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December 2020

 

6 - 7 Minutes

Revenge spending and fast food: Post-lockdown surprises from CEMEA

When restrictions lifted around the world in the wake of the first wave of the Covid-19 pandemic, people understandably wanted to treat themselves – as their spending patterns show. For many, it was time for some comfort food, according to Mohamed Bardastani, Director of Business and Economic Insights, CEMEA, Visa.

“There was a V-shaped bounce back in spending on fast food restaurants immediately post lockdown,” says Mohamed, who has been monitoring the post-lockdown spending patterns across the region. “This was across a number of countries, but more pronounced in the UAE, Bahrain and Qatar.”

For others, however, the lifting of restrictions deserved more than a serving of fries. ‘‘There was an immediate surge in the UAE in luxury goods spend as people ‘rewarded’ themselves for the hardship of the lockdown and engaged in ‘revenge spending’. But the trend was UAE-specific,” adds Mohamed, who is based in Dubai. “For the rest of the key economies in the region, there was some level of recovery in luxury spend, but the level overall remained below the pre-lockdown period.”

What that hints at is how diverse consumer behavior can be within a region as vast as CEMEA, covering more than 90 countries from Saudi Arabia to South Africa, Russia to Kazakhstan. “Having said that, there were some general trends emerging,” he notes. “Post lockdown spending on products from pharmacies, supermarkets, food stores remained elevated versus last year.1"

Another behaviour seen across the region is a strong preference for contactless payments, which have risen by more than 100%2 over the previous year in CEMEA. “Also, consumers are now buying in bulk more; they're avoiding impulse purchases; and they're favouring outlets that enforce social distancing, and hygiene measures”, he adds.

Encouraging healthy economies

In terms of what is aiding the recovery, some factors are again repeated across the region. “These include swift lockdowns in the initial stages of the pandemic, large-scale testing – the UAE and Bahrain, for example, had one of the highest rates of testing per thousand people worldwide – and contact tracing,” says Mohamed3. “On the policy front, governments have also unveiled monetary and fiscal stimulus packages to support businesses and households. All these factors together have helped in terms of facilitating the recovery.”

Visa identified countries around the world which appeared to have done a better job in containing the first wave of the virus and tracked whether Visa merchants’ point of sale terminals were active in those countries – to estimate what percentage of businesses had reopened. “Countries with better health outcomes in managing the first wave of the outbreak recorded stronger business re-openings, especially among SMEs (small and medium-sized enterprises),” notes Mohamed.

Unlocking new sectors

How prepared countries were to make a shift from physical to online interactions has also proved important. “Saudi Arabia, the UAE, Bahrain and Kuwait already had a strong online presence, so it was easy for them to make the transition,” says Mohamed. Against that backdrop, Visa’s August 8-K filing in the US reported cross border e-commerce volumes (excluding intra-Europe and travel) were up 15% year on year in August. In CEMEA, e-commerce spend accelerated further since the onset of the lockdowns, as more consumers shifted their spending to digital channels, and continued to grow over the summer4. In terms of e-commerce in general, we're seeing strong growth across a wide set of categories,” says Mohamed. “But what I find interesting is those categories of spending that you wouldn't typically associate with digital spending.”

For example, in CEMEA – most specifically the GCC (Gulf Cooperation Council, the regional bloc of the UAE, Bahrain, Saudi Arabia, Oman, Qatar and Kuwait) – several governments are accelerating the digitization of their services. That has translated into more online spending on government services. As many schools remain closed and distance learning takes hold, there has also been rapid growth in online spending on education services. “So what we're seeing is not only that COVID is accelerating digital commerce, but it's unlocking opportunities in previously untapped or under-tapped industries,” says Mohamed.

New destinations emerging

Another sector reshaping itself is tourism. “One of the interesting trends that is likely to stick is the rise of domestic tourism and staycations,” says Mohamed. “For example, domestic tourism in Saudi surged once the lockdown was lifted, and some cities are seeing double the number of visitors compared to previous years.5” In a new survey among thousands of residents across the Emirates, Dnata Travel found that 91% of residents plan domestic trips or staycations.6

Workers in many key CEMEA countries – including Russia, Saudi Arabia, UAE, South Africa, Nigeria and Egypt – are yet to fully return to their workplaces. “Mobility trends to workplaces in general, remain around 20% below the pre-crisis level,” says Mohamed. “This wouldn't have been possible without this strong embrace of the working from home culture by companies and businesses around the region.7

Blueprints for the future

Looking to the longer term, much hangs on the critical role the energy sector plays in many key CEMEA countries – among them oil producers such as Saudi Arabia, Russia, the UAE, Kuwait, Nigeria, Angola and Iraq. “By the end of April 2020, 4.2 billion people were either under full or partial lockdown,8” notes Mohamed. “If some of the defining elements – more working from home, avoiding public transportation, less business travel – prove to be permanent, they would lead to long-term ramifications for the oil industry, and for these economies. This is because mobility-related sectors, such as road transportation and aviation, constitute the largest segment of global demand for oil.”

But he doesn’t expect economies to dramatically shift focus. “You can't really transform from energy dependence overnight. But what COVID is likely to lead to is an acceleration of existing plans to diversify economies and ease the reliance on oil.” In the GCC, even before the virus, governments have already launched economic blueprints such as Vision 2030 in Saudi, Vision 2030 in Bahrain, Vision 2035 in Kuwait and Ghadan 21 (translated as Tomorrow 2021) in Abu Dhabi9. “Now more than ever, there is a heightened level of urgency to aggressively pursue these plans,” Mohamed says.

Routes to staying open

In tandem with that, governments in the region look reluctant to impose national lockdowns again but may resort to localized lockdowns. Meanwhile, the trend for more e-commerce and digital spend will help economies weather any future restrictions on movement.

“Once people started to social distance, there was an immediate pickup in online spending,” Mohamed reflects. “What's interesting though is that, even once people were allowed to be out and about, this trend of elevated online spending remained relatively strong. In a diverse set of countries, we've seen this – in the GCC, in Sub-Saharan Africa, MENA, and in Russia.”

This suggests that in the future, whether consumers in the region make their next order from a fast food chain or their next purchase from a luxury goods store, one thing is clear: it’s far more likely to be purchased online now more than ever before.

The e-commerce revolution in CEMEA

  • The future is here: “We are probably three to four years ahead of where we expected to be even in January in regards to e-commerce,” says Mohamed.
  • The shift is not just being driven by consumers, Mohamed says: “In a survey done by our marketing team, merchants with digital presence saw up to a 20% increase in online activity; while up to 80% said they have increased preference for digital payments.10
  • Don’t expect the trend to abate: “This is unlikely to be just a temporary blip. Based on our data, it seems that this is more of a permanent adjustment, where people are shifting their spending to online channels,” says Mohamed.

Mohamed Bardastani is Visa’s CEMEA Economist and Director of Business and Economics Insights


His role primarily involves engaging with Visa’s key clients through regular presentations that capture the latest global and regional economic developments, and recent trends in the payment and travel and tourism industries. Mohamed joined Visa after spending few years as a Senior Middle East Economist at Oxford Economics, where he was responsible for developing the company’s views on Middle Eastern economies. He worked on several public-sector consulting projects in the GCC, focusing on evaluating the economic impact of certain policy measures and advising on alternative policies whenever appropriate. He also provided regular commentary to regional and international newspapers as well as pan-Arab TV channels about the latest regional economic developments and trends. Mohamed studied at the University of Tampa, USA, where he gained a Bachelor degree in Economics; and at the University of New South Wales, Australia, where he completed his Master degree in Economics.

 

1 VisaNet data for the aggregate CEMEA spend

2 VisaNet data, YoY growth for period of Jan ’20 -Aug ‘20 based on face-to-face, domestic and international transactions

3 Our World in Data: https://ourworldindata.org/grapher/full-list-cumulative-total-tests-per-thousand?tab=table&time=2020-02-20..latest

4 VisaNet data, YoY growth for period of Jan ’20 -Aug ‘20 based (card-not-present, domestic and international transactions)

5 Wall Street Journal, Saudi Staycations Lay Bare Obstacles to Kingdom’s Tourism Drive: https://www.wsj.com/articles/saudi-staycations-lay-bare-obstacles-to-kingdoms-tourism-drive-11602158413

6 Gulf News, Ras Al Khaimah emerges most popular destination among residents in dnata poll: https://gulfnews.com/business/tourism/ras-al-khaimah-emerges-most-popular-destination-among-residents-in-dnata-poll-1.1600068968151

7 Trade Arabia, MENA firms 'flexible about working from home': http://www.tradearabia.com/news/EDU_370870.html

8 International Energy Agency, Global Energy Review 2020: https://www.iea.org/reports/global-energy-review-2020/context-a-world-in-lockdown

9 Vision 2030 in Saudi: https://vision2030.gov.sa/en Vision 2030 in Bahrain: https://www.moic.gov.bh/en/Ministry/bahrain-economic-vision-2030 Vision 2030 in Kuwait: https://www.mofa.gov.kw/en/kuwait-state/kuwait-vision-2035/ Ghadan 21: https://www.ghadan.abudhabi/en/home/

10 Impact Tracker, 6,614 consumer interviews and 1,583 merchants across 7 key CEMEA markets

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