In Depth Analysis of COVID 19 Impact on UAE Online Grocery Delivery Market: Ken Research

KenResearch

“Global Pandemic has led to a double-digit growth between 20-40% across essential product categories. Service providers partnered with third party operators to manage last-mile logistics”

“People have realized the time-saving element of being able to order online and getting the essentials delivered at the doorstep.  Before COVID, a lot of people didn’t order online because they never had to make that choice. Now they are getting used to the benefits of shopping online”

                                                                                                                                                       Rajeev Lee, Founder & CEO, Bawiq

The Online Grocery Industry has been growing rapidly since inception and is currently positioned to be in the growth stage. Major players entered the market between 2015 and 2017 & currently, there are more than 25 companies offering grocery delivery services in the UAE.  In addition to this, the market value has doubled from 2016 to 2019, suggesting that consumers are starting to get more comfortable ordering essentials food items online. Even though online grocery penetration has increased, there’s still a major proportion of the population that prefers to buy groceries from Supermarkets, Hypermarkets, and Baqala Stores.

The Coronavirus outbreak and the pandemic’s indirect impact on global growth have made a significant impact on the Online Grocery Market in UAE. To curb the spread of COVID-19 in UAE, all facilities were shut down except, cooperative societies, supermarkets, grocery stores, and pharmacies. They remained open 24/7 to serve the public, even during the period of movement restrictions between 8 pm to 6 am. Telecommunications Regulatory Authority (TRA), UAE’s telecom authority, published a list of 22 applications of online stores delivering groceries and other essential items during the pandemic as a way to urge its people to stay at home and only leave for running essential tasks.

Impact on Online Grocery Delivery:

From an e-commerce perspective, 2020 has started on a high note for the online grocery delivery sector and further growth is expected in the online consumption in the upcoming months. Due to COVID-19 Outbreak, people are avoiding crowded places and turning to online grocery shopping amid escalating fears. This has led to an increase in the number of orders dramatically registering a growth between 70-90% in March and April. Average order size registered growth between 40-60% and was valued between AED 200-250.

UAE Online Grocery Industry

Companies faced logistical challenges to keep up with the increased demand. The delivery time of omnichannel companies such as Carrefour, Lulu Hypermarket increased to ten days. Whereas marketplace companies such as Instashop, El Grocer took one to two days’ time to fulfill customer orders.  In addition to this, there was a shortage in terms of availability of vehicles and drivers to fulfill the increased demand during the pandemic.   Companies incurred additional expenditure for providing basic guarding equipment and training to employees about the potential repercussions and the significance of hygiene without negligence.

Efficient Strategies Adopted:

Expansion of Delivery Infrastructure: To fulfill the increased demand, companies expanded their delivery fleet by partnering with third-party operators to manage last-mile logistics. For instance, Lulu Hypermarket who usually used their multi-temperature vehicles for delivery, partnered with courier logistics services and other companies with fleets and bikes to ensure quick deliveries.  In addition to this, in Abu Dhabi and Dubai, companies also partnered with taxi fleets to take care of door-to-door delivery. BinSina Pharmacy partnered with Instashop to deliver medicines from its pharmacy stores in Dubai and Abu Dhabi.

To cater to the increased demand for delivery orders, companies expanded their backend operations. For instance, Carrefour opened six new fulfillment centers across the region. In addition to this, frequent stock replenishments and increasing resources at fulfillment centers enabled companies to fulfill delivery orders.

Bawiq, a marketplace company in UAE, partners with grocery stores to fulfill customer orders. The delivery of the items is usually managed by the partner grocery store in this model. During the pandemic, Bawiq assisted the grocery stores in fulfilling orders by taking over the packaging, checkout process, and last-mile delivery. The company’s own employees were responsible for doorstep delivery of groceries.

Focus on Maintaining Hygiene:  In addition to sanitization, companies have put in place a set of measures to ensure the safety of their customers and employees. Companies introduced contactless delivery, wherein the order was dropped at the doorstep. Delivery staff wore gloves and masks and ensured social distancing during delivery. All delivery vehicles were washed and cleaned three times more frequently than before.

Shift in Industry Practice:

Rise in Online Grocery Penetration: 79 % of consumers in the UAE changed their shopping habits from offline to online during the pandemic. It is expected that 48% of the customers would maintain current shopping habits after the pandemic. It is expected that by the end of 2025, the online grocery penetration in terms of the number of users would cross 15%.

Rise in Number of Orders and Decline in Average Order Size: The industry would continue to grow but it is expected that the rate of growth will be slower as compared to the growth registered during a pandemic. The overall volume of orders for the year 2020 is expected to grow between 80-100% from 2019.  In addition to this, the industry is expected to register a decline in 2021 in terms of the number of orders. Average order frequency will rise thereby leading to a decline in average order size by ~16% in 2021.

The pandemic has enabled the service providers to acquire new customers without incurring any major costs. In the future, the major challenge for the companies would be to retain the customers.  Health and Hygiene would continue to be the focus for companies in the future. The online grocery delivery market of UAE is expected to grow with a CAGR of 27% during the period of 2019-2025.