Is E-commerce the Future of Retail in Saudi Arabia?

The key insights NielsenIQ has shared about consumer behaviour in Saudi Arabia, highlighting why this is crucial for retailers and brands.

Price Sensitivity

Saudi consumers are very price-sensitive. In fact, 86 percent are aware of the prices of their regular grocery items and keep an eye on price changes. This price consciousness is significant because 43 percent of consumers switch stores to find the best promotional offers. Additionally, 78 percent take advantage of special deals, and 80 percent have visited more local retailers in the past six months. This means that competitive pricing and promotions are critical for attracting and retaining customers in Saudi Arabia.

Need for Innovation

There's been a remarkable increase in innovation over the last two years. Innovation has increased fourfold, which shows a major shift towards a more innovative culture in Saudi Arabia. Out of 19,172 unique products (SKUs) launched in the past two years, only 20 percent continue to grow in their second year. This growth is due to strong propositions, effective execution, and proper activation. Essentially, for a product to succeed, it needs to stand out and be well-marketed.

Growing Saudi Retail Universe

The retail sector in Saudi Arabia has grown by 12 percent from 2020 to 2024, and now there are over 120,000 retail stores, with 60 percent located in the top four metropolitan cities. Interestingly, only 20 percent of SKUs contribute to 90 percent of total FMCG sales in hypermarkets and supermarkets. Self-service and grocery stores are growing faster than other FMCG channels, indicating a shift in consumer shopping preferences.

Rise of E-commerce

E-commerce in Saudi Arabia has seen substantial growth, especially in Home care and Personal care products, with shelf-stable food items also growing significantly. By early 2024, the online channel generated almost a third of market revenue. This represents a 3.3x increase in online revenue and a 17 percent increase in the number of brands available online since 2019. E-commerce is clearly becoming a major player in the retail market.

NielsenIQ’s Managing Director in Saudi Arabia, Pavlos Pavlou, points out that despite the evolving global retail landscape, Saudi Arabia stands out as remarkably resilient. Consumer volume has increased by 1.9 percent compared to last year, in a market valued at SAR 73 billion. Even though Saudi consumers are price-sensitive, they contribute 25 percent of FMCG sales to premium products. They are also open to new products, driving a quarter of the growth through innovations. This indicates significant opportunities for manufacturers in this dynamic market.

What’s Next

• Consumer Spend: It is expected to increase by up to 4 percent in the next two years, driven equally by population growth and inflation.

• Retail Universe: As the retail landscape continues to expand, it's crucial for brands to ensure their products are available in the right stores with the appropriate assortment, especially given the price sensitivity of Saudi consumers.

• Innovation: Innovation will be essential for achieving incremental growth amidst competition for shelf space and visibility across both traditional and modern trade channels.

Understanding these trends and adapting strategies accordingly will be key for retailers and brands looking to succeed in Saudi Arabia.