Retail revolution: The evolving role of baqalas in Saudi Arabian retail
Saudi Arabia’s retail sector stands as one of the most vibrant and rapidly evolving markets in the Middle East. Fuelled by its substantial oil wealth, young population, and increasing urbanisation, the Kingdom has witnessed a transformative shift in its retail landscape over recent years.
With a population characterised by a high percentage of youth and rising disposable incomes, the demand for diverse retail experiences has surged. The market has been growing steadily, driven by factors like an increase in consumer spending, a flourishing e-commerce sector, and government initiatives like Saudi Vision 2030 that aim to diversify the economy.
The retail environment has seen a significant transition from traditional shopping formats to modern trade structures. This includes the rise of shopping malls, hypermarkets, and international franchise outlets, bringing in a more organised retail structure.
Technology has also played a pivotal role in shaping consumer behaviour. With one of the highest rates of smartphone and internet penetration in the region, online shopping platforms and e-commerce sites are witnessing unprecedented growth and reshaping retailers’ perceptions of their businesses. But despite the surge in modern retail formats and e-commerce, traditional retail outlets, particularly baqalas, continue to hold cultural and social significance in the Saudi market. These small, neighbourhood stores are deeply rooted in the community, offering convenience and a personalised shopping experience that large retail formats often cannot match.
The retail sector in Saudi Arabia stands at a crossroads between traditional values and modern consumerism, as The Kingdom continues to embrace economic reforms and digital transformation. Understanding this balance is crucial for retailers and businesses aiming to succeed in this rapidly changing environment.
Origin and historical context of baqalas
Baqalas are traditional small grocery stores or corner shops. The term ‘baqala’ in Arabic typically refers to a small, neighbourhood store providing a variety of essential goods ranging from food items to household necessities.
Rooted in community-centric values, baqalas are a cornerstone of Saudi Arabian society. Historically, baqalas emerged alongside urban settlements in Saudi Arabia and date back to a time before the retail sector in Saudi Arabia fully commercialised. The majority of baqala owners were originally people of limited means, who came to the country with little other than a resolve to make a better life for themselves. Their stores were often simple, with limited stock largely catering to the basic needs of the local community.
In the pre-oil era, baqalas primarily served local neighbourhoods and were family-run businesses passed down through generations. The traditional setup typically included basic shelving, a counter, and a close-packed array of products. As Saudi Arabia underwent rapid economic development from the mid-20th century onwards, and baqalas faced competition from modern supermarkets, many have managed to survive by maintaining a personal touch, understanding local consumer needs, and adapting to changes without losing their quintessential charm.
Baqalas were, and in many places, still are, places where personal relationships between the shopkeeper and the customers are key. Traditionally, they acted as a place where people gathered to exchange news, discuss community matters, and maintain social bonds. This role was particularly pronounced in smaller towns and remote areas where baqalas were among the few public gathering spaces. There is, however, a growing concern that the rise of modern supermarkets and hypermarkets is reducing the relevance of the baqala, as they challenge them for both locality and convenience.
Baqalas have been instrumental in supporting the local economy and providing employment opportunities. By offering a range of local products, including traditional and region-specific goods, baqalas play a crucial role in preserving and promoting Saudi Arabian culture and traditions. For many, they represent a connection to a way of life that predates the modernisation and globalisation sweeping the country, thereby holding sentimental value for many Saudi citizens.
The impact of localisation and Saudization on baqalas
In March 2022, Saudi Arabia implemented the second phase of its “Saudization” initiative to localise jobs in grocery stores and supermarkets and reduce foreign staff in managerial roles by half. This phase started after a 360-day grace period following the decision’s publication on October 12, 2020. The Saudization policy affects retail chains under 300 square meters and supermarkets under 500 square meters. In the first phase, sales roles, such as customer accountants and service relations, were reserved for Saudi nationals, with half of the department supervisor roles also localised.
By 2021, the Ministry of Human Resources and Social Development (HRSD) had localised 20 professions across various sectors, creating nearly 378,000 job opportunities. These measures are part of Saudi Arabia’s broader efforts to provide engaging job opportunities for its citizens and to increase their participation in the labour market, aligning with the objectives of Saudi Vision 2030.
Although Saudi Arabia’s $20 billion grocery market has traditionally been dominated by baqalas, the Saudization of stores is having a pronounced effect on the market with approximately 20% of baqalas closing down. This shift is enabling the organised grocery sector (which currently holds about 50% of the market) to gain a larger market share. The organised grocery retail sector in Saudi Arabia is anticipated to rise to 75% in the coming years. Digital platforms are also significantly influencing this market shift with major e-commerce sites gaining market share and online grocery shopping becoming the fastest growing retail segment in the region.
Further regulatory changes may also impact the evolution of Saudi Arabia’s grocery market. One key objective of Saudi Vision 2030 is to increase the contribution of small and medium-sized enterprises (SMEs) to the nation’s GDP from 22% to 30%. Given that baqalas represent about 12% of the SME-derived GDP, their sustained presence and continued economic contribution are crucial factors in shaping future policies. In response, the government has initiated programs aimed at modernising baqalas, akin to earlier efforts undertaken in Abu Dhabi.
How baqalas are adapting and evolving
As the retail landscape of Saudi Arabia evolves, baqalas too are undergoing a transformation. Many are adapting by:
- Modernising store layouts and designs: Baqalas are revamping their store layouts, by making shops more welcoming and shopping easier. With clearer signage, brighter lighting and better organisation these traditional outlets are enhancing their customer experience while retaining their characteristic charm.
- Embracing technology: In an era where e-commerce and digital payments are becoming the norm, many baqalas are incorporating technological advancements such as electronic payment systems, inventory management software, online ordering platforms, and social media and messaging apps for customer engagement.
- Diversifying product range: Many baqalas are expanding their product offerings to include a variety of international goods, organic products, and specialty items in addition to the unique products they offer that are not commonly found in larger chain supermarkets. This helps them maintain their relevance while still appealing to customers seeking a more personalised shopping experience.
- Leveraging personal service: In the face of competition from impersonal large-scale retailers, many baqalas are doubling down on their strong customer relations by offering personalised services, remembering individual customer preferences, and providing home delivery in the nearby area. This level of service helps in creating an emotional connection with customers, fostering loyalty and repeat business.
- Maximising strategic location and convenience: Many baqalas still enjoy the advantage of being more accessible to local residents than large supermarkets – By leveraging this convenience factor, along with extended operating hours, baqalas continue to be an attractive option for quick and easy shopping.
- Strengthening community ties: Baqalas typically enjoy strong relationships with their local communities, which are often built over many years. This can deepen their ties and build a sense of loyalty among locals.
The adaptation and evolution of baqalas, and their ability to compete with supermarkets and online retailers in Saudi Arabia reflect their resilience and ability to leverage their unique strengths while maintaining their identity. By integrating technology, diversifying product offerings, while continuing to provide a warm, neighbourly atmosphere and an understanding of local tastes, baqalas can thrive in the contemporary retail landscape.
Regional retail insights
To keep up with the times and maintain their relevance, food and agribusinesses must find a way to balance cultural and commercial activities with more modern practices. At Farrelly & Mitchell, we help agrifood businesses adapt to changing market dynamics with actionable insights and recommendations.
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As a Managing Partner for Farrelly & Mitchell, Philip has consulted with countless food and beverage agribusinesses around the world. His expertise includes commercial and technical due diligence, business valuation, feasability modelling, and more.
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