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The UAE grocery retail landscape has undergone a massive transformation in recent years, fueled by changing consumer expectations and the AI boom. Customers now expect seamless experiences across all channels, and retailers are stepping up to deliver.
Online grocery sales now make up a whopping 30% of e-commerce revenue, a big leap from just a few years ago. This shift reflects a growing preference for convenience and efficiency, as customers opt for quick deliveries and easy clicks in overcrowded aisles. In response, major players like Carrefour and Spinneys have supercharged their digital strategies, while newer platforms like Noon Daily and Dubai Store are quickly gaining traction. One leading grocery delivery app even reported a 65% surge in app downloads and a 55% increase in basket value over the past year—talk about growth!
But here’s the thing: does the rise of online shopping spell the end for physical stores? Not at all. In fact, the real magic lies in blending the digital and physical worlds. Imagine using a grocery app to place an order, then visit the store for a curated, in-person pick-up experience—this is the kind of hybrid approach that’s winning hearts (and wallets) in the UAE.
Having an online presence is now table stakes. The real challenge is standing out—creating unforgettable customer experiences, building loyalty, and driving long-term engagement in an increasingly competitive and price-sensitive market.
In the sections ahead, we’ll unpack the key grocery retail trends in UAE, and strategies to help traverse this dynamic retail space.
The major roadblocks for grocery retailers in the UAE are not starkly different from those faced by hypermarkets around the world: legacy systems, low margins, personalizing experiences, logistics, and building customer loyalty.
Let’s dig into each of these in detail.
The perishable nature of groceries makes them susceptible to wastage and losses. Customers demand the best quality of fruits, vegetables, and dairy products. This means produce cannot be stored for too long and must be sold within a given timeframe.
Adding to the complexity is the fact that the UAE is heavily dependent on imports for agricultural produce, due to limited arable land and scarcity of water. Thus, specialized storage and transportation systems become even more essential.
According to the United Nations Environment Programme’s (UNEP) Food Waste Index Report 2024, approximately 60% of global food waste occurs at the household level. This highlights the significant role of consumers in contributing to food waste worldwide.
To capitalize on consumer’s new-found comfort with online grocery shopping, retailers must invest in robust supply chain management of produce to minimize waste. Optimizing the supply chain can solve one of two of the biggest sources of consumer complaints in the UAE: long delivery times and missing items in a delivered order. Retailers must also work with multiple suppliers and have stringent Quality Control measures in place to ensure consumers receive the best quality at all times.
To meet consumer’s demands, online and offline, grocery retailers need to plan, deliver, and track inventory in a more efficient way.
The push for digitization in the UAE is mainly consumer-led, and not business-led, as is the case with other economies.
As of 2024, smartphone penetration in the UAE, Bahrain, and Qatar exceeds 90%, with internet and social media usage reaching nearly 100%, often surpassing global averages. However, the Middle East, including the UAE, lags behind global leaders like Singapore and Norway in digital competitiveness, ranking 10th in the IMD World Digital Competitiveness Index. This highlights the need for greater investment in business digitization and technological infrastructure.
The future looks promising though, as the government plans initiatives to boost digital adoption among businesses. Through initiatives such as the Dubai Internet of Things Strategy, the government seeks to improve technology infrastructure in the region, improve access to talent and venture capital funding for tech startups, and improve business agility.
Groceries and FMCG are low-involvement purchases that don’t lend themselves easily to customer loyalty. Most people don’t wake up in the morning and go – ‘Today, I am going to buy milk from XYZ store’. Customers simply want fresh fruits and vegetables quickly at a good price point, and the source/store is of little importance.
Moreover, grocery retailers operate on razor-thin margins, limiting the value of the rewards and benefits payouts they can offer to customers. How then, can grocery brands boost customer loyalty for their business? The key is to leverage customer data to craft personalized experiences/promotions tailored to customers’ purchase habits/product preferences, map customer purchase cycles, and deliver a seamless shopping experience on all channels.
According to a Bond Report, “Top programs differentiate and lead by prioritizing the program experience over the end reward itself”. This statement holds especially true for grocery retailers looking to retain customers in the long run.
Along the same line, grocery retailers will need to rethink their in-store and digital engagement strategies and how they tie into their loyalty marketing.
Discover how top grocery retailers are leading the way! Watch our video in partnership with LoyaltyTV featuring Megan Chickrell, Senior Manager of Loyalty Strategy at Ahold Delhaize USA, home to iconic grocery brands like Food Lion, Giant Food, and Stop & Shop. As part of the nation’s fourth-largest grocery retail group, Megan shares invaluable insights from her extensive experience driving loyalty across leading retail brands.
A recent panel discussion about e-commerce and logistics in the Middle East revealed some interesting insights. Madhav Kurup, CEO of Hellman Worldwide Logistics noted how last-mile delivery and returns were major bottlenecks in the Middle East.
What is the major reason for these problems? Ali Thabet from DHL Express Middle East explained that customers often fail to register their delivery address correctly or are unavailable to collect an order when it’s delivered. The issue is compounded by the strong prevalence of Cash on Delivery in the region.
One of the ways companies can avoid this is by adding an extra verification step during checkout, but retailers fail to do this, as they feel it might be cumbersome for customers. Thus, the last-mile delivery problem prevails.
The panel also noted how Dubai and Hong Kong have similar infrastructure and regulations, and still, they fail to offer same-day or one-hour deliveries. Even though there are more than 130 ecommerce companies in the region, merely two of them offer same-day delivery. Again, incorrect delivery locations, inefficient planning, and management are the major roadblocks.
The pandemic has further compounded these challenges. As one study shows, the delivery time for omnichannel grocery stores such as Lulu Hypermarket increased to ten days, while marketplaces such as El Grocer and Instashop took two days to fulfill customer orders. The reason? A shortage of vehicles and drivers during the lockdown.
In times of uncertainty, it’s important for companies to look to alternative ways of delivery. For instance, Lulu Hypermarket, which generally used its temperature-regulated vehicles for delivery, partnered with various logistics companies providing deliveries on bikes and taxi fleets for faster deliveries.
Dark stores remain pivotal in solving last-mile delivery challenges for UAE grocery retailers, with Carrefour expanding its network to handle growing online demand. Quick-commerce innovations, including AI and automation, enable faster, more accurate order fulfillment. These advancements align with the UAE’s rapid shift toward efficient and reliable online grocery services.
To say the pandemic changed customer behaviors would be a gross understatement. It brought about a massive overhaul that would otherwise have taken years.
Digital payment adoption has surged, with contactless payments accounting for over 70% of point-of-sale transactions in 2023. This shift reflects a growing consumer preference for fast, secure, and convenient payment methods, including digital wallets like Liv by Emirates NBD and Apple Pay. Additionally, more than half of UAE consumers plan to transition to entirely cashless payments by 2024, indicating a significant move toward digital financial transactions.
But here’s what’s most important for grocery retailers to note: 48% of customers stated they would continue using digital contactless payments, even after the pandemic.
This fundamental change in the way customers shop and pay for goods presents some unique challenges for grocery retailers.
First, they must set up a robust digital payments infrastructure on their website and in-store. Then, they must also ensure 100% security of Customer Data, as cybersecurity is a major concern for customers. Finally, all digital processes must be as seamless as possible.
Companies that fail to keep pace with these developments risk losing customer trust and brand value. For instance: 58% of UAE consumers cited authentication delays and payment failure as major reasons for cart abandonment. Of those who abandon their cart, 32% do not purchase the product at all, while a vast majority purchase the product from another online or offline store.
For a largely non-sticky product purchase such as groceries, this trend is even more alarming and important. If customers abandon their basket for some reason, the chances of them returning are slim. This trend also emphasizes the criticality of Win Back and Reactivation engagement strategies for grocery retailers in the region.
Considering these challenges and changes in consumer behavior, here are some of the important grocery retail trends that are likely to shape the retail space in the UAE.
In the UAE, there are about 25 grocery retail players across the marketplace, pureplay, and omnichannel models. Of these, Carrefour, Lulu Hypermarket, and Choithrams are the major omnichannel players, Instashop, Bawiq, and El Grocer are major marketplaces, while Amazon, Noon, and Kibsons follow the pureplay model.
To establish a stronger foothold, several larger players are looking to consolidate with smaller players. We expect more consolidations in the space, akin to the acquisition of 26 giant hypermarkets by Carrefour in 2017.
Berlin-based global food (and grocery) delivery giant Delivery Hero has been on an acquisition spree in the region (Zomato, Carriage, and now InstaShop). Analysts expect the company to scoop up more grocery and food delivery businesses in the region to create a massive hyperlocal network.
There’s also a cross-vertical partnership that grocery retailers will look to establish: strategic partnerships with logistics companies. This can help optimize the supply chain and reduce the wastage of food and resources. We have seen an example of this earlier with Lulu Hypermarket.
Large traditional players such as Carrefour and Lulu are gearing up to improve their omnichannel presence in the UAE and worldwide.
In 2024, Carrefour focuses on its “Digital Retail Strategy 2026,” enhancing omnichannel experiences and cloud-based agility, while Lulu reports an 83.5% e-commerce sales surge, expanding its store network to 241 and strengthening loyalty with 5 million program members across the GCC.
This comes straight from Carrefour’s omnichannel playbook. The grocery giant partners with local technological influencers to boost penetration in certain countries. For instance, in China, it has partnered with Tencent to develop digital payments, while in France, it partnered with Google to develop a speech-enabled shopping assistant.
The idea is to harness any technological solutions and synergetic partnerships that allow your brand to meet customers where they are.
Your ideal customers are likely to be present across Facebook, Instagram, Snapchat, and WhatsApp. These are lucrative opportunities to get your brand in front of them, no matter where they are. However, to get your message across at optimized marketing spend, it’s important to pick the right channel and promotion. Capillary leverages advanced algorithms to automatically identify the right channels for your business, delve into consumers’ browsing habits, as well as gauge the level of engagement a customer has on a specific channel.
Personalization plays a key role in winning customer loyalty. Grocery retailers opting for an omnichannel presence must make use of customer data such as their birthday, and other special occasions and shopping habits to provide them with a more tailored experience. After all, who doesn’t love receiving a birthday surprise, or coupons as a gift for their purchase?
Traditional grocers seeking to establish their digital presence must seek to improve their website browsing experience, payment options, and delivery times, so customers can get a truly magical experience.
To provide a hyper-personalized experience, a large number of grocery brands are seeking to get a granular understanding of how their customers shop for groceries.
This includes:
Brands are using multiple data points from customers to improve their overall experience, online as well as in-store. This includes:
The UAE grocery retail landscape is evolving at a breakneck pace, blending digital innovation with customer-centric strategies to redefine engagement and retention. At Capillary, our AI-driven loyalty solutions empower retailers to capitalize on these trends by delivering hyper-personalized experiences, optimizing omnichannel engagement, and building lasting customer relationships. Ready to elevate your grocery loyalty game? Let’s craft strategies that drive success in this dynamic market!
Current trends include the rise of online grocery shopping, increased demand for organic and health-focused products, and the adoption of advanced technologies like AI and automation for inventory management and personalized marketing.
The grocery retail market in the UAE has evolved with a significant shift towards e-commerce, greater emphasis on sustainability, and enhanced customer experiences through digital innovations. The COVID-19 pandemic accelerated these changes, leading to more dynamic and responsive retail strategies.
Technologies such as AI, machine learning, and automation are shaping the future of grocery retail in the UAE. These technologies help retailers optimize inventory, personalize marketing efforts, and streamline operations to meet customer demands more efficiently.
Consumers in the UAE prefer convenient shopping options, high-quality organic products, and personalized shopping experiences. There is also a growing interest in sustainability and ethical sourcing of products.
Grocery retailers in the UAE can stay competitive by embracing digital transformation, offering personalized and convenient shopping experiences, focusing on sustainability, and continuously adapting to changing consumer preferences. Investing in advanced technologies and customer-centric strategies is also crucial.
December 15, 2024 | 4 Min Read
The UAE grocery retail landscape is evolving at a breakneck