Consumption still recovering – is there an opportunity to accelerate the growth?
FMCG consumption showed a slow recovery by less than 0.5% in Saudi Arabia (KSA) and UAE in the last quarter of 2023.
The observed slowdown can be attributed to heightened price sensitivity among consumers and a shift in consumer preferences. At the same time, E-commerce reported impressive consumption growth rates in Q4 2023 as well as during the last 3 years.
Heightened Attention to Price Swings
In the final quarter of 2023, we noted a decrease in prices for E-Commerce Fast-Moving Consumer Goods (FMCG) categories, with a reduction of approximately 3% in the UAE and 5% in Saudi Arabia (KSA). This price drop played a significant role in boosting consumption through this channel, with an increase of 28% in the UAE and 16% in KSA.
Notably, while UAE saw a modest increase in FMCG consumption through Modern Trade channels 2.3%, there was concurrently a decline in overall FMCG by 3% in the last quarter of 2023. In contrast, Saudi Arabia experienced a reduction in consumption, marked by a 0.9%, alongside a marginal downturn in growth of 0.2% in the last quarter of 2023.
Price increases led to the variation in consumption trends, primarily within the Baby Care category in KSA and the Personal Care category in the UAE.
63% in KSA and 88% in UAE of FMCG categories experienced price increases of up to 10%. Interestingly, promo sales increased in KSA by more than four percentage points reaching 42% and at UAE it is stable at 33% versus last year. The discrepancy in pricing between KSA and UAE underscores varying market dynamics and possibly different strategies employed by businesses to address economic challenges.
E-commerce spending and growth
The e-commerce sector has shown remarkable resilience and dynamism, points out Andrey Dvoychenkov, NielsenIQ APP General Manager and explains that this phenomenon underscores a robust consumer demand within the digital marketplace, which appears undeterred by the financial challenges presented by rising costs: “The continued expansion of e-commerce under these conditions suggests a significant shift in consumer purchasing behavior, with a growing preference for the convenience, variety, and often competitive pricing that online shopping platforms offer.”
This trend may also reflect the increasing confidence of consumers and their willingness to engage with e-commerce platforms. The strong growth rates in e-commerce amidst price hikes indicate not only the sector’s resilience but also its potential to thrive and adapt in varying economic landscapes. “By recognizing and leveraging these trends, organizations have the potential to reinforce their market presence and capitalize on the sector’s expansion”, says Dvoychenkov.
Increase in prices vs Traditional Trade
Traditional Trade (TT) of smaller-scale outlets and independent businesses in KSA and UAE have witnessed 2.1% & 1.9% average price increase respectively in the last 3 months of 2023. With 83% of categories in KSA and 74% of categories in the UAE showing increasing average prices in the last 3 months versus last year, consumers in both regions feel the pinch of the price increase.
Snacking is the highest price increasing basket in both KSA and UAE, and in effect what we are seeing is that specifically in KSA consumption growth and price changes are supporting TT growth while consumption drops are causing value decline in UAE.
On another note, for the Technology and Durables (T&D) sector, 2023 full year growth was consistent across both regions, with KSA and UAE recording increases of 5% and 4% respectively. The expansion in KSA was primarily driven by significant advances in the Telecom (16%) and Small Domestic Appliances (14%) categories. Similarly, in the UAE, the growth rate of 4% was largely attributed to notable gains in Telecom (20%) and Small Domestic Appliances (14%).
“For both FMCG and T&D sectors, adopting an omnichannel strategy is a fantastic opportunity for businesses and crucial for success due to the intense competition in pricing and market presence. Moreover, the adoption of E-Commerce across the consumer product spectrum highlights the importance of convenience and a broad product selection as principal factors influencing consumer preference and behavior”, concludes Dvoychenkov.