A growing trend: Once overlooked, hypermarkets are now rapidly expanding to meet consumer demand

Over the past two decades, Kuwait welcomed American mall culture, embracing it as a confluence of retail and leisure, yet the country has been slower to take on modern super- and hypermarkets. This is now changing, and Kuwait is seeing the rapid rise of hypermarket retail, representing the sector’s most dynamic vector.

COMBINED ANNUAL GAINS: The limited familiarity with modern grocery retail formats presents an opportunity for investors. The GCC region remains largely untapped outside of the UAE, which is considered a mature retail market. Alpen Capital estimates a 10.5% compound annual growth rate (CAGR) in hypermarket formats across the GCC between 2011 and 2016. This represents a potential 64% rise in revenues from $35.9bn to $59bn. Kuwait’s growth rates are expected to be similar, with 10.2% CAGR between 2011 and 2016, while Saudi Arabia and Qatar, both of which are underpenetrated in these formats, are expected to grow at 13.2% and 9.4% CAGR, respectively. The popularity of modern grocery retail has grown rapidly since Majid Al Futtaim Hypermarkets, a joint venture with the world’s second-largest retailer, Carrefour, launched in the region, and as of mid-2013, the joint venture had a total of 50 hypermarkets and 44 supermarkets across the Middle East, North Africa and Central Asia.

POPULARITY: While Kuwait’s retail sector has been based on growth in its luxury and high-end segments (see overview), consumption in fast-moving consumer goods has started to split and the middle ground is disappearing, with consumers buying either high-end or budget products. The retail sector had responded by becoming more targeted since 2008, with boutiques serving the high-end demographics while department stores target price-sensitive consumers. The vast majority of customers, 70%, according to Kuwait’s Union Trading Company, are middle-class and lower-income consumers. The lower-yield mass market is now the leading area of growth for hypermarket brands.

While hypermarkets have been present in Kuwait since 1999, their wider popularity has increased only recently, thanks in part to greater customer and brand awareness because of anchor tenancy in mainstream malls. Prominent among these was the 2009 opening of the 360 Mall by Tamdeen Shopping Centre Development Company, with the flagship store of French supermarket brand Géant. Centrally located malls remain key centres for hypermarket brands, but many are also expanding throughout Kuwait City’s suburbs.

SMALLER FORMAT: Since its 2009 advent, Retail Arabia, which represents Géant in Bahrain, the UAE and Kuwait, opened its third store in 2012 and had plans for six more in 2012. Retail Arabia’s group business development manager, Mohammed Ashfaq, told local media, “There are limits to the number of large-format hypermarkets one can open in a country. Since there is tremendous customer demand for good-quality retailing in Kuwait, we plan on growing our market share by opening several smaller-format Géant Easy Supermarkets in select catchment areas across the country.”

A division of the UAE-based retail conglomerate BMA International, Gulfmart, Kuwait’s largest hypermarket retail chain, has opened 18 supermarkets since its entry in 1999, and it has plans for a total of 25 large- and 25 small-format supermarkets by the end of 2013. Opening six locations in 2012, its stores are targeting multiple penetration points, ranging from mini-markets (74-278 sq metres) to large formats (743-3716 sq metres) and hypermarkets (5574-9290 sq metres).

SOPHISTICATED DEMAND: The growing popularity of modern grocery retail is indicative of increasing consumer sophistication. It is also tapping into the often-overlooked niche for affordable consumables. Kuwait’s retail infrastructure and services are rapidly catching up with the modern consumer demands that have been within reach for decades. As global brands wake up to the GCC’s potential, hypermarket development will accelerate across the region. In line with established consumer trends, the convenience and value offered by hypermarkets are expected to create more competition for customers, as well as opportunities for growth.