Slow growing Middle East ecommerce market sees positive signs

The digital revolution is underway among Middle Eastern youth – at least with respect to online shopping.

“In the Arab world, the digital revolution has begun,” opens Bain & Company Middle East partner Cyrille Fabre in an opinion piece featured on local business news platform Zawya, before citing the statistics; the percentage of youth shopping online in MENA has over the past twelve months jumped from a touch over half to 71 percent. Not quite the Arab Spring, but significant nonetheless.

While this penetration rate still remains lower than in Western countries such as 88 percent figure in the UK, the pace of growth, says Fabre, is remarkable. Still, according to a recent Bain study, e-commerce (excluding automotive, food delivery and travel) only represents 1.9 percent of total retail in MENA, compared to around 10 to 15 percent in most developed markets.

“The truth is that, while Arab youth are one of the most digitally-savvy demographics globally, the MENA e-commerce market remains underdeveloped,” states Fabre, who leads Bain’s Retail and Consumer Products practices in the Middle East from his base in Dubai (together with heading the global strategy & management firm’s Social & Public Sector practice for the EMEA).

A fifteen year veteran with the firm (joining its Dubai office from Brussels in 2007), and expert on strategy and organisation in the Middle East FMCG (fast-moving consumer goods) sector across the full value-chain, Fabre points to the low frequency of purchase in explaining the discrepancy between local digital savvy and poor ecommerce figures in MENA, in turn citing three contributing factors.

The first, he says, is the lack of supply and limited product selection on local retail websites. Adding to this is the relatively poor performance of last mile delivery, and, as a final factor, the lack of trust and prevalence of cash on delivery in the Arab world. Taken together, Fabre contends that these issues have contributed to a landscape where MENA shoppers make online purchases only the two-to-four times a year.

This figure for example compares to the average 19 purchases made annually online in the US. Yet, according to Fabre, the region is seeing substantial progress on each of these obstacles to growth. “New entrants in e-commerce – either global giants investing in the region or local start-ups – are bringing more supply to the region.” Amazon is one such giant, in 2017 buying local ecommerce success story Souq for a cool $580 million in cash.

The Bain partner continues; “New technology such as geo-localisation and new business models are improving the service levels of last mile delivery, (and as to) the lack of trust and prevalence of cash on delivery, traditionally one of the biggest challenges to the growth of e-commerce in the region, the ASDA’A BCW Arab Youth Survey 2019 reveals a slight shift in preference.” That shift: nearly half of youth in MENA now prefer card payment over cash on delivery.

Market forecast

While the beauty segment and delivery of prepared meals are noted for being particularly well developed in the region (Saudi Arabia has the fourth-highest penetration rate globally for online food delivery), looking forward, Fabre points to the e-grocery segment as expected to grow, driving the market together with the continued rise of innovative delivery models, increased availability of products, and enhanced customer experience.

“As a result of these trends, the e-commerce market in MENA is set to continue to experience fast growth – by as much as 25 or 30 percent per year – to reach $28 billion, or 7 percent of total retail by 2022,” concludes Fabre, who is due to deliver a keynote on the regional market outlook as next month’s Arab Luxury World conference. “E-commerce is not hype; it is a fundamental trend reshaping the retail industry globally, and the Middle East is no exception.”