Investment opportunities in the Saudi logistics sector
This week, I will be ending the series of articles on Saudi Arabia’s logistics sector by tackling the distribution pillar and how it has evolved through time.
In today’s complex distribution channel structure, with sales coming through direct mail, inbound and outbound phone, websites, retailers and even apps, companies more than ever need a sophisticated approach to how they sell. Miss a channel and you could leave money on the table. In fact, more than 25 percent of middle market companies identify new channels and market customer acquisition as their top source of growth.
But there is a problem with running a multiple distribution channel structure: Conflicts. The tension between manufacturers and their wholesalers/retailers is growing.
These conflicts have radically escalated because of e-commerce. Suddenly, an internet-based infrastructure and order-processing system could allow companies to handle even small orders. Not only did conflict in B2B relationships grow, but manufacturers in a B2C space could sell directly, bypassing the long-established distribution and retail structures.
Every partner in the retail distribution channel — from manufacturer to distributor to retailer — has expectations about returns on investment. And while many players may hesitate to make a change from a legacy distribution model for fear of compromising the needs of other stakeholders, it is time to put those worries aside and develop a “win-win-win” distribution model.
Therefore, companies should accommodate the concerns and actions of distribution channels while also promoting their own direct sales channels, by using pricing smartly and unique channel strategies.
Moreover, getting products to retailers faster is a key competitive advantage for top-line growth. Hence, companies find dual distribution channel strategies — direct and through chains of partners — to be a useful approach. The dual structure lets them bridge the gap between small operations that rely on third-party distribution, because they do not have resources to support extensive direct sales, and large organizations that have strong control over channels.
On the other hand, for an e-commerce seller becoming a “best fit” for local markets (by leveraging global expertise) and attaining a deeper understanding of market dynamics (by establishing a local presence) are the key success factors and competitive differentiators for e-commerce in Saudi Arabia. E-commerce players operating in the country have strong geographic expansion and financial growth plans; for instance, they are considering expanding their digital operations teams and complementing their capabilities by establishing partnerships with local distributors and logistics providers to ensure their products can be delivered efficiently.
I do believe that strong demand is anticipated for full-fledged integrated distribution centers in Saudi Arabia that include logistics’ facilities, different types of storage and supporting retail facilities.
Basil M.K. Al-Ghalayini is the Chairman and CEO of BMG Financial Group.