Trends and Challenges of Food Retail Sector in Saudi Arabia

Proceedings of 9th European Business Research Conference 7 - 8 September 2017, Hotel Intercontinental, Madrid, Spain ISBN: 978-1-925488-43-2

Trends and Challenges of Food Retail Sector in Saudi Arabia Mohammad Naquibur Rahman The research is aimed at studying the present behavior of food retail marketing players analyzing future strategies to be taken in order to make its food retail industry free from any foreign dominance taking it 1 towards total economicsovereignty . It covers the dimension to harness the production and marketing food industry so that indigenous production is capacitated to stop erosion of Saudi Arabia’s petro dollars draining to matured economies of the world. It sheds light for paving the path to make Saudi Arabia as an industrial hub accessing to whole Middle East and African countries by evolution of association with the nations of origin.

Key words: KSA2, Middle East Countries3, the US, the EU, GCC,

1. Introduction Saudi Arabia lies in Asia at the heart of the Middle East and is world’s ninth largest country in term of area. From geo-political position, it is enjoying a unique position that enables it to import and exports goods easily from Europe, USA, Asia, Africa and other countries. Saudi Arabia is one of the most undeveloped countries at the time when Byzantine4 and Faras5 were at the pick of their power which is later known as the birthplace of Islam. Later after the birth of Islam, it appeared as the lap of Islamic civilization that created a new human history and changed the world order. It is enjoying the religious prestige being the home to the religion’s two most sacred mosques, Masjid al-Haram in Mecca and Masjid an-Nabawi in Medina, the burial site of prophet MuhammadMPUH. Now in the world economy, it is playing a pivotal role being the world's largest producer and exporter of petroleum products and having the world's second-largest oil reserves and sixth-largest gas reserves. ____________________________ Dr. Mohammad Naquibur Rahman, College of Business, Umm Al- Qura University, Makkah Al MukarramahSaudi Arabia, Email: [email protected], [email protected]

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Economic sovereignty : Economic freedom, liberty and having ability to make of financial decisioni KSA – Kingdom of Saudi Arabia 3 Middle East Countries – Egypt, Iran, Turkey, Iraq, Saudi Arabia, Yemen, Syria, the UAE, Israel, Jordan, Palestine, Lebanon, Oman, Kuwait, Qatar, Bahrain 4 Ancient Greek city; now Istanbul in Turkey 5 Formerly ancient Greek. During the period of ancient Egyptian, Faras became an Egyptian administrative centre 2

Trends and Challenges of Food Retail Sector In Saudi Arabia

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Proceedings of 9th European Business Research Conference 7 - 8 September 2017, Hotel Intercontinental, Madrid, Spain ISBN: 978-1-925488-43-2 Saudi Arabia’s food market holds an immense importance on the international platform Food Supply status particularly GCC6 as it has significant impact on all key players in the retail business. As Foreign food supply Domestic food supply changes are taking place very fast and its consequences as well, it is essentially needed to study the present status and set the objectives so that necessary steps are taken 20% in order to meet the demands of its customers and to bring stability in its economy. In the present scenario, all key players of GCC are 80% striving hard to change the business table in their favour and amid the best efforts being taken by GCC countries, it has brought stiff competition to excel in the food retail industry. With an increase in per capita income, purchasing capacity of the people is also increasing. They are investing more money on their food consumption, which is also helping in the increase of food imports. It is alarming to know that as per estimation that Saudi Arabia is importing about 80% of its food requirements, worth about $24 billion from foreign countries especially the United States of America. Over the next five years Asia and Australasia will deliver the strongest retail volume growth of any region, averaging 4.6% annually. With sales of almost US$7 trillion in 2014, Asia is also comfortably the world’s largest regional retail market, with China accounting for much of this. However, this outlook comes with a degree of risk attached. Decelerating growth in China, weakness in Japan and mixed signals from India will all weigh on the regional outlook. Large players are now showing signs of switching emphasis to smaller Asian markets, notably Indonesia and India , with the former supported by strong demographic and income growth and the latter opening up more to foreign retail investments. Regulatory issues and a strategic refocus on domestic markets have also prompted a rethink among global retailers. As the likes of Carrefour, Panda and Tesco seek to recapture revenues in their core home markets they have divested or rationalized operations in emerging middleeast countries. The food retail market can be divided into the following segments based on product categories: a) Cereals b) Dairy c) Fruits and vegetables d) Meat e) Other foods

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The GCC’s members are The Kingdom of Saudi Arabia, the United States of Emirate, Kuwait, Oman, Bahrain, and Qatar Trends and Challenges of Food Retail Sector In Saudi Arabia

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Proceedings of 9th European Business Research Conference 7 - 8 September 2017, Hotel Intercontinental, Madrid, Spain ISBN: 978-1-925488-43-2 In 2013, the number of food retail outlets in Saudi Arabia was estimated at 40,435 stores, that have resulted in 15 percent over their number in 2012. It is pertinent to note that the total value of food sales at these retail outlets was estimated amount to about $40 billion, in 2013 that resulted in an increase of 10 percent over the previous year. As analysis made in the context, the total forecasted value of retail food sales is going to touch $ 45 billion in 2017. This positive forecast is treated an excellent opportunity to expand exports throughout the Kingdom by many trade surplus countries and simultaneously, these trends lead the country toward dependence over foreign exports. It reflects the importance to draw a line to what extent Saudi Arabia should be dependent over its foreign suppliers and what strategies are needed to cope the situation for making the Kingdom self reliant and self dependent in catering the needs of its citizen in the context of food retail marketing.

2. Literature Review: Saudi Arabia is holding the most prime position in terms of importing of food and agriculture products among the Gulf Cooperation Council (GCC) countries (Saudi Arabia, the UAE, Kuwait, Qatar, Oman and Bahrain) having a population of about 31 million in 20167 with an expectation to reach 40 million by 2025. Foreign supply of food is playing a pivotal role in Saudi Arabia as it depends on foreign supplies about 80% to meet the consumption needs8. As its economy is doing well, the per capital income has reached to $ 25,000 that is affecting the life style and high quality food products are being on demand. There is a need to think seriously how the Kingdom of Saudi Arabia will reduce the burden of foreign food supply. As present food consumption is satisfied for foreign supply shows a dismal future picture of self- reliance in producing its own food product to cater the need of its citizen. Right priority needs to be set in order to achieve this destination of self-reliant. The Saudi Food retail industries are divided into three categories- hypermarkets, supermarkets and baqalas (small shop store). It is subject to emphasis that however the number of hypermarkets is relatively small having around 220 units, it is contributing about 22 percent of the retail food sales. The concept of hypermarkets is not an old phenomena rather it is a new one. It came into existence in 2004 only and has achieved a new height of popularity as malls are considered to be family outing destination, which provide varied kinds of source of entertainment. Many people prefer going to malls to going to movies theaters and nightclubs as many hypermarkets having all possible socialistic amenities like grounds of children and places for having peace and recreation.

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Wikipedia - Demographics of Saudi Arabia

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Arab News datedPublished — Sunday 20 April 2014Demographics of Saudi Arabia


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Proceedings of 9th European Business Research Conference 7 - 8 September 2017, Hotel Int Intercontinental, ercontinental, Madrid, Spain ISBN: 978-1 1-925488-43-2 The objective of exploring the futuristic trends in retail market operative in KSA retail market is to provide detailed quantitative analysis of past and future trend. Research survey method applied in this regard it is supposed to give the insight in market trend and would help to analyze the real situation and chalking out right strategies in order to cope with challenges ahead and to take benefit from the present and future opportunities to establish the status of firms operative in KSA in the monopolistic monopo markets. Keeping in view the dependence of foreign key players for catering the need of retail food supply in the Kingdom of Saudi Arabia, a study is stepped up to study the current situation of retail food supply and futuristic demand and formulating ting the right strategy to make Saudi Arabia a self reliant in fulfilling the need of its citizens and shaping its economy to be independent for foreign influence.

Food Retail Mechanism Hypermarket

Supermarket

Baqalas

22% 55%

23%

As per market study, supermarkets are playing a pivotal role in Saudi Arabia food industry. The supermarkets having a total of 680 outlets are contributing about 23 percent of retail food sales in 2013.. But the most dominating and contributing factor are the baqalas ba both in terms of number of retail outlets and sales volume as well. In 2013, it was estimated that the number of baqalas was touching about 39,540 units and they were contributing to about 55% of food sales through retail outlets. Keeping in view th the e sales trend, it is being estimated that $45 billion over all food sales is going to be realized by 2017. New business houses mostly from the supermarket mechanism are planning to commission more new supermarkets that would have a significant impact over retail market behavior in the Kingdom of Saudi Arabia. Giant players like Tamimi and The Lulu Hypermarkets are having ambitious planning to penetrate more in the Saudi Arabian market that shows the positive dividends going to be gained by these thes market players. It shows that the retail sales trend is positive in the future. There is a need to understand the facts lurking below the surface that these foreign giants are foreign in their origin that are going to put stiff competition for indigenous players. Serious attention needs to be paid by the Kingdom to strengthen the indigenous business players. It needs comprehensive action plan that cover all the aspects to be taken care to create an atmosphere to develop the indigenous players in the market ket so that Saudi Arabia could be made more self-reliant.

Trends and Challenges of Food Retail Sector In Saudi Ar Arabia

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Proceedings of 9th European Business Research Conference 7 - 8 September 2017, Hotel Intercontinental, Madrid, Spain ISBN: 978-1-925488-43-2 3. Objective of Research 2.1 To know the potentiality food marketing of Saudi Arabia 2.2 To find ways to boost the food retail market 2.3 Setting objectives for making the food industry independent from the foreign influence 2.4 Chalking out the strategy to make Saudi Arabia Industrial hub of Middle East countries and African countries

4. Methodology: The methodology is principally based on present food supply mechanism in KSA and its dependence of foreign food key players as they have an edge on KSA in context of technology. Ascertaining the right balance between indigenous and foreign food supply and production mechanism and to evolve the strategies to pave the way for gaining independence from foreign players in food retail industry.

5. Key Factors Driving the Huge Growth in Retail Food Sales: a) Population Growth: The population of Saudi Arabia is touching 31 million 20159 which is having a trend of growing at rate of about 3 percent annually and is expected to reach 40 million by 2025. It is very pertinent to mention that more than 70 percent of Saudis are under the age of thirty, which is very positive to develop its economy. More actions may need to be taken to encourage to grow its economy, which will be proven beneficial for its economy. b) High Annual Growth: In order to enhance the infrastructure, Saudi Arabia has set an action plan to invest $45 billion develop a huge 7000 km 10 railway network, including a high speak rail link between Mecca and Medina and a cross-peninsula land bridge from Jeddah on the Red Sea to Jubail on Persian Gulf. This ambitions plan is the refection of 5% annual economic growth, when matured economies like the United States and Germany are growing at less than 2% per year. c) Increased Disposable Income: The Saudi government offers various direct or indirect subsidies to keep the prices of staple food products at very low levels. The economy of KSA is playing a pivotal role in determining the behavior of its food demand and supply. The growth of Saudi Arabia’s economy has given a new boost in increasing per capita disposal income from $20,267

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http://www.worldometers.info https://www.atkearney.com [A Generous Helping of Food Retail Growth in the GCC]

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Proceedings of 9th European Business Research Conference 7 - 8 September 2017, Hotel Intercontinental, Madrid, Spain ISBN: 978-1-925488-43-2 in 2008 to $25,000 in 201411. With increasing per capita income, there has been an improvement in consumption of food retail and buying capacity. With higher income, now Saudi Arabians are able to afford to better quality of product that in turn creating a conducive atmosphere of investment in the food sectors by indigenous player and foreign players as well. The present trend of expense of about 27% of their income on food shows a positive dividend by the investors in this sector. Keeping in view the governing imperatives, the Saudi government offers different kind of subsidies in order to keep the prices of food products at very low level. The offered subsidies also increase the purchasing capacity to buy in the Kingdom. d) Huge Increase in the Number of Retail Outlets: The growing profit in food retail industry has been encouraging the businessmen to open more food retail outlets in the Kingdom of Saudi Arabia as it touched 40,435 in numbers in 2013 having an increase of 15 percent over 201212. In order to cater the need of Saudi Arabians, retailers offer a wide range of food products to their customers from domestically processed food to imported ones. As the Saudi Arabia’s retail markets offer huge profit opportunity, foreign players especially the United States of America exports heavily consumer-oriented food products totaled to $588.2 million in the financial year 201313. It is estimated that food retail outlets to reach 50000 or more by the year 2020, which will offer more choice for consumers. The major supermarkets are Panda, Al-Sadhan and Carrefour, which are having ambition to expand more stores across the country by 2020. From business point of view, it is essentially needed to know that Saudi Arabia is the 20th largest importers of the US in the context of food supply. As the Saudi Arabian market 80% depends on foreign export of its need that is very alarming challenging its self-reliance. Its dependence of foreign exports leads to deplete its foreign exchange that has a ripple effect on its economy. This may create good opportunity to foreign players and may pose serious challenges before its economic sovereignty. e) Urbanization: The urbanization is taking its own dynamics in changing the lifestyle of the dwellers in the Kingdom; firstly it leads to high income and secondly is to increase the consumption of food items. As the Kingdom encourages people to get settled in urban area, villages are migrating in huge number. The trend of migrating in urban zone, it provides them opportunity to earn more money; evidently it leads to expense more on their need and they are excited to live in the urban lifestyle like supermarket, hypermarket and baqalas.

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http://gain.fas.usda.gov/Recent%20GAIN%20Publications/Retail%20Foods_Riyadh_Saudi%20Arabia_12-14-2014.pdf [GAIN Report-14] 12

www.agroberichtenbuitenland.nl/golfstaten/wp.../Fact-Sheet-Retail-Sector-KSA.pdf

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Gain Report 2014


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Proceedings of 9th European Business Research Conference 7 - 8 September 2017, Hotel Intercontinental, Madrid, Spain ISBN: 978-1-925488-43-2 Resultantly, migration is leading more consumption of food items that helps the food sectors to gain more financial dividends. f) Advertisement: As it is known that advertisement is playing a vital role in generating sales, the business players of Saudi Arabia take helps from foreign advertisement companies to enhance their business representative character in the eyes of customers. Brand awareness is essentially needed to make to make the customer aware of the products features and content. Industries of food are using a high standard of advertisement. The Kingdom is also investing huge amount of money to make Saudi Arabia is incredible in the eyes of foreign investors. g) Ample number of workmen: As the population is not very high and generally there is scarcity of workmen from its own population. In order to fulfill its requirement of workmen, the Kingdom of Saudi Arabia encourages people from other countries to come and work there. Generally, workers from other countries like India, Pakistan, Bangladesh, Egypt feel that the working culture is good and they are provided good salary as well. Around 8,429,401 workers are working in Saudi Arabia in 201014. Some people don’t get any problem for living for a long time. h) Heavy FDI : The Saudi Arabia Investment Authority (SAGIA) has said that the business environment is very conducive for foreign direct investment from top retail players like Walmart, Tesco and Sainsbury. It indicates that it will help the economy to grow. Recently, the nation has experienced a surge in the retail market especially in food retail market, which has touched a value at $42.66 billion in 2015 and is expected to reach amounting to $55 billion by 2020. i) Enjoying the prestige being center of Islam: Saudi Arabia is enjoying the religious prestige being the home to the religion’s two most sacred mosques, Masjid al-Haram 15 in Mecca and Masjid an-Nabawi in Medina, the burial site of prophet MuhammadPBUH. Every year millions of people come to Haj16 and perform their religious obligation. It is respected in the world being custodian of the most revered religious places of Islam i.e. Masjid al Haram in Mecca and Masjid an-Nabawi in Medina.

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Wikipedia [Foreign workers in Saudi Arabia] The Quran states that Abraham, together with his son Ishmael, raised the foundations of Masjid al-Haram [Quran 2:127] that is identified by most commentators as the Kaaba. Allah had shown Abraham the exact site, very near to the Well of Zamzam, where Abraham and Ishmael began work on the Kaaba's construction in circa 2130 BCE. 16 Haj is a religious obligation on each Muslims who are financial viable to visit Mecca and circumvent the Masjid al-Haram in Mecca (Holy Kaba) 15


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Proceedings of 9th European Business Research Conference 7 - 8 September 2017, Hotel Intercontinental, Madrid, Spain ISBN: 978-1-925488-43-2 j) The largest exporter of oil : Now in the world economy, it is playing a pivotal role being the world's largest producer and exporter of petroleum products and having the world's second-largest oil reserves and sixth-largest gas reserves. It is the main backbone of Saudi Arabian economy and it appears that it will be in strengthening its economy and impact over the world.

6. Discussion: A. Business behavior As a matter of fact, foreign food retail business players generally don’t prefer to opt direct business in Saudi Arabia as they face many typical business regulations that they face difficulties in fulfilling in totality, the foreign players’ main role is to develop association with Saudi importers so that high value products are sent into the Saudi market by foreign players like the United States, Germany, England and so on. The fact is that hypermarkets and supermarkets import very less in comparison to the total imports of food products directly. It is not viable to import all the products in order to increase the profit. Only few foreign players in retail business like hypermarket and supermarkets exports food products. Foreign players like the US suppliers and others usually do not pay direct business role rather they engage Saudi suppliers to import high volume from their foreign countries like USA at agreed prices they give to the US businessmen a good business profit and dividends. Keeping in view the above facts, the main role of the US suppliers is to get associated with the Saudi Arabia importers in order to ensure the successful business in the Kingdom. The business partners must know how the Saudi Arabian retail food sectors operate and how to fulfill the all terms and conditioned brought in system to be followed by businessmen. To achieve the business aspiration, the prospective imports must have the selling expertise, a profession sales team and strong distribution network. This fact cannot be overlooked that in Saudi Arabia, it is difficult to find one company that deal in all food items rather;they deal in certain products. Some deal with dry food; some deal with frozen and chilled food products; some deal with fresh fruit, chilled meat, and vegetables. B. Competitiveness Analysis It is notable that from customers’ perception, foreign food products especially US’s food stuffs are having an edge over the those produced locally. It is a matter of fact that foreign products are of high quality in terms of utility and its positive impact on health. They are considered to be more health hygienic. Customers easily get impressed by a brand of foreign one. The inevitable reason behind it is that foreigncountries are having superiority over Saudi Arabia in terms of technology. The Saudi Arabian retail food industry may have to bear heavy cost of its lenient approach to develop better food industry technology so that its food industry could enjoy the economic sovereignty. Trends and Challenges of Food Retail Sector In Saudi Arabia

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Proceedings of 9th European Business Research Conference 7 - 8 September 2017, Hotel Intercontinental, Madrid, Spain ISBN: 978-1-925488-43-2 Rahma Mohammad Naquibur claims17claims that a very tough competition can be seen clearly amongs Saudi food products and American products. There is stiff competition between locally produced products and imported food products. There has been an increase of export by third countries that threaten the US monopoly in export to the Kingdom. As proliferations of technology in third countries are taking place, they are capable to produce the food product with a close competition with the Western countries in terms of quality as well as price. There is no need to stand on false ego and living in some sort ivory tower considering the Kingdom’s food product industry remaining unaffected by highly dependence on the Western countries especially the US as it may erode the foreign exchange of the Kingdome of Saudi Arabia. The present trade and manufacturing policies may need to be changed in order to ensure to make the Saudi Arabian food industry self-reliant. There is a need to study the fact of food product industry and to set strategy to wean off its industry from the Western monopolistic dependence. C. Key vendors in competitive landscape With a speed of modernization, the Kingdom of Saudi Arabia is not lagging behind with developed nations in terms of lifestyle resulting in adopting all the world best possible ways of amenities and comfort in their lives. In the wake globalization, changes are taking place all facets of their lives and marketing is not the exception. In order to delight the customers, retailers are relentlessly putting their efforts for making available new and better product and adopting best promotional technique and advertisement method. Key Markets in the Saudi Arabian market are given below• Carrefour • NESTO • Othaim • Panda • Tamimi Apart from the key vendors, other prominent vendors in the food retail market in Saudi Arabia are mentioned below: Al Raya Supermarkets, Al Sadhan Supermarkets, Balsharaf Supermarkets, Bin Dawood Supermarkets, Farm Supermarkets, Lulu Hypermarket, Manual Hypermarket, 17

International Journal of Business and Economic Development (IJBED) Vol. 2 Number 1 March 2014 Trends and Challenges of Food Retail Sector In Saudi Arabia

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Marhaba Supermarkets, Sarawat Supermarkets, and Star Hypermarkets. Noori Supermarket Ismat Supermaket Meed Supermaket

D. Market Structure There are some barriers for most Western food suppliers in selling food products directly to the consumers. As a result, they prefer to sell these products directly to their Saudi agents and they in turn sell them under either the Arabian name or sometime with foreign brands. Some consumers are loyal to Saudi’s brand; and some are loyal to foreign brand.The present study shows that the US food industry has established its market hegemony over Middle East and African regions. However, Saudi Arabia has a geo-political edge over many other Middle East countries. Saudi Arabia could make itself a commercial hub of Middle East countries through an alliance in the field of marketing and technology like the EU 18 and countries having willing to forge the relationship and it can make its influence felt across the Middle East countries, African countries and south Asian countries. Saudi importers are successful in developing organized marketing network across the Kingdom. These importers buy food item from many foreign countries especially America and sell them directly to retailer. There is a need to evolve a mechanism to coordinate in GCC countries so that better supply mechanism is brought about.The retail outlets got a mechanism to place order to wholesalers who directly buy products from importers. The Kingdom has brought up a mechanism of the Central Purchasing officers, which coordinate among varied business players. In the food industry marketing has a network of the Saudi Arabian importers, wholesalers, smaller retailers, HRI clients and consumers. Normally, Saudi Arabian importers sell their products to wholesalers, who directly sell their products to small retails, HRI clients and even to consumers directly. E. Distribution Channels Flow Chart The flow chart below highlights the various marketing and distribution channels through which an imported food product will be handled from its arrival into the Saudi market.

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EU- European Union Trends and Challenges of Food Retail Sector In Saudi Arabia

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Manufacture & Suppliers

Saudi manufacture and suppliers (20%) Hypermar kets, Supe rmarkets, Institution al customers , wholesel ars Consumer s

Foreign manufactuare & suppliers (80%) Exclusive Regional Agent Saudi Exclusive Agent Importers Hypermark ets, Super markets, I nstitutiona l customers, wholeselar s Consumers

Foreign Consolidators with own brand name Foreign wholesalers sell to foreign consolidators Major Saudi Hypermarket & Supermarket

Saudi Importers

Consumers

Hypermarkets,

Wholesaler s

Instiutional Customers

Supermakets, Grocry stores Consum ers Consumers

Consumers Institutional Customers Convenience Stores

Consumers

E. Segmentation of Market: Saudi Arabia food retail industry has been developed in a very organized way. But its food industry is not as developed as developed countries. However, it has a grown mechanism and system that is supported by very highly information technology Trends and Challenges of Food Retail Sector In Saudi Arabia

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Proceedings of 9th European Business Research Conference 7 - 8 September 2017, Hotel Intercontinental, Madrid, Spain ISBN: 978-1-925488-43-2 oriented. It is the high tech driven. The Saudi retail units can be mainly divided into three categories i.e.

Hypermarkets Supermarket Baqalas (Convenience Stores)

Hypermarkets: With growing trend of food retail industry, it has taken a very modern form of marketing. The consumers of Saudi Arabia are very adoptive to modern way of marketing and lifestyle. As the young generation are getting high education; they are very technology savvy and adoptive to modern way of life, the hypermarkets introduced in 2004 have reached to a height of success and profit oriented. It has offered a new way of marketing, enjoying the life and entertainment. As its sizes are of about 200,000 square feet to 18580 square meter, it provides the customers multi-dimensional choices with huge multifarious facilities. It may have up to 50 checkout counters. They offer the customers about 50,000 items include foodstuffs, clothing, tools, toys, electronics and a varied of essential commodities needed under one floor. As per study, there are 220 hypermarkets in 2013 that has a tread of commissioning more hypermarkets with huge acceptance. It is very essential to understand that in 2013, Hypermarkets have contributed 22% or $8.8 billionof the totals food retail product sales in Saudi Arabia. Actually the present, they have taken a part of lifestyle of Saudi Arabian. They offer their customers different kind of outings; the customers also take these places for entertainment. Many hypermarkets also provide playground for children and as a result the customers with their children spend many hours at these places and that results more products are bought that boost their sales. Supermarkets: In the Saudi Arabia food industry, supermarkets are also playing a very pivotal role in boosting the food retail industry that needs from 500 to 5,000 square meters having five or more checkpoint counters supported with IT system catering different food and other essential commodities. As per study, there are about 680 supermarkets in Saudi Arabia and contributing about $9.2 billion of all food products by retailers in 2013. In this food marketing domain, chain of Tamimi and Danube are playing significant role in boosting food industry. These supermarkets offer vegetables, fruit juices, ketchups, cereal, condiments and sauces, fresh fruit, nuts, cheese products and other food products. Some products are indigenous produced and some are imported ones from foreign countries like USA, Russia, England, German etc. For getting the product supplied, major Saudi hypermarket and supermarket chain approach to Gulf food in Dubai, SIAL in Paris, Anuga in Cologne, Germany, US based FMI show. Most alarming issues before the kingdom are extremely dependence on foreign suppliers. There is a need to Trends and Challenges of Food Retail Sector In Saudi Arabia

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Proceedings of 9th European Business Research Conference 7 - 8 September 2017, Hotel Intercontinental, Madrid, Spain ISBN: 978-1-925488-43-2 bring about its own indigenous production of these goods and at least there is a need to lessen the dependence so much on foreign production companies. In the era of globalization that offers intense cross boarder exchange of goods, services, technology, people, values etc. It offers the Kingdom of Saudi Arabia to get technology for producing these productsas well. The Kingdom has all potential to develop a trade and production association with the nations of share origins to get the rid of from the Western dominance and interference. The heavy dependence on the foreign supplies depletes for petro dollars and it poses a serious hurdle in becoming economically sovereign. Baqalas (Convenience Stores ) In the marketing of any food, local market plays also key role in sustaining in the industry. In the Saudi Arabian business environment, the local stores are called Baqalas that exist in every local area, especially residential area. They need only 100 square meters to be started. Majority of them deal on cash basis. They place their orders to nearby wholesalers. Despite having domination of Hypermarkets and Supermarkets, baqalas are having impeccable impact on the behavior of retail food marketing in Saudi Arabia. Those who want to get food stuffs without going away from their home; they prefer to get needed commodities from their nearby baqalas. It also does not need a lot of money to start a Baqalas (grocery Stores) Convenience store so its number is growing very fast and it is also very much financial viable. According to study, in 2013, the number of Baqalas is touching to 39,540. In terms of sales, Baqalas is contributing for 55 percent or $22 billionof all food products. It shows that despite the changing culture of Hypermarket and Supermarkets, the most prevalent marketing system is Baqalas. Local people find more comfort to buy the products from the local markets rather buying products from high style malls. One fact behind the success Baqalas needs to be understood that in the conventional culture of Saudi Arabia does not allowed women to drive themselves. So, it is difficult for women to approach the Hypermarkets and Supermarkets as they are situated at far places and they cannot go without a blood relatives along with them in vehicles. These big malls are not within walking distance, so these women prefer to buy the products from these Baqalas. Another point is also important that cannot be overlooked that working people from other countries, who do not have their automobiles, prefer to Baqalas. 7. Main Challenges before KSA: a) Challenges owing to technological gap between Saudi Arabia and the West In the era of collaboration in the field of technology and trade, many Western countries are deeply associated to protect their interest giving many shapes of organization, institute and association. In contrast, this kind of collaboration in order to develop the Trends and Challenges of Food Retail Sector In Saudi Arabia

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Proceedings of 9th European Business Research Conference 7 - 8 September 2017, Hotel Intercontinental, Madrid, Spain ISBN: 978-1-925488-43-2 technology and trade is elusive in the Arab world, which may create a deeply adverse impact on their economic sovereignty. These most developed countries do not want the science and technology to be developed in the third world countries; they don’t want the economy of the Saudi Arabia to be progressed. In contrast, the administration of the Kingdom does not appear to feel this heat. There is a need to set the objectives in order to gain technological freedom and economic sovereignty. On the other hand, Saudi Arabia is greatly dependent over the Western technology that poses serious barriers to achieve many social and economic goal set by the Kingdom. The study further suggests that the domestic producers are facing serious problems to produce the products at par with the Western branded products. The present time offers every country a lot of opportunities and threat. Without the caliber to face the threat, no one can avail the taste of opportunity. It must be kept in mind that the world is interdependent and the facts to be harnessed in order to achieve objectives and goal efficiently and effectively. There is a big gap between the technological expertise of West and the Arabs; the gaps need to be bridged by better planning and executions of the planning thereafter. But, it is not easy to get the very technology from every western country. The Kingdom needs to forge alliance with best willing countries keeping in view their past history of shared values so that Saudi Arabia can be a business and technological hub having superior technology, trade, production evolving a new order to shifting the center of authority creating win win situation all the Middle East players especially for Turkey, Egypt, Pakistan and Iran. b) Loss of revenue due decreasing export of Oil Products: The world is experiencing new technological development in refinery, in which Saudi Arabia is lagging behind. In 2012, it had exported 76% of total export is crude petroleum and 5.7% is of refined petroleum19. Had Saudi Arabia had the best technology to refine the products, it would have earned more profit from the export and been one of th super power of the world. Recent technological development in the international oil producing marketing is posing serious threat for Saudi Arabia. There has been a significant breakthrough in the refining technology in the world, but Saudi Arabia needs to improve on this front so that proportion of “Refined Petroleum” could be increased to facilitate more export benefits from the selling of these products. The United States is relentlessly putting its efforts to increase in its oil production stemming from new technological advancement in shale mining. With present trend of advancement, it appears that it will become completely energy sufficient within the next two decades. This may create serious ramification for Saudi Arabian economy. It may create a ripple effect in generating enough money to develop the required technology for food retail industry. In the scarcity of investment, the future of food retail industry may be bleak and it may have to remain dependent on the Western import of food products. 19

www.futuredirections.org Trends and Challenges of Food Retail Sector In Saudi Arabia

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c) Slow innovation in production: Evolving new innovations to fulfill the satisfaction of the consumers as being brought about by the European countries and the US, which is difficult to be realized in food and beverage industries as the Kingdom has not developed the mechanism for R&D, testing and marketing as it needs. Under these circumstances, domestic food products are facing a lot of difficulties to stand with the West. Consumers aspire new products to be made; they want to experience new things. d) Unemployment in Saudi Arabia and helping hand of Retail Industry: According to recent study by the UN, it is estimated that the rate of unemployment is touching to 15%, which is going to play a very negative role in development of the country. In order to reduce the unemployment, Oil Export Bifercation Status the Kingdom is encouraging the retail industry as 9.2 it is the best effective to reverse the trend. 2.5 Academia of the Saudi Arabia cannot escape 2.9 from the reality that level of education and skill is 3.7 bad in taste that is creating unemployment in the 5.7 country. The joining WTO by Saudi Arabia in 2005 has paved the way of attracting foreign 76 investment in the country; it will unleash significant economic activities creating more jobs for the young generations. Crude petroleum refined petroleum Thylene polymers

Acycle alcohal

e) Social values system: Petroleum gas Others Liberals have been accusing Saudi Arabia of spreading patriarchy and misogyny, which do not allow women to enjoy the equal rights as compare to men community. It is facing the ire of international communities, treats environment is not conducive for business activities. But recent days, changes are taking place and the country has given 20% reservation to women in the Consultative body (Shura Council) in Saudi Arabia, which gives suggestion to the Kingdom in framing the legislation and governing the country. It is a paradigm shift in the approach of giving space to women community in the Arabian social way of life. Secondly, the nation has also given women to cast their votes in local election, which is also a big step in improving the condition of women. All the changes have been welcome by the international community but expects more efforts to be taken in order to make the society more egalitarian and pluralistic. f) Losing regional superiority In the Middle East countries, new political changes are taking place with the new turn in Tunisia toppling the Kingdom in the wake of its millions of citizen took to the street protesting his incapacity to give a good life its citizen. As Iran and most developed Trends and Challenges of Food Retail Sector In Saudi Arabia

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Proceedings of 9th European Business Research Conference 7 - 8 September 2017, Hotel Intercontinental, Madrid, Spain ISBN: 978-1-925488-43-2 countries came into agreement regarding nuclear activities. Iran has somehow managed to get rid from international ban on every business activities with the international community. Iran is the capital of Shia world is gaining its strength by the wave of time. It is playing a pivotal role in the Arab world by polarization of Shia world and Sunni world. This polarization is not good in the interest of Saudi Arabia challenging its authority of supremacy. g) Crisis Labor availability As it appear that Kingdom is unwilling to adopt the policy of providing citizenship as adopted by Canada, the United States of America, France, and England. As result, it depends on the policy to allow skilled worker to come for a short period of time to live in Saudi Arabia and return to their native places. As such expatriate workersdo not feel associated as Saudi Arabia as their beloved land and feel it is a temporary to place to work. In the wake of this policy, expatriate workers do not feel their future in the Saudi Arabia and do not work to develop Saudi Arabia rather they think that it is temporary place to work, earn money and move. So, the best people prefer to work in Canada and other European countries, where, they see their lives with sustainability hoping to get citizenship. In order to develop its economy and infrastructure, it may need to change the policy like Canada’s policy of citizenship to make a more sustainable with more dynamics to grow on the dynamic country in the world. h) Less trend of online shopping: However, the Saudi Arabian country is very adoptive to new brand of products; the consumers did not accept the trend of online shopping. There is a need to make the consumers aware of the positive side of the online marketing. More online marketing logistics need to be developed so as to facilitate the consumer to do online marketing. There is absence of effective logistic and supply chain management and knowledge. i) Nitaqat law The Kingdom of Saudi Arabia cannot escape from the responsibility to provide the job to young generation of its country. In order to make the youth employed, it introduced a law i.e. Nitaqat Law that makes the private company compulsory to appoint Saudi. But , private companies are facing different kind of problems that Saudi Arabians are not skilled enough touching the benchmark of functional adequacy to perform more delicate jobs in order to produce high standard products. To cope this problem, private companies prefer expatriate workers, who are efficient to carry out the production and and business activities efficiently and effectively. The Kingdom and the private companies both are having reasonable problems. It extremely important to understand what the factors are, which are creating problems to develop the skill in the Saudi young generation that private companies need. There is a need to bring skill oriented academics to be introduced starting from the class of XI and Xth for those who want to go for technical jobs. This will help the Kingdom to live up the genuine demand of the citizens of Saudi Arabia without making compromise with the international bench market for becoming a developed economy. Trends and Challenges of Food Retail Sector In Saudi Arabia

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Proceedings of 9th European Business Research Conference 7 - 8 September 2017, Hotel Intercontinental, Madrid, Spain ISBN: 978-1-925488-43-2 j) Restrict Economic policy: Facing the demand of the time, Dr.Manmohan Singh, former Finance Minister and later former Prime Minister of India had brought Economic Policy 1991 in order to facilitate intense cross border exchange of people, goods, services, capital, technology and values as well. Had Mr. Singh not brought Economic Policy 1991, Indian economy would not have to become the second fastest economy after China. It provides opportunities to foreign business houses to come in India and carry out production and other business activities. But, in Saudi Arabia, business policy makers are very restrictive in allowing foreign businessmen to do business in Saudi Arabia. Foreign investors are required to partner with a local agent or business in order to start their business in the Saudi market. There is a need to give more liberty to foreign businessmen to perform job. But there is some danger in providing more liberty as native Saudi Arabians may not be able to compete the foreign competition and Saudi Arabia may face the same consequence that Spain and Italy faced the their economic recession as they adopted maximum economic liberty. There is a need to adopt mixed economic policy in in SaudiArabia to carry out production and other business activities.

8. Opportunities& Strength: a) The Largest economy in the Middle East and North African Region: To develop food retail industry of any countries, there is a need of flow of money in the country. It needs high level of income group so that they can invest more money on buying the products. It is pertinent to mention here that Saudi Arabian economy is one of the world’s 25th largest economy and the largest economy in the Middle East and North Africa Region (MENA). In the country like Saudi Arabia, there is an ample avenues to grow the retail food industry. The growing economy is offering great opportunities to both exporters and investors. It is further being strengthened by the policies adopted by nation to liberalize the economy giving new dynamics to the Saudi Arabian marketing mechanism. b) Growing High Per Capital: However, Saudi Arabia is facing some serious questions pinning point towards its functional adequacy, representative character and financial viability to fulfill its aspiration to become a developed country. It is one of the world’s fastest growing countries with per capita income i.e. $ 20,813 with a forecast to reach $33,500 by 2020. As a result of high per capita income, consumers have buying capacity for varied kind of food products of their choice. c) Easy availability of workers from the third world as expatriate workers: People from the 3rd world are ready to work in Saudi Arabia as it offers good amount of remuneration. In their native place, unemployment is persisting as a serious Trends and Challenges of Food Retail Sector In Saudi Arabia

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Proceedings of 9th European Business Research Conference 7 - 8 September 2017, Hotel Intercontinental, Madrid, Spain ISBN: 978-1-925488-43-2 problem. Countries like India, Pakistan, Bangladesh, Bhutan, Philippine, Turkey, Egypt and so on encourage their citizens to work in Saudi Arabia as it improves their foreign exchange through expatriate workers. Saudi Arabia also needs these expatriate skilled workers to accomplish the business, production and governing targets to run the country. d) Strong geo-political position: It is very important from geo-political position to harness its benefits by becoming business capital of Middle East Countries and North African countries. It feels obligatory to provide duty free access to other GCC and MENA economies and enjoys good transport and infrastructure mechanism. e) Center of Islamic world: It is the custodian of two most sacred places i.e. Masjid-al-Haram in Makkah and Masjid-e-Nabwi in Madina and indirectly it is enjoying the prestige of capital of Islam of Muslim world. There is no iota of doubt no other Muslim countries is bestowed by such religious authority as Saudi Arabia is enjoying today. f) Organized system strengthening the economy: Investors are not facing much problem as in Saudi Arabia enjoy we-developed business system and value chains that gives Saudi Arabia a competitive edge over its neighbors and from other emerging economies. After due evaluation, the World Economic Forum ranked Saudi Arabia as 6th position in world for Local Supplier Quantity and as 24th position for both Value Chain Breadth and Production Process Sophistication.

9. Forecast: As many changes are taking place in the environment of Saudi Arabia and it is a fact that actions can be controlled; but consequences cannot be controlled. It is very difficult to ascertain the future of any individual, organization and the country. Food retail industry of Saudi Arabia will sustain in good position provided that it understands the demand of time and be adoptive to the vision that times poses before itself.

10. Conclusion: Keeping in view of all the facts and figures, Saudi Arabia will sustain its position in business especially in Food Retail Industry if it continues to reform the policies of liberalization in terms of economy. But expatriate working community is having an edge over the Saudi Arabian in terms of ability and in carrying other business activities; it may create serious problem in developing a balanced environment. Saudi Arabia may need to change some basic academic policies so that young generation could be capacitated to be leader in their own country and don’t feel frustrated in taking leading position in the world. Trends and Challenges of Food Retail Sector In Saudi Arabia

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Proceedings of 9th European Business Research Conference 7 - 8 September 2017, Hotel Intercontinental, Madrid, Spain ISBN: 978-1-925488-43-2 12. Suggestions: a). Training needs to young Saudi generation to take the lead the industry: As we see all the prime post of industry especial retail food industry is being headed by foreigners especially Americans, British, Indian, egypttitions There is a need to impart better business training and etiquette should be given as so to capacitate Saudi Arabian to hold highest post in the Kingdom’s corporate world. It should promote domestic product and marketing house to come forward to reduce the dependence of foreign countries especially the West and the US. b). Forge alliance with other nations to enhance marketing and producing food items: There is a need to forge alliance i.e. Friend Trade Group (FTG) having three categories to cooperate in the field of trade, business and technology; research and academics i.e. FTG-10, FTG-22 and FTG-40. It will give Saudi Arabia a chance to become hub of business activities in the world and this association could harness to make it an Industrial Hub in the world. FTG-10 (subject to bring some amendment) Saudi Turkey Egypt Pakistan Arabia Iran The UAE Afghanistan Iraq FTG-22 (Subject to bring some amendment) Saudi Turkey Egypt Pakistan Arabia Iran The UAE China Japan North Korea Brazil

Malaysia

Indonesia

Malaysia

Indonesia

Singapore

South Korea South Africa

Spain

Canada

Australia

Italy

India

Afghanistan

Bosnia

Cuba

FTG-40 (Subject to bring some amendment) It will consist of M-22 countries and the rest 18 countries from Africa will be decided after due deliberation.In this group, all interested countries may have right to join the association to develop in the field of trade, business, technology, research and academics. c). Saudi Arabia be recognizedfor improving Skill Development Country in the world:If any country wants to take something from other country, the first one has to offer something to the other one. Saudi Arabia needs the world best talent to develop their food industry; but for this, it has to take pain to nurture the talent and identify those talents and to bring in their country with hope and future in the Kingdom. Trends and Challenges of Food Retail Sector In Saudi Arabia

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Proceedings of 9th European Business Research Conference 7 - 8 September 2017, Hotel Intercontinental, Madrid, Spain ISBN: 978-1-925488-43-2 There is also need to invest money on establishing “academic-cum- retail and production skill developing institutions” across the world so as to the best talent be nourished and could be used in Saudi Arabia in business and production activities sponsored by Saudi Arabia in different countries; something like “Hizmat” by M. Fethullah Gulen Movement initiated in Turkey, which is nurturing the talent across the world and being used to international cohesive programme solving the human problem. Hizmat also is carrying out many academic institution in India as well. An association may be forged with “Hizmat” or any other organization giving new dimension to its efforts to develop skill in different field especially food retail marketing. Saudi Arabia may establish its own institution of “Academic-cum-Retail-Production Skill Development Institutions: across the world. d). State sponsored Baqalas (Convenience Stores ) In order to strengthen domestic production and marketing, state sponsored Baqalas (retail outlets) are needed to be established across the Middle East countries. There is a need to give Saudi Arabia a country to solving human problem especially solving the problem of unemployment and illiteracy across the world; in the first phase, it should be started from Saudi Arabia itself. e). Accommodating expatriate by providing green card for staying in Saudi Arabia for a long time: In the present scenario, expatriate workers feel alienated in Saudi Arabia and don’t feel a long future there. There is a need to bring some policies in this regard so that expatriate workers be brought close by providing green visa card for staying in Saudi Arabia for a long time. People working in Canada and America feel associated in these countries. Minor shift in the policy may be experienced hoping better stability in the governing system of Saudi Arabia. f). Solving of counterproductiveNitaqat law in Saudi Arabia: The fact cannot be hidden that Nitaqat law is essential to protect the interest of Saudi Arabian. It is a like a protection from aggressive ability of expatriate from the world. The protection will create a ripple effect and will make the young generation a defensive and handicapped. There is a need to remove inability from the Saudi Arabian young generation so that they can play role of leader of their own country as well as in the world; they may be regarded on the best talent in the world. This time; Europeans and Americans are the manager who can lead the team because these Europeans and Americans are given the training of leadership. There is a serious need to evaluate the lacuna of academics and formulate the academic strategies and mechanism so that Saudi Arabia generation is regarded as the leaders in their own Saudi Arabia and in the whole world. Bringing Nitaqat Law would be proved very lethal to live up the ideals of a developed and progressive country so the country should take a lenient approach towards its Nitaqat law and the capacity of young generation should be enhanced so that they do not face any problem from the ability of expatriate in Saudi Arabia. Trends and Challenges of Food Retail Sector In Saudi Arabia

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Proceedings of 9th European Business Research Conference 7 - 8 September 2017, Hotel Intercontinental, Madrid, Spain ISBN: 978-1-925488-43-2 References [1] Middle East Monitor, August 2014 [2] Consumer Goods and Retail Report - Saudi Arabia”, EIU, September 2014 [3] Alpen Capital 2015 [4] Aljazira Capital 2014 [5] Middle East Monitor, August, 2014 [6] GAIN report, 2014Barry Berman & Joel R.Evans Retail Management A strategic Approach (2008) PHI learning Private Limited. [7] Marketing in Action , Institute of Management Technology, Arun Kumar, Minakshi N [8] David Jobber & Geoff Lancaster, Selling and sales management ( 9thed) pearson [9] Loudon, L. D., & Bitta, D. J. A. (1994). Consumer behavior (4th ed.) McGraw Hill, Inc. [10] Calder, B., & Sternthal, B. (1980). Television advertising wearout: An information processing view. Journal of Marketing Research, 17, 173-186. [11] Consumer behavior (2nd ed.). NewYork: Holt, Rincart Italic and Winston, Inc. Calder, B., & Sternthal, B. (1980). [12] Television advertising wearout: An information processing view. Journal of Marketing Research, 17, 173-186. [13] Donald R. Cooper Pamela S. Schildler Business Research Method (2003) Tata McGraw Hill. [14] Engel, F. J., Blackwell, D. R., & Miniard, P. (1986). Consumer behavior. New York: CBS College Publishing. Engel, F. J., Kollart, T. D., & Blackwell, D. R. (1973). [15] Mowen, J. C., & Minor, M. (1998). Consumer behavior (5th ed.). USA: PrenticeHall, Inc. [16] Mullen, B. & Johnson, C., (1990). The psychology of consumer behavior. New Jersey: Lawrence Erlbaum Associates. [17] Sangwan, A. (2008). Effects of consumer buying behavior towards advertisement. [18] Sheth, J. N., & Mittal, B. (1999). Customer behavior. Australia: Thomson Publishers. [19] Stanton, W. J., & Futrell, C. (1987). Fundamentals of marketing (8th ed.). Singapore: McGraw-Hill. [20] Steuart, H. B. (1970). Consumer behavior in theory and in action (2nd ed.). USA: Jon Wiley & Sons, Inc. [21] Swenson, C. A. (1990). Selling to a segmented market: the lifestyle approach. New York: Quorum Books. [22] Fareena Sultan and Russell S. Winer,Journal of Economic PsychologyVolume 14, Issue 4, December 1993, Pages 587-61 [23} Menon 1994: “Customers' Perception Advertisements An Analytical Study” , Journal of Services Marketing, Vol. 5, No. 3, pp. 39-52, September 2007 [24] Amanda Spry, Dr. Ravi Pappu, Prof. Bettina T Cornwell, (2011) "Celebrity Endorsement, Brand Credibility and Brand Equity", European Journal of Marketing, Vol. 45 Issue: 6 [25} Zafar .B , (July 2008 ) “Advertisement and its effects : a literature review” Journal Trends and Challenges of Food Retail Sector In Saudi Arabia

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