The United Arab Emirates (UAE) and Kingdom of Saudi Arabia (KSA), key markets in the Gulf Cooperation Council (GCC) region, have experienced significant change over the last few years. Current global economic conditions, oil price fluctuations, decreased tourism activity, an unstable real estate market in the UAE, and higher defense spending in KSA over the last year have all pressured the growth rate of the region’s consumer packaged goods (CPG) segment.
For consumers, the changing economic landscape has made the job market more challenging, which has subsequently affected disposable incomes. Consumer sentiment has dampened as a result, which is reflected in their spending patterns. As a result, the growth rate of the CPG sector in the UAE has slowed by 1% year on year and by 3% in the first five months of 2016, according to Nielsen’s Retail Audit Tracking study. The CPG market in KSA on the other hand, has been more resilient, posting growth of 7% year on year and 5% in first five months of 2016. Are these rates the new normal for these two economies that saw high single- to double-digit growth just a few years back?
As is common when the economy constricts, consumers are becoming increasingly price-conscious, cutting down on their shopping trips and rationalizing spends by reassessing basket size and assortment. Findings from the recent Global Retail Growth Strategies Survey found that consumers in these markets are actively looking for promotions and are increasingly aware of price changes. In fact, not only are the consumers conscious of their spending due to current economic conditions, but many relish the thrill of seeking out good deals (58% of respondents in the UAE and 54% of KSA respondents say they enjoy taking the time to find bargains). Additionally, half of the respondents in the UAE and KSA say they are cutting down on luxury items and moving toward buying only the essentials.
In KSA, Nielsen’s Retail Audit report shows that the current conditions are affecting the growth of non-essential categories like impulse and beverages more than grocery, personal care and household bands. For grocery, personal care and dairy, consumers tend to find large packs more attractive; as they seek to get more value for money as the cost per grammage declines.
In terms of overall consumer sentiment, Nielsen’s second-quarter Consumer Confidence Index found that the index levels for both UAE and KSA were above the baseline of 100: UAE had an index of 109, up five-points from the first quarter, and KSA had an index level of 104, flat from the previous quarter.
While the recent confidence findings showed an improvement and stability in consumers’ sentiments on job prospects, personal-finance and immediate spending intentions, they highlighted that consumers remain cautious, as many have made more efforts to change their spending patterns in order to save more. Notably, the percentage of respondents who have admitted to changing their spending patterns in order to save on household expenses is up this year: 69% of KSA respondents in Q2 2016 (vs 62% in Q2 2015), and 73% of UAE respondents in Q2 2016 (vs 70% in Q2 2015).
“In this challenging retail environment, it is important for retailers to understand the shift in consumer behavior and spending patterns,” said Arslan Ashraf, Managing Director, Arabian Peninsula and Pakistan, Nielsen. “As consumers are rationalizing spends, marketers should be more conscious in making decisions on their value offering, retail execution, seek out opportunities and closely monitor consumer behaviors to make tactical calls. Innovating affordable portfolio to cater to all layers in consumer pyramid would be mantra for success.”
For additional insights, see our infographic on the new normal in the GCC.