Retail Sector Report - Al Rajhi Capital

Saudi Retail Sector
Retail –Industrial
05 January 2013
Discount stores is a growth area
The non-Saudi population accounts for around a third of the total population of Saudi Arabia.
This expatriate population has grown over a period of time and looking at the country’s
dependency on employing the expatriate population (58% as of 2011), this population will
remain a substantial portion of the Saudi workforce in future. By analyzing the trend of
remittances made by these expatriates, we find their income/savings levels have steadily
increased. Therefore, retailers cannot afford to ignore this target group. Since most of them
have left their home countries to earn and save as much as possible, these customers tend to
be more price conscious than Saudi citizens. They will be driven by sales, free offers,
discounts, and gifts rather than brands and high quality.
Figure 12 Expatriate population growing among employed
Figure 13 Remittances by expatriates
mn
12
SAR bn
120
Title:
Source:
10
100
Please fill in the values above to have them entered in your report
8
6
4
5.79
4.88
3.88 4.00 4.09 4.14 4.26 4.31
3.49
80
60
40
2
0
3.12 3.30 3.37 3.43 3.60 3.76 3.84 3.96 4.14
2003 2004 2005 2006 2007 2008 2009 2010 2011
Saudi Non-Saudi
20
0
2003 2004 2005 2006 2007 2008 2009 2010 2011
Source: Ministry of Economy and Planning, Al Rajhi Capital
Source: SAMA, Al Rajhi Capital
Saudi retailers can cater to this segment by opening up discount stores. According to the EIU,
Alhokair plans to roll out 200 discount stores under its “Easy” brand. Similarly, in late 2011,
the UAE-based Convenience Arabia announced plans to open 60 “Circle K” stores in Riyadh,
with the option of opening another 400 outlets in Aldrees petrol stations.
The emphasis on employing
Saudi nationals imply higher
costs for retail companies
Training of Saudi nationals under Nitaqat to entail costs
The private sector in Saudi Arabia currently employs around 6mn non-Saudis, while the
number of Saudi nationals employed barely touch 1mn (source: SAMA 2011 annual report).
At the same time, the Ministry of Labor’s data shows nearly 1mn Saudi nationals are
unemployed. Consequently, the Saudi government rolled out the ‘Nitaqat’ program in
November 2011 to ensure that a specified number of Saudi nationals are employed by the
private sector. Non-compliance would lead to varying levels of restrictions on non-Saudis
already employed by the private companies.
An elaborate traffic lighting system (red, green and yellow) has been developed, which
prescribes varying quota of Saudi nationals for private companies based on their existing
employee strength. If a company falls in red category, then the company’s non-Saudi workers
would lose their work permits. Companies in yellow cannot renew the work permits of non-
Saudi workers after six years, while those in green will have the freedom to employ non-Saudi
workers from other companies.
Figure 14 Saudi nationals to be employed under Nitaqat program
Employee strength Red Yellow Green Excellent
< 10 0% 0% 0% 0%
10-49 0-4% 5-9% 10-26% 27%+
50-499 0-9% 5-16% 17-33% 34%+
500-2,999 0-9% 10-23% 24-34% 35%+
3000 or more 0-9% 10-24% 25-36% 37%+
Source: EIU, Al Rajhi Capital
Disclosures Please refer to the important disclosures at the back of this report. 8