At first glance, the picture may seem illogical: a new store sells certain goods at prices that are difficult for consumers to understand, while older and larger retailers—with dozens or hundreds of branches and decades of experience—face pressure on profits or reconsider the format of their stores.

So how can a store cut prices so drastically and still survive? And if scale gives traditional companies enormous negotiating power, why are smaller or newer models emerging that can disrupt the market?

The answer begins with a common misunderstanding of retail: a store does not make money from price alone, but from an entire economic system operating behind the shelf.

In Saudi Arabia, the experience of stores such as “Q,” alongside the emergence of “Deal” and other discount-store models, offers a window into a broader transformation in the retail market: competition is no longer simply about who owns the largest store or the most branches, but about who can move goods faster, reduce waste, buy products at better prices, and operate every square meter, employee, and riyal of inventory more efficiently.

The Wrong Question: How Much Does the Store Make on Each Item?

In an episode of the “Petroly” podcast, Mohammed Omar, founder of “Q,” explains his reasoning directly. He says that, as he describes it, the company does not rely on selling some products at a loss to make up for them with other products. Instead, it reduces its profit margin to a low level, then relies on selling larger quantities, accelerating inventory turnover, reducing waste, and using data to determine what to buy, when to buy it, and in what quantities.

He says the technology system monitors product movement, seasons, and inventory levels, allowing the company to reduce or discontinue slow-moving items and increase purchases of fast-moving products. This information represents the founder’s description of his company’s model, not audited financial data published for the public, a distinction that is essential when evaluating the experience.

To understand the logic, imagine two stores, each with 100 riyals to invest in a product.

The first earns a margin of 20 riyals each time it sells the product, but can turn over this inventory five times a year. The second earns only five riyals per cycle, but reuses the same capital 30 times.

In this illustrative example, the first generates 100 riyals in total margins, while the second generates 150 riyals, even though its profit per item is four times lower.

This is where the concept of inventory turnover comes in: the speed at which a store sells its inventory and replaces it with new stock. The faster money returns from the shelf to the cash register, the sooner it can be put to work again.

That is why the more important question in discount retail may not be, “How much did I earn on this can?” but rather: How many times was I able to put the riyal I spent on this can to work?

A Low-Cost Store May Be More of an Operating Machine Than a Store

This idea is global.

U.S. company Costco officially describes its business model in almost the same terms: a relatively limited assortment, low prices, bulk purchasing, more efficient distribution, less handling, and fast-moving inventory. The company says that bringing these factors together allows it to operate with gross margins far lower than those of many retailers.

In 2025, Costco generated approximately $269.9 billion in sales, while its gross margin was only about 11.1%. The company, of course, also has an important source of revenue that is not available to most Saudi discount stores: it generated approximately $5.3 billion in membership fees that same year. Costco is therefore not an exact replica of “Q,” but it offers an important economic lesson: a low margin does not mean low profitability when scale, turnover, and efficiency are high.

Aldi, one of the world’s best-known discount models, has taken a different route to reducing costs. More than 90% of the products in its U.S. stores carry exclusive Aldi brands, reducing reliance on national brands and their associated marketing costs while giving the company greater control over the value chain. The company also deliberately simplifies its operations; employees do not even bag customers’ purchases, as part of a philosophy centered on eliminating any cost that does not add value from the consumer’s perspective.

This makes the rule clear: low prices do not begin with the price tag. They begin much earlier—with the supplier contract, the warehouse, the number of products, the order size, the display method, and the number of times a product is handled before reaching the customer.

“Profit Is Made When You Buy”... But How Does a Store Get a Better Price?

In the same episode, the founder of “Q” sums up one of the oldest rules of commerce by saying that “a merchant’s profit is made when he buys.” He points out that purchasing volume and the speed at which products move give a store greater negotiating power with suppliers.

This point also helps explain the other side of traditional supermarket economics.

The prospectus for BinDawood Holding submitted to the Capital Market Authority reveals that the financial relationship between a retail chain and its suppliers is more complex than simply “give me the goods and I’ll pay you.” Some supplier contracts include discounts in exchange for display and shelf space, incentives tied to sales volumes, and contributions to in-store promotional activities. In some cases, contracts may also allow the return of damaged or expired goods or excess inventory.

This matters because it corrects a common narrative that traditional stores “profit from suppliers,” while discount stores do not. The reality is more complex: each model seeks to extract efficiency and negotiating power in a different way.

A large chain can tell a supplier: I have hundreds of branches and millions of visits.

A fast-growing discount store, meanwhile, can say: I have a product that moves quickly, and I can buy a huge quantity, pay for it, and reorder faster.

In both cases, the real power lies not in the store’s size alone, but in the value the store can offer the supplier in exchange for a better price.

Why Do Discount Stores Frighten Competitors?

Because they change the price consumers consider “normal.”

If a customer is used to buying an item for 20 riyals and then repeatedly sees it for 15 riyals at another store, the problem does not end with that item. The customer also begins reassessing the prices of the rest of the shopping basket.

This effect is not merely anecdotal. A study published in Review of Industrial Organization analyzed the entry of the hard-discount store format into several U.S. grocery markets and found that its entry reduced the margins of incumbent stores in affected areas by approximately 7.3% compared with markets that did not experience the same entry. This percentage does not mean that the same effect occurred or will occur in Saudi Arabia; the markets are different. But it provides empirical evidence of the economic mechanism: a low-price competitor does not need to take over the market to affect it; sometimes it is enough to force others to cut their margins.

This is what makes the battle for the “basket” more dangerous than competition over a single product.

Consumers do not usually go to the supermarket to buy one can. They buy rice, oil, milk, detergents, vegetables, and dozens of other products in a single visit. The real battle therefore becomes: How much did you pay at the checkout in the end?

This is the same idea with which “Deal” entered the Saudi market, centered on the message of offering “a bigger basket at a better price,” reflecting a shift in competition from showcasing a discount on a particular item to shaping consumers’ perception of the cost of their entire basket.

Al Othaim: Are Discount Stores Behind the Losses?

This is where we must be careful not to jump to an easy conclusion.

Abdullah Al Othaim Markets announced revenue of 11.09 billion riyals in 2025, an increase of approximately 3% from the previous year. But operating profit fell 19.5% to around 361 million riyals, while net profit declined 51% to approximately 250 million riyals.

These figures tell us something important: higher sales do not guarantee higher profits.

A store may sell more, but spend more to generate those sales or accept a lower margin. This is precisely the kind of pressure that makes price competition painful in the retail sector.

But the picture became more severe in the second quarter of 2026, when Al Othaim announced a net loss of 107.13 million riyals, compared with a profit of 41.14 million riyals in the same period of the previous year. Gross profit also fell by approximately 22%.

Can we simply say that “Q and discount stores pushed Al Othaim into the red”?

No.

Al Othaim’s own disclosure identifies clear operational causes, foremost among them the challenges of implementing an ERP system, or enterprise resource planning system—the system that connects inventory, purchasing, sales, and operations across the company. The company explained that the problems affected the supply chain, automated inventory replenishment, and product availability, contributing to an increase in the provision for commercial inventory expenses to 107 million riyals in the second quarter alone, compared with 22 million riyals in the corresponding period of 2025.

It also pointed to lower sales and rising e-commerce costs, which put pressure on profit margins.

Competition is therefore part of the environment, but it is not a sufficient explanation for the loss.

This is a fundamental point in economics: a company may face competitive pressure from outside and operational dysfunction from within at the same time. Confusing the two makes for an appealing story, but not an accurate analysis.

Al Sadhan Has Not “Disappeared”... It Has Changed the Store Format

The Al Sadhan story offers a different lesson.

In an extended interview this year, CEO Badr Al Sadhan discussed the decision to close 28 branches and shift from large stores to a smaller, more flexible model. An important paradox emerges from the same discussion: the problem is not that Saudis have stopped buying food, but that the way they want to buy it is changing.

Al Sadhan says it is now moving toward the SPAR Express model. According to information published by the company, it had 17 operating express stores, 17 under construction, and six sites under consideration, with a target of more than 40 stores by the end of 2026.

In other words, what is happening is not so much “the death of Al Sadhan” as it is a decline in the viability of a particular store format.

A store spanning thousands of square meters offers enormous variety, but it also comes with higher rent, energy, labor, inventory, and working-capital costs. If consumers can order bulky necessities through an app and buy quick essentials from a nearby store, the value of a huge hypermarket needs to be demonstrated anew.

In this reading, Al Sadhan is not leaving the market; it is trying to change the answer to the question: What is the right store size in an era of delivery, proximity, and quick shopping?

Technology Is Not an Add-On... It Is Part of the Price

Perhaps the most telling aspect of the “Q” experience is that its founder does not present the company merely as a store, but as a business that relies heavily on data and systems.

According to his comments, the company uses systems that determine minimum and maximum inventory levels and generate purchase orders based on product movement and seasons, in addition to an in-house technology team. Again, this information comes from the company itself and is not independently audited data, but it reveals how the new retail model thinks.

The paradox is that Al Othaim’s case proves the point from the opposite direction.

If the system works well, it can reduce stagnant inventory, product shortages, and waste. If its cycle breaks down, the same malfunction can move from the computer screen to the warehouse, then to the shelf, and finally to the income statement.

That is why technology is no longer merely the “IT department” behind supermarket retail. It has become part of the economics of the can sitting on the shelf.

Who Will Win the Saudi Supermarket Battle?

The answer will not necessarily be “whoever has the lowest price.”

A price below cost without operational efficiency is not a business model; it is simply a faster way to consume capital.

Conversely, an established brand and a large number of branches do not guarantee protection if the cost of serving customers becomes too high or their habits change.

In the long term, the winner will likely be whoever achieves the most difficult equation: better purchasing, faster inventory turnover, less waste, lower operating costs, an attractive basket, and an experience suited to consumers, with a margin sufficient to keep the company running and finance its expansion.

This is where the paradox that explains the entire discount-store phenomenon emerges:

The consumer sees the price.

Behind that price, however, lies a battle over square meters, cartons, warehouses, data, suppliers, the time a product remains on the shelf, and the riyal that must return to the cash register as quickly as possible.

That is why the question that will determine the future of “Q,” “Deal,” and discount stores is not whether they can offer an astonishing deal this week.

The harder question is: Can they turn that astonishing price into a sustainable business model once they have dozens of branches, thousands of employees, and billions of riyals in sales?

Only then will we know whether we are witnessing another wave of promotions or a rewriting of the rules of Saudi retail.