Middle East Consumers Rapidly Shifting Purchase Behaviours
The 2018 Middle East Sentiment Survey by McKinsey & Company, launched last week at the Retail Leaders Circle in Dubai, reveals that consumers in the region are becoming more cost-conscious, less brand-loyal and rapidly shifting purchasing behaviours. Approximately 55% of consumers are now actively looking for savings across markets, with those in Saudi Arabia leading the pack and finding creative ways to spend less and more actively considering alternative brands than in previous years.
Amongst the survey’s findings, almost 35% of consumers now look to buy their preferred brands at any cost instead of trying out alternative brands at cheaper prices. This is down from almost 45% in April 2017.
The survey also revealed that 78% of consumers in the region changed their buying habits to save money. Multichannel shoppers have cut spending in all channels and increasingly favour discount formats and chain grocery stores.
UAE and KSA Consumers More Bullish
KSA and UAE consumers felt they were forced, over the last two years, to make adjustments to their spending habits and now feel more confident about spending disposable income, in order to regain some of their lost purchasing power.
In KSA, 34% of consumers are looking to buy their preferred brands at any price point, as compared to 42% in April 2017. In UAE, this number was 34% as compared to 41% in 2017.
“Interestingly, consumers in UAE and KSA responded similarly to most questions that were put to them and despite fluctuating financial sentiment, they believe they are saving and delaying purchases less than in Spring 2017,” says Gemma D’Auria, leader of the Retail practice in McKinsey’s Middle East office.
McKinsey’s 2018 Middle East Sentiment Survey classifies shoppers into five categories based on their behaviour - savvy cost-cutters, thrifty brand loyalists, selective splurgers, trade-down converts and multichannel shoppers.
Trading Up or Down, Away from Mid-Market Brands
Across the globe, more consumers have traded up to more expensive brands, while fewer consumers have traded down to cheaper options. Although the overall consumer sentiment illustrates a shift towards cost consciousness, the market remains fragmented with a consistent and sizeable number of consumers still willing to trade up to higher value or luxury brands.
In the region, almost 16% have traded down and 11% have traded up in this year’s survey. Consumers in UAE and KSA continue to move away from mid-market brands. UAE was ranked 8th and KSA was ranked 11th in the list of countries where consumers are trading up, from among a group of 30 countries. In the UAE, 14% have traded down and 12% have traded up while in the KSA 16% have traded down and 11% have traded up in this year’s survey.
Lower Brand Loyalty
In the region, approximately 54% of those who have opted to trade down were happy with this decision with 46% admitting a desire to return to their old brands. In the KSA, 45% of those trading down expressed satisfaction, up from 41% in Sept 2016.
“People are becoming less brand loyal. Earlier, they were looking more for preferred brands in cheaper channels, now they are more inclined to try and stick with lower cost brands – a shift which we attribute to an increase in the perceived and real quality of private label and lower tier brands,” added Gemma D’Auria.
Winning in Retail
Winners in retail today use data inputs such as consumer sentiment to drive analytics driven decision making and those that do are significantly outperforming their peers. Decision making has always been data and algorithm driven, but three trends are accelerating the evolution - unprecedented levels of data, tumbling costs and powerful new computing capabilities and algorithms.
According to Peter Breuer, leader of the Retail practice in McKinsey’s EEMEA region: "Quality enhancement and a wider assortment of private label is the real threat for brands. Top retail performers are transforming their organizations to be analytics and data driven and this is possible even with limited public data. Proprietary insight on consumers is the retailer’s biggest asset and retailers need to focus on business impact while deploying analytics-driven decision making. They need to create impact fast, but in parallel work on roadmap, enablers and capabilities.”
The survey also revealed that the shift to ecommerce is happening faster than it was last year. It’s seen not only among affluent consumers but across all income tiers and the regional trend is in line with the rest of the world.