Consumers in the Middle East had whole-heartedly adopted ecommerce in recent years. Many shopped for products such as mobiles phones, laptops, grocery, clothes and beautycare. However, we will all agree the first six months was one of the unique events of our lifetimes and reshaped shopping behaviour significantly.
The online retail sector was already growing at a fast pace in 2019. However, this year witnessed an unprecedented increase, and we estimate it crossed $15 billion on annualised GMV (gross merchandise value) during this period. This is $5 billion higher than what the online market was at the end of 2019.
It means that the online penetration grew more in last six months than it did in the last six years. The growth was been driven by multiple factors:
* Increasing adoption of new categories and in the frequency of purchases. For example, almost one in four e-grocery customer was a first-time buyer in the first-half.
* Increasing availability of products from suppliers. Almost all retailers and brands have increased their focus on online channels. Examples include Pepsi launching direct-to-consumer services, Carrefour launching on Majid Al Futtaim’s online platform. and Talabat launching grocery services. This has resulted in better availability of products online, further driving adoption rates.
* Increasing investments in ecommerce enablers. Key infrastructure elements such as payments were relatively stable during the increased transactions in the first six months. Also, government policy has generally supported online buying. Logistics was the one element where there were ready investments made, but they were not sufficient.
Supreme on the offtake
The UAE and Saudi Arabia continue to lead the online market with more than two-thirds of the region’s spend. UAE’s online volumes grew at an accelerated pace and stood at 15 per cent plus of the overall retail market. Our analysis indicates this change in customer behaviour is highly “sticky” compared to that shown by Saudi customers, which is why we expect the growth seen in the first-half of 2020 to continue.
In Saudi Arabia, overall growth was almost half the growth seen in UAE. However, the adoption of first-time users was almost twice that of UAE as more users in the kingdom experienced online commerce for the first time during the lockdown. We expect this to have a cascading effect on the growth trajectory for ecommerce.
The rest of GCC is almost a $4bn online retail market now and presents a sizable opportunity for retailers.
All about essentials
The first-half saw a significant uptick for grocery as customers prioritised essentials during uncertain times. But online fashion struggled, especially during the second quarter. From the demand side, lack of occasions and outings led to a drop in orders. From the supply side, cross-border trade and supply chain bottlenecks reduced availability.
Electronics was able to holdup its volumes as people bought laptops, tablets and accessories for work/study from home. Gaming was another category that saw a significant increase as customers had more time at hand.
We expect discretionary spending on non-essentials to stage a comback in the second-half as customers settle to the new environment.
Quite some distance away
Profitability for many players is still further away. Al Tayer Retail closed Nisnass to focus on a single website. Retailers have indicated their focus on sustainable growth in the near future.
Retailers need to go back to basics:
Reducing friction within customer journeys
Customer centricity is at the core of a successful retailer. They will have to map their customer purchase journeys to identify and reduce friction points. For example, logistics emerged as a significant friction point and will need to be solved. Another is cash-on-delivery, which will need to be resolved.
Data driven decision making
In the connected world, there is high amount of data produced and being tracked. It is important for retailers to have a structured 360-degree view on the business and have actionable playbooks defined from these insights. Tracking customer experience, demand forecasting, predictive customer loyalty and proximity marketing are some of the uses to serve customer better.
While starting an online retail website is easy, profitably is challenging as many players now realis4. Players will need to keep an eye on their unit economics to ensure they have a clear path to profitability.
Customers have been forgiving for now as they adapted to a once-in-a-lifetime pandemic. However, we see that they expect superior customer experience and differentiated value propositions from retailers. Those who are able to provide these in a sustainable manner will eventually be the ones standing.
- Sandeep Ganediwalla is regional Partner at RedSeer Consulting.