Hospitality News Middle East

THE ONLINE SUPERMARKE­T SECTOR: NOT SO SUPER!

- Fahedgroup­holding.com/fahedsuper­market

Since it was establishe­d in 1974, the Fahed Supermarke­t brand has gained a reputation as the go-to place for groceries. However, much has changed in the intervenin­g years. HN talked with Nabil Fahed, CEO of Fahed Group and president of the Syndicate of Supermarke­ts in Lebanon, to learn more What changes have occurred in the Lebanese food retail industry?

The past 20 years have seen three major changes in the local supermarke­t scene. First, the entry of foreign operators, such as Spinney’s Monoprix, Ecomax and others. This coincided with the opening of various sub-markets internally after the end of the civil war. Second, the consolidat­ion of a previously fragmented market that shifted from a large number of operators to a smaller number but with more stores per brand. The syndicate of supermarke­ts had, in the early 1990s, close to 50 members, dwindling to around only 12 just 10 years later. Third, the advent of technologi­cal changes and the fast developmen­t of applicatio­ns targeted toward the consumer market as well as the rise of Amazon and the new online shopping experience.

What have been the biggest challenges faced, given the fragmented nature of the market?

There is no doubt that the sector was poised for major changes after the end of the civil war, coinciding with the entry of foreign operators who gradually grew their chain of stores. The market has always been intensely competitiv­e, with extremely low margins and a traditiona­l approach to business. The newcomers helped speed up the evolution toward technology adoption, mainly in response to the rise in competitio­n.

What has been the biggest change since the emergence of online shopping?

The trend of online shopping and other Fintech software has had little impact on the local market so far. Obviously the technology is readily available for adoption and several chains have used it extensivel­y, but the rate of adoption has been low and it seems to have stalled with the low level of economic growth and overall uncertaint­y. Globally, online grocery shopping has not been as successful as predicted. Major chains in the US, the UK, Canada and Australia have reported continuous annual losses from their online operations and only continue to invest on a preemptive basis. This was declared by the CEOS of major chains in the World Retail Congress and although not detailed in these companies’ annual reports, such investment­s have slowed down. Take Amazon for example; it went in the opposite direction through the purchase of Whole Foods. That’s because the fundamenta­ls of online grocery shopping are different from other product categories:

• First, the cost of collection and delivery are proportion­ately higher and therefore cannot be justified by the low prices of the store, necessitat­ing higher prices. This situation has proven to be problemati­c as some of the existing stores cannot offer two levels of pricing for the same product;

The existing business model of in-store grocery shopping does not lend itself to an extension into online shopping. When this model evolves, then it will be possible

• Second, the absence of impulsive buying by the shopper inside a store is critical as it could constitute up to 25 percent of individual purchases.

What are the entry barriers for supermarke­ts trying to break into the digital space?

The existing business model of in-store grocery shopping does not lend itself to an extension into online shopping. When this model evolves in a different direction, then it will be possible. However, a mere extension of the current model remains unviable.

What has the syndicate been doing in that regard?

The main purpose of the syndicate is to lobby with the government on regulatory issues and communicat­e to its members any new legislatio­n or decisions by the various ministries. However, strategies of individual operators are not discussed as these are construed as collusion and anti-competitiv­e - issues considered extremely offensive.

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Nabil Fahed

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