Saudi supermarket chain feels the pinch

What's Down: Higher costs have taken a bite out of the Saudi supermarket chain Al Othaim¿s profits.

Al Othaim’s net income in the first quarter dropped to 33.9 million Saudi riyals. Bilal Qabalan / AFP

Higher costs have taken a bite out of the Saudi supermarket chain Al Othaim's profits.

Net income in the first quarter dropped to 33.9 million Saudi riyals, a 7.2 per cent decline from the previous year, as the grocer was unable to fully pass on higher food prices to its customers.

Prior to the fourth quarter, quarterly sales growth at Al Othaim were solid, averaging 15 per cent. However, sales growth fell 5.2 per cent in the fourth quarter and declined further to 4.8 per cent in the first quarter of this year. "This significant and sudden decline in top-line growth is worrying," said Farouk Miah, an analyst at NCB Capital in Riyadh.

Gross margin fell by 90 basis points, about 40 basis points lower than Mr Miah's forecast, he said, due to "expensive inventory continuing to be used, as has been the case with other food and retail companies in Saudi Arabia".

Al Othaim fell 0.5 per cent yesterday, after sliding 2.5 per cent on Sunday.

The shares, which closed at 87.25 riyals yesterday, have fallen 13 per cent so far this year.

Al Othaim operates four types of stores - wholesale outlets, hypermarkets, supermarkets and "baqalas", or corner stores that deliver to nearby homes.

It is the second-biggest supermarket chain in the kingdom with a market share of 5 per cent last year.

Al Othaim pursued an aggressive store expansion strategy to benefit from the country's large young population and expanding income per capita. It plans to increase to 107 stores, up from 96 last year.

It also plans to require outlets to have in-house bakeries, on the theory that the smell of fresh bread will help the growth of sales.

The company was set up in 1956 as a single wholesale branch in Riyadh and went public in 2008, with about 40 per cent still owned by the Al Othaim family.

twitter: Follow and share our breaking business news. Follow us