into a hypermarket, he’s offered almost 55,000 SKUs. Previously, he was offered 10,000 plus or minus. There were no promotions; it was only shelf selling. Today, when he enters my hypermarket he gets 500+ promotions.”

The benefits of hypermarkets for the consumer are now well known, but Adil believes that Geant is doing much more than driving down prices and giving consumers convenience and choice. He believes that the hypermarket business model is bringing about fundamental changes in the way that suppliers work, changes that are good both for retailers and suppliers themselves. Such has been hypermarkets’ impact on the country’s retail scene that Adil is confident Geant Saudi Arabia can top one billion dollars in annual revenue within just three years.

Geant Saudi Arabia is the result of a franchise arrangement between Groupe Casino, the French retail group that owns Geant, and Fawaz Al Hokair Group, a diversified company with interests in real estate, retail and construction. The company already operated around 700 stores in Saudi Arabia, holding the rights to names such as Zara and Marks & Spencer.

Winning the Geant franchise rights represented an opportunity for the group to move into the potentially lucrative FMCG retailing market. Tying up with a hypermarket selling a very broad spread of products meant that Al Hokair Group could also claim to be going in with something unique and different. The choice of Geant, in particular, was a logical one because of Adil’s previous experience in Bahrain, where he had been involved in BMA Group’s opening of the first Geant store in the Gulf.

Geant Saudi Arabia opened its first store in Riyadh in April 2004 and has just opened in Al Khobar in the Eastern Province. A second Riyadh store is set for August, Jeddah follows in September and Qassim, in the central Najd area, is scheduled for its first Geant in December.

Another four stores will follow next year, bringing the total to nine, and a total of 15 should be in operation within three years. Each outlet requires initial investment of around US $15 million and is expected to do US $65-75 million in annual turnover in the long term. The sales area of each Geant store ranges from around 9500m² to 13,500m² in size.

Despite coming to the market with something a little bit different, Geant Saudi Arabia has still faced plenty of challenges. In fact, one of its greatest advantages — its breadth of products, in particular its non-food offerings — could also have turned out to be one of its greatest challenges.

Prior to the arrival of Geant, most supermarkets were carrying 10,000 SKUs, according to Adil, and distribution was usually to a central warehouse. The hypermarket model, however, requires 50,000 or more SKUs and direct to store delivery, all of which places much greater demand on suppliers.

Adil confirms that it did take suppliers some time to readjust to this new way of working. “We had our challenges and we overcame them, but there’s still a long way to go for the local distributors to cater to direct to store delivery,” he says. “They’re used to the central warehousing facilities of existing chains.”

Nevertheless, Adil says that suppliers have upped their game and that 90% of Geant Saudi Arabia’s SKUs are sourced through local distributors. Sometimes, stocks do run out but the frequency with which that happens is becoming less and less.

Geant Saudi Arabia also imports 5000 SKUs directly from other parts of the word. This consists of own label products, plus items that can’t be sourced locally. “The local distributors have a very limited range, but to make us different from other operators we have 5000 SKUs that you don’t find anywhere else,” says Adil. “For example, Nestle does not carry its global range here — they keep very limited items — but Nestle has an additional 50 items in Europe that are very high quality and that customers are ready to pay for, so we import them directly.”

Simply getting things on shelves is only one part of working with hypermarkets. Geant has also introduced Saudi Arabia’s suppliers to different ways of payment. “We were the first company to push the existing distribution companies into a new way of negotiation, which is rebates, advertising fees and opening fees, and they were not used to it,” says Adil. “They were doing it in a conventional way for 50 years and when we put in place the new formula it was a bit tough for them to adjust.”

However, for all the adjustments they have had to make, Adil insists that hypermarkets are good overall for suppliers. For one, he is adamant that Geant does not charge suppliers for shelf space, a practice that he says was common before. “The moment you rent a shelf, it does not belong to you, it belongs to someone else and we are not into the leasing business. Today, if a guy does not perform, I can throw him out at any minute,” the CEO explains. The only time a supplier will be charged for space is when a gondola is required for a one or two week promotion.

Hypermarkets also mean volume and suppliers that can get their logistics right stand to benefit from higher sales and increased visibility for their products. “A hypermarket is a very good model in the long run for a local distributor,” Adil contends. “They get some pressure on the pricing and things are different from the way they were working before. But in the long term they will benefit: their merchandise moves better, it gets better exposure in front of customers and visibility is very high.”

Suppliers will undoubtedly be encouraged by what the Geant CEO has to say about own labels and local brands. At present, own labels account for no more than 2% of Geant Saudi Arabia’s SKUs and Adil predicts that the figure is unlikely to rise above 10% in the long term. “It looks massive because it’s things like ketchup, pasta and oil, but if you count the actual number of own label items, it’s very small,” says Adil.

Own labels’ growth, he adds, is very much driven by promotions. “Every weekend you have to have 500+ promotions. Often, you are unable to get the support you want from local distributors, but if you have your own label, you are in control of pricing,” he explains.

Geant Saudi Arabia says it is also very open to local brands, which are increasingly on a par with international ones, especially if margins are attractive. “I’m sure there will be a big shift from global brands to the regional brands in years to come in this part of the world,” Adil says. Paper and oil products, he adds, are of a particularly high quality.
Geant’s current average payment length is 60 days and Adil told RNME on the record that he has, “a definite policy of paying suppliers one day before due date.”

Overall, the CEO says he is extremely encouraged by the progress suppliers have made since Geant opened its first Saudi store in April 2004. Out of every 100, he says that 80 have embraced the new way of working. The next step that he would like to see is the appointment of dedicated key account managers to take care of Geant’s needs.

Adil paints a picture of a retail landscape where choice was previously limited and consumers pretty much had to buy whatever was on the shelves of their local supermarket. Promotions were few, prices were high and shops were clearly segmented into food and non-food. “Previously, they were going to ten places to do their shopping. Now, when they leave Geant, their trolley is full of everything,” says Adil.

For now, Adil believes that first mover advantage is with him (Geant opened seven months ahead of Carrefour in Riyadh.) He also feels that Geant’s emphasis on fresh food is a plus in Saudi Arabia, where consumers are very keen on high quality fish, meat and diary products.

“Saudi Arabia, in terms of medium and large format retail, was a virgin market. We opened the first professional retail hypermarket in the country. We feel that we are the people who have taken the initiative to change the marketplace.”

Geant’s two Saudi Arabian stores are so far performing according to plan, with sales at the Riyadh store, now open for over a year, running around 15% ahead of last year. Still, Adil says he is losing some sales because of abandoned shopping trolleys. The problem is down to Saudisation laws that force retailers to hire nationals for checkout positions. “By law, in Saudi Arabia we’re supposed to have Saudi cashiers,” says Adil. “We lose some sales because of a lack of productivity and efficiency at the checkout.”

Another ongoing challenge is ensuring that Geant’s stores suit the tastes of Saudi’s large and diverse consumer base. “Sometimes a store in the eastern part of the city is different from a store in the western part of the city. We have a long way to go in terms of learning and tailoring our store towards a particular community. We have Europeans, people from the Middle East and Asians and we are doing our best to cater for all of them. Overall, I am very encouraged by the Saudi market and I see a big opportunity ahead.”

So much opportunity, it would seem, that Adil aims for Geant Saudi Arabia to be doing US $1 billion in annual revenue within three years. 50% of that business, he believes, will come from existing retailers, whether large or small, and the other 50% will be taken from wholesalers. “Customers that used to go to the wholesaler — large families, large companies, bikalas — today go to the hypermarket because they get a similar price and a better service,” he says.

For Fawaz Al Hokair Group, Geant is unlikely to be its last foray into the world of FMCG retailing. In Adil’s opinion, the Saudi market is unlikely to support more than twenty Geant stores. When that figure is reached, the group will look into developing a smaller format for smaller cities, a move that would further bolster its bulk buying power. With KSA’s grocery market worth around SR 49.1 billion in 2003 and supermarkets accounting for only 30% of that, according to IMES Consulting, Fawaz Al Hokair Group has a big pie to aim for.||**||

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