In 2021, challenges brought by Coronavirus (COVID-19) continue to weigh heavily on the Middle East. Uncertainties over the regional and global outlook, coupled with residual effects of the pandemic, such as increased unemployment and social distancing mandates, are expected to dampen retail spending in 2021 and subsequent years. One year on from the advent of the pandemic, consumers have acclimatised to the new normal, but spending habits have changed. Three consumer trends to watch for in the Middle East in 2021 and beyond are the pivot to e-commerce, trading down and staying close to home.
Slow and divergent economic recovery ahead
While the majority of markets in the Middle East will see an increase in retail spend in 2021, most will not recover to 2019 levels until mid-2022 or 2023. For example, total retail sales in the United Arab Emirates are expected to grow 12% in 2021, but won’t reach pre-pandemic levels of retail spend until at least mid-2022, due to the country’s high reliance on tourism and travel spend, especially to drive its outsized luxury goods market. On the other hand, in Lebanon further retail declines are forecast for 2021 through to 2025, owing to dramatic currency devaluation and political strife.
The pace of retail recovery will be buoyed by inoculations but is expected to be uneven across the region, due to wide discrepancies in vaccine rollout, with the United Arab Emirates as one of the fastest globally, and countries like Oman and Lebanon lagging significantly behind.
Middle-class jitters see more consumers trading down
In 2021, battered consumer confidence continues to take a toll on the Middle East and consumers are responding by trading down and looking for value for money, even among those who still have a steady income. Seeking value for money is especially growing in modern grocery retailing, as consumers opt for less expensive brands or private label. For example, in the United Arab Emirates Landmark Group’s Viva only entered the market in late 2018, the first and only discounter to date. Viva is a no-frills grocery format where the majority of the products – around 80% of shelf space – is private label. 2021 has seen rapid expansion of Viva across the United Arab Emirates including Sharjah, Al Ain and Ajman, doubling their number of outlets in less than a year It is expected that a greater number of discounters will enter the market and this channel will expand significantly by 2025. This will ultimately benefit consumers by offering lower prices, but it will create major challenges for smaller grocery formats, which may have to squeeze their margins in order to compete.
Trading down is also highly evident in the beauty and personal care industry, where premium growth rates are being outpaced by mass growth rates in almost all categories across the region. Consumers may be trading down, but they do not want to sacrifice on quality or attractive packaging. This emergent trend offers a window of opportunity for “masstige” products, also known as “prestige for the masses,” as an avatar for affordable luxury – those products that project a more premium quality but at a lower price point.
Staying close to home
Another trend that is expected to continue in 2021 and beyond is the impulse to stay close to home, even when restrictions are lifted. This “homebody” attitude will impact not just FMCG but how and where consumers shop—with many expected to opt for local and neighbourhood grocers in order to avoid traveling long distances and big crowds. Some retailers have responded by expanding their footprint to smaller grocery chains and even convenience stores. In the United Arab Emirates, for instance, ADNOC Distribution’s convenience stores underwent major renovations in 2020 and upgraded shelf space to include bath and shower and home care products in an ever greater selection. Whereas in 2019 one brand of deodorant might have been present on their shelves, in 2021 there are five or six.
This trend has important implications for beauty and personal care since staying close to home has given rise to the growth of at-home rituals like facial and hair masks and DIY spa treatments. For example, in Saudi Arabia, hair care saw double-digit growth in 2020 and is forecast for further growth in 2021 through to 2025. And for the most part, once skin care routines become normalised, they tend to stick.
Digital transformations will shape the recovery
The Middle East’s young and digitally-savvy population put e-commerce into hyperdrive and most notably, food and drink e-commerce saw triple-digit growth during the pandemic. For example, in the United Arab Emirates, food and drink e-commerce sales grew 259% in 2020 in constant value terms and these habits remain fixed, with only a low single-digit decline forecast for 2021, before a rebound to double-digit growth well into 2025. In Saudi Arabia, food and drink e-commerce grew around 200% in 2020 in constant value terms and sales are expected to sustain double-digit growth in 2021 and subsequent years until 2025.
The figures demonstrate that these new habits - particularly online grocery shopping - will stick even when social distancing measures are removed. Retailers have had to quickly adapt to this skyrocket demand for e-commerce, improving their online and mobile communications. Many have implemented alternative ways of communicating with consumers, including the use of WhatsApp, Facebook and telephone communications, with local and neighbourhood stores using these tools to fuel sales.
For many consumers in the region, mobile is their first foray into technology, surpassing the desktop, which has created the perfect environment for mobile e-commerce and has helped accelerate the shift away from cash. In the more advanced GCC, the rapid movement towards contact-free payment with Google Pay, Apple Pay and other apps is set to fuel the recovery. The pandemic has dampened the previous favouring of cash on delivery and has helped overcome people’s reluctance to put their credit card details on their mobile devices.
The future: consumer data as the key to recovery
Inventory forecasting has always been a challenge in the Middle East, and never more so than in 2021 since uncertainty remains as to how consumers will react in this transition year. One thing is for certain: E-commerce will continue to grow, which will give consumers a broader choice of goods and greater options to find value for money and stay closer to home. The growth of e-commerce during the pandemic has created a large amount of consumer data, which had previously been in short supply in the Middle East. More and more retailers now know how consumers are browsing and what products they are buying. This in turn will create better customer personalisation and recommendations and will be a determining factor to help fuel sales in 2021 and beyond.