In Saudi Arabia’s highly fragmented retail market, there is plenty of opportunity for an ambitious player such as Al-Othaim to expand and attract new customers.

Shoppers in the kingdom are increasingly abandoning the traditional corner shop in favour of Western-style retail outlets. Yet, supermarket chains still only account for an estimated 20 per cent of the Saudi food market, with the remainder serviced by some 50,000 small retailers. 

Analysts predict that the balance of power is shifting to large-format retailers, with Al-Othaim’s supermarkets and hypermarkets growing in line with the general trend. The company’s strategy of expanding floor space and delivering a broader retail offering will help it capture a larger slice of the market in the future as it wins business from smaller grocers.

Building up a larger market share will also bring cost savings to Al-Othaim Markets. It will able to negotiate greater discounts from suppliers, which feeds through into improved profit margins. According to analysts, the company has been successful in acquiring higher rebate and discount incentives in its latest round of contract negotiations with suppliers.

Profitability is already improving. The retailer reported a 61 per cent rise in profits to SR31m for the second quarter of 2010. This followed a strong first quarter when profits rose 98 per cent to SR33.3m.

A key reason for this robust performance is that consumer spending power in Saudi Arabia has been little impacted by the global financial crisis. On top of this, the inflationary pressure that was building up in the kingdom in 2007-08 has abated.

One challenge has been posed by the revolving doors at the top of the company. The company has a new CEO, Abdulaziz al-Othaim, a member of the family replacing Yousef Algafari. For a while, it seemed as though instability at the top might undermine performance, but this risk may have subsided.