While ecommerce has offered higher-than-average growth for several years, it has never been a high priority for brands or retailers in the Middle East due to varied levels of adoption across categories and concerns about return on investment.
However, the tragic COVID-19 developments over the last few weeks have catapulted the channel into prominence, especially as shoppers switch to online platforms to reduce their exposure to the illness. While we don’t have exact numbers yet, Kantar’s initial estimates suggest that ecommerce sales in the UAE could increase by three to five times over the next few months, a range corroborated by news of Carrefour MAF witnessing a 300% increase in online orders. The growth in ecommerce sales is likely to have a significant impact on the weight of distribution (i.e., channel sales mix) for brands and retailers. Kantar also believes that while ecommerce growth will eventually slow once the COVID-19 crisis diminishes, a new baseline of ecommerce as a percent of total retail sales will emerge that will be significantly higher than the current level of less than 3% in the UAE. Therefore, we believe that an ecommerce focus is no longer ‘good to have’ but a ‘must have’ for brands that need to act now and act fast.
While ecommerce presents a sizable opportunity in an otherwise tough environment, it will also be a litmus test for brands and retailers. Any below-par performance around online fulfilment, product unavailability, skim pricing (charging a higher price at times of greater demand) during these highly emotive times is likely to have a massive and long-term impact on a company’s equity and brand preference.
Businesses looking to leverage the Middle East ecommerce opportunity need to be mindful of the following observations, predictions, and recommendations:
1. The ecommerce challenge is evolving from penetration to retention.
COVID-19 has fuelled a surge in ecommerce orders not only from habitual channel shoppers but also from first-time users. This has meant that penetration, which for several years was the Achilles’ heel of ecommerce operators, is no longer a massive challenge. However, the online shopping experience will be a critical deciding factor in whether these first-time shoppers come back (retention) and grow their frequency and spend (basket) once the current crisis dissipates. For brands and retailers to put their best foot forward, they will need to:
- Ramp up their online fulfilment capabilities by adding delivery trucks/bikes and personnel and leveraging multiple fulfilment models (such as hub and spoke and stores as fulfilment centres) for faster deliveries
- Ensure adequate availability of key categories and SKUs through effective demand planning, cross-channel inventory visibility, and close collaboration with manufacturers and distributors
2. Expect a massive impact on category penetration and performance online.
Historically, ecommerce penetration in the Middle East has varied across categories:
- Meal delivery, cosmetics, apparel, and electronics have overindexed.
- OTC medicine and perishables have underindexed.
However, Kantar believes that COVID-19’s impact on the shopper mindset and behaviour could switch category penetration and performance online at least in the short term. For instance, the fear of contracting the virus while visiting stores (especially pharmacies) is likely to prompt most shoppers to buy OTC products and prescriptions online. Here are some examples of categories that are likely to witness this switch:
- Meal delivery to struggle: Meal delivery, which has been one of the most penetrated ecommerce categories in the UAE, is likely to experience an adverse impact as people avoid outside food. In addition, with most families in lockdown, there is more time and a more emotive mindset to cook from scratch. Although several food and beverage outlets and delivery providers are offering discounts as well as free and contactless delivery, we believe it will be an uphill task to drive category growth until the crisis fades.
- Pro-active health-minded buying: Shoppers are showing more interest in products that support overall health and wellness. This is especially true for products that can be delivered in a safe home environment. As a result, brands and retailers will need to market and bundle relevant products on ecommerce portals.
- Pantry preparation for an anticipated quarantined living: Influenced by shoppers in other parts of the world, Middle East shoppers will stockpile shelf-stable foods and other homecare categories in case of a quarantine. Therefore, retailers will need to keep a bigger stock of SKUs by managing the supplies.
- Computing hardware to spike in short term: With most of the region in lockdown and people (including children) working or studying remotely, Kantar expects a short-term surge in ecommerce orders related to computing (including laptops, smartphones, and tablets). While ecommerce accounted for a substantial share of category sales, the path to purchase often involved visiting the store before making an online purchase, which has been disrupted now. This means that brands and retailers selling the category need to ramp up their digital marketing efforts.
3. Data speed rather than scale will fuel ecommerce success.
Crucial to the success of any ecommerce strategy and execution is how businesses manage their data. In turbulent times, data speed rather than scale often fuels success. Kantar believes that businesses need to leverage advanced analytics and machine learning to do business simulations and focus on providing real-time insights to decision-makers and to the people on the ground who will execute.
We acknowledge that the gravity of the COVID-19 outbreak is unparalleled in recent times and that shopper responses tend to vary by market. Even so, organizations have an opportunity to leverage learning/data from more recent similar crises (such as the MERS/SARS outbreaks) or from other markets (such as Lebanon when it went into economic lockdown in 2019 or China when it responded to the COVID-19 spread) to simulate potential business impacts and effective strategies.
4. Supporting ecommerce will mean redeploying resources.
The surge in ecommerce orders has overwhelmed the supply chain and fulfilment capabilities of several retailers. During this period, retailers and brands can redeploy resources to address these gaps, such as by:
- In-store merchandisers or checkout staff picking ecommerce orders
- Suppliers rather than central distribution centres doing direct-to-store deliveries
- Meal delivery services providing logistical support for grocery deliveries
We are already seeing evidence of this redeployment. Carrefour MAF recently announced that it will reskill and redeploy approximately 1,000 employees from its other business entities, such as VOX Cinemas and Magic Planet, to help with ecommerce fulfilment.
5. The crisis has opened an opportunity to develop ecommerce competencies.
The COVID-19 pandemic has resulted in a slowdown for many businesses and forced many people to work remotely. Kantar believes the resulting bandwidth could be a great opportunity for businesses to drive ecommerce awareness and competencies across their teams.
There is a lot more to ecommerce in the Middle East than what we’ve highlighted here. Kantar is always eager to collaborate with brands and retailers to fuel their ecommerce ambitions. For more information on this topic or how we can partner with your organization, please contact email@example.com or firstname.lastname@example.org.