All Set For Growth: The E-Commerce Landscape In The Middle East
The MENA region is going to be the next big growth market for e-commerce.
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The MENA region is going to be the next big growth market for e-commerce. The Gulf region especially is being touted as the market that's set to grow exponentially within the next couple of years. In fact, according to PayFort, the Middle East e-commerce market would grow to US$69 billion by 2020, almost doubling in size in just a few years. According to Statista, overall growth across the Middle East and Africa would be at a CAGR of 11% in the next four years (2018-2022).
Well, this is all good, but what's the current scenario of e-commerce in the Middle East? An oft-quoted Gartner study stated that, in 2016, only 15% business in the Middle East had any online commerce presence, and back then, 90% of online purchases made by residents were from foreign businesses. It was also publicly reported that only 2% of retail in the Middle East took place online, despite the region having one of the best internet penetration rates in the world.
The potential for e-commerce definitely exists in the Middle East. Let's take a closer look at the factors that are favorable for growth, challenges the region faces, key markets in the region, key players in these markets, and buying behavior of consumers in these markets.
FUELING E-COMMERCE GROWTH
The Middle East, and especially the Gulf region, benefits from high spending potential, as the region boasts of a high per capita income. The fact that the internet penetration and social media penetration is also some of the best in the world means that the Middle East is ripe for online business.
A 2017 We Are Social and Hootsuite study noted that the UAE has the world's highest social media penetration, while Saudi Arabia had the highest social media user growth in the world. Deloitte shared similar findings in 2017, which showcased social media penetration to be 99% in the UAE, and 73% year-on-year (YoY) growth in Saudi Arabia. When it comes to internet penetration, the region is, again, well above the global average of 51.7%, with more than 60% of the population using the internet, according to Deloitte's Going Digital report. The UAE leads here as well, with more than 80% internet penetration in the state, which is, again, one of the highest in the entire world. If you look at the MENA region as a whole, the internet penetration there has been rising rapidly at 15% YoY. Smartphone penetration is also unusually high in the region. For example, in Saudi Arabia, nine out of 10 people use a smartphone, and most of them use it to go online. The great cellular connectivity in the region also helps.
High social media, internet penetration, and connectivity is only one side of the story when it comes to the potential of e-commerce in the Middle East. Another side is favorable regulations for online commerce, especially in the GCC. Let's take the case of the UAE, where the government actively participates in making it easier for tech businesses to operate out of the region. For example, in the UAE, new e-commerce regulations from the Dubai Free Zones Council were made to promote more foreign direct investment into the e-commerce sector in Dubai, and help make the Emirate more attractive for e-commerce companies. The city also boasts of neighborhoods such as CommerCity, which is a $735 million project that's dedicated to ecommerce, and located right next to the Dubai airport. This is apart from Dubai Internet City, which, according to reports, is already full, and is going to be expanded soon. Such initiatives are also under development in other countries in the GCC. What's also interesting is the growing popularity of e-governance in these countries, which shows how both the government and its citizens are very comfortable going online to get various tasks done.
CHALLENGES TO (AND DRIVERS OF) E-COMMERCE
One of the primary challenges when it comes to e-commerce in the GCC and the Middle East is the lack of area codes, which can hamper last mile delivery. The big problem to solve for many e-commerce and logistics companies is to bring down the time and cost to buying online.
Digital payment is another area where the region lags behind when compared to developed markets. Except for the UAE, other countries in the Middle East are yet to completely adopt online and mobile payments. Cash on delivery is still a primary mode of payment in the region, which brings up the cost of operations for e-commerce players. It can make up around 70% of all e-commerce transactions in Saudi Arabia, according to the consultancy Hally & Partners.
When we look at key markets in the GCC, two of them come into the forefront. One is the UAE, and the other is Saudi Arabia. In North Africa, Egypt is one of the biggest markets that has a huge potential for growth in the future. Although Bahrain, Oman, and Kuwait also have strong e-commerce presence and growth, the relatively small population in these countries means that their contribution to the overall region numbers is also relatively small.
The UAE is one of the largest and most mature markets in the Middle East today for e-commerce. According to PayFort, it was valued at $27 billion in 2016. BMI Research states that by 2020, the market would be worth 45.6% of the total Middle East market. Great infrastructure, ease of doing business, and a tech-savvy, cosmopolitan population with high speeding power makes the country very favorable for online commerce.
Saudi Arabia is also a huge market for e-commerce in the Middle East, with the same PayFort study valuing it at $22 billion in 2016. Growth in the market though could be gradual, when compared to the UAE and other countries in the GCC. This is primarily because of lack of retail infrastructure and government initiatives that aim to promote e-commerce and other tech businesses. The Saudization scheme by the government is also said to make it a little more difficult for international brands and businesses to make a mark in the country, although national businesses may get a boost due to this. By 2020, BMI says that the Saudi Arabian e-commerce market could be 29.1% of the region.
Related: Bolstering Entrepreneurship In Saudi Arabia: Badir CEO Nawaf Al Sahhaf
Egypt has had a storied e-commerce history, having established some of the region's firsts, such as online food ordering way back in 1999 with Otlob. Yet, e-commerce penetration in the country is still at a nascent stage. A study by the country's Ministry of Communications and Information Technology (MCIT) said that e-commerce only comprised 0.4% of the total retail trade in Egypt. But this is also set to go up very quickly, as the region has one of the largest population of internet users in the Arab world. The MCIT is also committed to the growth of e-commerce in the region, with policy and development being focused towards this cause, making the market very attractive for e-commerce players.
CONSUMER BEHAVIOR IN THE MIDDLE EAST
Apart from various brands and their e-commerce stores, there are a few prominent e-commerce marketplaces in the Middle East. The biggest is Souq.com, which had 50 million customers and operated out of all the countries in the GCC, when Amazon acquired them in 2017. The same year, another regional upstart, Noon.com, was launched by Mohamed Alabbar, the chairman of Emaar. Namshi, Ali Express, and Ebay etc., are other prominent marketplaces in the region. When it comes to food delivery, some of the popular players in the region are Talabat, Deliveroo, MakeMyMeal, Otlob, etc.
According to survey portal Statista, e-commerce user penetration in the Middle East and Africa region stood at 54.6% in 2018 and would grow to 58.8% by 2022. PwC's Total Retail 2017 survey took an in depth look at buying trends in the Middle East. They found out that younger people were more likely to shop online in the region, with 36% of those who were aged between 18-24 shopped online, at least once a month, when compared to only 13% of those who were aged 55 years or more. According to Hall & Partners, there is a significant number of women in the UAE who prefer to shop online, with around a third of those surveyed buying something online, every week. Similar stories are reflected across the mature markets of the Middle East.
The motivation to buy online differs for different markets and different demographics; however, when we look at the broader trends, we can see that the lower price of goods online was the biggest driving factor towards an online purchase, as 40% consumers stated that as their major motivational factor in PwC's Total Retail 2017. 31% also said that greater product selection was a factor towards their purchase. Surprisingly, only 17% said that convenience was a factor for shopping online. This could be mainly due to higher delivery times, and a prevalent "mall culture" in the Middle East, although the trend is gradually changing, as it becomes easier to shop online, and as the quality of service increases.
According to PwC's Total Retail 2017, these were the major categories when it comes to e-commerce in the Middle East: books, music, movies, and video games categories lead with 54% of those surveyed shopping online here. This was followed by health and beauty at 48%, and consumer, electronics, and computer at 44%. Jewelry and watches, clothing and footwear stood at 42% and 41% respectively, whereas furniture and homeware, household appliances stood at 35% and 31% respectively. Surprisingly, online groceries were a category that wasn't as popular yet in the region, with only 27% of people admitting to buying them online.
Related: Inside The MENA High Tech Boom
56% of Middle Eastern shoppers were on mobile devices while shopping online, and 52% of them were influenced by social media reviews while making a purchase. Although PwC states that 80% of Middle Eastern e-commerce sales were paid for through cash on delivery, the UAE is again an outlier here, as, according to Souq.com, over 60% of their transactions were through credit cards.
Trust is an important factor for consumers buying in the Middle East, as 62% of them were concerned about their personal information getting leaked online. 60% of consumers were more likely to buy from brands they trusted, and 32% remain loyal to their favorite retailer, because of their trust in the brand.
48% consumers had also stated that they were influenced to make repeat purchases, because of the attractive offers that were communicated to them. Social media was another influential channel, where 48% of consumers were engaged through promotions.
Having a trustworthy, secure, and mobile-friendly online ordering platform is thus important in the region. Cross-channel engagement campaigns with strong social media strategies is also something e-commerce operations in EMEA must adopt.
Language and localization are very important aspects of commerce in the Middle East, as even the Arabic dialect can vary widely across markets. Brands have slowly started to under stand this, and they have started to model their online presence according to each market's preferences.
The Middle Eastern market is also going to reflect similar tech trends as other markets across the globe, with increasing use of big data analytics, artificial intelligence, chatbots, faster delivery means, mobile payments, and omnichannel retailing, all used to aide commerce. With the increase of tech companies in the region, the sharing economy, and subsequently, the internet economy would also see a significant rise in the Middle East.
With the young, tech-savvy population, high smartphone and internet penetration, and well-established retail network, we can see that retail in Middle East is going to grow across channels. E-commerce, as well as brick-and-mortar retail, would work at helping each channel sell more, as more mature markets across the world have shown. Retailers today must focus on getting online, and making consumer experience seamless and connected across all channels to unlock their next phase of growth.
As a brand, it's important today to have presence in the major marketplaces in the Middle East. Marketplaces such as Souq, Noon, Namshi, eBay, Amazon etc. can be a great way to reach more consumers and increase sales. Marketplace enablement solutions that help you to list, sell, and process orders across multiple marketplaces, from a single dashboard, can make it very easy to do so.
E-commerce consumers in the Middle East are not just restricted to purchase from online marketplaces, but increasingly are buying directly from the brands that they trust. Hence, it's important to establish your own brand website early, and extend your offline business to online channels. Today, you could be missing out on sales without having crosschannel presence. Setting up your e-commerce website could be the first step you take towards making your business consumer ready for today, and future ready for tomorrow. Let's see what are some important factors you should take into consideration while choosing the right e-commerce platform for your website:
1. Making consumer experience seamless
You must ensure you are providing your consumers with the easiest possible purchase experience online. This means fast, intuitive, responsive consumer websites and mobile-ready app-like experiences on progressive web apps. Offering multiple checkout options such as click-and-collect or home delivery is also important, and so are seamless payments through the consumer's preferred payment method.
2. Being ready to extend and grow
Your e-commerce platform must allow you to be agile and extensible, so your business is completely future-ready. Fast go-tomarket time, multi-country, language, and currency support is a must-have for running commerce in regions as diverse as the Middle East. Allowing business users to easily set up and run websites and promotions without help from IT is also a helpful addition. Having ready integrations with points of sales (PoS), logistics, payment gateways, entreprise resource planning (ERP), etc. could go a long way into making operations smoother and easier.
3. Personalizing experiences, and socializing engagement
Consumers today expect relevant and personalized experiences while they shop. Your ability to deliver on these personalized experiences to your visitors, starting from the look and feel of your website, to the products that are on display to them, could have a dramatic effect on conversions. Personalized engagements and promotions can also increase visits and sales. You also need to look into availability of services such as conversion rate optimization, search engine optimization, digital and social media marketing to reach your consumers, and convert them.
4. Making your business easy to operate
An easy-to-use platform with intuitive UI that allows you to create, upload, and manage product catalogs, website content, and promotions, with simple drag-anddrop functionality can help ease day-to-day operations by allowing any business user to make changes on the website quickly. A sophisticated order management system on the other hand can make order processing and fulfilment quick and efficient. The ability to easily reconcile accounts, refunds, and manage tax compliance across regions are also important while running an e-commerce business across the Middle East.
5. Ensuring consumer trust
Finally, your e-commerce platform needs to be completely scalable, having the ability to auto adjust to handle any traffic or order volume. Having good stability and uptime is also important to ensure your site is always available to your consumers. Speaking of consumers, keeping private and identifiable consumer data and payment data secure is really important today, especially in the Middle East where trust is known to be a significant aspect of loyalty when shopping online. As a result, you should give utmost importance to the security capabilities of your platform.
Related: Using Data-Driven Concepts To Unlock Incremental Growth