Adapting to the changing Saudi shopper
A combination of the economic slowdown and tax increases in Saudi are causing a change in shopper behaviour. Overall Saudi shoppers are spending more cautiously, as a result over the last 12 months there has been a decline in consumption across 90% of categories. Spend on promotions is also up, from 49% to 58% in modern trade.
Buying fewer brands
Saudi shoppers used to seek variety, but this year they bought less brands in three out of four categories and their brand repertoire is shrinking, which suggests that they are experimenting less. While some shoppers have stopped buying many non-essentials, others have cut down the number of brands they buy, particularly in the non-food categories. A shopper is likely to drop a secondary shampoo or snack brand, but they will continue buying the same yoghurt and laban (a cooling yoghurt drink) brands at least once a year.
Driving relevance, emphatically communicating your competitive advantage and being top of mind is extremely important for brands at this time.
Searching for cheaper options
Post Saudization, the policy whereby businesses are required to fill roles with Saudi nationals, modern trade saw an upsurge as baqalas (small grocery stores) could not find the labour to staff shops.
Modern trade formats also helped manufacturers to reap short-term benefits by attracting shoppers on deals. Although the growth of modern trade stabilized in 2016, the level of promotion has kept on growing. Shoppers are seeking value so they either look for products on promotion in modern trade or they shop at wholesalers, although this is still a relatively small part of the market.
The search for value means that shoppers buy in bulk while on offer, manage their consumption and then buy again when the next promotion is available.
This over reliance on promotions has led to a value erosion for food and non-food products like detergents, shampoos, cheese, milk powder, chocolates and instant coffee. It is difficult to reverse the trend in the short-term as it is a competitive environment, however it is not sustainable in the long-term.
Tactical promotions are healthy for growing a category, but the issue for retailers and manufactures in Saudi at the moment is to identify the optimum promotional balance.
Shopping less often
A typical household in Saudi has reduced the number of shopping trips they take by seven per year – a total of 24 million shopping trips were lost last year. Shoppers have also managed to save 1 SAR per trip which implies they have cut down on consumption.
The reduction in consumption has been achieved in various ways, for example wasting less, hosting less, optimizing usage, reusing or substituting. Shopping less often can also be the result of bulk purchasing. Categories like chocolates, tea, laban, sanitary napkins and bleach however did not grow consumption levels even though shoppers bought more on each occasion.
With an expected exodus of expat workers and the closure of smaller shops, it’s more important than ever to clearly communicate reasons to buy at the moment of truth. Manufacturers and retailers need to understand the product attributes shoppers are looking for and how this should be positioned within the store.
Wait or weight?
While Saudi homes are finding different coping mechanisms to minimize spending, manufacturers are searching for ways to grow or at least sustain their market share.
One of the current questions is whether to push on promotions, bundle with other products or produce larger pack sizes. In an ideal situation, larger pack sizes would help to increase the consumption levels but the conscious Saudi shopper is already consuming less so this won’t necessarily work.
The answer is to have a mixture of pack sizes, focusing purely on the larger sizes won’t work for the light shoppers. Typically, more than 50% of shopper base is lighter brand shoppers and only 20% are heavier ones. Their consumption need is lesser than heavy shoppers so they either buy less often, go for smaller packs or both. Also, smaller packs are generally trial packs which first time shoppers would look for.
Amongst the brands growing value in Saudi, only one out of 10 brands grew due to repeat purchases.
Buyer acquisition remains key to growth.
Once a healthy market share is achieved, these light trips can be gradually upsized. It is important first to define the consumer need by studying current usage patterns and then to understand the cues to gradually instill more consumption habits among lighter users, for example by communicating additional uses for a product.
The reduction in shopping trips is due to economic pressure as well as bulk buying. In the current environment, marketers need highlight ‘value for money’.
Surviving the downturn
As a result of the current economic environment in Saudi, there is a reduction in consumption overall, too much focus on promotions and a reduction in frequency. There are some key actions that should be considered to help manage this:
- Convert more sales at the moment of truth by driving better visibility in-store such as secondary settings, shelf highlights and end-of-aisle placement.
- Use promotions tactically, rather than as the mainstream, and focus on key stores.
- A price pack strategy which reflects consumer needs will help to maintain buyer share when frequency is reducing.
It is always important for a brand to communicate its unique selling proposition and emotional benefits, but in a time of challenging economic conditions, it is more vital than ever to maintain or even increase its share of voice.