Grocery major Spinneys ready for IPO

One of UAE’s leading fresh food retailers, Spinneys has announced its intention to proceed with an initial public offering (IPO) and list its ordinary shares for trading on the Dubai Financial Market (DFM).

Ahead of the IPO announcement, Spinneys was re-registered to a public company limited by shares on March 29, 2024 from Spinneys 1961 Holding plc which was incorporated as a private limited company pursuant to DIFC Law No. 5 of 2018.

Commenting on the IPO, Ali Saeed Juma Albwardy, Founder and Chairman of Spinneys, stated, “Having begun our story in Dubai in the early 1960s, we are proud to be taking another significant step in our journey. Spinneys is a long-standing brand with a strong heritage in the UAE and a commitment to quality, evolving over the decades to become one of the country’s leading premium fresh-focused food retailers. Ours is a brand with huge ambition, positioned to flourish in the GCC’s most attractive and fast-growing markets. Our IPO represents an opportunity for investors to be part of our next stage of growth and we are excited to embark on a new chapter, bringing our fresh opportunity to a wider shareholder base.”

Before getting into the IPO piece, here’s a quick look at how Spinneys has evolved its brand positioning, while building a formidable presence in the UAE. A lesser known, and perhaps a fun fact, is that at the time of launch in Dubai, Spinneys was locally known as ‘The Frozen Chicken’ brand – the only retailer to sell frozen chickens from a chiller van. Over the decades the brand has evolved significantly, building a solid reputation for offering high quality and fresh products, operational excellence and active community engagement.

“Over the years, we have expanded our business to operate one of the leading premium brands across 75 locations in the UAE and Oman, focused on high-quality fresh food and exceptional customer service. Spinneys has a presence in some of the most vibrant, fast-growing and resilient countries in the region and we aim to continue to capitalise on supportive macroeconomic tailwinds. We have a proven track record for growth, driven by the expansion of our store network, increasing online penetration, a growing private label offering and a vertically integrated supply chain, resulting in robust financial performance with a track record of like-for-like growth and strong margins. We have much to be excited about this year as we celebrate the 100^th anniversary of the Spinneys brand in the region, with plans to enter the thriving Saudi market, where we see immense potential for our business. As our group grows, our purpose remains unchanged: to nourish and inspire our communities to live better lives, day-by-day,” said Sunil Kumar, Chief Executive Officer of Spinneys.

Spinneys at a Glance

• 1961: Owned by Ali Albwardy, Spinneys started its journey in Dubai.
• 1962: Opened first supermarket in Al Nasr Square.
• 2023: Launched its own e-commerce platform, including proprietary online platforms and apps for both Spinneys and Waitrose, as well as selling through aggregators including InstaShop, NowNow, Talabat and Deliveroo. Opened the region’s first holistic wellness in-store concept in collaboration with Aster Pharmacy.
• 2024: Expand into the Kingdom of Saudi Arabia. In addition, Spinneys will introduce both ‘The Kitchen, by Spinneys’, an innovative new dining concept, and ‘Spinneys Swift’, a hyperlocal e-commerce platform this year.
• Current Retail Footprint: Operates 75 premium grocery retail supermarkets under the Spinneys, Waitrose and Al Fair brands in the UAE and Oman, coupled with expansion plans across Saudi Arabia.
• Market share: Spinneys commanded a 27% share of its target market in Dubai and 12% share of its AED23-billion target market in the UAE in 2022.
• Product range: Spinneys offers an extensive range of products, with an average of 55,828 stock keeping units in 2023, of which on average more than half were fresh food products. In addition to its relationships with strategic key suppliers, the company produces its own high-quality private label offerings under the SpinneysFOOD, SpinneysHOME, SpinneysWELLNESS and Fine Food brands, and stocks Waitrose private label products.
• Spinneys’ food security initiatives:
  • The ‘Spinneys Farmers’ Club’, which consists of a select group of local growers who work together closely to help develop and follow sustainable farming practices.
  • In 2020, it launched the ‘Local Business Incubator’ programme, which reaffirms Spinneys’ commitment to nurturing UAE-based entrepreneurs, enhancing local production and investing in the success of home-grown ventures.
  • The ‘Farm to Table’ programme educates children aged 7-10 years on how food is produced both locally and internationally, and how to maintain a balanced and sustainable diet.
• Sustainability strategy: Spinneys aims to reach Net Zero operational emissions by 2040.

Robust financials supporting Spinneys’ growth strategy

For starters, in 2023 Spinneys’ revenue grew to AED2.87 billion, at a CAGR of 8.2% from 2019, driven by increasing online penetration, increasing private label penetration, successful navigation of inflation through strategic pricing and an expanding store footprint in the UAE. Spinneys’ gross profit margin grew from 40.2% in 2021 to reach 42%. Profit for the year 2023 stood at AED254 million, having grown by 18.7% from 2022.

Looking ahead, realisation of the Group’s growth potential would be enabled by strategic drivers including: (i) like-for-like growth; (ii) UAE whitespace; (iii) Saudi whitespace; (iv) The Kitchen, by Spinneys concept launch; and (v) operational efficiencies. Spinneys has identified key grocery market and Group-specific drivers of like-for-like growth, including a projected 3.9% CAGR in the UAE grocery market from 2022 to 2028. In addition, supporting factors include the robust growth potential of the UAE foodservice market projected to grow at a CAGR of 6.8% from AED29 billion in 2022, to reach AED43 billion by 2028, and the Saudi grocery market projected to grow at 4.8% CAGR across the same period.

Meanwhile, Spinneys plans to commission a new production facility in 2027 in the Dubai Food Tech Valley, in line with the UAE’s National Food Security Strategy, combining the capabilities of its two existing production facilities and growing the share of own-produced SKUs by entering new categories. The company also aims to increase private label participation with improved sourcing and increase self-sufficiency with plans to invest in sourcing capabilities in Europe. 

Key Financial Highlights

Over to IPO: What we know, so far

The company has recently announced its intention to proceed with an IPO, listing its ordinary shares for trading on the DFM. Some key highlights of the IPO include:

• 900,000,000 shares each with a nominal value of AED0.01 will be made available in the offering, representing 25% of the company’s total issued share capital.
• All shares to be offered are existing shares held by Al Seer Group LLC as the selling shareholder (the “Selling Shareholder”) who reserves the right to amend the size of the offering at any time prior to the end of the subscription period at its sole discretion, subject to applicable laws and the approval of the Securities & Commodities Authority (the “SCA”).
• The offering will be made available to UAE retail investors and other investors as part of the UAE Retail Offering or First Tranche (as defined below) as well as to Professional Investors outside the US, including the UAE, as part of the Qualified Investor Offering or Second Tranche (as defined below).
• The subscription period will open on Tuesday, April 23, 2024 and end on Monday, April 29, 2024 for UAE Retail Investors and on Tuesday, April 30, 2024 for Professional Investors.
• The offer price will be determined through a book building process.
• Admission of shares to trading on DFM (“Admission”) is expected to take place in May 2024.

More on the capital structure and dividend policy

The share capital of the company, as at the date of the listing, has been set at AED36,000,000 divided into 3,600,000,000 shares paid-in-full, with the nominal value of each share being AED0.01.

Following the offering, and starting from the fiscal year 2024, the company intends to pay dividends on a semi-annual basis in April and October of each year, with the first payment targeted for October 2024, in respect of H1 2024.

For the fiscal year 2024 and the years thereafter, the company will endeavour to maintain a dividend pay-out ratio of 70% of annual distributable profits, after tax.

The dividend policy is designed to reflect the company’s expectation of cash flows and expected long-term earnings potential, while allowing Spinneys to retain sufficient capital to fund ongoing operating requirements and continued investment for long-term growth.

 The dividend policy is subject to consideration by the Board of Directors in relation to the cash management requirements of the company’s business for operating expenses, and anticipated capital expenditures and investments. In addition, the company expects that the Board will also consider market conditions, the then current operating environment, and the Board’s outlook for business and growth opportunities.

Factors fuelling long-term growth

In summation, here are some factors likely to drive long-term growth for Spinneys.

Demand for premium food products:

• Spinneys is well-positioned to capitalise on the robust economic landscape of the UAE, where the economy is expected to grow at a CAGR of 3.4% from 2022 to 2028, with high average disposable income per capita, expected to grow at a CAGR of 2.3% over the same period.
• While the UAE’s population is projected to grow at a CAGR of 0.7% from 2022 to 2028, the affluent population in the UAE is projected to grow faster, at a CAGR of 4.3% from 2022 to 2028, driving sustained demand for premium food in the UAE.
• The Group is planning to expand into Saudi Arabia in 2024, the GCC’s largest economy, where the economy is expected to grow at a CAGR of 3.2% from 2022 to 2028, with projected growth of affluent population CAGR of 6.4% over the same period. Spinneys will focus on store openings in Jeddah and Riyadh, the Kingdom’s most populous cities. 
• Spinneys’ target market of affluent shoppers in the grocery retail segment is outpacing overall grocery market growth and is projected to grow at a CAGR of 4.4% from 2022-28 in the UAE and a CAGR of 6.7% in the Saudi cities of Riyadh and Jeddah.   

Extensive fresh food range:

• The Spinneys value proposition emphasises exceptional customer service as well as high-quality fresh products, with an average of more than 50% of SKUs in 2023 relating to food. 
• The Company’s exclusive private labels, SpinneysFOOD, SpinneysHOME, SpinneysWELLNESS and Fine Food, as well as its exclusive rights to sell Waitrose private label products, are a significant competitive advantage. On average, more than 7,200 SKUs were sold by Spinneys under its own private label and the Waitrose private label in 2023. Spinneys private label products are targeted to be at least 10% cheaper for customers than branded alternatives, and in some cases are as much as 60% cheaper.  
• In 2023, the Group had 3,984 brand relationships, and of the top 100, 78% were with leading international brands. Spinneys also negotiates exclusive rights with global brands for limited-term periods.  

Exceptional local execution, supported by well invested, vertically integrated operational and supply chain capabilities:

• Spinneys’ success is grounded in the strength of its global sourcing network and its vertically integrated operational and supply chain capabilities, a fully integrated model that is hard to replicate. 
• The Group has over 870 suppliers in 44 countries, facilitated through subsidiaries in the US, the UK and Australia, enabling a highly efficient supply chain that minimises wastage while maintaining strong on-shelf availability.  
• Even during the Covid-19 pandemic, Spinneys maintained on-shelf availability between 84% and 94% through 2020 and 2021. 
• In addition, Spinneys operates two centralised production facilities in the UAE, together delivering c.1,500 SKUs daily. 
• The Group benefits from a long-standing employee base, with c.22% of full-time employees having a tenure of over 10 years as at year-end 2023.  
• Each of these factors contributed to Spinneys achieving an average Retail Revenue per GSA of AEDk/sq. ft. 3.5 in 2022, compared to the UAE market average of AEDk/sq. ft. 1.6. 

Well tenured, experienced leadership:

• Spinneys is led by a well tenured management team who have an average of 23 years’ experience, spearheaded by CEO Sunil Kumar, who began his professional career at Spinneys 30 years ago. 
• The Chief Financial Officer and Deputy Chief Executive Officer have 23 and 38 years of professional experience, respectively.
• Management is guided by an experienced and diverse Board of Directors, dedicated to upholding high standards of corporate governance, and led by the founding shareholder, Chairman Ali Albwardy, who is deeply committed to Spinneys’ future success.