Gulf’s middle class: survey

The Survey

The middle classes in Saudi Arabia and the United Arab Emirates are much more optimistic in their outlook than their counterparts in Bahrain, according to a McKinsey survey on this key consumer group.

Summary

  • The mood among the Saudi middle classes is more upbeat than from their counterparts in Bahrain and the United Arab Emirates (UAE). They have higher disposable incomes and also often have income sources additional to their work.
  • Bahrainis tend to be least satisfied with their lot. Unemployment is higher and 16% report having lost their jobs within the last two years. Overall they are less optimistic, less confident and less satisfied than their counterparts in Saudi Arabia and the UAE.
  • Emiratis have the highest job satisfaction and believe that they can progress through hard work and determination rather than through family status and connections.
  • Consumers in the UAE have increased their spending in recent years. Disposable income rose 35%, from $33bn to $44bn between 2000 and 2005, according to Euromonitor International. In Saudi Arabia growth was slower, up 15% over the same period, from $76bn to $88bn.
  • Spending on clothing and footwear makes up roughly the same percentage of consumer expenditure in both states, with 10% in Saudi Arabia and just under 12% in the UAE.
  • International retailers are increasingly targeting the Gulf states and in recent months Sephora, Gap, Banana Republic and New Look have announced ambitious plans for entry into the region.

Management consultancy firm McKinsey commissioned public-opinion research company Zogby International to survey people in three Gulf countries – Bahrain, Saudi Arabia and the United Arab Emirates – in order to try and define the mood of the middle class population. Surveying nearly 2,400 people, initial findings have discovered an upbeat mood among Saudi Arabian and the UAE’s middle class but a bleaker outlook among the Bahrainis. Two thirds of those questioned described themselves as middle class. The monthly salary range covered by those defining themselves in this class was wide, spanning 5,000 to 30,000 dirham (US$1,350 to US$8,200). Generally these are salaried employees including professionals, teachers, sales people and healthcare and office workers.

Attitudes

Around three quarters of the middle classes in all three states say they feel secure in their jobs, with over half claiming to be better off than they were four years ago. Saudis are nearly twice as likely as Bahrainis or Emiratis to expect to be better off in the next four years. This reflects national developments and regional tensions, according to the report. “Saudi Arabia and the UAE have the Gulf Cooperation Council (GCC)’s largest and most dynamic economies, and middle class Saudis and Emiratis are more satisfied with their jobs than are their Bahraini counterparts,” according to the report. Emiratis report the most satisfaction and recognition from work and are most confident that hard work and ambition, rather than family status or connections, will bring career development. However Emiratis don’t think they are paid enough or have enough time off, whereas the Saudi middle classes seem to be more financially secure, saying that they receive fair salaries. “More than half of the Saudi middle class respondents list sources of income in addition to their jobs, such as families, stocks, and rental properties. As a result, almost two thirds of the Saudi middle class report having extra income to spend or save,” says the report.

Bahraini dissatisfaction

More than 20% of the middle class respondents are unemployed and looking for work, compared to less than 10% in the other states. Some 16% say they lost their jobs in the past two years. The upshot is that there is little spare income for shopping in many Bahraini households. “The pattern continues throughout the survey, with Bahrainis indicating that they are less well off, less optimistic, less satisfied and less confident than their middle class counterparts in the other two GCC states,” concludes the report.

Retail spending patterns

The UAE has seen disposable income rise 35%, from $33bn to $44bn between 2000 and 2005, according to Euromonitor International. By contrast, the growth in Saudi Arabia was slower, rising 15% over the same period from $76bn to $88bn. People in the UAE also spend more per head with an average of $6,769 in 2005, compared with $3,345 in Saudi Arabia the same year. Following the same trend, retail sales in the UAE grew by a massive 88% between 2000 and 2005 to just under $22bn. In Saudi Arabia, retail sales also grew over the same period, but by a more modest 25% to $44bn. Spending on clothing and footwear makes up roughly the same percentage of consumer expenditure in both states, with 10% in Saudi Arabia and just under 12% in the UAE. However, per capita, consumers in the UAE spent over double the amount the Saudis did on clothing and footwear in 2005. Consumers in the UAE spent just under $800 each, compared to $336 per head for their Saudi counterparts. The total spend on clothing and footwear in the UAE in 2005 was $3.5bn, compared to the larger market in Saudi Arabia, which was worth $8.1bn.

Retailers targeting the GCC

The six markets that make up the Gulf Cooperation Council (Bahrain, Kuwait, Qatar, Omn, Saudi Arabia and the United Arab Emirates) offer huge potential for retailers. Speakers at the World Retail Congress in Barcelona in March told delegates: “if you’re in the retail business, your brand should be in the Gulf”. Recent openings and retail plans reported by WGSN’s new service include:

  • Beauty giant Sephora opening its first Middle East store in Bahrain in the Seef Mall and announcing plans for further stores in Saudi Arabia, Dubai, Qatar, Oman and Kuwait.
  • New Look opening 40 stores in Saudi Arabia, the UAE, Kuwait, Bahrain, Qatar, Oman and Jordan in the next five years.
  • Luxury store Villa Moda opening in Moda Mall in Bahrain this spring.
  • FJ Benjamin opening nine more Raoul Men stores in the Middle East by 2009, targeting Bahrain, Kuwait, Qatar and Dubai.
  • Gap opening 35 Gap and Banana Republic stores in the Middle East by 2010 through franchisee Al Tayer Group.
  • US fashion brand Nautica increasing its UAE store count to 11-plus by the end of 2010, according to franchisee Liwa Trading Enterprises.
  • UK retail giant Marks & Spencer opening its largest store outside the UK in Dubai Festival City.
  • Upscale London department store Liberty planning to launch in Dubai with either standalone stores or concessions within existing stores.
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Reliance Mart

Reliance Mart, a Peek into the Store

Reliance Retail successfully launches its first hyper mart: We were in Ahmedabad for Reliance Retail’s launch of its first and India’s largest hypermarket yesterday. We were impressed by the scale and size of the store, wide product offering, excellent shopping experience and superior product quality.

Targeting wide socio economic class under one roof: Reliance has clearly questioned the popular belief that different socio economic classes in India will not shop under the same roof. Reliance Mart is targeting all income groups under one roof by offering a very diverse product range covering a broad range of price points. The store offers low-priced footwear to premium cosmetics, perfumes and LCD televisions.

Reliance Mart likely to raise consumer expectations: Reliance Mart offers a very good shopping experience for the consumer with broad aisles, open spaces, high ceilings, broad escalators, exclusive basement parking for 400 cars and 200 two-wheelers and good flooring. Inour view, considering the product offering and shopping experience, Reliance Mart comes across as a combination of a hyper mart and a department store.

Apparel likely to be a key differentiator: The company has identified apparel as its key product offering and is likely to use this as its Unique Selling Proposition. Private label contributes around 50% of the apparel offering, which has differentiated quality products at attractive prices.

No predatory pricing strategy: The company’s tagline for Reliance Mart is ‘highest-quality, lowest price’. Although it is too early to be certain, Reliance Mart does not appear to be positioning itself only on the price platform. The assurance of better product quality appears to be a key mantra for the company. However, the company has identified a few categories that will be marketed aggressively and on which it will offer lowest prices vs. the competition

Unique Characteristics of the StoreThe hypermarket is targeting consumers from all income classes under one roof. The product offering is quite diverse across price range. Located in the Upmarket Growing Suburb and Upmarket Mall

Broad range of services:

  • It also has tailoring, shoe and watch repair shops, a photo shop and gifting and laundry services, among others.·        
  • The store also has a book shop, for both child and adultsults, has a sports and fitness section, sections for auto accessories, jewellery, wellness and perfumes, and also an optician, among others.·        
  • Separate Sections for Books, Music, Greetings Card Collection Along with a Prescription Optician·        
  • Separate Innovative Counter for Mobile Phones·        
  • Auto Accessories Include Batteries, Tyres, etc·        
  • Fine Gold Jewellery – Private Labels·        
  • Sports and Fitness Section Next to Toys·        
  • Fresh Bakery Products·        
  • Small Pharmaceuticals Products Section

Consumer finance schemes: Purchases above Rs10,000 may be financed by the company. Consumers have the option to pay in easy installments.

Health and wellness store: Reliance Mart has a health and wellness store, which includes products such as protein supplements.Wellness Section Offering 5% Discount on ProductsLikely to raise the bar of consumer expectations:RelianceMart offers a very good shopping experience for the consumer, with broad aisles, open spaces, high ceilings, broad escalators, exclusive basement parking for 400 cars and 200 two-wheelers and good flooring.

  • Large Space at the Exit to Avoid Overcrowding;
  • Escalator-Driven Ramp on Left for Convenient Exit     
  • Large Ramp for Movement from Ground to First Floor       
  • Attractive Display of Beauty and Hygiene Products       
  •  Large Space on Mother Aisles      
  • Even the Section Aisles Are Large

Reliance Mart is the largest hypermarket in India, with a total area of 165,000 sq ft, which includes around 15,000 to 20,000 sq ft of store warehouse. A Large Number of LCDs on Display, A typical of Hypermarkets in IndiaA Wide Range of Top of the Line Consumer Durables

Reliance Mart has allocated space for premium personal  products and perfumes and the display is similar to those in department storesBeauty Products Display Similar to a Department Store

A Separate Section Assigned for Perfumes

Key Highlights of the Store

  • Three-storey store covering a wide range of 95,000 SKUs, which include pharmaceuticals, footwear, jewellery, auto accessories, toys, greeting cards, eyewear (both prescription and sunglasses), watches, consumer electronics (including laptops and accessories), fresh produce, food & grocery, home care products, apparel, non-food FMCG, lifestyle products, etc.·        
  • Department Store Style Large Collection of Watches·        
  • Currently the hyper mart is serviced by one distribution centre in Naroda, Ahmedabad. Reliance is planning to set up a very large distribution centre on the outskirts of Ahmedabad, for which 60 acres of land have been purchased. All products except fresh fruits and vegetables will be replenished from the distribution centres.·        
  • Fresh fruits and vegetables are sourced from their collection centres. 50% of fresh fruits and vegetables are sourced from farmers directly. The remainder are sourced from local wholesale markets. The  company has not got a contract farming arrangement with farmers. It discloses its buying rates at its collection centres. Farmers have the choice of whether or not to sell their products to Reliance collection centres.·        
  •  ‘Reliance Fresh’ Style Display of Fresh Vegetables

Apparel is being positioned as the biggest differentiatorDifferentiated high-quality private labels account for 50% of the apparel offering. The key price drivers in the apparel segment were Rs199 shirts, Rs99 T- shirts and Rs199 jeans. The company also has wrinkle-free cotton shirts and trousers for Rs599 and permanently perfumed infant suits for Rs149. We saw the greatest rush for Rs199 jeans and Rs199 shirts.Women’s Ethnic Wear Section,Men’s Formal Wear Section,Childrenswear.

The Store

The store has 61 check-out counters to ensure limited waiting periods for consumers.The entire store is managed and run by the company, with no concessionaires or consignment sales. All products are bought out and no space is given on rent to third parties.

  • All hypermarkets will be run by the company – no franchisee operations are expected. ·        
  • Reliance Mart occupies nearly 75% of the Iscon mall. The company has bought the space for an estimated Rs1bn instead of paying rent.·        
  • Footwear has 90% private label, apparel has 50%, watches have 15%.

In the food category, Reliance Mart has launched sugar, tea, salt and atta private labels. Prescription eyewear and bedsheet private labels have also been launched. There are no private labels in consumer electronics and FMCG yet.·        

  • Salt Private Label·        
  • Atta Private Label
  • Sugar Private Label
  • Footwear Private Label
  • Watch Private Label

Reliance Mart has a huge range of furniture products; 70% of furniture is imported. An Extensive Furniture Section.

Update on Other Formats and Plans·        

  • The company targets 100mn sq ft over the next 3-5 years.It is targeting Rs12,000 per sq ft per year for hypermarkets with an EBITDA margin of 8%. ·        
  • The company has no immediate plans to get into a JV with any foreign company.·        
  • Reliance One customers with loyalty cards have already touched 1.5mn.·        
  • It has already acquired 40 properties for setting up Reliance Mart in Gujarat.·        
  •  The company plans to have 28 Reliance Marts by December 2007, 150-200 by December 2008 and 500 by 2010 on an all-India basis.·        
  • The flagship textile brand ‘Vimal’ is likely to be relaunched in September 2007.·        
  • 240 Reliance Fresh stores have opened so far, with 1200 in various stages of completion. The company’s target is to open 1,000 stores by December 2007. It plans to add around 100 stores in the next 15 days •
  • The company also plans to launch specialty apparel stores by December 2007.·        
  • Reliance Fresh in the Neighborhood·        
  •  Orderly Queues for Entry at 10 am·        
  • First Few Shoppers Exiting at 10.30 am·        
  • Packed to Capacity at 2 pm·        
  • Entry Restricted – Huge Crowd Waiting to Enter