GCC consumers becoming more price-conscious

McKinsey survey reveals five behaviour shifts

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Consumers in the UAE and Saudi Arabia are becoming increasingly price sensitive and demanding, while expecting more convenience, according to a new survey published this month by global management consulting firm McKinsey & Company.

The Consumer Sentiment report, which surveyed 2,000 respondents online in September 2018, found five major behaviour shifts in recent years. These shifts include: more cautious spending, eroding brand loyalty, an increase in online shopping, a higher consideration for purchasing healthy food and growing demand for local goods.

"The survey this year has just confirmed the trends that we have been seeing now in the last two years," Abdellah Iftahy, partner at McKinsey Middle East and co-author of the report, told The National. "I think trend number one from a consumer perspective is that consumers are more and more cautious. What we saw here in the UAE and in Saudi — and that's true for nationals and expats — that consumers are … spending less and saving more."

In both countries, more than 40 per cent of survey respondents said they are cutting down on spending and paying closer attention to prices. This is mainly due to anxiety about potentially losing their jobs, a reason cited by 80 per cent of survey respondents in the UAE (up from 75 per cent in 2015) and 72 per cent in Saudi Arabia (up from 62 per cent).

More consumers are switching from their preferred brands to less expensive options. Around 15 per cent in the UAE and 17 per cent in Saudi Arabia of consumers said they were “trading down”, while trade-down rates three years ago were only about 10 per cent. More than half of down-traders said they do not intend to trade back up even if their financial situation improves.

“All brands and consumer companies when they come here, they think that this is a region where they can price higher and that the consumer spending power is much bigger. In fact, consumers now have access to much more transparent prices across the categories … and are able to now compare prices online to offline,” Mr Iftahy said.

E-commerce is catching on with 62 per cent of UAE consumers citing convenience as the top factor for shifting to online shopping. In the UAE, survey respondents estimated that they have increased their online spending by 31 per cent over the past year, putting pressure on traditional retailers to offer more value.

Online retail sales are projected to grow by at least 20 per cent per year between 2017 and 2022, far outpacing the estimated 3 to 5 per cent compound annual growth rate for brick-and-mortar sales.

Middle East consumers are also becoming more health conscious in their purchases. In the UAE, more than half of consumers across age groups — compared with only a third of consumers in the US, according to McKinsey’s US survey — said that having “all-natural ingredients” is either “always” or “usually” an important consideration when buying packaged foods. More than 40 per cent of UAE respondents said other important considerations included being “low sugar”, “low fat” and “made with real sugar, not substitutes”.

Demand for local goods in the GCC is another emerging trend with a recent McKinsey survey of millennials showing that that they are almost four times more likely to distrust “big food companies”. Large grocers’ sales in the region declined by 3 to 8 per cent, while luxury retailers’ sales declined by 3 per cent on average.

The report recommends that retailers “fine-tune their assortment, branding, and pricing and promotions to meet the specific needs of the increasingly price-sensitive and more demanding consumer”, while ramping up their e-commerce presence.