25 Jun The Rise of E-Grocery in MENA – Market Size & Statistics
Recently, the MENA region has witnessed dynamic and fast-paced development across various sectors. Moreover, the e-commerce industry has especially been booming with the rapid transition to a digital world. This e-commerce industry boom is owing to not just the high internet and smartphone penetration rates (with some countries in the region being ranked the highest in the world), but it also due to the long time spent commuting to work or at work. For instance, the UAE is second in the list of longest commute time to work and also for longest working hours (Wamda, 2019), which means the residents can hardly take out time for grocery shopping. These factors, coupled with an increasing number of women joining the workforce and overall rise in consumption, mean that the typical household in the MENA region now looks towards digital solutions (like online delivery), to carry out their everyday tasks. A chore such as a grocery shopping is now being carried out in the palm of a hand through an application or a website and not beside a window waiting for the local street-seller to show up or at the local supermarket. However, while only 30% of consumers have switched to online grocery shopping, 60% still prefer to physically visit large supermarkets (Wamda, 2019) such as Danube, Panda, and Lulu.
However, this low number of people shifting to online grocery shopping, is in contrast to the confidence consumers have when it comes to ordering ready-made meals online. Food delivery services have become increasingly popular with the likes of Talabat, Hungerstation, Zomato, Deliveroo and UberEats dominating the MENA market. Competition is tough and both local and international players race to deliver to thousands of households every day. In the UAE alone the food-delivery service is worth around $3.5 billion and three out of every five people in the population are using an application to deliver their meals, (Wamda, 2019).
Today, the e-commerce market in MENA is worth a whopping $8.3 billion and is worth $7.2 billion in just the UAE, Saudi Arabia and Egypt alone. Separately, the e-groceries market is valued at $200 million in the GCC and Egypt, accounting for a minuscule 2.4% of the overall e-commerce space (Wamda, 2019), leaving a lot of room for potential growth. Despite this, the per capita expenditure on annual food consumption is promising: UAE and KSA residents spend close to $1700 every year, while their Egyptian counterparts spend less than half of that ($571), (Wamda, 2019). Also promising are the large basket sizes in the region since the majority of households are characterized as extended families and prefer to carry out bulk shopping. They are also in the habit of frequenting one large supermarket every three weeks for their grocery needs and re-load on food items when needed. On just the re-loads and top-ups alone, consumers are spending anywhere between $20-80 and we expect this amount to increase as consumer confidence on e-commerce continues to rise.
- UAE: Being the most acquainted with online food delivery, the UAE makes up 4.81% of the MENA grocery market. Over 50% of residents prefer to shop for groceries at hypermarkets (Wamda, 2019), suggesting that in-store promotional offers and variety of choice are contributors to this pull. Based on this, hybrid and Pure Play models focusing on fast delivery are more likely to succeed in the market.
- EGYPT: Due to the relatively weak currency, the Egyptian e-grocery market cannot reach as high revenues as compared to other MENA players such as the UAE and KSA. Despite this, however, the typical Egyptian consumer has the highest expenditure on food consumption in the region, with basket sizes being bigger than those of their counterparts in other countries. The penetration of international grocery chains in the Egyptian market is low and is dominated more by traditional and local retailers who make up nearly 75% of the market, (Wamda, 2019).
- KSA: Saudi Arabia is one of the MENA region’s highest country regarding food expenditure and basket sizes. After the Shoura Council’s 2016 decree of prohibiting foreigners from working in neighborhood grocery stores (baqalas), the KSA grocery market went through sudden defragmentation and many stores closed. This forced consumers to visit bigger hypermarkets but because of the long commuting times and heavy traffic in cities such as Riyadh, the task became a cumbersome and at least three-hour long trip. Subsequently, consumers started to look towards the e-grocery market, giving a major boost to players such as Danube and Wadi.com.
Compared to the urban residents, the rural residents of the MENA region still have a long way to go to benefit from the e-grocery market. Problems related to logistics and a conservative and anti-western culture are contributors to the low adoption rates of e-grocery in these rural areas. However, with the constant rise in smartphone penetration rates and the availability of a wide variety of choices online as compared to the local grocery store, the growth of the e-grocery market is promising and may soon permeate through not only rural areas but also villages far and beyond.
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The GCC is an especially attractive market for both local and international players due to price insensitivity, high food consumption, large basket sizes, and quick adoption of e-commerce technology. Although local e-grocery players are still developing their offerings, international giants have moved in to capitalize on the lucrative market. Amazon, the world’s largest retailer, has entered the race ever since its acquisition of Whole Foods and Souq.com. Falling back on its strong infrastructure and logistics set-up, the American giant is rapidly becoming a strong e-grocery player to reckon with and is rivaling Noon.com, a Riyadh-based e-commerce platform offering a limited variety of basic non-perishable food items. Currently, the $1 billion e-commerce platform has an upper-hand when it comes to understanding the local GCC consumer, and this coupled with its 2017 partnership with eBay (Cuthbert, 2018), could provide it with the strong logistical network and consumer behavior insights it must take on Amazon in the region. Eventually, this could lead to price wars as the two e-commerce platforms continue to tackle each other. Besides this could possibly lead to decreasing margins and cannibalization of local players, and it will be the consumer, who will benefit and reign supreme in the end.
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Despite being the least penetrated segment in the e-commerce market, e-grocery is likely to be the only segment which could expect 100% growth rates every year for the next few years. Many of the brick and mortar grocers are responding to changes in consumer behavior and are now going online to cater to consumer needs. Majid Al-Futtaim, the UAE retail giant who owns Carrefour’s franchise rights in the region, initially invested $30 million in Wadi.com in November 2018 and then eventually acquired it in early 2019, (Paracha, 2019). This investment by Majid helped to provide a platform for the hypermarkets with over 12,000 SKUs.
Even though companies are tapping into the e-grocery market at a rapid pace, there are still hurdles being faced from the consumer’s end. The typical Middle Eastern consumer is still averse to purchasing food items online and prefers to see, hold and gauge the quality and freshness of food items by themselves. This need to verify the freshness of food by oneself is one of the reasons so many shoppers prefer the COD or cash-on-delivery method when making purchases since it gives them a chance to check the quality of food items delivered to their doorstep and return them if needed. A curse for all e-commerce stores, COD can become a burden for many players in the market and costly too. E-grocers, especially PurePlay models, can suffer high amounts of cost and food wastage when at the time of delivery consumers refuse to pay due to quality reasons, a change of mind, or are simply not at home. This scrutiny in checking the quality of the products has pushed e-grocers to improve their supply chains and reduce the chances of food damage caused during transportation. Hence, increasing value is associated with hiring professional buyers to select fresh food items from farmers to maintain quality control. All this will be needed to encourage consumer confidence in the e-grocery market and earn their trust enough for them to forgo COD and switch to paying upfront through the application.
Cuthbert, O. (2018, July 13). Middle East shopping site Noon to enter China market. Retrieved from arabnews: http://www.arabnews.com/node/1337666/business-economy
Paracha, Z. N. (2019, May 16). Dubai’s Majid Al Futtaim has acquired Saudi grocery delivery platform Wadi.com. Retrieved from menabytes: https://www.menabytes.com/saudi-new-residency-permit/
Townsend, S. (2018, November 9). Exclusive: The $1bn e-commerce firm Noon hunts for acquisitions. Retrieved from thenational.ae: https://www.thenational.ae/business/technology/exclusive-the-1bn-e-commerce-firm-noon-hunts-for-acquisitions-1.789627
Wamda. (2019). Online grocery retail in MENA. Wamda Research Lab.