With a wider range of shopping options in the Saudi market, competition in retail has expanded beyond major supermarket chains such as Panda, Carrefour, Lulu, and Othaim to include discount retailers such as Q Market, Deal, and economy stores. As these retailers focus on offering products at low prices, a puzzling question arises: If these stores sell products so cheaply, how do they make a profit? And who benefits most from this competition?

Competition Is About More Than Store Size

Retailers compete to attract customers through prices, promotions, and product variety, but each has a different business model. Large chains typically offer a wide range of products and shopping options, while discount retailers target consumers looking for affordable prices on everyday purchases.

With multiple options available to consumers, retailers seek to strengthen their competitiveness and retain customers, whether by lowering prices, improving promotions, or stocking products that are in high demand. Competition is therefore not limited to similar retailers; each one is also vying for a share of consumer spending.

How Do They Make Money If Prices Are So Low?

Selling products at low prices may seem to limit a retailer’s ability to make a profit, but it depends on how the business is run. Rather than relying on a high profit margin on each product, a retailer can make a profit by selling large quantities, buying products at lower cost, and reducing operating expenses.

For example, if a retailer makes one riyal on the sale of a single unit and sells ten thousand units, its total profit from those sales would be ten thousand riyals before operating expenses. This illustrates how sales volume can make up for a low profit margin per product.

Bulk purchasing and negotiating with suppliers can also help lower the cost per unit, giving a retailer the opportunity to offer competitive prices while maintaining a profit margin. Efficient inventory management and selling products quickly can also reduce storage costs and improve the use of capital.

However, low prices do not necessarily mean that all these retailers follow the same strategies. Their business models, costs, and sources of profit vary, and their success cannot be assessed without actual financial and operational data.

The Price War: An Opportunity for Consumers

When discount retailers compete with major chains to attract customers, consumers may find better opportunities to get what they need at a lower cost. Having multiple alternatives gives them more room to compare and choose, and may prompt retailers to offer more attractive deals to stay competitive.

However, a lower price does not always mean a product is the best choice. Products vary in quality and package size, and prices may change depending on promotions and timing. Comparing the unit price and product quality helps consumers understand the true value of what they are paying for.

Who Wins the Price War?

For retailers, success depends on more than simply offering the lowest price; it also depends on attracting customers while managing costs and maintaining profitability. A retailer may succeed in drawing large numbers of customers with low prices, but it needs sufficient sales and operational efficiency to cover its expenses and stay in the market.

Consumers may benefit from this competition when it leads to better prices and a wider range of choices, particularly if they can compare products and choose what suits their needs and budget.

Ultimately, the price war is not just about which retailer sells at the lowest price. It is about retailers’ ability to balance price, cost, and profitability. A retailer needs a sustainable business model to stay in business, and consumers benefit when competition delivers real value for what they pay.

Disclaimer: This material was prepared under the supervision of an editor at “Yamamah Insights” with the assistance of artificial intelligence tools for financial education purposes. It is not a recommendation to buy, sell, or hold any security, and it reflects the views of its authors, not those of the platform.