18 Feb

HOW E-COMMERCE VALUE CHAIN CAN THRIVE IN MENA’S DIGITAL ECONOMY

E-commerce is expected to contribute more than 50% to the growth of global retail sector sales in 2021, up from just 7% of overall growth a decade ago. And with an annual rate of increase of 30% over the last three years, the GCC is achieving one of the highest rates of e-commerce growth in the world ahead of the global average and double the growth of the rest of the MENA region.

Across the UAE and MENA, the Covid-19 public health crisis has accelerated the growth of e-commerce both through the physical restrictions of lockdowns – retail was unable to open and customers unable to visit in person – and customers’ newly found trust in e-commerce.

Given the on-going effects of the largest global public health crisis since the Spanish Flu, it will come as little surprise that the e-commerce value chain has indirectly benefitted from a massive push for e-commerce solutions; players in the warehousing, delivery and logistics chain have grown to support the expansion of e-commerce retail in a region that already enjoyed a high e-commerce readiness factor.

But where and how can the value chain players thrive, and what are the challenges that can offer potential opportunities to innovative startups in the e-commerce value chain?

There are numerous e-commerce value chain players and service providers that together enable the smooth running of e-commerce in MENA; from products and sourcing to e-commerce platforms, from logistics & distribution to customer engagement, the value chain network and its supporting services has grown in tandem with the unprecedented growth in 2020. And not only is it here to stay; it’s likely to increase dramatically in the years to come.

1. MENA e-commerce growth

The world’s e-commerce market was estimated to be worth between USD 2.2tr – USD 3.5tr in 2019. Globally, e-commerce is the principal driver in retail growth. Estimates vary, but some predict that e-commerce retail sales will top USD 4tr in 2020.

Such is its phenomenal growth, as retail trends shift from bricks and mortar to online – in part due to the Covid-19 pandemic – that the UAE’s share alone is expected to top USD 9bn by 2022, up from USD 8.3bn just three years ago.

Ecommerce-enabled websites have more than tripled in number over the last five years, while the top five e-commerce sites have seen a 50% jump in visitors; between them, they now have over 20 million monthly users.

There is still significant room for growth, however, as e-commerce penetration in MENA remains low compared to other regions. The UAE’s e-commerce penetration – e-commerce as a percentage of total retail – was at 4.2% just three years ago, compared to MENA and GCC averages of 1.9% and 3% respectively. But it lags behind established players like the UK, with 16% penetration.

But why is the UAE the hub of the region, and why such optimism for growth?

The UAE has an estimated median population age of just over 32, meaning there’s a disproportionately high number of both digital natives and digitally savvy consumers. Coupled with one of the highest internet penetrations in the world at 91% (compared to 85% in the US and 59% in China) as well as high smartphone and social media penetration (66% and 99%), there is significant room for growth.

So with a growing digital population across the whole region and industry challenges that are by no means insurmountable, the opportunities to innovate to solve problems, influence habits and changed perceptions continue to grow.

2. What are the key opportunities in e-commerce?

Banking, back-office operations, business set-up and leasing, talent, cloud hosting, consultancy services and regulation & tax make up the backbone of the traditional key support industries. More recently, however, location technologies, logistics and distribution have become key contributors to the e-commerce industry as growth in the sector continues apace.

The pace of e-commerce demands a radical re-think of traditional supply chains. There are three key factors involved in intelligent e-commerce warehousing that offer opportunities for growth: visibility, flexibility and mobility. E-commerce order sizes are traditionally lower, meaning that warehouse picking, packing and replenishment is much more frequent. That, in turn, requires warehouse space to be used more efficiently. And given the increase in the volume of single-item orders, there will be an even bigger demand for intelligent warehouse management systems and barcode technology providers and resellers.

Last-mile fulfilment is a key component of the logistics sector and a crucial area of growth in MENA. Speed and cost is a big cause of concern right across MENA owing to an unreliable addressing system. For example, there are no zip-codes or postcodes in UAE, meaning that fast deliveries into the hands of consumers often suffer delays.

Some progress has been made through smartphone location technology, but there is room for growth with existing technologies. Geo-coding, for example, divides the world into 57 trillion squares measuring 3m x 3m; the technology allows users to pin-point a small square of the planet – the hallway outside your apartment door, for example – through a combination of just three randomly assigned words and navigate somebody to it.

Integrating such technologies into existing delivery and payment apps could pave the way to reducing the region’s above-average delivery & returns costs to something in line with global best practice.

3. Two start-ups taking advantage of opportunities in the value chain

Yameen, licenced in with Ras Al Khaimah Economic Zone (RAKEZ), an e-commerce platform and on-line marketplace delivering fresh fish and seafood, meat and vegetables straight to the customer’s doorstep. With a more affordable choice of favourite meat cuts, fish-filleting options and delivery timeslots, Yameen sources produce directly from farmers and fishermen, thus by-passing the wholesalers.

Its technology-driven process saves time without compromising on the quality and freshness of produce, maintaining a shorter cold chain – the requirement to maintain produce at between 0° and 4 °C – by eliminating the wholesaler stage; ordering is made more convenient with an easy-to-use delivery app available on Apple and Android operating systems.

Buying habits have been disrupted by Covid-19 and growth in e-commerce, expedited. That’s down both to the physical requirements to stay at home, and an unwillingness among shoppers to expose themselves unnecessarily to the dangers of the virus.

This re-balancing of priorities has, in turn, encouraged shoppers to re-examine previous attitudes to on-line shopping. And from start-up in 2019 to today, Yameen has experienced growth of 600%.

Now, UAE shoppers are more likely than ever to visit e-commerce platforms, not just for basic necessities like fresh food, but also for consumer electronics, cosmetics and luxury brands.

Jazp.com, also licenced in RAKEZ, is an online shopping platform that offers a wide range of high-quality products combined with unique offers and discounts. Founded in 2018, it offers what it calls an aspirational yet accessible product line – everything from consumer electronics to fashion, sporting goods and luxury international brands – and covers the UAE, Oman, Qatar and KSA.

In addition, it allows shoppers to collect rewards for activity on the site, including sharing and reviewing purchases with friends. With more discounted stock and an easy returns policy, its clients are more likely to experiment with their home or fashion styles.

Higher digital penetration in the UAE and MENA region is giving customers more and more choice. Coupled with a growing reliance on e-commerce transactions, shoppers who had previously been wary of on-line shopping have now grown to trust it as a reliable and convenient alternative.

In a recent survey, half of all consumers in the UAE said that they would maintain their current e-commerce shopping habits after the pandemic, despite the reopening of many physical stores. And with the forced change in buying habits during 2020, Jazp.com has experienced growth of 100% compared to 2019.

Growth opportunities for entrepreneurs in the UAE

For entrepreneurs and founders keen to join the SMEs already operating in the e-commerce value chain, it’s never been easier to set up a business with an e-commerce licence in one of the UAE’s many free zone authorities.

The e-commerce ecosystem enjoys strong and on-going support from the government and its agencies; the climate is business-friendly, with easy company set-up and access to venture-capital and incubator services. In addition, a variety of free zones offer easy set-up with e-commerce licences and access to low-cost office space, as well as a robust legislative framework that, through data protection and e-commerce and electronic transaction laws, supports the growth of e-commerce start-ups.

And the statistics would seem to back that up; the e-commerce retail business sector accounted for the highest number of all business licences, with 196 issued in the UAE during May 2020, the highest number of licences issued in any one sector. As e-commerce sales continue to grow beyond all expectation, so too must the e-commerce value chain. And not only to keep pace with growth, but to innovate above and beyond to offer tangible benefits to retailers and consumers alike.

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