Expert Commentary

Leading commentators offer their perspectives on the key findings of the ASDA'A BCW Arab Youth Survey 2019.

Anne Laure Malauzat

Anne Laure Malauzat

Anne-Laure Malauzat is a principal in Bain & Company’s Middle East office and an active member of the firm’s Retail, Social & Public Sector, and Financial Services practices. She has worked with a range of private sector clients in industries ranging from retail, consumer products, real estate, banking to pharmaceuticals and has led a number of projects for public sectors clients around national socio-economic development, vision planning, government transformation, education, entrepreneurship, and innovation. Anne-Laure holds a Master’s from the School of Foreign Service at Georgetown University.

Hassan Hassan

Cyrille Fabre

Cyrille Fabre is a partner and director in Bain & Company’s Middle East offices; he leads Bain’s Retail, Consumer products and family businesses practice in the Middle East. Cyrille has more than 18 years management consulting experience and delivers strategies that work for leading retailers and consumer product companies. In addition, Cyrille works with economic development agencies to address topics such as retail sector strategies, food security and industrialization in the GCC region, and is a board member in several ecommerce start-ups. He holds an MBA from INSEAD/Wharton Business School.

In the Arab world, the digital revolution has begun. Over the past 12 months, the percentage of youth shopping online spiked from 53 per cent to 71 per cent. While the penetration is still lower than in Western countries such as the UK (88 per cent), the pace of growthis remarkable.

The truth is that, while Arab youth are one of the most digitally savvy demographics globally, the MENA e-commerce market remains under-developed.

Indeed, according to a recent study by Bain & Company and Google, the B2C e-commerce market for packaged goods (excluding automotive, food delivery and travel) in MENA amounted to $8.3 billion in 2017. Thus, e-commerce only represents 1.9 per cent of total retail in MENA (4 per cent in the GCC), against 10-15 per cent in most developed markets.

Why is the MENA e-commerce market so small, despite 71 per cent of the youth shopping online? This is primarily due to the low frequency of purchase. While the average shopper in the US conducts 19 purchases online annually, MENA shoppers do so only two to four times a year.

This difference of frequency of purchase is due to three factors: one, the lack of supply and limited product selection in local websites; two, the relatively poor performance of the last mile delivery; and three, the lack of trust and prevalence of cash on delivery in the Arab world.

We are 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. New technology such as geo-localization and new business models are improving the service levels of last mile delivery – for example, a company like Get Ir is capable of delivering a range of 1,000 items to anyone in Istanbul within an average of 10 minutes.

Regarding 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. Nearly half of youth in MENA (49 per cent as a whole and 60 per cent in GCC) now prefer card payment over cash on delivery.

Clothing, meals, electronics and, to a lesser extent, beauty are the key drivers of e-commerce among young Arabs.

While these categories are also top-performing e-commerce categories globally, their ranking differs in the region.

The delivery of prepared meals is particularly well developed in the Middle East, with the Survey showing that 37 per cent of young people choose to order food online. As a result, in Saudi Arabia, delivery of prepared meals now accounts for 13 per cent of the entire food service industry and almost 30 per cent of fast food sales. This is the fourth highest penetration rate globally after Korea, Japan and the UK.

Beauty is also surprisingly developed, with 28 per cent adoption among the youth (i.e. almost 50 per cent of the women). As a result, e-commerce now accounts for 11 per cent of total beauty retail in the GCC and Egypt, compared with only 9 per cent in the US. This is the one category where MENA penetration exceeds global benchmarks.

Moving forward, clothing, meals, electronics and beauty will remain essential, and e-grocery is expected to become much more prevalent than today. In 2017, e-grocery accounted for less than 1 per cent of total grocery. However, since then, several brick-and-mortar retailers have launched their own e-grocery solutions and many start-ups have entered the space.

The availability of products as well as the quality of the customer experience is slowly improving as retailers learn to master the challenges of online sales.

Innovative delivery models such as Get Ir and the development of ‘drive thru’ collection points will foster market growth. Further, e-grocery will accountfor 3 to 4 per cent of total grocery by 2022.

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 per cent per year – to reach $28 billion, or 7 per cent of total retail by 2022.

E-commerce is not hype; it is a fundamental trend reshaping the retail industry globally, and the Middle East is no exception.