Stretching Into the Middle East
U.K. fixed-price discounter PoundStretcher is expanding into the Middle East with a store soon to be opened in Dubai, United Arab Emirates (UAE). The move is the company’s first international venture, aside from its failed attempt to open two outlets in Ireland in 2011. The retailer will keep the PoundStretcher brand name for its Dubai store even though the currency only exists in the U.K. Middle East retailing mainly consists of local players; the presence of international organizations is low. However, as outside companies like PoundStretcher and Carrefour speed up their expansion, the market is expected to consolidate in the mid to long term. The discounter is the first value retailer foraying into the market, although this could change as consumers cut back on discretionary spending, making it the most appropriate time for value players to test the water. Shoppers’ high regard for Western brands, combined with the more expensive price positioning of value brands in the Middle East, is slowly attracting a new consumer segment. The UAE is the most sophisticated retail market, the hub for market entry into the Middle East and the fastest-growing in terms of revenues. It will be interesting to see if PoundStretcher brings its fixed-price concept to Dubai. In any event, PoundStretcher will have to position its prices carefully; it is expected that they will be slightly higher than those in traditional markets. While PoundStretcher has not revealed its mode of entry into the Middle East, it is most likely to follow the franchise route as this mitigates the risks associated with lacking local knowledge and is a cost-efficient method of setting up stores. The discounter is expected to stick to its core strategy — offering variety retailing at discounted prices — and is likely to tweak the offering as per local consumers.
Why the Middle East? Middle Eastern shoppers are well-versed in international brands and will be attracted to PoundStretcher’s proposition. “There is a gap in the market for discount retailers out there,” says Cliff Lomberg, the company’s general manager for the Middle East and Africa. The value stores will also benefit from consumers’ willingness to try brands perceived to be of better quality. Like in the U.K., PoundStretcher will be offering brands like Coca-Cola, Colgate and Pepsi and will avoid being seen as a budget player peddling low-quality products. PoundStretcher’s first Dubai store is likely to be followed by six additional Middle East outlets, four of which will also be in the UAE. Although the Middle East as a region continues to grow, there are disparities between the countries in the region. Moreover, foreign investment rules vary for different countries and religious laws govern many aspects of retailing. PoundStretcher will need to bear this in mind while working to set up stores in the region. The next decade will see further investment from players like Tesco, Walmart and Carrefour as opportunities become more plentiful and growth in other markets becomes limited. Planet Retail believes that the UAE, Qatar and Kuwait are the most promising growth markets in the short term, while Saudi Arabia has great prospects in the medium to long term. While PoundStretcher will use its existing supply chain for the time being, it should consider partnering with a regional supplier to benefit from their local knowledge. However, in both cases it is far from certain if PoundStretcher can apply a fixed-price concept, as buying costs sharply differ from those in the U.K.