Workers kick off their shoes at the door so they do not scuff the wax still drying on floor of the Choithrams convenience store and scurry in carrying boxes. The scent of fresh paint wafts through the air inside the 3,500 square foot store on the plaza level of Amwaj in Jumeirah Beach Residence.
Staff wipe down the glass display cases and signs before the first customers come in. Then, company officials gather around the ceremonial red ribbon and with one cut the first store with the UAE-based grocery chain's new look is unveiled to the public. It is the first phase of the more than 30-year-old supermarket chain's revamp to stave off competition, which has become fierce in past few years with new players entering the retail food market.
"If you look at the market it's been fabulous in terms of growth," says LT Pagarani, the chairman of Choithrams. "However, it's going to be survival of the fittest." Food, even in a downturn, is an easy sell. While retail sales of non-essentials such as jewellery fell steeply the sales of everyday staples continues to grow. But as more grocery retailers set up shop in the Emirates, the aisles are getting crowded. What is more, existing retailers are expanding and rolling out new, smaller convenience formats.
"There is intensifying competition," says David Edwards, the managing director of IMES Consulting Group based in Dubai. "They're all going to be looking at new ways [of doing business] and they'll all be looking at what has been done in other countries." In the past two years at least four new grocery brands have entered the market. Last October, the French supermarket chain Auchan opened its first outlet in the Emirates in Dubai. It plans to launch 15 hypermarkets and 40 supermarkets across the GCC in the next decade.
Its fellow French supermarket brand, Geant, plans to open a hypermarket on Yas Island in Abu Dhabi. It already has an outlet in Ibn Battuta Mall and has opened one convenience store, called Geant Easy, in Dubai. It has plans to open about 20 more convenience stores across the GCC. Two new home-grown brands have also opened outlets. SouqExtra!, a line of small shopping and community centres featuring grocery stores and services such as dry-cleaning, opened its first outlet in Dubai in December, with plans to open nine more.
Aswaaq, a supermarket chain backed by the Dubai Government, opened its first centre in the Nad Al Hammar area of Dubai in October 2008. At least six more are in the works. This is all on top of the existing players in the market such as Spinneys, Lulu and Carrefour. But sales forecasts still point to growth on the horizon. Sales at major grocery retailers across the UAE last year hit an estimated US$7.7 billion (Dh28.28bn), up 10.5 per cent from the year before, according to the UK-based research company Business Monitor International (BMI).
This is down from the 16 per cent sales growth in 2008 but mass grocery sales are expected to grow by 80 per cent by 2013, says BMI. "People generally eat a certain amount of food and that's not terribly income-elastic," says Mr Edwards. "You've got to have a huge drop in income before you start eating less food." But sales growth is slowing. In the 12 months to March this year, sales of fast-moving consumer goods such as chocolate, milk and shampoo grew at 8.2 per cent - a drop from the 21.3 per cent growth in the same period a year earlier, data from the research company Nielsen show.
This slowdown stemmed from a slower population growth in the Emirates and the shaken consumer confidence in the region after the economic downturn, says Ashok Nair, the director of retail measurement services at Nielsen for the MENA region and Pakistan. But Lulu Hypermarkets says there is still potential in the Emirates. V Nandakumar, the corporate communications manager for the Emke Group that runs Lulu Hypermarkets, says the retailer is looking at smaller communities outside the urban centres, which are still being served by corner shops.
Lulu is exploring opportunities in places such as Liwa and Madinat Zayed in the Western Region of Abu Dhabi, and the northern emirates of Ras al Khaimah and Fujairah. "Those regions have grown," Mr Nandakumar says. "It might have been 'mom and pop shops', now the population has grown. And we see some tremendous space in the future also for people who want to go to organised retailers." In turn, the EMKE Group is aiming for 28 per cent sales growth this year compared with 21 per cent last year, says Yusuff Ali, the head of the EMKE Group.
This is on the back of a 17 per cent growth in the first quarter this year, Mr Ali says. Mr Edwards says seeking out new markets is a wise strategy. "Supermarket sales are pretty resilient," he says. "The luxury end of their range might suffer a little bit as people downgrade to cheaper versions "As long as the population remains stable or grows there will be some growth in the market. But a lot of retail is about positioning yourself in new areas early."
It is the corner grocery shops that may feel the pinch. "As more smaller supermarkets open, soon there will be supermarkets that struggle," says Mr Edwards. "Many will struggle to make some of the net margins they would have liked." Jannie Holtzhausen, the chief executive of Spinneys Dubai, says new entrants are par for the course in any retail market. "Time will tell you whether they are going to be successful or not," Mr Holtzhausen says.
Spinneys saw positive sales growth last year and so far this year, he says, adding the company's strategy is to focus on continuously improving service. "I'm not so overwhelmingly concerned about what my competition do," Mr Holtzhausen says. "I spend my nights and my days thinking how I should run my business to ensure that the people who shop at my stores continue to shop." @Email:aligaya@thenational.ae