E-grocery remains the fastest growing segment of e-commerce in the Middle East according to new research from RedSeer Consulting, growing twice as fast as the overall e-commerce market in the region.
In the UAE, the e-grocery market has grown by 300 per cent in the third quarter of this year and is now worth $1.1 billion while Saudi Arabia’s market has grown by 500 per cent to $530 million. Overall in Mena the e-grocery market is currently worth $2 billion and accounts for 12 per cent of e-commerce.
The growth has beaten analyst expectations and is down primarily to the high customer retention rates post lockdown.
“We underestimated grocery, the market did not decline the way we estimated, the [customer] retention we are seeing is very high,” says Sandeep Ganediwalla, managing partner at Redseer Consulting. “Pre-covid, e-grocery was around 5 per cent of e-commerce, during lockdown it went up to 24 per cent.”
Last year, the e-grocery segment accounted for about 1 per cent of all e-commerce in Mena. While e-grocery startups had emerged in the major cities, basket sizes were still small, ordering was infrequent and trust was low. People preferred to see and touch their groceries before buying them.
With lockdown restrictions, consumers had little option than to order online. People also began to cook more and make use of the extra time at home while attempting to spend less. E-grocery therefore became the biggest beneficiary in the e-commerce sector. Research from Dubai-based elGrocer, shows that the fear of contracting Covid-19 is one of the main reasons why consumers continue to shop online, alongside greater convenience and time efficiency.
“In Q4, we will see how these trends continue to evolve. These changes in buying patterns is driven by the fact that consumers in the UAE are conscious about their spending across different segments. Residents across the Emirates are now more promo-driven, more price sensible and less brand loyal,” says Xavier Nunes, chief marketing officer at elGrocer.
This lack of brand loyalty has opened up the opportunity for more players to enter the market and since the lockdown several new players have emerged, from the food delivery apps offering groceries on their platform to both Noon and Amazon launching daily essentials.
“Trust is very important in e-commerce and the e-grocery players have steadily gained the trust,” says Ganediwalla.
The level of trust is reflected in the reduction of cash on delivery (COD), which now only accounts for a third of payments in online grocery sales.
“Sixty per cent are using their card or digital wallet because of the frequency of orders, the product comes on time, suppliers are willing to take the product back if it is bad and once customers feel comfortable that their money is not getting lost, they stop paying in cash,” says Ganediwalla.
The unprecedented growth of the sector has led to more hyperlocal offerings and the emergence of dark stores (primarily from Carrefour and Talabat) which are essentially warehouses from which delivery orders are fulfilled for quick delivery. According to Redseer, long delivery times are the biggest pain point for customers in the UAE, while for Saudis it is the lack of discounts and promotions.
While growth for the rest of the year is expected, it is unlikely to grow at the same rate according to Ganediwalla who expects more acquisitions to happen in e-grocery. In August, Dubai-based InstaShop was acquired by Germany’s Delivery Hero in a deal worth $360 million, one of the biggest exits to date in the region.
This month, Lulu International Holdings, the operators of the Lulu hypermarkets raised $1 billion from Abu Dhabi’s ADQ to fuel its expansion and analysts expect some of this investment to be used to boost its online presence, potentially with an acquisition.