Growth of the Indian Basmati Rice Market in the Arab World

Growth of the Indian Basmati Rice Market in the Arab World

  • Basmati rice is grown in the Indo-Pak subcontinent and is considered the most preferred variety of rice consumed in nearly all parts of the Arab world.
  • Due to the phenomenal growth in sales the Indian basmati market has moved from being just a commodity to being a branded commodity.
  • Indian basmati continues to enjoy a robust growth in the Arab markets, especially in the traditionally non-basmati markets like Jordan, Lebanon, Egypt, Iraq etc. This trend is likely to continue in the next few years and thereby offers tremendous opportunities for the rice traders in the region.

Rice has been a staple grain in Arab cuisine for ages. This is true not only for the Gulf Arab states, but also for the Levant (also known as the Eastern Mediterranean) and other Arab markets. The region has fulfilled its needs for rice largely from the Indo-Pak region, Egypt, and Thailand. Each of these rice growing regions provides rice of different varieties with varying properties and is thus used for different dishes. But the most popular variety of rice consumed is the basmati from India/Pakistan because of its distinct properties.

Some of the common properties of Indian basmati rice are:
  • Non-sticky, fluffy, remains separate after cooking
  • Elongates almost double on cooking
  • High volume expansion
  • Possesses the natural fragrance (aroma) characteristic of basmati
  • Easily digestible
Basmati rice is grown in the Indo-Pak subcontinent and is considered the most preferred variety of rice consumed in nearly all parts of the Arab world. It is used for making a number of dishes that are an integral part of Arab cuisine. Also a large number of the spices used in Arab cuisine are also those emphasized in Indian cuisine. This is a result of heavy trading and historical ties between the two regions, and also because many South Asian expats live in the Gulf Arab states.
Some of the common rice dishes in the Arab world are Mandy, Bukhary, Kawazy, Zurbian, Chicken Biryani, Mutton Biryani, Fish Biryani, Vegetable Biryani, Pulao Biryani, and plain rice both white and Sella (parboiled). Although Indian basmati rice has been the hot favorite of the Arabs of the Gulf Region, over the last few years we are seeing a phenomenal rise in the consumption of it in the Levant countries. The below chart elucidates this trend in the region.
Growth of the Indian Basmati Rice Market in the Arab World1
Growth of the Indian Basmati Rice Market in the Arab World2
Source: DGCIS Annual Export/APEDA
One of the reasons for this changing trend is the return of a number of native people who have been living in the Gulf back to their home countries, these people have developed a taste for dishes like Biryani—for which basmati is the most suitable rice.
The consumption of Indian basmati is also growing in the traditional basmati markets of the Gulf and Iran. This trend is likely to progress with the passage of time as people in the Arab world are likely to continue to patronize the Indian basmati rice and consumption continues to grow.
Due to the phenomenal growth in sales the Indian basmati market has moved from being just a commodity to being a branded commodity. There has been the emergence of a plethora of brands in this category across the Arab world. Tilda was the first mover in this direction immediately after the first gulf war in 1991. It has been the dominant player since then despite the entry of other brands like India Gate, Dawat, Kohinoor, Himalyan Crown, Indian Star, Dunar, Radikal, and Raindrop to name a few.
The entry of these new brands has also fragmented the Indian basmati rice market with most players bringing in more than one variety of Indian basmati. While Tilda was selling only the traditional Indian basmati, India Gate came into the market with a new variant called 1121 Indian basmati. While the former offered aroma as the key product attribute, which is most suitable for plain steamed rice and green peas pulao, the latter offered elongation post cooking (2.2 times the raw grain size) as the USP (unique selling point)—which is very suitable for all types of Biryanis.
The other brands like Dawat, Kohinoor, Dunar, etc. came in offering multiple variants of Indian basmati, which can be differentiated by the different packaging colors. Indian basmati is also sold in different forms with each country having its own market dynamic. While the lower gulf markets like the UAE, Oman, Qatar, Bahrain, and Kuwait are raw rice markets, the other markets like KSA (Kingdom of Saudi Arabia), Iraq, Yemen, Lebanon, Jordan, etc. are parboiled rice (also called Sella rice) markets. Parboiling is obtained by steam boiling the rice paddy before processing. This makes the cooking of various dishes like Mandi, Khabsah, etc. much easier.
Indian basmati continues to enjoy a robust growth in the Arab markets, especially in the traditionally non-basmati markets like Jordan, Lebanon, Egypt, Iraq etc. This trend is likely to continue in the next few years and thereby offers tremendous opportunities for the rice traders in the region.

The article is written by Subbooh Moid for Arab Business Review

To read more thought-leadership stuff by leaders from Arab Region, please visit Arab Business Review

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Amazon is stealing your customers by paying their employees to leave

Amazon is stealing your customers

  • Regional competition for customers shows focus on customer satisfaction as the key business driver
  • Developing a customer centric corporate culture is essential for success
  • Motivate employees to care and be creative to keep customers happy and develop employee growth
How committed to your customer are you?

No company wants to say that, do they?  And while the Region sorts out logistical, cultural, and human capital specifics, Amazon.com and their CEO Jeff Bezos are already doing a growing business here.

Now, while you may say the GCC and Regional organizations have adopted a steep learning curve to meet customer needs and things are improving; the reality is simply this: you’re customers are there already and they’re waiting with high expectations for you to take care of them.   And if you don’t, Jeff et almost certainly will.

Today, commitment to the organization’s success is expressed directly as commitment to the customer.  And in our Region and around the world, it has to be.  Otherwise you won’t survive for long in today’s highly competitive marketplace.

The secret is to bring smart and creative customer driven employees and timely value based solutions to customers so they are happy and continue to buy from you. Simply said, you need a customer-centric culture to drive organizational success.  Commitment to your customer must be paramount.

Take Zappos, which has been acquired by Jeff Bezos’ amazon.com, and how they both feel about the importance of customer service and the need for staff to buy into their concept.  For Tony Hsieh, Zappos’s CEO, this meant taking his customer-centric philosophy to another level. Zappos employee training and orientation process sought to retain only the best employees with the most customer oriented mindset.  This paradigm was so engrained in its culture,  Zappos designed a program unheard of in the industry.  Hsieh referred to it as the “walk-away option” where newly trained employees were offered up to one month’s salary to walk away after completing their intensive training program.

That’s right, after finishing Zappos’s comprehensive and intensive training, newly hires were given the option of leaving the company to pursue other job possibilities.  About 2-3% would take the offer, but the vast majority, or upwards of 97-98% decided to stay.  For Hsieh, this method created an internal culture driven to be the best and drove out anyone who wasn’t as committed to their programme’s customer-based ideals.

This unorthodox approach, along with Zappos strong brand attributes, caught the eye of Amazon’s CEO, Jeff Bezos.   After Bezos acquired Zappos, he tweaked Hsieh’s idea and adapted it to the Amazon culture.   Bezos has adopted a similar pay-to-leave program aiming to copy its subsidiary’s selective recruitment and retention strategies.

Once a year, Amazon’s front line employees have a chance to reflect on their work, their company, and their coworkers to decide if they are committed or if they wish to take a pay-to-leave package.  Those who choose to stay and forego the quick cash remain a more closely tied group of committed employees.

This kind of environment  is one wherein Amazon and Zappos are not only saying “there’s the door if you don’t like it”, but “here’s how much we care for our customers.  If you’re not fully on board, here’s the door and cab fare as well to take you home.  Thanks for coming.”

Creative retention and employee training programs like these may be a key driver to attract people to your company.   Furthermore, this could be key in developing an internal brand identity whose hallmark is serving customers’ needs.  And of course, no matter what your business is, when customers’ needs are met or surpassed, business succeeds.  We can thank Zappos for a creative option to building a culture of customer service and yes, Jeff Bezos for building on a solid construct in customer-centric thinking.

The article is written by Jonscott Turco for Arab Business Review To read more thought-leadership stuff by leaders from Arab Region, please visit Arab Business Review

Step into green logistics

Step into green logistics

 

  • Defective supply chains are costing companies billions every year in lost revenue and create significant negative environmental impact.
  • Warehouses can play an important role in mitigating the environmental impacts of logistics activities through green initiatives.
  • Logistics centres being an integral part of manufacturing, the concept of green warehousing is going to be an operational norm, and should attract investment from both MNC’s and SME’s.
  • MNCs having aggressive targets of reducing carbon emissions from both mobile infrastructure and immobile infrastructure in the entire supply chain, are likely to be the prime investors in this segment.

A superior logistics system is a ‘proprietary asset’ of any organization that cannot be easily duplicated. Logistics have a pivotal role to play in making the whole supply chain experience seamless. Many organizations have begun to view business logistics as an effective competitive weapon. Although winds of change are sweeping across supply chain business the industry is becoming more complex with increased globalization and has become the centre stage of discussion.

Industry Challenge

Defective supply chains are costing companies billions every year in lost revenue. At this point there is a need for optimization, automation, risk mitigation and innovation. According to reports, around 75 per cent of a company’s carbon footprint comes from transportation and logistics alone. In such a scenario, warehouses can play an important role in mitigating the environmental impacts of logistics activities through green initiatives.

The demand for quality Logistics infrastructure is being strongly felt across all industries owing to growth in the emerging economies, the future of the warehousing sector seems bright. The driving force behind the green movement is the continuous rise in fuel costs. Moreover, growing demands from global players for green supply chain processes and the need to cut down on external and wasteful costs that leave carbon footprints in environment are other major factors driving companies to go green.

Potential investors

Logistics centres being an integral part of manufacturing, the concept of green warehousing is going to be an operational norm, as the concept will provide the much desired qualification to engage in business with the MNC’s and SMEs. MNCs in general are going to be the prime investors in this segment and have aggressive targets of reducing carbon emissions from both mobile infrastructure and immobile infrastructure in the entire supply chain. This situation demands companies to adopt green measures. This also helps in bringing long-term benefits to these companies

Where to Start?

To facilitate the Green supply chain process, a comprehensive review of operations across the supply chain and the value proposition for implementing an advanced supply chain planning and logistics solution is required. The scope of this effort includes all supply chain processes across the following functional areas:

  • Prioritize potential business capability improvements
  • Outlined technology solutions required to support these improvements
  • Implementation of a series of program and infrastructure upgrades
  • Optimization of resources,
  • Adaption of technology in different areas of warehousing,
  • Automation of order to cash processes, and outsourcing
  • Integration of warehousing with efficient transport & Distribution network systems.
  • Waste disposals & recycles

Create a Value proposition

The environmental initiative builds the value proposition of a logistics company and sets it apart from the competitors as it reflects its commitment to the environment. The benefits of undertaking green logistics and environmental initiatives include

  1. Brand building for being projected as an Eco-friendly company holding corporate social responsibility
  2. Cost management from energy savings by reducing fuel consumption and CO2 emissions resulting in efficient and sustainable supply chain infrastructure, which creates an opportunity to earn carbon credits.
  3. Human well-being index results in increased productivity of employees.

Material compliance & Automation

Implementation of Green supply chain is a challenge as it involves both automation and material compliance meeting the carbon reduction. Logistics automation has virtually made inventory paperless and the use of information technology is bringing warehouse operation towards the greener side. In addition, using construction materials that possess good strength and durability proves to be of utmost importance like the precast as it reduce the CO2 emissions. It plays an important role as the warehouse structures are expected to exist and perform over long periods of time, and hence the construction materials used should be compliant to sustainable standards to bear the long-term wear & tear and reduce the cost of replacement to a large extent. For e.g the roof structures facilitating use of solar PV, usage of skylight concepts will drive reduction in costs of alternative fuels on a year-on-year basis, insulated steel panels will ensure lower consumption through the grid and eventually play a crucial role in the green technology.

Seven steps to Green implementation

  1. Building a road map based on corporate social responsibility
  2. customer acceptance and good business sense
  3. Looking for customer competitive advantage and USP s
  4. Evaluating green initiatives in terms of cost, timescale and business case
  5. Measuring and bench marking
  6. Adopting the right green practices for Eco-friendly
  7. Design energy-efficient construction and operations in warehouses

Operational Excellence

Today, the manufacturing industry is facing a volatile economy, intense competition and rising energy / material costs. Improving operational efficiency has become an imperative not just for margin purposes, but also for long term success. Cost reduction, quality and productivity improvement have now become key levers for gaining competitive advantage. Operational Excellence is the pursuit of conducting business in a manner that continuously improves the quality of goods and services, reduces cost, and enhances speed and flexibility to achieve competitive superiority. Green Optimization of the supply chain can significantly improve company profitability and support in achieving Operational Excellence.

 

The article is written by Raghu Menon for Arab Business Review

To read more thought-leadership stuff by leaders from Arab Region, please visit Arab Business Review

The MENA Franchising Opportunity and Success Factors

The MENA Franchising Opportunity

 

  • The franchise economy in Middle East and North Africa (MENA) is worth $30 billion and is growing by 27% per annum. High disposable income of consumers, favorable regulations, and a young and upwardly mobile consumer market are the key factors driving growth. GCC nations are at the forefront of growing the franchise economy in the Middle East, while Egypt is the leading franchising destination among African nations.
  • Food and beverage (particularly fast food) sector is the biggest beneficiary of the growing franchise economy, while other sectors like education, maintenance and health services, are underdeveloped and are growing slowly.
  • International brands looking to expand rapidly into the MENA region usually prefer to opt for the master franchising (also called as sub-franchising or multi franchising) format.
  • A strategic entry into the franchise market of the region must also take into account the legal, regulatory, cultural, religious and social norms that define the preferences of the governments and consumers.
  • Just Falafel stands out as a success story – adopting the franchising route has this Middle Eastern start-up expand to 18 different countries with more than 900 outlets, increase its sales by 35 times, and become the Biggest Falafel Franchise in the World.

 

The franchise economy in Middle East and North Africa (MENA) is worth $30 billion and is growing rapidly. As per Middle East and North Africa Franchise Association (MENAFA), the franchise industry in the Middle East and North Africa is worth over $30 billion today, and is growing at a CAGR of around 27% annually. Concentration of high net-worth individuals, favorable regulations, and a young and upwardly mobile consumer market are the key attractions for franchisors looking to expand their operations within the region. On the other hand, the driving factors for franchises and local governments are the entrepreneurial opportunities presented by the franchising model, job creation, and the ability to inject international grade skills and processes into the economy. Further, investors also feel more confident opening a store under the umbrella of a large, multi-national corporation, as they expect franchises to respect the strict quality standards issued by the mother company, and also benefit from the well-established operating, marketing, and accounting practices of the franchisor. 

Not surprisingly, GCC nations are at the forefront of growing the franchise economy in the Middle East, while Egypt is the leading franchising destination among African nations. With a combined population of 1.4 billion, a GDP of $1.9 trillionan affluent customer base and (relatively) business friendly environment, the Gulf Cooperative Council (GCC) – Saudi Arabia, United Arab Emirates, Kuwait, Qatar, Bahrain and Oman – presents the biggest opportunity for existing and potential franchisors and franchisees in MENA. 

GCC consumers demand exclusive, superior and high quality product, and therefore are the right target segment for international brands looking to make an inroad into the region via the franchise mode. This is clearly reflected in the fact that in GCC, more than 50% of retail sales are generated from international brands and in the leading malls the retail mix is as much as 80/20 (international brands versus home-grown).  As a result, GCC malls tend to host a department store franchisee location, e.g. Saks at Kingdom Mall in Riyadh, Bloomingdale’s at Dubai Mall, or Harvey Nichols at the Mall of the Emirates in Dubai. 

Within Africa, the Egyptian franchise sector grew from 25 international brands in 1999 to 360 in 2010 and 430 in 2012, as per the Egyptian Franchise Development Association (EFDA). The biggest drivers of franchising in Egypt have been 1) the knowledge transfer from foreign franchisors (who wish to collaborate with franchises having the requisite local knowledge); and 2) job creation – the franchise sector in the country employees more than 55,000 nationals and this number is expected to grow further in the coming years as franchisors target the upper and upper-middle classes in the country. 

Food and beverage (particularly fast food) sector is the biggest beneficiary of the growing franchise economy in MENA. Franchised and licensed business have permeated all sectors including education, transportation and tourism; however, like with the rest of the world, the franchising model has found a natural home in the retail and food and beverage (F&B) sectors.  Within the GCC countries, fast food is expected to account for 40% of the franchising market, as eating out in a part of the region’s culture and tourism practices.  In addition, the liking for U.S. style casual dining has further helped drive the entry and growth of international fast food joints in the region. 

The popular international food franchises in GCC region include Burger King, Popeye, Hard Rock, McDonalds, Hardees, Pizza Hut, Pizza Inn, Fuddruckers, TGI, Chilies, and Wendy’s, while Just Falafel is the leading example of a Middle East-based fast food chain that has expanded rapidly in the region and worldwide over the past five to seven years.  Even in Egypt, nearly 75% of franchises opt to represent retail and food brands.  Industry experts and leading franchising consulting firms expect the region’s F&B franchises to grow by >25% in the coming years, and maintain their dominance over other sectors like education, maintenance and health services, which are underdeveloped and are growing slowly.  

Interestingly, while some leading hospitality brands like Sheraton, Holiday Inn, Meridian, and Ramada have adopted the franchise route in the region, others like Hilton, Marriott, & IFA remain apprehensive because of 1) lack of faith in local franchise’s ability to maintain the brand; and 2) question mark over the model’s profitability without economies of scale.  

While the MENA franchising opportunity (especially F&B) seemvery attractive, we recommend potential franchises and franchisors to follow the below guidelines to help build a successful franchise business in the region. MENA consumers have high disposable incomes, are perceived as luxury- and brand- conscious, and seem unrelenting in pursuit of the bestthereby encouraging domestic and international franchises to set-up shop in the region. However, the region’s market is idiosyncratic and a strategic entry into the region must also take into account the legal, regulatory, cultural, religious and social norms that define the preferences of the governments and citizens of the region. 

Choose the country to enter and ensure compliance with the laws of the landMENA nations have different varying laws and ownership caps for franchisees looking to set-up operations in the respective nation. The table below from a report by DLA Piper Middle East lists the percentage of GCC- and Foreign- franchisee ownership allowed by different GCC nations. 

Apart from the ownership structure, it also important to ensure that you comply with the various franchising related laws, namely, Agency laws, Commercial codes, Companies law, Civil Codes, Judicial Procedural Code, Trade Mark law, Trade secrets/unfair competition law, Employment law, and other laws which regulate import of goods, labelling. 

Maximum percentages of ownership in the share capital of a corporate franchisee by GCC nationals and foreigners in each country 

The MENA Franchising Opportunity-2

 Source: DLA Piper Middle East

Choose the right franchising format and partners:

International brands looking to expand rapidly into the MENA region usually prefer to opt for the master franchising (also called as sub-franchising or multi franchising) format. In this format, the master franchisee, or the locally present master licensee, has the rights to further market and sell franchises within a specific territory/country. These partners or ‘franchisees’ open an agreed number of brand stores or outlets in the assigned area.  This format is best suited for sectors like F&Bretail, education, beauty services, etc., and is usually adopted by franchisors looking to establish a wide footprint in a short period of time.  However, selection of the right master franchise is extremely critical under this model, as choosing the wrong master franchise can result in break-down of the complete franchising ecosystem. 

The product or single-unit franchising format allows franchisees to sells products and/or services on behalf of the franchisor and functions independently with limited assistance. It is best suited for businesses like retailing of jewellery, apparel, and footwear.

The license to manufacture format allows franchisors to grant a license to the franchisee to manufacture products under its brand name in accordance with its specifications and quality standards to be sold in a selective market segment. 

Adjust your product/menu for cultural preferences, tastes, guidelines (including religious observance) and customer expectations. This is applicable to all sectors and countries, but is especially true for the F&B sector where companies can gain or lose market share based on their ability to adapt to cultural preferences. The strategy to offer falafels which combined the authentic falafel with global flavors like Emirati, Lebanese, Indian, Greek, Italian, Japanese, Mexican and American is one of keys to the huge success of the Just Falafel food chain (discussed in case study below).  Further, Herfy’s strategy of upsizing their chicken pieces with extra batter and adding more fries at a value price helped it displace KFC as the dominant fast food chain in the Saudi Arabia. 

Choose culturally appropriate ambiance. For example, café’s in Saudi Arabia generally have a lounge feel with segregated retail space – families and single men. 

Location, location, location: with insufficient new properties, rising rentals and property cost, it is difficult to run a profitable franchising business and attract consumer footfalls at the same time.  Therefore, it is advisable to look for older properties that require innovative remodelling and renovation. 

Build brand and goodwill by participating in philanthropic and CSR activities. Franchises and franchisors should expand the brand by interacting with the local communities, considering geographic issues, political climate, linguistic and cultural nuances, and taking CSR initiatives. 

 

Case Study:  Just Falafel – From a Start-up to the Biggest Falafel Franchise in the World

Just Falafel started what it calls the “falafel revolution”, when it was founded as a single restaurant in Abu Dhabi in 2007.  The focus at that time was on creating a 100% vegetarian falafel (a traditional Middle Eastern sandwich), that would combine the authentic falafel with global flavors like Emirati, Lebanese, Indian, Greek, Italian, Japanese, Mexican, American, etc.

However, the turning point in the company’s growth story came in 2011 when the company hired Fadi Malas as its CEO and decided to adopt the franchising model to grow. The company pitched itself to franchises on the basis of 7 factors: clever positioning, brand equity, strong growth, great reputation, commitment to quality, robust franchise system and an innovative menu. The company pushed its franchising agenda aggressively through social media platforms like Facebook. During a 12-month campaign, the company received more than 2,300 requests for franchising from 73 different countries.

Ever since, Just Falafel has grown to be the biggest falafel franchise in the world, with agreements signed with commitment of developing more than 903 outlets in 18 different countries, including rolling out 100 stores in Egypt, 200 stores in the UK, 50 stores  in Turkey, 50 stores in New York, US, and 125 stores in Saudi Arabia.

As per Malas, adopting the franchising route helped Just Falafel increase its sales by 35 times and attract USD 200 million to reinvest its brand.

Just Falafel is headquartered in Dubai, UAE, and has regional offices in UK, Egypt, Lebanon, and Turkey. It currently employs more than 400 people worldwide, including 28 in the head office.

The MENA Franchising Opportunity-1

 

Source: Just Falafel

The article was originally published at: Arab Business Review

To read more thought-leadership stuff by leaders from Arab Region, please visit Arab Business Review

 

Online Marketplaces: The new commerce power players

Online Marketplaces

  • Smart start-ups win traditional and new marketplace categories in the Arab world while traditional players stay on the sidelines.
  • While, early online marketplaces were initially launched as an extension of traditional marketplace categories, innovative marketplaces are now making their way into the Arab world.
  • The traditional marketplaces would do best to acknowledge this trend and react in-time to be a part of this growth opportunity 

Marketplaces have been at the core of commerce for thousands of years, and they continue to serve in gathering merchants and people who come together for the purchase and sale of goods and services. While marketplaces have always been at the core of economic prosperity for the cities and nations that had them, they have evolved over time –not the least from seasonal marketplaces where traders gathered in old time to permanent geographic locations, such as the famous Souk al-Khalili in Cairo and Souk al-Hamidiya in Damascus, and into modern malls such as Dubai Mall, in the Emirate of Dubai.

Yet the Internet introduced a new dimension to marketplaces, allowing pioneering start-ups to build and own generic and specialized marketplaces, focused on bringing together sellers and buyers on a technology and marketing platform. The Internet has also allowed these start-ups to own such marketplaces while extending their business models from renting spaces to charging a commission on every transaction taking place in these new digital marketplaces, and offering value added services to merchants and users. Most importantly, while traditional marketplaces were exclusive territory for owners of large capital and real-estate, new online marketplaces are now being built by smart entrepreneurs capable of recognizing an opportunity and executing on it in an efficient and aggressive manner. Moreover, the cost of building an online marketplace today is only a fraction of the cost of building a traditional one, with potential and scalability that is an infinite multiple of that of traditional markets.

Early online marketplaces were initially launched as an extension of traditional marketplace categories, such as fashion, electronics, and books. Today, generic online marketplaces, which include the famous Amazon.com and eBay, have grown over time to encompass all kinds of goods and services.  Furthermore, the nature of the Internet as a ubiquitous and seamless network allowed for the creation of new specialized markets for industries that never had their own marketplaces. Examples of such categories include transportation, healthcare, and financial services. The creation of these marketplaces has allowed consumers to request services from local and regional organizations across borders. This in turn led to the creation of several billion dollar companies, including the likes of Uber in the transportation sector, which connects passengers with limousines, MoneySuperMarket, which lets users compare financial services and products (more recently automotive services and home repair services) and procure them online from providers.

With the growth of Internet users in the Arab world reaching more than 135 million users today, and the proliferation of smartphone devices reaching 84% in countries such as the United Arab Emirates and Saudi Arabia, the time for online marketplaces in the Arab world has come. During the past two years or so several marketplace categories have emerged as mature categories in the Arab world, with undisputed leaders operating efficient marketplaces and growing at record rates, all while requiring a fraction of the investment of a traditional marketplace.

In the automotive sector, traditional car dealership markets have now been replaced by startups that allow users to sell their cars in record time and with a fraction of the hassle of selling through traditional car dealerships. SellAnyCar.com is one such startup; it was founded in the UAE and has now expanded into Turkey and Saudi Arabia.  Another is the automotive section of the leading Arabic classifieds website, Opensooq.com, which offers more cars for sale and requests to buy cars than any traditional cars marketplace in the Arab world, all at a fraction of the cost it takes to build and operate a traditional car dealership, and with unsurpassed convenience and market efficiency.

In the transportation sector, startups like EasyTaxi now allow users in Saudi Arabia, Jordan, Kuwait, Qatar, and Bahrain to order taxis with a tap of a button on their smartphones, using a free app that automatically matches users with taxi drivers nearby. Not only does this startup improve the efficiency of taxi drivers, saving them the hassle of wandering in the streets, but it also offers safety and comfort especially for passenger categories such as women and teens, and reduces pollution and power consumption.

Innovative marketplaces that did not exist before the Internet are now also available in the Arab world. They include ReserveOut.com, which acts as a marketplace for restaurant reservations, allowing users to discover new venues and guarantee immediate and free reservations from the comfort of their desks or through their smartphones. Online food ordering marketplace, hellofood, is now probably the largest food court in Saudi Arabia, Jordan, Qatar, and Lebanon, allowing users to order in food from their favorite restaurants, rendering old business models such as food ordering by phone or through catalogues obsolete.

The technology and user experience components of online marketplaces have already been commoditized. This in turn means that marketing and execution are the key aspects for the success of online marketplaces. First mover advantage has also become key to leading marketplaces; early market entrants tend accumulate the largest number of service providers and users, and therefore they get even bigger and more successful with time. Furthermore, unlike traditional marketplaces, which allow competition the opportunity to start in new geographic locations in the same country, the national and cross-border nature of the Internet means that the leading online marketplace will make it very difficult for competition to gain market share. In fact, in many of the cases there is only a handful of winners in each category.

So far, new start-ups built by smart founders and supported by strategic value-adding investors are winning marketplace categories one by one in the Arab world. Meanwhile, very few traditional marketplace players have understood the major shifts taking place in the market, in addition to the change in tastes and the consumer behavior of new millennials in the Arab world. This does not appear to be changing in the near future. Smart stakeholders should move fast to leverage any remaining value proposition they have through their existing relationships or capital availability, and partner-up with leading Internet market players before it’s too late.

The article is written by Khaldoon Tabaza for Arab Business Review

To read more thought-leadership stuff by leaders from Arab Region, please visit Arab Business Review

Why Cash on Delivery is Good for your Business (if handled properly)

CAsh on delivery

  • Despite having one of the highest broadband penetration rates in the world, eCommerce in the UAE has not met its potential, as it merely represents just over 2% of overall retail sales.
  • Widespread use of cash on delivery and customer’s changing their mind and cancelling orders if they haven’t paid in advance, are the most cited reasons behind lower than average successful delivery rates in the region. 
  • However, a close analysis of eCommerce data gives useful insights into customer mindset, which can help eCommerce companies handle cash on delivery more effectively.

eCommerce in the UAE is not as big as it should be when you take into account the fact that we have one of the highest broadband penetration rates in the world, coupled with a population that loves to shop. Combining these two factors should make online sales as a percentage of retail relatively high, on par with standards in Western Europe and the US. However, the UAE lags behind and e-commerce still represents a very small percentage of retail sales (>2%).

One of the many reasons that commentators cite as to why eCommerce is in its infancy in the region is the popularity of cash on delivery as a payment method and the very nature of its unreliability.  Lower than average “successful” delivery rates in the region, are usually blamed on the widespread use of cash on delivery as a payment option.   This is based on the belief that people are more likely to change their mind if they haven’t already paid for it.

Courier services usually charge the seller once a delivery attempt is made, whether or not it is successful.  When the seller is reliant on cash on delivery for these items, their costs can mount before their sale has even been finalized (and cash has been received). There also remains a risk of the customer changing their mind and cancelling the order.

But does the data support these views?

Hassan Al Sayegh analyzed all the shipments we carried out in the past few months analyzing more than 15,000 eCommerce deliveries. An analysis of these transactions shows that 77% of all orders were cash on delivery. This gives us a clear insight into the market here, and its appetite for COD. Although the use of credit cards is increasing, the uptake is quite slow.

Another valuable insight is that the average basket size for a cash on delivery order is almost 2.5 times that of a credit card order (a whopping AED 439 compared to AED 176). A possible explanation for this might be that people are less inhibited, more impulsive and tend to opt for more expensive items if they don’t have to pay for them upon check-out. The check-out experience is also significantly simpler for a cash on delivery order, with no credit card details needing to be inputted, increasing the successful conversion rate of a website visitor to a buyer.

Both these elements show the criticality of introducing COD solutions to your customers to truly leverage the e-commerce scene.

Successful delivery rate

The successful delivery rate for a cash on delivery order is significantly lower than that of a credit card order. On average, 99.5% of all credit card orders received by MENAVIP are delivered to the end customer, compared to 92.5% for a cash on delivery order. Our goal is to always try to increase successful delivery rate and have introduced multiple thread of actions including the following ones.

One way that has been trialed by a number of clients is to qualify all cash on delivery orders with a phone call to the customer. Only after this confirmation is obtained is the order dispatched to the courier. A further phone call from the courier (standard practice at MENAVIP) is then made to schedule the delivery and more importantly, confirm the cash on delivery amount. Combining these two best practices increase the chances of a successful delivery substantially. One client trialed this approach and found that it increased the chance of a successful delivery from 92.5% to 96%.

In order to succeed, an eCommerce player in the region must cater to the local market, and it’s very clear that the market prefers cash on delivery. If a supplier wants to sell online in the UAE and take full advantage of a world leading basket size, cash on delivery is a must. Although the risk of unsuccessful deliveries is higher, there are ways to mitigate this: by taking a proactive hands-on approach to securing your orders by interacting with the customer prior to dispatch. Also the gains pertaining to being able to reach out to 4x the potential customer database should largely outweigh the increment of the return rate, especially if the delivery (and return operations) are being performed transparently and with a fast turn over (quick pick up, bringing products back into inventory, tracking system…).

Imagining delivery operations with the same return rate for credit card as COD along with a fast turn-around on operations and cash collection is – I believe – the true enabler of e-commerce in the region for the years to come.

The article was is written by Idriss Al Rifai for Arab Business Review

To read more thought-leadership stuff by leaders from Arab Region, please visit Arab Business Review

Are Arabs shopaholics?

GROWTH OF MODERN RETAIL – it’s PROs and CONs

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  • 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 FEES:

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:

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:

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.

MERCHANDISERS:

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.

SHELF RENTALS:

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

To read more thought-leadership stuff by leaders from Arab Region, please visit Arab Business Review