GROWTH OF MODERN RETAIL – it’s PROs and CONs
- Modern Retail is essentially a recent development in the UAE & Middle East, starting in 1995 with opening of CONTINENT, which was the first large format Hypermarket in UAE.
- The opening of these mega malls with their large format Hypermarkets and their Food Courts and Play areas have made for a whole new shopping experience. Grocery shopping is now a family outing and no longer remains the chore that it used to be.
- But it also brought with it new terminology like Listing Fees, Rebates, Trading Agreements, Merchandising, etc., which have had financial implications for the various stakeholders and have turned the Supplier, Retailer and Consumer relationship on its head.
Modern Retail or Hypermarkets or large format supermarkets as we know them today are essentially a recent development in the UAE & Middle East.
In the olden days the retail scene was dominated by the Cooperative Stores, chain supermarkets like Spinney’s, Choitram’s, Lal’s, Emirates General Markets, etc or for those wanting to buy in bulk it was the wholesale market. Shopping in those days was a mundane affair and was done like any other household chore.
But 1995 saw all this change forever with the opening of Deira City Centre with CONTINENT as its anchor store. CONTINENT was the first large format Hypermarket in UAE offering everything from Grocery to Household, Butchery to Bakery, Jewelry to Electronics and Stationary to Furniture all under one roof.
The opening of these mega malls with their large format Hypermarkets and their Food Courts and Play areas have made for a whole new shopping experience. Grocery shopping is now a family outing and no longer remains the chore that it used to be. These stores have also brought enhanced benefits for the consumers in terms of Price Off or Added Value offers which are dynamic and change on a weekly or fortnightly basis. Due to it’s increased bargaining clout Modern Retail is able to get competitive prices for regular products as well.
Now with the above changes coming into play the Monthly Grocery shopping is no longer a monthly affair, it is now a weekly or fortnightly family outing clubbed with shopping so as to take advantage of the changing offers.
Further the Brand story has also changed over the last few years, where earlier only the big brands dominated the retail scene it is now a level playing field even for the smaller brands. Since shopping has now shifted to a large extent to Offers and promotions a number of small unknown brands have gained significantly by offering Consumer Incentives, In Store Sampling, etc. Big brands have also followed suit to jump on to the Promotions/Offers bandwagon although belatedly and with their deep pockets have been able to protect their turf to a large extent.
Entry of the European chains to the retail arena in UAE has also brought with it the Best Practices of the sector which had been formulated and honed in the developed world over a long period. But it also brought with it new terminology like Listing Fees, Rebates, Trading Agreements, Merchandising, etc.
These new terms have had financial implications for the various stakeholders and have turned the Supplier, Retailer and Consumer relationship on its head.
Let’s take a closer look at what large Retailers have introduced and how it has impacted the inter relationships between the various stake holders.
Listing Fee is an agreed amount of money that the Suppliers pay to the Hypermarkets for listing their products for sale. This amount is fixed based on the number of SKU(Stock Keeping Units) or in layman’s terms number of items that the supplier wants to sell through the Hypermarket. This concept was first introduced in 1998 by one of the major chains on the opening of their Hypermarket in Ajman and since then it has been copied by all and sundry in this sector.
Rebate is a fixed/variable percentage of fees paid by the suppliers to the Hypermarkets on the entire sales made through their outlets. This is also called back end margin which the Hypermarket earns from the supplier on the products it sells through its outlets. Most suppliers have seen this Rebate progressively going up over the years and can range anywhere from 5% to 25%.
Trading Agreements (which also known by a number of other names) are signed between the Supplier and Retailers mostly on an annual basis. Rebates form part of this agreement but these agreements also include a number of other things, for instance a fee for Advertising support, the number of shelves they will rent, etc, etc.
Most Hypermarkets have done away with their own staff or have severely curtailed them over the years, thereby saving a substantial amount on the wage bills. Almost all workers you see inside a Hypermarket with “MAY I HELP YOU” or “MERCHANDISER” printed blue T Shirts are the Free Merchandisers provided by the Suppliers to these Hypermarkets who carry out the shelf cleaning and filling activity for the retailers.
Although charging a rental for shelf in a Hypermarket/ Supermarket is an old practice with the development of Modern Retail it has become rampant. Like every other rental that has skyrocketed in the last few years the shelf rental has also followed suit rising as high as 150%. Eg. a Shelf Rental for which a supplier paid AED2500 per month in 2006 he is now paying AED 6500 per month.
The above are some of the cons that come along with the advent of Modern Retails Stores, so every time you see your grocery or other bills go up a little more remember that apart from the macro economic factors like cost of imports, currency exchange rate etc. these micro economic factors are also contributing to it.
The article was is written by Subbooh Moid for Arab Business Review
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