UAE's online shoppers find 'free shipping' comes at higher cost after fuel price increases
Vendors hike minimum order sizes to counter fuel price increases
Dubai: Free shipping on online shopping orders or food and grocery deliveries is winding down as vendors in the UAE adjust to higher fuel and operational costs. And they are hoping consumers here would be able to make do with not having free shipping – or ‘pay’ extra for that benefit.
One of the biggest names in the grocery space sent out notes to its shoppers that there will be immediate changes to the ‘minimum order’ needs if they still wanted to access to zero shipping charges. For now, that’s the strategy most vendors are taking to compensate for the steady fuel gains in recent weeks – raise the minimum order. And if consumers still prefer free shipping, they might need to wait longer on delivery, so that the retailer can club orders.
“The message is clear - if you can afford to offer free delivery, then do so,” said Richard Nicoll, Chief Strategy and Capability Officer at the consultancy Liquid. “If you can’t, you need to do more what’s needed to win with the other shopper experience fundamentals -especially, quality and convenience.’’
Ecommerce and food delivery sources say that it would be difficult to cut UAE consumers completely off ‘zero shipping charges’. Plus, there would still be some vendor who will keep offering that. In the ecommerce space, the small to mid-sized shopping platforms cannot afford to lose out on shoppers especially if their order is decided entirely by whether they have to pay for the shipping or not.
“A survey on Amazon Middle East shopping preferences highlighted that consumers in UAE buy online for two key reasons - fast and ‘free’ shipping,” said Soham Chokshi, CEO and co-founder of Shipsy. “Brands are still trying to find ways how they can continue to offer free shipping despite the added cost due to inflation and fuel price rise.
Be it online shopping or delivery companies, almost everyone is coming up with ways to absorb the rising logistics costs. Amazon rolled out an additional 5 per cent fuel and inflation surcharge to third-party sellers who use its fulfilment services towards the end of April. Global shipping giants like UPS and FedEx have raised their fuel surcharge across services to brace for the fuel cost hikes.
- Soham Chokshi of Shipsy
What should be that ‘minimum order’?
That would vary depending on the vendor, and whether it is food or fashion and accessories being ordered. The sheer nature of the F&B business suggests that delivery portals will adjust the order sizes in a way that would not lose them that transaction.
According to Aarohi Surya, co-founder of Yalla Veggie, “One of the key aspects for developing the best delivery strategy for ecommerce ventures in 2022 involves getting the delivery pricing right. Low enough so that customers are willing to pay for it and it needs to be priced high enough that ventures can be profitable.”
That perfect balance might be a difficult one to home in on. More so in the online shopping business. “Research in the region shows high delivery cost is one of the leading causes for cart abandonment,” said Surya. “With our calculation, we’ve seen if the delivery cost increases even by Dh1, a customer’s net order value drops by 75 per cent, leading to an overall unsustainable model.”
When it comes to online shopping, the average basket size in the UAE is around the $150 mark and e-retailers says that’s a fair amount for a minimum order and free shipping.
This is the fine line businesses need to walk through.
Change consumer preferences
Any vendor forced to rollback free shipping from their options will find that consumer preferences do not change overnight. And right now, “A YouGov survey uncovered UAE online shopping preferences as same-day delivery, free delivery and ease of returns and refunds,” said Nicoll.
The question is whether this is sustainable for a business in the long run. It’s a tough one for online commerce, especially with direct-to-consumer models, as well as external factors, such as the significant increase in fuel prices, which will undoubtedly impact operational margins.
- Richard Nicoll of the consultancy Liquid
For now, the growth in the online shopping and F&B/grocery orders has been hitting consistently high numbers, even factoring the drop from their 2020 peaks. It’s a fact that more shoppers in the UAE are turning to online for their daily needs, which explains the super-charged growth that Q-commerce has been experiencing. (Q-commerce relates to orders being delivered in less than one hour, or by 30 minutes, which is rated as the sweet spot.)
So, for consumers and vendors alike, the best interim solution would be – pay for more and get that free shipping on the delivery.