By Stefanie Cunningham, general manager – E-commerce of Omnicom Media Group MENA’s consultancy OMG Transact
Saudi Arabia is a hot topic for e-commerce growth, with online sales projected to exceed SAR 50 billion by 2025, representing 13 per cent of revenues, up from a 9 per cent penetration today. The Kingdom’s online performance is continuously growing ahead of offline sales, driven by categories that over-index online, such as apparel, electronics and appliances. Saudi Arabia’s e-commerce development, operations and experiences may be lagging behind its UAE neighbour, but its population is more than three and a half times the size, making it the priority focus in the MENA region for most brands.
Several factors are driving this e-commerce progression, firstly Vision 2030, which underpins the Saudi government’s infrastructure investment aimed at improving broadband and digital payments. Secondly, Covid-19 has had a lasting channel-switching impact on shopper behaviours. A study by Mastercard found 77 per cent of Saudi consumers are likely to shop more online since the onset of the pandemic. Alongside this, the consumer base in Saudi is young and digitally connected, with a high spending power and boasting one of the highest smartphone penetrations globally (97 per cent), social media engagement (3+ hours per day on average) and online spending power ($553 per user annually). Market dynamics also play into the hands of e-commerce, with Saudi’s low retail store penetration (0.25sq metres of leasable retail space per capita) outside of the main cities meaning online orders available 24/7 nationwide fill this offline retail void.
The final strategic driver is linked to retailer investment in the region, Amazon flipped in 2020, and in turn improved the expectation of shopper experiences in terms of last-mile delivery, selection, loyalty benefits and customer services. Amazon raising the bar in e-commerce means competition has to follow suit, leading to a positive halo effect. Pure players like Nana and Quickmarket are already winning with last-mile speed. Delivering in under 40 minutes has helped the e-groceries vertical achieve growth in excess of 300 per cent
in 2020.
However, the market still presents some challenges that need to be considered when building strategies in the Kingdom. These include the lack of data accessibility and nascent ad-tech as most retailers haven’t yet developed retail media with meaningful targeting, optimisation or insights capabilities. Brands launching direct-to-consumer (DTC) e-commerce propositions are likely to face last-mile issues. The high percentage of cash on delivery and poor address infrastructure often lead to order cancellations that dilute an already tight profit and loss.
Over the last few years, we’ve managed to navigate this exciting market and help our clients capitalise. We’ve found that four levers were particularly effective in driving growth:
1. Selecting the right e-commerce retail partners: The offline and online retail landscapes in Saudi Arabia are different. Pure players such as Amazon, Noon, Hungerstation and Nana dominate in their respective areas. Brands must reassess their online partnerships and pressure traditional omnichannel retailers to activate their e-commerce capabilities, ensuring agreed offline visibility and incentives are applied online too.
2. Getting the e-commerce basics right: When more than 60 per cent of product searches globally start on Amazon, e-commerce is the window to your brand. To be discovered, your products must be live with optimised digital shelf content. Retail readiness audits and optimisation are essential to win in e-commerce.
3. Tap into retail media: Amazon’s demand-side platform (DSP) launched in Saudi in 2021, allowing brands selling and not selling on the platform, like automotive, to build video and display campaigns targeting rich first-party audiences. This is an essential media option to create awareness campaigns based on Saudi shopper behavioural data and to identify consumers in-market for your brand based on engagement with Amazon’s platforms (Amazon.sa, IMBD, Twitch). These campaigns can drive seamlessly to the point of purchase either on Amazon or your own DTC store.
4. Local relevance & events: Saudi National Week in September, Ramadan and Cyber Month are key shopping events in the Kingdom. Ensuring e-commerce advertising budgets are paced with higher investment during these moments, as well as exclusive online discounts and forecast stock availability, will drive volume and revenues.
The potential for growth in Saudi Arabia cannot be overstated and means the Kingdom should be the highest priority on all e-commerce strategic agendas in the MENA region. In this vast country, the playing field remains wide open for both brands and retailers to take their share of the rapidly rising demand from Saudi consumers.
