Saudis cut back on power, fuel spending: Al Rajhi Capital

Food, healthcare, education and telecom sectors are not facing the brunt of lower spend by consumers in Saudi Arabia, who are primarily cutting down their expenses on electricity, fuel, and travel and tourism, Al Rajhi Capital said in a new report.

Nearly 60 percent of the respondents plan to maintain their spend on food, while 56 percent said they will continue to spend same on telecom.

"The impact is much lesser on other essential products, such as food (fresh fruit, vegetables, meat and milk) and telecom, on which more than half of consumers surveyed do not want to reduce their spending," the consultancy noted.

The continued spend is reflected on the performance of food companies such as Almarai and Herfy Food, whose top-line remained stable with a positive bias on an annual basis in 2018. Further, telecom companies such as Mobily and Zain largely maintained their top-line in the recent time, despite reducing expats population.

According to Al Rajhi Capital, spending on education and healthcare will remain firm with majority of the consumers looking to either maintain their current spending or increase it further.

However, 71 percent and 55 percent of respondents said they plan to reduce electricity usage and gasoline consumption, respectively.

"Post a series of reforms undertaken by the government, we observed that most consumers have started reducing the electricity and gasoline usage, despite being highly inelastic products and services," the report added.

Moreover, Saudi consumers have cut on “discretionary purchases” such as clothing, furniture and restaurants, which is noticeable for companies such as Al Hokair.

Consumers are looking to move towards cheaper options with 58 percent of consumers shifting towards much cheaper brands.

Meanwhile, more than half of the women surveyed expressed interest to take up employment.

"With women driving, they can save on transportation costs significantly which would encourage them to take up jobs at a reasonable salary level, which was not the case earlier and will help drive consumption higher," Al Rajhi Capital said.

Eighty percent of female respondents reported a monthly spending of up to SAR 5,000 on driver, gasoline costs and taxi fare.

The survey found more than 50 percent of the women respondents plan to spend on lifestyle and healthcare which will be positive for stocks in these segments.

According to Al Rajhi Capital, interest in online shopping is increasing with 79 percent of the survey takers having shopped from dedicated online stores especially in food.

Currently, online sales penetration in the Kingdom is very low, at 1 percent of total retail sales, as compared to 1.9 percent in the Middle East, 3.5 percent in India, 16 percent in China and 10 percent worldwide.

"This indicates a huge growth potential for e-commerce in Saudi Arabia," the consultancy said.

Though the current low penetration rate can be attributable to issues related to trustworthiness of online platforms and logistics challenges, the government’s various initiatives such as development of regulatory policy, privatization of Saudi Post, availability of multiple payment gateways are likely to address some of these key challenges.