The 2018 Middle East Sentiment Survey by McKinsey & Company highlighted the swift shift in the behaviors of Arab consumers, who have become more cost-conscious, and less brand-loyal. The report showed that over 55 percent of consumers in different Middle Eastern markets, especially in Saudi Arabia, seek opportunities to save through many creative ways and methods to lower their spending.
The survey was launched last week at the Retail Leaders Circle in Dubai by Peter Breuer and Gemma D’Auria from McKinsey & Company.
The survey found that almost 35 percent 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 percent in April 2017.
The survey also revealed that 78 percent of consumers in the region changed their buying habits to save money. Multi-channel shoppers have cut spending in all channels and increasingly favor discount formats and chain grocery stores.
The study found that Saudi Arabia and United Arab Emirates 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 Saudi Arabia, 34 percent of consumers are looking to buy their preferred brands at any price point, compared to 42 percent in April 2017. In the UAE, this number was 34 percent compared to 41 percent in 2017.
D’Auria, leader of the retail practice in McKinsey’s Middle East office, said: “Interestingly, consumers in the UAE and Saudi Arabia 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.”
According to the survey, shoppers are classified into five categories based on their behavior: savvy cost-cutters, thrifty brand loyalists, selective splurgers, trade-down converts and multi-channel shoppers.
Across the globe, more consumers traded up to more expensive brands, while fewer consumers traded down to cheaper options. Although the overall consumer sentiment illustrates a shift towards cost consciousness, the market remains fragmented with a consistent and sizable number of consumers still willing to trade up to higher value or luxury brands.
In the region, almost 16 percent traded down and 11 percent traded up in this year’s survey. As consumers in the UAE and Saudi Arabia continue to move away from mid-market brands, Saudi Arabia was ranked 8th and the UAE was ranked 11th from among a group of 30 countries. In the UAE, 14 percent traded down and 12 percent traded up, while in Saudi Arabia 16 percent traded down and 11 percent traded up in this year’s survey.
The survey also showed that approximately 54 percent of those who have opted to trade down were happy with this decision with 46 percent admitting a desire to return to their old brands. In the Saudi Arabia, 45 percent of those trading down expressed satisfaction, up from 41 percent in September 2016.
In this context, D’Auria explained: “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. This shift is attributed to an increase in the perceived and real quality of lower tier brands.”
Reports show that entrepreneurs 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.
Peter Breuer, leader of the retail practice in McKinsey’s EEMEA region, said: "Quality enhancement and a wider assortment of private labels 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 a roadmap and enablers and capabilities.”
The survey also revealed that the shift to e-commerce is happening faster than it was last year. It is seen not only among affluent consumers, but across all income tiers and the regional trend is in line with the rest of the world.
