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| 07 December, 2017

Online groceries' apps are costly and unprofitable - Spinneys Dubai CEO

Online shopping

Image used for illustrative purpose only

Online shopping Image used for illustrative purpose only

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Creating and running an app could cost $3.5mln, says outgoing boss Jannie Holtzhausen

Online apps selling groceries and fresh food items are neither financially profitable nor logistically sustainable, the outgoing chief executive officer (CEO) of the United Arab Emirates’ Spinneys Dubai LLC supermarket chain Jannie Holtzhausen said.

There are a growing number of independent online apps that offer grocery sales and delivery in the UAE. However, Holtzhausen said that most of those apps are founded and run by smaller business groups and cannot easily be scaled up or generate huge amounts of profit.

“Providing an app for food retail is very complex because we sell thousands of fresh food items everyday... You have to keep that app updated on an ongoing basis, so you have to have [a] huge team of people in the background to manage that,” Holtzhausen told Zawya in an interview on the sidelines of a media roundtable event in Dubai on Wednesday.

The roundtable event was held to introduce the company’s new CEO Matthew Frost, a former executive of the Waitrose supermarket chain in the United Kingdom, who will assume his new role next January. Spinneys Dubai is owned by Albwardy Investment, a group that runs a number of businesses in food, distribution, and retail, among others. The company operates 51 supermarkets and convenience stores, along with several other retail outlets, across the UAE, according its official website.

Holtzhausen said the profit margin his supermarket makes on 500 dirhams ($136.14) worth of groceries is around 50 dirhams, which is not enough to encourage his company to invest in an app, he said, as the cost of creating and hiring a team to run it could amount to around $3.5 million.

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“It is not only a matter of money, there are logistics issues too. I will need to transfer something like three full boxes (of grocery products) and manage the temperature they have to be kept in (during the transportation time)”. He said that adding that such steps makes the process very hard to manage on a daily basis.

“For us the apps are expensive, the back room that I have to maintain to make it possible for you when you order something today that I actually have it in stock today is also expensive,” he added.

During the roundtable discussion, when asked if Spinneys Dubai would consider partnering with any of the currently established e-commerce apps in the UAE, such as Amazon or Noon.com in the future, Holtzhausen said: “it is a possibility”. Frost added: “Everything is on the table”.

E-commerce is growing at an impressive rate in the UAE and the overall Gulf Cooperation Council countries, experts say, driven by the region’s mainly young and tech-savvy population. The GCC’s e-commerce market is expected to grow to $20 billion by 2020, according to a 2016 report by global consultancy firm A.T. Kearney.

“Anything that comes to us that makes logical and financial sense, we will pursue that,” Holtzhausen told Zawya during the interview.

“It has to add value to both companies and to our customers,” he added.

The popular supermarket chain will open six or seven new stores in the UAE next year, including one in Sharjah in March 2018, Andre Viljoen, the company’s property manager told Zawya on Wednesday on the sidelines of the roundtable event. Viljoen also said that Spinneys is looking into launching a new branch in the emirate of Ajman.

(Reporting by Yasmine Saleh; Editing by Michael Fahy)

(yasmine.saleh@thomsonreuters.com)

© ZAWYA 2017