Retailers counter discount stores with promotions, competitive pricing to defend market share: Analysts

The report noted that some retailers are expanding into smaller and neighborhood stores, while discount stores and quick commerce continue to grow. This is prompting retailers to reassess their pricing strategies, promotions, and product assortments.

It added that discount stores continue to achieve strong growth in Saudi Arabia, reshaping the competitive landscape of food retail as consumers increasingly prioritize lower prices.

To discuss the key trends identified in the report and their implications for listed companies, Argaam spoke with Afnan Khan, Head of Research at Bloom Invest, and Jawaher Said, Senior Research Analyst at the company.

For his part, Afnan Khan said consumers’ shift toward smaller stores and quick commerce represents a structural change, driven by greater price sensitivity and a preference for speed and convenience. He noted that this competition is putting pressure on listed retailers’ margins and prompting them to intensify discounts and promotions to protect sales and market share.

Meanwhile, Jawaher Said expects quick commerce to continue growing and discount stores to keep gaining market share over the coming years. She said the most likely scenario for listed retailers is to strengthen promotions and competitive pricing under their existing brands, while expanding smaller and express-format stores.

The report also examined growth and competitive trends, as well as the impact of rising operating costs, inflation, and changing consumer behavior on margins and the strategies of listed retailers.

Below is the interview in detail:

The Bloom Invest report indicated that Saudi food retailers trade at higher valuations than their Gulf and European peers. What factors support these valuations, and do you consider the premium justified?

- We believe the valuation premium enjoyed by Saudi food retailers primarily reflects the attractiveness of the Saudi market itself rather than superior growth rates among the companies. The market is marked by strong consumer spending, population growth, continued expansion of organized retail, high liquidity, and strong domestic demand for equities.

Compared with Europe, the premium appears more justifiable, given that the European market is more saturated, faces greater price competition, and has weaker population growth. Saudi companies also generate higher margins and have greater room for expansion.

However, when compared with other markets, the premium becomes less clear. Saudi companies deliver better margins, but their growth rates are not necessarily higher. Therefore, we believe part of the valuation premium is justified by the fundamentals of the Saudi market and its long-term growth opportunities, while another portion reflects liquidity and strong demand for equities rather than clear operational outperformance.

The report identified a decline in hypermarket and supermarket sales alongside growth in convenience stores and delivery apps. Is this a structural shift in consumer behavior or a temporary change?

- The report views this as a structural shift in consumer behavior rather than a temporary weakness in demand.

Consumers have become more price-sensitive and increasingly value speed and convenience. Part of their spending has also shifted toward quick commerce, discount stores, and food delivery apps. Purchasing patterns have also evolved toward more frequent visits with smaller basket sizes.

Retailers have adopted different strategies, ranging from expanding smaller stores to maintaining the supermarket model. Which approach is better positioned to deliver sustainable growth and profitability?

- The report does not see a complete shift toward a single format as the solution. Instead, it points to an omnichannel model with a more flexible store mix as the preferred approach. BinDawood has reduced its reliance on hypermarkets while expanding supermarkets and express stores, whereas Othaim has maintained its dominance in supermarkets with limited expansion into express formats.

Current consumer trends favor smaller stores, but supermarkets remain the core channel. Therefore, we believe the most sustainable model is a strong supermarket network supported by neighborhood/express stores and an effective online channel, rather than replacing supermarkets altogether.

Traditional grocery stores still account for the largest share of the market. What are the key factors that could accelerate consumers’ shift toward organized retail?

- Traditional groceries still account for around 50% of the market, and the report expects them to remain dominant over the coming years. The main drivers of a gradual shift include the expansion of organized convenience stores, investment in technology and digital services, improvements in the shopping experience, and government regulations restricting some products that small traditional groceries can sell.

However, the report is clear that this transition will be gradual and limited rather than rapid, as traditional groceries have historically demonstrated a strong ability to retain their market share.

To what extent are discount stores and quick commerce affecting the margins of listed retailers?

- The impact on margins is clearly negative, as these formats increase consumers’ price sensitivity and force traditional retailers to intensify discounts and promotions.

The report expects price competition and price wars involving discount stores and quick commerce to continue at a time when shipping, insurance, and supply-chain costs are also rising.

Retailers therefore have to balance protecting sales with protecting margins. Even passing higher costs on to consumers is likely to be gradual and selective, and margins are unlikely to return quickly to previous levels.

Hypermarkets and supermarkets lost market share to smaller stores in Q1 2026. Do you expect this trend to continue?

- Yes, the trend is likely to continue gradually, but this does not necessarily mean the supermarket model will collapse.

The report identifies a decline in the share of hypermarkets and supermarkets in favor of other channels, alongside retailers’ expansion into express and convenience stores.

Organized small-format stores still account for only around 8% of offline organized grocery retail in Saudi Arabia, which is low by global standards and leaves significant room for growth. However, traditional groceries already capture a large portion of convenience-related demand, which will limit the pace of growth for organized small-format stores.

How will expansion into smaller stores and quick commerce affect margins and cost structures compared with the hypermarket model?

- There are two sides to this. Smaller stores require less space and capital per branch and can be located closer to customers, potentially increasing visit frequency and improving sales efficiency per square meter.

However, quick commerce introduces additional costs related to technology, order fulfillment, distributed inventory, delivery, and promotions.

Therefore, higher digital sales do not necessarily translate directly into higher margins. More broadly, the report highlights that rising operating expenses, lease obligations, and expansion-related investments have already contributed to pressure on net profitability across the sector.

The report expects the quick commerce market to reach SAR 85 billion by 2030. What are the key growth drivers, and do you expect demand to continue accelerating?

- Redseer Strategy Consultants expects the market to grow from around SAR 30 billion in 2025 to SAR 85 billion in 2030. Most of the acceleration is expected to come from Quick Retail, covering groceries and everyday consumer goods, which is projected to grow more than tenfold and account for nearly half of the Q-commerce market by 2030.

Key drivers include greater reliance on digital shopping, high population density in cities, time constraints, consumers’ preference for convenience and speed, a shift toward more frequent smaller purchases rather than bulk stock-ups, and the expansion of delivery infrastructure and dark stores. Accordingly, the report views this growth as an ongoing structural trend rather than a temporary effect.

The report highlighted the growing adoption of the dark-store model. How do you assess this model, and what role does it play in delivery efficiency and retailer profitability? Do you expect its use to expand further in Saudi Arabia?

- The Quick Retail business model in Saudi Arabia relies heavily on dark stores, which account for more than 80% of the Quick Retail segment, with more than 300 dark stores operating in the Kingdom.

Their advantage is that they position inventory close to areas of demand, reducing order preparation and delivery times while improving product availability and inventory-management efficiency.

They also allow operators to cover larger areas without requiring a full traditional store. We therefore expect continued expansion of the model. From a profitability perspective, however, success depends on achieving sufficient order volumes and geographic density to cover labor, delivery, and operating costs. Therefore, growth in dark stores does not automatically translate into higher margins from day one.

Discount stores have recorded significant growth with the entry of new players. Do you expect them to continue gaining market share at the expense of traditional supermarkets?

- Yes. The report identifies discount stores as one of the key sources of competitive pressure, with new players entering the market alongside an already fragmented and highly competitive landscape.

High consumer price sensitivity, greater reliance on promotions, and lower average basket sizes all support the discount-store model. Therefore, discount stores are likely to continue gaining market share, particularly among more price-sensitive consumer segments, at the expense of some traditional supermarket sales.

Do you expect major retailers to launch dedicated discount-store brands, or will they focus on strengthening promotions within their existing stores?

- The report does not explicitly expect listed retailers to launch standalone discount-store formats.

Current strategies indicate a focus on omnichannel operations, smaller stores, e-commerce, and improving operational efficiency, alongside the use of promotions and competitive pricing to defend market share.

Therefore, based on the report, the more likely near-term scenario is increased promotions and competitive pricing within existing brands, alongside the development of express/convenience formats. Launching a standalone discount brand could become more logical at a later stage if discount stores continue to gain market share.