Online grocery sales in KSA and UAE doubles during Covid-19

29 October 2020 Consultancy-me.com

Once among the slowest ecommerce segments in the Middle East, e-groceries have been thrown into the spotlight due to the Covid-19 crisis. New market analysis by RedSeer Consulting presents the numbers for Saudi Arabia (KSA) and United Arab Emirates (UAE).

Ecommerce in GCC has been a remarkable growth story in recent years, with a jump from $5 billion to $18 billion between 2015 and 2019 alone. At the same time, this boom has been heavily partial to certain products – fashion & beauty, electronics, etc – while the online grocery market was lagging behind. Covid-19 has changed this.

No doubt, e-groceries were growing in tandem with the wider ecommerce market before the pandemic. In the UAE, e-grocery gross merchandising value (GMV) grew from $170 million in 2018 to nearly $300 million in 2019. KSA’s e-grocery market was smaller and slower to grow, but grew by $35 million nonetheless.

Covid-19 has more than doubled the e-grocery markets in KSA & UAE

The segment in both markets was already expected to continue upwards this year, although not quite to the extent that is now materialising. According to RedSeer Consulting, a strategy and management consulting firm, the initial GMV pegged for the end of this year will now be revised to twice the original value – all thanks to the pandemic-induced change in consumer behaviour.

Growth drivers

A number of factors have combined to drive this growth, which might have never reached current levels if the outbreak hadn’t occurred. In fact, browsing a supermarket and stopping to closely examine fruit & veg is a notoriously popular activity across the world, and the GCC is no different. That being said, this is a luxury that is just out of reach during a global pandemic.

Fear of infection is enough to make online shopping attractive even for the purists, evidenced by broad changes in consumer behaviour. The UAE was in lockdown until May, while KSA was locked down till June. For many, this period marked their first extended interaction with various online channels – breeding a high degree of familiarity even amongst infrequent users. Ecommerce as a whole has been flying high as a result.

Omnichannel now makes up around 40% of both markets

In response, retailers quickly invested in digital sales channels, developing a variety of online products and services catering to customers under lockdown. For those who were new to ecommerce, their first interactions were with a highly developed and convenient digital market. Enticed by the booming market, a swarm of new players has entered the online retail segment. The report notes Noon Daily, Dubai Store and Areem as examples here.

Under threat, existing players such as Spinneys, Mrsool and Nana invested in expansion strategies. In the race to occupy market share, many grocery retailers now have omnichannel sales capacity. As a result, in and around 40% of the e-grocery market in both KSA and UAE is now occupied by omnichannel sales. In the UAE, online giants such as Amazon and Noon have boosted the horizontal sales market share as well.

This is not yet the case in KSA, where the ecommerce market as a whole is significantly smaller – according to Statista approximately $6 billion compared to nearly $30 billion for the UAE. The gap is conspicuous in the e-grocery figures as well, with the segment amounting to $430 million in KSA compared to more than $1 billion in UAE, says RedSeer. With years of stellar growth, ecommerce in the UAE is not only a bigger market, but a more mature one as well.

Customer satisfaction levels in UAE & KSA

Evidence of this can be found in customer satisfaction levels. RedSeer Consulting compared e-groceries in the UAE to those in KSA across several customer satisfaction metrics: Ease of use; variety of products; quality of service/products; value for money; reliability of service; customer service; ease of payment; and security.

Across each of these criteria, customer satisfaction levels in the UAE are almost consistently twice the amount in KSA. In fact, the only metric where the two markets were roughly equal is in the amount of discounts and promotions on offer.

That being said, the e-grocery segment in either market is far from perfect. Even in the UAE, only a third of customers are satisfied across each of these metrics, while more than 60% believe that there is significant room for improvement. No doubt, the circumstances have a role to play here.

Alongside a tremendous economic opportunity, the Covid-19 crisis has posed a challenge like no other to ecommerce infrastructure in these markets. Demand for e-groceries shot up overnight, throwing retailers into a wild spin of delivering such volume in a timely manner. All this amid global supply chain disruptions.

The researchers note that e-grocery retailers are still struggling to meet the demand, and many are “functioning at capacity.” At the same time, efforts are underway to ramp up volume, while a range of other customer satisfaction metrics are likely to improve as ecommerce matures further across both markets.