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COVID-19 spurs retail transformation of UAE's grocery businesses

September 3, 2021

UAE (United Arab Emirates) is undisputedly one of the ultimate shopping destinations of the world. People from all over the world travel to enjoy a unique global shopping experience. Dubai's shopping festivals are quite popular and are events people align their holiday tours with. The emirate, experiencing hyper-growth in tourism and retail sales, was all set to become the shopping capital of the world. With onset of COVID-19 pandemic, life as we know it halted and this completely rewrote the retail rulebook of the country.  

The pandemic brought two main lifestyle changes: required people to stay at home and practice social distancing. Resultantly, many shopping festivals were either cancelled or postponed, whereas the malls either went under a lockdown or started following strict COVID-19 SOPs which transformed the shopping experience everyone could connect with. Between lockdowns and fear of a contagious disease, Online orders became more frequent. For those who continued to shop in-store, sanitation and social distancing became paramount.

Today, safety and health concerns have become major purchase drivers as they affect how the customer may choose to interact with a retailer.  

Grocery sector: Retail’s most promising growth segment despite COVID-19

Dubai Chamber of Commerce and Industry predicts the pent-up consumer demand in H2 of 2021, Dubai Expo, and Covid-19 vaccination efforts by the government may spur an eyebrow-raising 13% growth in retail sales. This forecast was further reinforced by a report from Euromonitor predicting UAE retail sales to reach $70.5 billion by 2025. It further highlighted that store-based retailing may grow at a CAGR of 5.7% and online retailing growth to surpass this number by a CAGR of 14.8%.

UAE retail sales are forecasted to reach AED 290.7 billion by 2021, and grocery is the largest category group here with 47.2% of retail sales in the country.

Positive macroeconomic factors in the UAE result in consistent growth in retail, where the sales numbers are forecasted to reach AED 290.7 billion by 2021. Grocery segment takes the largest share within the retail group with 47.2% of retail sales in the country. These statistics were featured in the Food & Grocery Retailing in the UAE, Market Shares, Summary and Forecasts to 2021, report.

The customer expectations are evolving and so are the supply chain and inventory management processes. With projected growth in the retail and grocery segment coupled with changing customer needs, grocery retailers are facing an increasing number of challenges such as last-mile delivery returns, lack of visibility, and customer dissatisfaction. To tackle these challenges, retail stores need dedicated technological systems that are well integrated to handle the entire fulfilment process, from transportation and storage to keeping up with the new customer expectations.  

UAE grocery retailers are quickly transforming their processes to a digital ecosystem that offers visibility to customers as well as the operations teams. This helps them to attract and maintain customer loyalty while scaling growth. These businesses are now considering looking for new revenue and customer retention models such as memberships, subscriptions, or loyalty programs. On the technology and user-experience front they are focusing on creating digital omnichannel shopping experiences that are optimized for a multi-channel sales approach for their customers.

COVID-19 induced e-commerce boom in UAE's grocery retail industry

According to a report released by Dubai Chamber, UAE currently leads the MENA (Middle East and North Africa) region in household spending on e-commerce by a staggering $2,554 per household.

A comprehensive study by “Coresight” unfolds that before the COVID-19 pandemic, the grocery shoppers in the UAE did not prefer to buy online. The reason behind this was the busy lifestyle of residents which meant that grocery shopping was a family event featuring pleasant visual shopping experiences and numerous dining options.

“The online grocery market  
has a sizable number of  
shoppers, but they generally  
buy online infrequently.”  
Coresight Research CEO Deborah Weinswig

According to a report, before the pandemic grocery shopping merely accounted for only 5% of UAE's e-commerce sales but this figure rose to a massive 24% during the lockdown. People were staying indoors, and they had no choice but to buy grocery items online. Adoption of e-commerce increased massively as the users started to experience the benefits of online grocery shopping over the traditional offline approach.  

With people adopting online shopping for groceries, many retail stores and businesses are considering solutions such as Dynamics 365 to help them digitalize operations and offer online shopping experiences. Hard-discounters, supermarkets, and hypermarkets in the UAE have so far appeared as the dominant channel for grocery sales as they accounted for 41.6% of said sector sales. These retail markets are also rapidly adopting e-commerce to cater to the increasing net of consumers that continue to shop online.  

Opportunities for grocery retail businesses in the UAE

As the landscape changes, it brings forth various challenges and opportunities for retail businesses. Some of the opportunities provide a low-hanging fruit whereas others are more strategic in nature.  

More conversions per visit

By offering online shopping options, grocery businesses can offer customers ease in selecting and comparing products. They can use features such as multi-category product ranges, discounted offers, ratings, and reviews, etc. to garner further consumer interest. This can be supplemented by fast and affordable delivery, hassle-free returns, free product exchanges, and pricing comparisons.  

Bigger baskets

Online shopping takes away the hassle of pushing a cart to the extreme corner of the store to add a specific product. It offers ease in shopping with the provision of virtual carts having the ability to carry all sorts of products regardless of their size and quantity. The selected products are then packed appropriately by the store staff and delivered to the customer. The bigger basket opportunity can further be fueled by creating an AI-powered recommendation engine within your ecommerce platform. This recommendation engine would intuitively match the previous sales, related products and items that are frequently purchased together to push a larger assortment of goods to the online buyer.  

Consolidation and partnerships

As mentioned earlier, the larger organizations are taking the lion's share of UAE's grocery retail sector. For the smaller players, consolidation with the big merchants who already have a digital infrastructure for grocery can play a key role in benefiting from the new shopping trend in the country. Cross-vertical partnerships such as strategic collaborations with logistics organizations can further help in making more sales. This will improve the supply chain of small grocery businesses and reduce the depletion of food items and resources.

The best way forward!

Harnessing technology and taking advantage of software solutions such as Microsoft Dynamics 365 for retail will be an absolute need for the grocery retailers in the UAE. Players that continue to take the traditional approach and not tap into the agility provided by emerging technologies will soon lose their competitive edge and be out of the game. These technological solutions are powered by artificial intelligence and allow businesses to take advantage of customer data. With such information at hand, targeting the right people at the right time and show them products that interest them the most becomes a breeze. Such tools and applications will not only remove cross-channel friction but also offer improved customer experiences and personalized consumer engagement to drive maximum sales.

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