GCC consumer behavior signals rise of the ‘homebody economy’

 GCC consumer behavior signals rise of the ‘homebody economy’
Many consumers are now spending less, a greater number are shifting to online shopping, and brand loyalty has suffered a setback.
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Updated 10 November 2020

GCC consumer behavior signals rise of the ‘homebody economy’

 GCC consumer behavior signals rise of the ‘homebody economy’
  • McKinsey data shows purchases increasingly geared towards the domestic bubble, with people more mindful about spending
  • COVID-19 lockdown measures have accelerated the trend towards digital adoption as consumers embrace online shopping

DUBAI: COVID-19 has changed consumer behavior patterns around the world, and the GCC bloc is no exception, according to new research by consultancy firm McKinsey & Company.

Besides the obvious human challenges, the study, entitled “Digital: A Spotlight on the New Consumer,” has shed light on the pandemic’s potential implications for the global economy, businesses and employment.

It found the crisis has affected consumers in six notable ways. Many are now spending less, a greater number are shifting to online shopping, and brand loyalty has suffered a setback.

Researchers also observed a greater focus on health and hygiene, more deliberate consumption and the rise of the “homebody economy” — where spending is geared towards the domestic bubble.

The shift appears to have placed digital adoption at the center of all industries. “The current crisis has provided us a bit of a glimpse of what could potentially be our future,” said Joydeep Sengupta, senior partner and leader of McKinsey’s digital and analytics practice in Eastern Europe, the Middle East and North Africa.

“Human digital interactions have overtaken human-to-human interactions.”

Although the population was already becoming more sedentary and prone to staying indoors, Sengupta says the coronavirus and resulting lockdown measures have further bolstered these habits — and in turn forced institutions to adapt. “The adoption by consumers of digital tech is further driving and accelerating the trend,” he said.

The study, conduced around the middle of this year, found that although incomes and savings have suffered for more than half of respondents in Saudi Arabia over the pandemic period, consumer confidence has remained steady throughout the crisis. Some 61 percent of Saudi respondents said they believe the economy will soon recover — making them one of the more optimistic countries polled, compared to Europeans.

And although a large proportion of Saudi consumers expect their incomes and savings to soon stabilize, a growing number believe the changes to their routines wrought by COVID-19 will last well beyond the next two months.




New study sheds light on the pandemic’s potential implications for the global economy, businesses and employment. (AFP)

“Consumers are not just hapless bystanders,” said Sengupta. “They’re also playing a key role in perpetuating the push by tech companies. The digital flood that’s going on is created (to a large extent) by the confusion that the consumer is creating in terms of their ever-shifting preferences and their unpredictable demands.”

The McKinsey study, which sought to unpack some of these questions, found some interesting developments in product preferences. Many Saudis polled said they are focusing more on healthy and hygienic packaging and are judging the companies they buy from based on how they treat their employees.

“In terms of health and well-being, we see consumers overall becoming much more mindful,” said Abdellah Iftahy, partner and leader of McKinsey’s consumer and retail practice in the Middle East.

“The region, which was lagging in this dimension versus other economies in the world, is now catching up and leapfrogging in terms of awareness of the consumer in general when it comes to health and well-being.




Tom Isherwood, Joydeep Sengupta and Abdellah Iftahy.

“If these retailers are anchored in clear values and what they stand for from a purpose perspective, the local content is becoming more and more important here in the region.”

The study also found up to two-thirds of consumers in Saudi Arabia and the UAE expect their personal and household finances will be impacted in some way by the crisis for another four months to come. As such, 52 percent of Saudi consumers said they are becoming more mindful about how they spend their money, while many are adopting habits like making lists and doing their research before making purchases.

“We are seeing today, and we will see going forward, consumers that are more and more conscious and mindful about their spending and thinking about value for money as a key criterion for decision-making,” Iftahy said.

“Obviously, the whole shift to online and digital is absolutely a big trend that is here to stay. Many companies have seen some of their 10-year targets achieved within weeks, and some of these trends have been massively accelerated thanks to digital (modes) and technology.”




The McKinsey study found that a high rate of Saudi consumers are not regularly engaging in out-of-home activities and do not plan to return to many of these, other than grocery shopping, once the crisis passes. (AFP)

Saudi Arabia and the UAE, followed by the US and Europe, saw the biggest growth in consumers who intend to continue using online channels, even after the crisis ends. Such behavior is likely to fit nicely with the Kingdom’s Vision 2030 — especially with such a young population and many more women entering the workforce.

“Consumer behavior and consumer fundamentals in Saudi Arabia are actually great assets for the Kingdom overall to build up the digital economy in many aspects,” Iftahy said. “Saudi Arabia is one of the countries where consumers are the most connected when it comes to digital assets globally, which means getting access to them and interacting with them digitally through social media is something which is easily accessible.”

And there are clues as to why Saudis are so immersed in the online world. The McKinsey study found that a high rate of Saudi consumers are not regularly engaging in out-of-home activities and do not plan to return to many of these, other than grocery shopping, once the crisis passes.

Saudis were found to be the most wary when it came to activities such as going to big events or to the gym, while around 70 percent of GCC consumers said they are reluctant about returning to the out-of-home activities they had attended before the pandemic. This trend has further intensified digital adoption.

“One of the themes within Vision 2030 has been around digitization and we’re seeing that trend accelerate globally,” said Tom Isherwood, partner and core leader of McKinsey’s public sector and digital practice in the Middle East.

“For Saudi Arabia to navigate the coming decade in a really successful way, it will really be doubling down on that theme and not just at the government level, but also across industries as companies look at their own business models and try to figure out how to modernize and digitize more.”

Twitter: @CalineMalek


UK’s Sunak will set out plans to raise income tax by $8.36bn: report

UK’s Sunak will set out plans to raise income tax by $8.36bn: report
Updated 10 min 15 sec ago

UK’s Sunak will set out plans to raise income tax by $8.36bn: report

UK’s Sunak will set out plans to raise income tax by $8.36bn: report
  • The chancellor will say he needs to raise more than 40 billion pounds to tackle the budget deficit, the report said

British finance minister Rishi Sunak will set out plans to raise income tax by 6 billion pounds ($8.36 billion), The Times reported on Sunday.
The chancellor will say he needs to raise more than 40 billion pounds to tackle the budget deficit and protect the economy from rising rates of interest on government borrowing, the report said.
The government on Saturday said Sunak will announce 5 billion pounds of additional grants to help businesses hit hard by pandemic lockdowns, in his budget.
Separately, the government said Sunak is also expected to announce an initial 12 billion pounds of capital and 10 billion pounds of guarantees for the new UK Infrastructure Bank.
A Telegraph report said Sunak is also weighing up bringing back the small profits rate, axed by George Osborne in 2014, to support small to medium-sized companies.


Europe less at risk of inflation and rate fears: analysts

Europe less at risk of inflation and rate fears: analysts
Updated 27 min 20 sec ago

Europe less at risk of inflation and rate fears: analysts

Europe less at risk of inflation and rate fears: analysts
  • Fears that US President Biden’s $1.9 trillion stimulus plan will stoke up the economy too much have unnerved investors in recent weeks

PARIS: Investors are watching inflation carefully, worried that a boiling over of prices will ruin the expected strong pandemic recovery although analysts believe Europe faces much less of a risk than the United States.
Fears that US President Biden’s $1.9 trillion stimulus plan — which was passed by the House of Representatives on Saturday — will stoke up the economy too much have unnerved investors in recent weeks.
A rise in yields on 10-year US Treasury bonds — a key indicator of expectations — shows the markets believe prices are set to rise much more sharply than last year’s gain of 1.4 percent, which could force the US Federal Reserve to hike interest rates earlier than it says it plans to do.
Bond yields have risen elsewhere too, with 10-year French government bonds turning positive on Thursday for the first time in months while the benchmark 10-year German Bund has also risen although it remains negative.
European inflation data for January showed a jump in prices of 0.9 percent compared to a minus 0.3 percent reading in December, as increased costs of raw materials fed through into services and industrial goods.
After having slowed considerably in 2020, inflation is expected to rise this year in Europe as the economy picks up following the relaxation of measures to slow the spread of the Covid-19 pandemic.
But it is not so much a spike in inflation that worries investors but that the Fed would raise interest rates faster than it has communicated.
Federal Reserve Chairman Jerome Powell pledged Tuesday that the US central bank will keep benchmark lending rates low until the economy is at full employment and inflation has risen consistently above its 2.0 percent target.
But bond yields continued to rise, indicating investor concern about a rise in interest rates that would make borrowing and investment more expensive and slow the economy.
However, many analysts are skeptical that Biden’s stimulus program will spark considerable inflation.
“It isn’t clear that Biden’s recovery plan will create lots of inflation,” said Xavier Ragot, head of the French Economic Observatory think tank.
For the European Union, there is no likelihood that its pandemic recovery program would, he believes.
“The amounts of the European recovery plans pose absolutely no inflationary risk,” he said.


The European Commission’s recovery program is worth 750 billion euros ($920 billion), with several EU members also having their own national programs.
“We have a European recovery program... considerably less strong, and a loss of growth that is much greater, so there aren’t the same risks of overheating as in the United States,” said Fabien Tripier, an economist at CEPII, a Paris-based research center on the world economy.
The US economy shrank 3.5 percent last year while the drop for the eurozone was nearly double that.
There is “no risk of overheating or a sustained rise in inflation” in the eurozone, the head of the Banque de France, Francois Villeroy de Galhau, insisted this past week.
The French Economic Observatory’s Ragot also does not believe that if the Fed is pushed by the markets into raising rates that the European Central Bank would be forced to follow suit.
“It doesn’t work like that in macroeconomics,” he said, noting that the monetary policy of the Fed and ECB had diverged considerably at the start of the last decade.
“With loose financial conditions still necessary to support the economy, the ECB is unlikely to react to the coming inflation overshoot,” said Capital Economics economist Jack Allen-Reynolds.
Francois Villeroy de Galhau, who as head of the Banque de France also sits on the ECB’s Governing Council, said the central bank wants to “maintain favorable financing conditions.”
For Fabien Tripier, the ECB needs to send “a strong signal” to the markets against the idea that “just because inflation hits 1.5 percent or 2.2 percent, speculation it will hike rates should begin.”
The ECB issued a reassuring message on Friday as executive board member Isabel Schnabel said it could broaden its support for the economy in case of a sharp rise in interest rates.


Biden urges quick Senate action on huge stimulus package

Biden urges quick Senate action on huge stimulus package
Updated 36 min 34 sec ago

Biden urges quick Senate action on huge stimulus package

Biden urges quick Senate action on huge stimulus package
  • The package passed the House just after 2:00 am (0700 GMT) Saturday, in a 219 to 212 vote

WASHINGTON: President Joe Biden on Saturday welcomed the overnight passage by the US House of Representatives of an enormous, $1.9 trillion coronavirus relief package, saying it moves the country closer to full Covid-19 vaccination and economic recovery.
The package passed the House just after 2:00 am (0700 GMT) Saturday, in a 219 to 212 vote, with not one Republican vote, and moves next week to the Senate.
"I hope it will receive quick action," Biden said in a brief address from the White House.
"We have no time to waste. If we act now, decisively, quickly and boldly, we can finally get ahead of this virus."
The vote in the House meant that "we're one step closer to vaccinating the nation, we are one step closer to putting $1,400 in the pockets of Americans, we're one step closer to extending unemployment benefits for millions of Americans who are shortly going to lose them."
He said the bill -- which would be the second-largest US stimulus ever, after a $2 trillion package approved in March -- would also help schools reopen safely and allow local and state governments to avoid "massive layoffs for essential workers."
The House vote came just days after the Covid-19 death toll surpassed 500,000 in the United States, the world's worst total.
Democrats have called the aid package a critical step in supporting millions of families and businesses devastated by the pandemic. It extends unemployment benefits, set to expire mid-March, by about six months.
But Republicans say it is too expensive, fails to target aid payments to those most in need, and could spur damaging inflation.
The administration appears poised to use a special approach requiring only 51 votes in the 100-seat Senate -- meaning the vote of every Democrat, plus a tie-breaking vote by Vice President Kamala Harris, would be required.
But progressives suffered a major setback when a key Senate official ruled Thursday that the final version of the bill in that chamber could not include a minimum wage hike.
Biden campaigned extensively on raising the federal minimum wage to $15 an hour, from the $7.25 rate that has stood since 2009. Progressives have been pushing the raise as a Democratic priority.
In his remarks Saturday, the president made no mention of the issue, a source of discord within the party.
Most Republicans, and a few Democrats, opposed the higher wage, so having it stripped from the Senate version of the legislation could actually ease its passage.


Weekly energy recap: February 26, 2021

Weekly energy recap: February 26, 2021
Updated 28 February 2021

Weekly energy recap: February 26, 2021

Weekly energy recap: February 26, 2021
  • The market is still assessing the resumption of US crude oil output after the fallout from the big freeze across Texas

RIYADH: Oil prices made another big weekly gain, as WTI rose above $60 per barrel and the Brent crude price settled above $65 per barrel, amid a sharp drop in US output due to the weather crisis in Texas. The week closed with Brent crude at $66.13 per barrel and WTI at $61.50.

The market is still assessing the resumption of US crude oil output after the fallout from the big freeze across Texas. The impact on US crude production is still unclear. Some American producers reported production losses of about four million barrels per day (bpd) during the cold blast, but the Energy Information Administration (EIA) reported a drop of only one million bpd.

US commercial crude stocks climbed by 1.28 million barrels to 463.04 million last week as the Texas freeze pushed refinery demand to 12-year lows. Global Platts S&P has reported the total U.S. refinery net crude input plunged 2.59 million bpd to 12.23 million bpd, the lowest since the week ended September 2008, as refinery utilization fell 14.5 percent to 68.6 percent of capacity.

Even before the striking impact of the Texas snowstorm on the US energy industry, output had fallen greatly. The EIA reported that US oil production has decreased to 9.7 million bpd, down 1.1 million from the week before and 3.4 million lower than the US peak of 13.1 million bpd a year ago. Coming in addition to the 8.2 million bpd output cuts from OPEC+ (including Saudi Arabia’s additional 1 million bpd voluntary cut), this has reduced global supplies by about 11.6 million bpd, which has so far kept the market intact and helped oil prices to head for their fourth monthly gain.

There has been bullish talk that prices might reach $100. This is completely false, despite the upcoming spring refineries maintenance season in Asia, where China is getting ready with lower crude oil imports. Continuing fears over the coronavirus may even push Asian refineries to make deeper run cuts until oil prices advance into the $70s in coming months.

Ironically, ahead of the OPEC+ meeting in early March, market participants and major shale oil producers are giving OPEC+ bullish signs to consider a modest production boost. These signals show the declining influence of US shale on OPEC and suggest that the organisation no longer needs to worry about the threat posed by the sector.


UK to allocate $17bn for new infrastructure bank

UK to allocate $17bn for new infrastructure bank
Updated 27 February 2021

UK to allocate $17bn for new infrastructure bank

UK to allocate $17bn for new infrastructure bank
  • Sunak to use budget to expand apprenticeships and extra funds for traineeships

LONDON: Britain is to launch a new infrastructure bank with £12 billion ($17 billion) in capital and £10 billion in government guarantees, the treasury said on Saturday, aimed at supporting the economy.

British Finance Minister Rishi Sunak, is expected to announce the initial funding at Wednesday’s budget and the bank will launch in spring, the ministry said.

“Britain’s businesses and the Great British public deserve world-class infrastructure and that is exactly what this new bank will help us deliver for them,” Sunak was quoted as saying.

The bank is set to finance private sector projects in the green economy, focusing on areas such as carbon capture and renewable energy.

It will also provide loans to local authorities at low interest rates to support “complex infrastructure projects.”

The Finance Ministry said the bank would unlock billions more in private finance to support a £40 billion infrastructure investment to “fire up the economy” and help reach commitments on net zero emissions and reducing regional deprivation.

The announcement comes as Britain’s economy has been hit hard by pandemic lockdowns.

Analysts expect unemployment to surge when the UK government’s furlough scheme paying the bulk of wages for millions in the private sector ends — as currently planned — at the end of April.

Sunak last week hinted he would announce further employment support in the coming months.

He first announced the planned bank in November last year, saying its headquarters would be in northern England rather than in the financial hub of London.

Apprenticeships

The minister will also announce more funding for apprenticeships in England.

Employers taking part in the Apprenticeship Initiative Scheme will from April 1 receive £3,000 for each apprentice hired, regardless of age — an increase on current grants of between £1,500 and £2,000 depending on age.

The scheme will be extended by six months until the end of September, the Finance Ministry said.

Sunak will also announce an extra £126 million for traineeships for up to 43,000 placements.

‘Enormous strains’

Sunak will use the budget next week to level with the public over the “enormous strains” in the country’s finances, warning that a bill will have to be paid after further coronavirus support, according to an interview with the Financial Times.

Sunak told the newspaper there was an immediate need to spend more to protect jobs as the UK emerged from COVID-19, but warned that Britain’s finances were now “exposed.”

UK exposure to a rise of 1 percentage point across all interest rates was £25 billion a year to the government’s cost of servicing its debt, Sunak told FT.

Additionally, the government will also announce a new £100 million task force to crackdown on COVID-19 fraudsters exploiting government support schemes, it said.