A research led by Think with Google, found that millennials are very much concerned about their health. If they’re going to live longer, they want to have healthier days. Thus, they are interested in expanding their knowledge about their food choices and the meals they are consuming, which is also altering their shopping behavior. If ecommerce is an ever-growing trend, buying healthy food and groceries online, is also kicking off. The GCC, and specifically Saudi Arabia, is no stranger to this trend. But how would a country known for its high obesity rates seize this health-driven tendency?
The Saudi groceries delivery market is a very dynamic one with a high number of competing platforms. In 2016, this industry was valued at no less than $115 million by Payfort.
Todoorstep, Nana Direct, Danube, and Careeb, are some of the numerous platforms that offer convenience shopping in the Kingdom. This ‘somewhat’ maturity, is driving players towards becoming more niche and category-oriented, which is unleashing new opportunities in this segment.
According to ‘Opportunities in the GCC food landscape: Strategies for success’, a study lead by Strategy &, as incomes rise, consumers tend to become more sophisticated and alter their food consumption behaviors and habits, towards healthier variants. The study shows that healthy and premium products are getting trendier, and are appealing to a broader audience in the GCC, and specifically in the KSA. They shift their purchases toward more value-added products: Fresh milk replaces powdered one, and fresh juice and smoothies replace concentrated juices.
Such trends are impacting the groceries market and are triggering the emergence of niche e-grocery stores selling delicatessen and fine products. Backed by a high mobile penetration rate (almost 140 percent) and a 77 percent internet penetration rate, the market seems to be promising.
This startup is in the loop
Mezmiz, a Saudi e-grocery online shopping platform was launched in January 2017. It was cofounded by Ziad Abdulaal and Nicholas Safford, both former investment experts at Saudi Aramco. Unlike regular e-stores, it specializes in healthy and fresh products.
Residents of the region themselves, they noticed that consumers in Saudi Arabia and the GCC lack a convenient way to access competitively priced, healthy grocery products. This is coupled with the region’s high obesity rates, and heart disease. Figures published by the World Health Organization (WHO) show that almost 70 percent of the Saudi adults are overweight, and obesity rates reach 35 percent. These high weight indicators, along with very high physical inactivity (almost 59 percent), are also associated with high rates of chronic diseases, mainly diabetes, which reach 14 percent in the Kingdom: Sedentary lifestyles, compounded by few healthy dining options, limited access to healthy foods in physical stores, and less time to shop overall, are all causing factors. In addition, prices for these foods have remained high because of underdeveloped supply chains, Abdulaal said. To address the issue, Mezmiz offers access to affordable healthy products, along with the educational resources on the startup’s blog to use them well.
The platform allows consumers to shop and filter by over 75 values such as organic, vegan, gluten free, etcetera. They can order online 24/7, and orders are delivered to their doorsteps.
He explained Saudis are becoming more educated on the importance of quality nutrition. “We envisage to broaden our niche to more types of groceries once we capture a larger share of the market to further increase our customer base.”
Though he did not disclose the exact number of their customers, he revealed that their order volume has grown by 275 percent from Q3 2017 to Q4 2017. The startup’s current target market is the top 10 percent of Saudis, who according to Abdulaal, have the purchasing power, and are the most educated. “We’re aiming to have 100,000 active customers by 2022, and we believe it is easily achievable considering the population size of our markets.”Catering to a growing market
Besides the market readiness, several facts drove the founders to establish their venture in Saudi Arabia. Abdulaal said that their Service Available Market (SAM) comprises the GCC grocery retail market, which is projected to reach SAR 700 billion (US $186 billion) by 2022. This includes brick and mortar retail. Mezmiz’ Serviceable Obtainable Market (SOM) is the GCC health and wellness grocery retail market which is projected to reach $18 billion by 2022, also including brick and mortar. “We are servicing this market via our online retail platforms and are first movers in this regard. When you look at online retail, the GCC has been called the world’s fastest-growing ecommerce playground. Online retail in the GCC is set to see massive growth to $44 billion by 2022. This growth will be driven by Saudi Arabia (43 percent CAGR), which will overtake UAE by then and become 48 percent of the market. From all angles, then, KSA is where companies want to be, and Mezmiz is a first mover in our chosen niche of online retail for healthy living,” he said.
For them, they are mainly competing with traditional grocers who have already started seizing this opportunity, and are leveraging their physical presence and move into online retail. “One of our key differentiators will be how we build relationships with consumers. We plan to earn their trust – and repeat business – by offering them highly valuable content on our blog and social media channels in addition to our other value propositions.”
Searching for funding
Though he did not mention the founding investment, Abdulaal revealed that they are currently inviting select investors to participate in a $2 million seed round. The funds will be used to build the internal team, marketing, working capital, and mobile application development. “We have not raised outside capital to-date, but external investment in Mezmiz is both timely and necessary.”
Asking him if they are profitable, Abdulaal did not confirm nor deny, but he said that “in ecommerce, there is a trade-off between speed of growth and profitability. In the mid-term, Mezmiz is focused on capturing market share, maximizing sales growth, and achieving scale. During this period, we will be controlling our growth and managing costs as much as possible—with the goal of taking the business into profitability at the right time.”
Speaking about challenges, Abdulaal said that they are similar to those any Saudi startup faces. These could be summed up in startup incorporation and the lengthy licensing process which is bureaucratic, and slow, and obliges startups to incur operating expenses while waiting on government approval to move forward. Also, specific talents are scarce in the country and they’re hard to source in foreign markets due to difficulties when it comes to obtaining visas. Underdeveloped and distributor-led supply chains for healthy goods create high markups over Manufacturer’s Suggested Retail Price (MSRP). Also, logistics companies do not work on Fridays and do not provide cold-chain logistics. Delivery times are also slowed because the government prevents them from driving on highways from 12am-4am as he explained. Also, ‘cash on delivery’ is a regional phenomenon that allows customers to reject the order when delivered. “It’s a customer trust issue with paying online and may also be due to not everyone having credit cards. These order returns are particularly challenging as the company is out shipping for unaccepted orders,” he explained.
Shopping habits are changing, and niche online grocery services are not only preaching convenience and ease to shop, but pitching select quality, which are two distinctive characteristics among nowadays’ consumers.