On The Cover: Spinneys CEO’s ‘servant leadership’ strategies beckon a new era of grocery retail in the GCC


August 8, 2022 | By RetailME Bureau

The Frozen Chicken’ as Spinneys was fondly referred to back in the 90s being the only retailer selling frozen chickens from a chiller van has come a long way when it comes to innovation over the last six decades. However, what the retailer has found most rewarding – monetarily and intrinsically–has been the realisation that for the business to flourish, they need invest heavily in all things that make a retailer responsible.

I was waiting in the large Spinneys supermarket in Meydan above which is the retailer’s head office, admiring all the bright colours popping from the fresh fruits and vegetables section, when Sunil Kumar Sekharan, the CEO of the chain, greeted me with a warm, bright smile and said, ‘I am not the most media-savvy person you’ll meet, but let’s try this’.

I had met him once before during the RetailME ICONS event last year, where he was one of the 100 recipients of the honour. Now, Sunil’s journey with Spinneys has proved to be a powerful story of ‘rising rightly through the ranks’. He joined the company 27 years ago as store manager and has taken on multiple roles within the chain until he was appointed CEO in 2019.He has displayed tremendous leadership skills throughout his career, but one fundamental motto that he believes in firmly is that, for a businesss to succeed all stakeholders involved need to benefit. I know, it doesn’t rhyme or might not sound as cool as one of those jargon-filled corporate phrases, but this is something Sunil speaks about and abides by in his own humble way.

However, leading a supermarket chain, which boasts over 65 stores in the UAE and Oman, during a global crisis is no cakewalk. Spinneys’ performance had seen a steady growth with a CAGR of around 13% over the first 15 years since 2000, but started slowing down in the past 5 years. With an estimated market-share of around 7.5% of the UAE’s Hyper/Supermarket business, Spinneys has a high (55%) fresh food business, compared to competitors.

During the pandemic, there were certain categories in retail that emerged as essentials and therefore did better commercially, compared to the non-essential categories. Groceries topped the list of essentials and as a result, Spinneys did see a spike in demand for its products in 2020. Whilst the company was looking at double-digit growth in 2020, the pandemic as an external factor, contributed to a growth in sales from 25% to 45% between March and July 2020.

During this time, Spinneys added close to 183,000 new and unique customers. But these surges came with substantial increases in costs during the first eight weeks of the pandemic, attributed to sanitisation activities, PCR tests, isolation accommodation for affected staff and PPE, etc. Additionally, freight charges were incurred to charter supplies into the UAE, laptops supplied to work from home, and staff transport contracted. The extra operational costs alone added up to almost AED 10 million. Furthermore, the cost of freight increased significantly dropping gross margins of 150 to 225 basis points in just four months of the impact period (i.e. March to July 2020).

“This period taught us many things, especially about the importance of individuals, human behaviour and how important the soft-skill side of our business is. We had to focus on what I like to call the four Cs: compassion, communication, collaboration and competency,” said Sunil.

While the immediate repercussions of the pandemic and the actions businesses took to recover from it might be stale, overdone news, it is important to discuss this as it beckoned a completely new way of doing business for Spinneys and brought Sunil’s ‘servant leadership’ strategies to the fore, which would likely be working long after the pandemic is over. “In addition to the short-term health of the business, we now think about how projects can be sustainable five or 10 years down the line,” he said.

For grocers in the developed and developing markets, growth and profitability has been on a questionable trajectory due to higher costs, falling productivity, and race-to-the-bottom pricing, even before the pandemic. In addition, monumental forces disrupting the industry consistently and rapidly are making retailers rethink their models. A McKinsey & Co report from 2018 stated, “If grocers don’t act, they’ll be letting $200 billion to $700 billion in revenues shift to discount, online, and non-grocery channels and putting at risk more than $1 trillion in earnings before interest and taxes (EBIT). When the dust clears, half of traditional grocery retailers may not be around.”

Changing consumer behaviours, increased competitions, and new technologies seem to be the key factors that have kept grocery retailers on their toes. A combination of a number of key elements aligned with the evolving customer’s requirement would be the only way to survive and thrive. What are these elements, though?

DEFINE – Customer, Community, and Value Proposition

In a world of ambiguity and uncertainty, people are looking for clear definitions. Customers want to know what their brands believe in, what they offer, what demographic they cater to and so on. Therefore, it is important for a retailer to know who exactly their customers are and therefore understand what type of retailer they are. When I asked Sunil if Spinneys could be considered a premium retailer, given its offerings, he denied.

“I don’t want to call us a premium retailer as we also sell products that range between AED1 to AED300. We cater to a certain customer base and our supplychain efficiencies allow us to provide the range of products they need. Every retailer has its own specific character and personality and so does Spinneys. We are good at fresh food offerings and have the know-how of bringing products from the Americas, Europe, and Asia. We understand what our customers want and therefore it may seem like we are offering the high-end product ranges, but it doesn’t mean that we are a premium retailer,” he explained.

However, the vale proposition for Spinneys goes way beyond products and customers. Typically, a supermarket is the middleman between the consumer and the farmers/growers/manufacturers. “We believe that we not only have to create value in terms of the whole customer journey, but, more importantly, we want to nourish our communities to live better lives, day by day. This includes all stakeholders, because only when everyone is engaged and nurtured, will we be successful,” he said.

How is Spinneys ensuring that? The chain has deviced some key initiatives that take care of sustainability holistically, taking into consideration community upliftment, environmental well-being, as well as business longevity. These pillars, so to speak, are:

  1. Farming and producing for the future:

This looks at sourcing and manufacturing to support a transition towards sustainable food systems in the UAE and beyond while working towards the UAE’s National Food Security Strategy 2051.“Our progress to date includes reducing air miles of fresh perishables and supporting local production– 55% of tomatoes are now sourced locally and 40% of our berries are from local suppliers this March. We’re also in year two of our Spinneys Local Business Incubator Programme, which gives local businesses access to the market and supports local production/manufacturing,” he explained.

  1. Eat well, live well:

With the aim of helping communities and customers live healthy, sustainable and active lives, Spinneys has invested in an education programme, free for all schools, families and individuals to access in the UAE today. “Farm to Table is a fun and engaging learning programme, designed for 7-11 year olds to learn the basics of healthy eating, living and responsible consumption. Farm to Table is a partnership between the UAE health authorities, Emirates Schools Establishment, our farmers, producers and growers, and we hope soon to become part of WWF-Emirates Nature ‘Food for Life’ programme,” he said.

  1. No time for waste:

This addresses the climate and waste crises as they’re closely linked (e.g., food waste = 10% global GHG emissions). “We are setting targets to reduce our emissions and to support the shift towards a circular economy in the UAE,” he said. “And we are starting our Food Waste journey by joining the global 10x20x30 food waste coalition, committing to halving our food waste by 2030.”

Its first sustainability concept store in Dubai’s Layan community incorporates all of these aspects and more to offer customers an easy, convenient way to enjoy a healthy lifestyle and to shop more sustainably.

“Our purpose is to nourish the lives of our communities,” he iterated. “I think retailers need to acknowledge that, in order for the ecosystem to be sustainable we need to support the local farmers and manufacturers. One of the ways Spinneys is trying to help is with the establishment of our UAE Farmers’ Club – we’re doing everything we can to make sure our producers’ businesses have longevity by supporting innovation, sourcing fresh local ingredients and securing orders at fixed prices.”

Embrace Technology to Humanise Engagement

The most successful grocers have embraced technology as the primary driver of commercial effectiveness and cost reduction across the value chain. According to another McKinsey & Co report,advanced tech-enabled checkout, talent management, merchandising and replenishment, and store environment maintenance can help the grocery industry create distinctive in-store experiences for customers and reduce costs by as much as 15 to 30 percent. However, the art lies in enabling technology to create enriching experiences without losing the human connection.

While the 4-wall brick-and-mortar operating model for groceries has worked for this vertical of retail, factors such as staffing shortages and rising labour costs, increased stockouts, fluctuating foot traffic and new emerging models have added pressure on traditional retailers globally. While the region is still testing concepts like grab-and-go or extensive food halls, speed and convenience are things that consumers expect from their grocers in this region. Adaption of e-commerce, as Spinneys has realised in the last two years, is no more an option but a necessity.

When asked about why Spinneys delayed its transition into e-commerce, Sunil said, “E-commerce itself is expensive for any retailer as you have to deliver to the customer’s doorstep. In the brick-and-mortar model, the customer comes to us and that last-mile cost is saved. We thought that the UAE customers wouldn’t demand that compared to western customers. But Covid-19 pushed us to do it.”

The next step for Spinneys in order to ensure the delivery of speed and convenience its customers demand is Q-commerce, rapid deliveries, and hyper-local deliveries. “I have to laugh whenever I think of this. Because nothing has really changed in terms of a need for and a solution to fast, home ‘delivery’ since I was a child. Growing up in India, street vendors would sell products in front of my house – they’d bring the store to the door. More than 25 years ago, I could telephone any of the baqalas around my apartment building in Dubai and within five minutes, my groceries would arrive,” recalls Sunil.

“I am baffled how, globally, we all spend so much time and investment into developing e-commerce these days when effective solutions for essentially the same offering has existed for years.”

Sunil aims at taking inspiration from these traditional, old-school approaches in order to nail their Q-commerce strategies, which is still in the works.

Take-out and Grocerant

For a long time now, grocery stores have been the place where people go for their ‘value meals’. There are several models for food-service execution, including having a full-service restaurant next to the supermarket, dedicating a section of the store to ready-made meals or in-store dining, operating a “food hall” that has restaurants as well as retail shelves, and introducing store-in-store concepts that focus on niche foods.

Apart from its usual array of salad and meals, Spinneys recently introduced its new value-for-money deals to satisfy the growing demand for affordable and high-quality food options, as high inflation increases pressure on household budgets.The ‘meal deals’ cater to individual food preferences, including vegan and gluten-free dietary requirements.

“The ‘Grocerant’ is another way of answering a need for immediate gratification. It’s a great opportunity to offer customers the option to sit down and enjoy a meal, should they not feel like picking up a hot or cold dish from the deli for takeaway. We have indeed embraced this trend and opened our Spinneys Café in our Meydan store last year. The plan is to integrate cafés into more of our stores in the future, too,” he said.

Expand and Conquer

Retailers must make big bets and pick their battlegrounds strategically. For a grocery retailer, it tends to be even more important to define their territories and expand to acquire a strong foothold, while also catering to individual communities.

Although Spinneys has been around for over 60 years, it hasn’t been as quick in its expansion in the region compared to many other hyper/supermarkets operating at its scale. While it has established its very clear mark in the UAE and Oman, Spinneys is now expanding into Saudi Arabia.

“With 34 million people, Saudi is a big market and I have been contemplating about entering the market. In fact, I’ve been wanting to enter Saudi since 2019-2020, but since Covid-19 happened it got pushed,” Sunil responded.

Spinneys has partnered with Abdulmohsen Al Hokair Holding Group to open the first Spinneys store in Riyadh in the first quarter of 2023. “If I want to be a prominent retailer of the Middle East, I can’t just be in the UAE and Oman, I need to be in Saudi as well. Our intention is to expand further in the Middle East, to Qatar, Kuwait etc. Within 5 to 10 years, we will be in all Arab countries,” he said.

Despite being late adapters of e-commerce, cautious expanders, and being faced with inflationary challenges, Spinneys has emerged as a success story when it comes to maintaining positive cashflow, retaining staff, growing market share, remaining competitive, and coming up with innovative and creative ways of maintaining the business as an entity.

Responding to this, Sunil says, “While I believe that technology creates efficiency, too much of it can cause boredom. I am mindful of this and deliberately conscious of the fact that Spinneys is, and needs to remain, a service-oriented business, where human interaction is a crucial part of our brand identity.”

“At Spinneys – our culture, which is to champion mutual respect, is the foundation of everything we do. I even have a saying on my wall ‘A culture is the DNA of an organisation, it’s the ONLY things a company has that cannot be copied or stolen by anyone.’

“A reputation can be built from company’s culture and purpose. It takes a long time to build this, and a second to lose it. To help instill these values and gain buy in from colleagues, the leadership team needs to ‘walk the talk’,” he concluded.

 

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