ME consumers: Cost-conscious, less brand-loyal and shifting purchase behaviors

April 06, 2018

THE 2018 Middle East Sentiment Survey by McKinsey & Company reveals that consumers in the region are becoming more cost-conscious, less brand-loyal and rapidly shifting purchasing behaviors. Approximately 55 percent of consumers are now actively looking for savings across markets, with those in Saudi Arabia leading the pack. They are finding creative ways to spend less and more actively considering alternative brands than in previous years. The survey was launched last week at the Retail Leaders Circle in Dubai by Peter Breuer and Gemma D’Auria from McKinsey & Company.

Amongst the survey’s findings, 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. Multichannel shoppers have cut spending in all channels and increasingly favor 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 percent of consumers are looking to buy their preferred brands at any price point, as compared to 42 percent in April 2017. In UAE, this number was 34 percent as compared to 41 percent 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 behavior — 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 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. 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 were trading up, from among a group of 30 countries. In the UAE, 14 percent traded down and 12 percent traded up while in the KSA 16 percent traded down and 11 percent traded up in this year’s survey.

Lower brand loyalty

In the region, 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 KSA, 45 percent of those trading down expressed satisfaction, up from 41 percent 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 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 e-commerce 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. — SG

April 06, 2018
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