We have all witnessed the steep rise in GCC’s digital economy spread. Many digital-only brands have prospered and consumers have been spoilt for choice. The Gulf is not unique in that sense as most other regions too have witnessed similar levels of disruptive adoption of online channels.
However, the market structure of the digital economy in the GCC is different. To Illustrate this, take the example of online retail. Let’s start with a quick question – ‘What would the combined market share be for the largest two online retailers in the GCC?’. Most of you are already thinking of Amazon and noon, the two most popular online retailer in the GCC. I have asked this question to CEOs, senior government officials, and others. But this cannot be further from the truth.
Our estimates on the market share of the top two players is around 30 per cent – that’s more than a 100 per cent variance on the collective impression of consumers’ understanding of the online market structure of GCC. (We do the market structure exercise at a granular sub-category level for each country in GCC.)
What explains this high variance between perception and reality? There are a few explanations:
- Cross-border trade (CBT): Although CBT has declined over the last few years, it is still around 20 per cent of online retail. Most leaders might not account for the large cross-border trade that GCC witnesses.
- Anchor effect: In markets such as China, the US and India, the top two players indeed account for 65 per cent plus of the online retail market. The anchor effect of such more researched markets could also explain some of the perception bias in GCC.
- Big corporate groups: They have taken great strides in developing their digital offerings, but they are still relatively small. Each one of these conglomerates individually might still be small compared to the overall market, but collectively they account for more than 30 per cent of the online retail market in the Gulf.
What will change
The cross-border trade is declining on the back of stronger local supply and regulation. The anchor effect seen in other markets is a perception issue that will slowly get resolved as understanding of the region improves. The third dimension – conglomerates - is a structural nuance of our region. GCC conglomerates are financially strong, understand retail business and have actively learnt from other markets to chart their own digital journeys.
These conglomerates have historically focused on profitable growth, which is what the current investor landscape values. So, although, conglomerates have been more risk averse in taking large digital bets, the investor enthusiasm could tilt the scale and make them more aggressive in pursuing the digital market. The fact that these conglomerates can be 25-30 per cent more efficient at capital deployment compared to the digital natives further strengthens the case.
In summary, they key takeaways:
The GCC digital market is very fragmented and there is still room for growth for incumbents to gain share.
Conglomerates are the hidden gems and can witness fast-paced growth in the current economic climate.
The understanding of digital market is relatively limited – high quality data-based decision making can help unlock the market faster.