A growth arena: State of grocery retail 2024 Middle East and North Africa

MENA’s grocery market: A growth arena in the world of grocery retail

The grocery sector in MENA has not been immune to global economic pressures, but the sector is enjoying strong momentum and has significant growth potential.

To understand evolving consumption patterns and their implications for grocery retail in the region in 2024, we analyzed four markets: Egypt, the Kingdom of Saudi Arabia (KSA), Morocco, and the United Arab Emirates (UAE). We surveyed more than 4,000 consumers and spoke to 30 grocery executives in EEMA to get their perspectives on key challenges and priorities in the region. We focused on what consumers spend their money on; how this has changed by product category, channel, and store format; and how these shifts have affected the margins of grocery retailers.

While each market has its own momentum, our analysis has identified nine common trends across three broad categories: market and channel, consumer preferences, and growth beyond the core (Exhibit 2). These trends have varying relevance across countries (Exhibit 3).

1. Modern trade: Accelerated growth

Modern trade, which turned a corner during the COVID-19 pandemic, is growing across most countries in the region, regardless of their level of maturity.

Modern trade rebounded strongly between 2021 and 2023 across the region. Saudi Arabia and the UAE maintained the CAGR of their total sales (at 5 and 6 percent, respectively). Growth was stronger in Egypt and Morocco, where the share of modern trade in the grocery market is significantly smaller. The market grew at 26 percent CAGR in Egypt and 9 percent in Morocco (Exhibit 4). The average productivity per store has also remained steady during this time.

Store openings are the biggest factor driving this growth as corporate chains expand their footprints. In the past five years, the region has enjoyed its highest ever number of new store openings; in 2023 alone, 211 stores opened in Egypt, 147 in the UAE, and 131 in Morocco.

This rapid growth trajectory will likely continue because the region still has high potential for expansion compared with Europe, especially in KSA, Egypt, and Morocco. In these markets, modern trade is still in the minority at 21 percent (Morocco), 27 percent (Egypt), and 46 percent (KSA) in 2023. Modern trade has the highest market share in the UAE at 87 percent.

2. eGrocery: Strong momentum to continue

Online grocery sales have rebalanced and continue to grow, albeit from a small base.

The online grocery market continues to be buoyant in MENA. Between 2021 and 2023, sales grew at a CAGR of 27 percent in the UAE—the highest in the region—followed by 25 percent in KSA, 19 percent in Morocco, and 15 percent in Egypt (Exhibit 5). We expect this growth to continue for the foreseeable future because online penetration is still relatively low across the region compared with more mature markets such as Europe. For example, online grocery sales in the UAE—the region’s most penetrated market—reached 6.4 percent in 2023, roughly half that of the United Kingdom (11.0 percent) and France (9.4 percent). Consumers in MENA also express a strong intention to do more shopping online, with 34 percent of consumers in Egypt, 33 percent in the UAE, and 30 percent in KSA looking to increase their online shopping habits in 2024. Intention to buy more online was lowest in Morocco at 16 percent.

Continued growth may require retailers to overcome some inherent barriers, including low profitability due to the additional costs of fulfillment and delivery services. Reaching the full potential of online may depend, therefore, on how fast retailers can improve efficiencies in fulfillment. Additionally, a key question going forward will be to what extent MENA follows European trends—where online and offline are diverging and omnichannel is proving to be less relevant—and how this will affect consumer choices.

3. Discounters are dashing ahead

Discounter formats are easily outpacing overall industry growth across all countries except KSA, as more than half of consumers look to trade down.

Discounters in the region have grown rapidly over the past five years as key players look to expand their footprint across the region to meet growing consumer demand. In Egypt, Morocco, KSA, and the UAE, discounters enjoyed an average 13 percent CAGR from 2019 to 2023 (Exhibit 6) compared to 6 percent for the industry as a whole. Most of the growth is being driven by new-store openings. For example, prominent Egyptian discounter Kazyon recently opened 50 stores in Morocco, with plans to reach 200 stores by 2025. The company also acquired a 50 percent equity stake in grocery discount retailer Dukan to accelerate its growth in KSA. Viva, a discount retailer operating in the UAE since 2018, opened its first store in Oman last year, while Majid Al Futtaim is expanding its Supeco discount store network in Egypt, with plans to open 144 stores by 2030.

There is significant headroom for growth in this format, as the market share of discounters is still relatively small compared with European and other markets. Discount as a share of sales is as high as 15 percent in the United Kingdom and Netherlands compared with 6.3 percent in Egypt and 0.6 percent in UAE, the region’s fastest-growing market for discounters. Discounters in the UAE grew 12 times faster than overall trade at 61 percent CAGR between 2019 and 2023. Additionally, despite positive momentum, most shoppers in the region are still looking for ways to save money. Almost 70 percent of consumers in Egypt, 65 percent in KSA, and just under 60 percent in Morocco and the UAE expressed an intention to switch to discounters in 2024.

In mature modern retail markets, the early adoption of a working discounter model has played a significant role in shaping the retail landscape. In Germany and Tu¨rkiye, for example, interviews with industry experts reveal that consumers were quick to embrace discounter models as part of their shopping habits, creating a positive feedback loop that ensured discounters now play a key role in those markets. In Germany, discounters have been an important part of the grocery landscape since the late 1940s and the aftermath of World War II. But a successful discounter model hasn’t yet emerged in MENA, and the trajectory of this format in the region remains uncertain. While consumer preferences vary by country, most consumers are looking to purchase core household necessities from discounters to make their money go further.

4. Constrained consumers: Early signs of hope

Consumers in MENA remain cost-conscious, but there are signs that their appetite for premium products is growing.

More than half of all low- and high-income shoppers in the region continue to look to save money, whether by stocking up on products during promotions, switching to store brands and cheaper brands, changing retailers, or reducing consumption of higher-priced foods. Consumer intentions to save money stayed relatively consistent between 2023 and 2024, dropping by just one percentage point from 57 percent in 2023 to 56 percent in 2024 among low-income earners and rising from 53 percent to 54 percent among high-income earners (Exhibit 7). Low-income consumers in KSA and Egypt are more likely to express an intention to save (61 and 59 percent, respectively) than low-income consumers in the UAE (54 percent) and Morocco (53 percent). Among high-income earners, the situation is reversed, with consumers in Morocco and the UAE more likely to express an intention to save at 58 and 54 percent, respectively, compared with consumers in the KSA (50 percent) and Egypt (51 percent).

At the same time, a growing number of consumers in both income groups appear increasingly confident and prepared to spend on premium products offering quality and uniqueness. Our research showed that intention to buy high-quality or premium food increased by nine percentage points among low-income earners—from 14 percent in 2023 to 23 percent in 2024—while high-income earners’ intention to trade up rose by three percentage points to 44 percent.

Younger consumers also express a high willingness to pay extra for higher-quality foods. Almost 40 percent of Generation Zers and 41 percent of millennials express an intention to spend more on quality products compared with 29 percent of Generation X consumers and 24 percent of baby boomers. Grocers that can build their assortments to deliver the right value and price to cater to this rising interest in quality could reap the rewards, even in markets where consumers are largely downtrading.

5. Health and organic: A tailored taste

Increasing appetite for healthy and organic products among high-income consumers, in particular, is driving innovation in the market.

Shoppers across MENA generally express a high intention to buy healthy and organic products. More than 65 percent of high-income consumers in Egypt and Morocco, 60 percent in the UAE, and 46 percent in KSA expressed a desire for healthy and organic. This is significantly higher than in more mature markets across Europe, where the intention to buy healthy and organic products is between 24 and 40 percent., McKinsey and EuroCommerce, January 2024.

Despite an increasing appetite for premium products, consumers are not necessarily willing to pay more for them. Just under 55 percent of consumers say they are willing to pay somewhat or significantly more than the market average for healthy products and 46 percent for fresh produce. Meat and dairy alternatives continue to draw the least interest from consumers.

Retailers in MENA are moving fast to respond to this demand and are innovating to provide convenient, sustainable food at a fair price. In February 2022, Carrefour opened its first BIO store in the UAE, focusing on healthy and organic products and offering more than 3,000 items across food, beverage, beauty, personal, and home care categories. At COP28 in Dubai, Majid Al Futtaim launched “Choose Better,” a program that educates customers about making healthier and more sustainable choices and rewards them for so doing.

6. Food-to-go growth

As consumers spend more time on the move and demand more convenience, the food-to-go market continues to pull ahead of total grocery growth.

Consumer demand for convenience has sparked a boom in food-to-go sales despite the inflationary environment and downtrading effect. This segment, which includes products such as ready-to-eat meals, takeout, delivery, and drive-through restaurants, has grown at almost four times the pace of total grocery sales at 19 percent CAGR between 2012 and 2023 compared with 5 percent for total grocery. While consumers remain inclined to cook from scratch at home—more than 70 percent in all markets—we see increased demand for ready-to-eat meals at grocery stores, deliveries, and dining out.

Growth in this segment picked up in the wake of the pandemic as workers returned to offices and consumers managed increasingly busy lifestyles. Growth has been fastest in Egypt, where the CAGR of food-to-go sales was 81 percent from 2012 to 2023, and KSA (36 percent), followed by Morocco (32 percent). It has been lowest in the UAE (7 percent).

The food-to-go market is still in its early stages in MENA, presenting opportunities for grocery retailers to innovate and expand their food-to-go offerings. Options to consider include ready-to-eat and ready-to-heat or -cook products that are gaining popularity, especially among high-end retailers. Looking ahead, retailers also have an opportunity to experiment with food service offers such as in-store cafés and restaurants and other cross-selling opportunities as those in more mature markets are already doing., McKinsey and EuroCommerce, January 2024.

Small, independent grocery stores remain the backbone of the retail sector in most MENA countries, creating fertile ground for eB2B growth. Traditional trade is highest in Morocco and Egypt at 79 and 73 percent, respectively, followed by KSA at 54 percent. As smaller retailers increasingly adopt digital solutions, eB2B platforms are demonstrating that they can add significant value to the traditional sector by simplifying the supply chain. They do this by offering a broad assortment in one place, by bypassing inefficient intermediaries, and by providing value-added services digitally.

Across the region, several eB2B players are emerging to capitalize on this potential. Most of these players are focusing on integrating the middle layers of the value chain. For example, Egyptian start-up Capiter, which in 2021 raised $33 million to expand its eB2B network across MENA, connects merchants directly to fast-moving consumer goods companies and wholesalers while providing fair pricing and matching techniques that showcase a wide range of inventory for merchants. Two other types of players in the region include those serving B2B businesses while also providing consumer-facing ecosystems to drive traffic in stores, and integrated B2B players that are serving small businesses and providing B2B services to outlets.

Modern retailers can leverage their established supplier relationships to develop competitive eB2B platforms that create additional revenue streams while supporting the traditional sector. Our research has established that successful eB2B players need to focus on four “must win” battles. First, they work with a variety of suppliers to diversify products and reduce supplier exposure risk while negotiating to achieve cost reductions on goods sold. They also have the relevant supply chain expertise and digital and technology capabilities. Finally, they’ve cultivated a start-up culture that enabled them to develop at scale. Modern retailers are typically better positioned than CPG players or digital start-ups to win these battles.

8. Retail media networks: Conquering new profit frontiers

Retail media networks are boosting the bottom line of online platforms, especially in Europe and North America, and could offer similar gains in MENA.

Retail media (RM), in which grocers sell advertising across digital and physical properties, is gaining momentum in MENA and is expected to grow significantly in the coming years. In Europe, the RM market was worth €11 billion in 2023 and is expected to grow by 15 percent annually in the coming years (Exhibit 10). While local data to show market share in MENA is not available, online grocery retailers are likely well positioned to claim a share of digital advertising revenues by virtue of their scale and reach. Those with the best access to consumers at the moment of purchase can connect this with broader consumer data and provide brand owners with the best possible insights. Thus, scale is important, and only the largest players are expected to remain relevant to advertisers in the long run.

Major retail players in MENA are driving growth by leveraging advertising technology and data analytics to capitalize on this opportunity. For example, in 2021, Majid Al Futtaim launched a solution for Carrefour in the UAE using advanced data analytics and machine learning to deliver highly personalized and targeted advertising to customers. In addition, BinDawood Holding acquired an 80.5 percent stake in Ykone, a French influencer marketing agency, to strengthen its e-commerce and advertising capabilities.

RM is likely to be a fundamental and rapid driver of profitability for online retailers in MENA. Europe, EBIT margins reached 65 to 70 percent within three years of launching., McKinsey and EuroCommerce, January 2024. Retailers that reached scale and profitability quickly have been able to standardize impact metrics and provide transparency to advertisers, including return on advertising spending and advertising diversification.

In MENA, retailers are working to consolidate their online data and optimize loyalty programs to reap the benefits from traditional AI use cases but are not yet ready to pursue conversational commerce enabled by generative AI. Our research suggests that commercial use cases such as choosing the right assortment for each store and optimizing product placement and shelf space create the region’s highest ROI as consumer preferences change. When applied correctly, AI use cases can bring one to two percentage points of EBITDA impact.

McKinsey estimates that generative AI could contribute between 10 and 20 percent of the total value potential stemming from AI in the grocery retail sector, and retailers have begun experimenting with it to get closer to and better understand their customers. Six use cases are expected to propel this value by enhancing revenue and spurring efficiency: hyper-personalized content, smart search, copilots for category management (for example, supplier negotiations), copilots for support functions (such as software development), content creation, and conversational commerce. For example, by engaging shoppers with a human-like chatbot as a personal shopping assistant, conversational commerce can significantly improve the online and offline shopping experience.

Implications for grocers

Grocers across the Middle East and North Africa have emerged from the pandemic in solid shape, with the potential to accelerate growth even further. However, growth will depend on their ability to continue building competitive advantage as they navigate the nine trends outlined in this article—and the changing nature of consumer behavior in general—in a still uncertain economic environment. We see three strategic priorities: strengthening assortments while delivering value, leveraging AI across the core, and pursuing new growth opportunities beyond the core, notably through eB2B and retail media networks.

1. Strengthening the assortment while delivering value

Even if market conditions improve, consumers in the MENA region will likely continue to shop for value. At the same time, demand for premium, health, and organic products is growing. To cater to both value-conscious and premium-seeking customers, retailers can leverage AI to optimize and localize their assortments while maintaining simplicity and avoiding a significant rise in cost to serve. To stay competitive in the affordable segment, retailers can consider strengthening their private label offerings within existing assortments because consumers show a growing willingness to purchase private label products with less sensitivity to brand equity. Alternatively, retailers could introduce discount formats under a dedicated banner, focusing on essential daily and frequently purchased products.

2. Leveraging AI across the core

Assortment is not the only area in which AI has a decisive role to play. Based on our interviews with industry experts, retailers can leverage AI to add an estimated one to two percentage points to their EBITDA margins in pricing, promotions, loyalty, and other areas. For example, analytics-based pricing creates significant value through automated price recommendations at the item level. Similarly, grocers can leverage AI to improve loyalty programs and make shopping more personal by tailoring promotions to individual customers based on their unique needs and behaviors.

The tools and algorithms to enable AI are already widely available. But ultimately, people making smart use of technology will be the most critical determinant of success. Retailers in the region can invest in upskilling their people to work effectively with these tools and in the change management required to embed new ways of working and decision making.

3. Growing beyond the core

MENA grocers have two clear opportunities to seek new sources of growth: building and scaling retail media businesses that drive profits, and building eB2B platforms to serve the traditional trade more effectively. Of these, retail media is key.

Grocers have no time to lose in building and scaling a retail media business that generates profits in 2024 and beyond. To go from good to great, companies will need to think creatively and strategically and secure the leadership commitment, skills, and resources needed to develop an effective retail media business and ensure that the unit has the autonomy to be agile when needed. Grocery retailers enjoy a privileged position in today’s media landscape by virtue of their reach and scale. However, remaining relevant to advertisers over time will likely require grocers’ retail media operations to improve their impact measurements and continuously enhance and renew their advertising offerings.

The reach and scale of large grocery retailers also position them well to build competitive eB2B platforms to serve smaller traders, especially in markets where traditional trade dominates. Here, too, retailers need to act early to source new capabilities and secure the necessary leadership and resources to invest in platform and business development.

This is a Middle East and North Africa–specific version of McKinsey’s State of Grocery Retail 2024 report series.