June 18, 2024

Index shows Middle East and Africa are retail’s next big global hot spots

3 min read

Entering a new market, or deciding to expand as a retailer, is a move that carries with it very high stakes and very real risks. Success can never be guaranteed. Given the high stakes, the smart retailer would make his or her decisions based on objective data and informed insights.

“This is why we created the biennial Global Retail Development Index (GRDI) in 2002. The latest edition of the report paints a very rosy future for Africa and the Middle East,” says Kearney partner, Prashaen Reddy.

The GRDI focuses on the top 35–40 emerging economies and evaluates their relative attractiveness to retailers based on an in-depth examination of (among other factors) economic health and stability, government policy, competitive activity, penetration of e-commerce, consumer behaviours, and demographic, social and cultural considerations.

This year’s GRDI shines a spotlight on the Middle East and Africa (MEA) as retail’s next big global ‘hot spot’. Their youth-driven urban populations, a projected doubling of disposable income by 2040, and favourable government policies are just some of the factors that give MEA countries such high potential for retail sector growth.

“Since its inception, the countries ranked on the GRDI have tracked closely as the top destinations for retailers. This shortlisting ensures the analysis focuses on the most successful emerging markets of today and those that therefore offer the highest potential down the road,” says Debashish Mukherjee, partner at Kearney Middle East & Africa – Consumer & Retail Practice Lead.

Globally, the GRDI identified six key trends that had the most significant impact on developing nations:

  • Macro-economic uncertainty – The hope for a ‘new normal’ is not all that normal, and global economic uncertainty remained high across large developing economies, which weighed on gross domestic product growth and purchasing power.
  • Inflationary pressure on consumers is forcing them to trade down – Even though luxury and premium products have an established consumer base at the economic top of MEA nations, shoppers in these emerging markets including KSA, Egypt and Türkiye are increasingly opting for less expensive, local and private label items as substitutes for pricier imported and branded products.
  • The ongoing journey of e-commerce growth continues – Globally, e-commerce is expected to grow at twice the rate of brick-and-mortar retail with a CAGR of about 10% to 12% until 2027.  In emerging markets, most of this growth is the result of growing access to digital marketplaces that continue to take root and rapidly change consumer behaviour, especially when those consumers are younger and living in cities.
  • Omnichannel continues to define retailers’ strategy – While omnichannel is considered table stakes in most developed economies, in many developing nations an omnichannel approach is still in its nascent or early evolutionary stage. While that is true, it is also true that store-based retailers in developing markets are continuing to invest in developing omnichannel capabilities, particularly in terms of fulfilment and customer services including in-store pick-up, curb-side pickup etc.
  • The increasing rise in e-payments and buy-now-pay-later (BNPL) options – Customers in emerging markets are moving quickly to new payment options. Shoppers in the APAC region are rapidly adopting digital wallets, while MEA customers have eagerly embraced the adoption of BNPL.
  • Rise of retail AI – Retailers in MEA are increasingly turning to emerging technologies to leapfrog traditional market evolution to create new, vibrant experiential marketing approaches designed to attract, entertain, educate and better service consumers. The use of artificial intelligence generated virtual avatars and live streaming by some of China’s largest retailers are examples of the kinds of innovations being introduced.

“Across the globe – especially in emerging economies – retail markets continue to face strong headwinds, especially in terms of macro-economic factors such as inflation and currency fluctuation, political conflicts, the impact of changing demographics and, of course, environmental factors from superstorms to droughts,” says Mukherjee.

“Of course, each of these challenges also offers opportunities. To leverage these opportunities, global retailers need to carefully match their strategic ambitions and investments against the balance of their portfolios – and that requires careful thinking and data-based decision-making.”

Image credit: pressfoto/Freepik

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