Mastercard sees omnichannel businesses as more resilient to inflationary shocks

Mastercard Economics Instituteits economic outlook for 2023 points to omnichannel as a key enabler of the multi-speed global economy and business resilience.

In publishing its outlook for the coming year, the Mastercard Economics Institute identifies the rapidly evolving multispeed economy and the benefits of omnichannel businesses.

In its definition, the outlook recognizes the impact omnichannel experiences have on growth and consumer behavior.

It posits that a multi-speed global economy will see the impact of inflation and rising interest rates felt more strongly in some markets.

The prospects draws on various public and proprietary datasets, including economic estimation models across the Eastern Europe, Middle East and Africa (EEMEA) region.

The report explores four themes that will continue to shape the global economic environment. These include high interest rates and housing, trade down and shopping, prices and preferences and shocks and omnichannel.

Housing-related expenses

The outlook predicts that the housing boom will slow with the arrival of higher interest rates. The resulting price increases are set to squeeze budgets amid a cost-of-living crisis; change the way consumers spend broadly.

The outlook expects housing-related spending as a share of goods to fall by 4.5 percent during 2023. This trend is specific to large developed countries, with spending expected to fall below pre-pandemic levels.

In South Africa, the housing-related share of expenditure fell by one percentage point in 2022 compared to 2019.

Similarly in the Middle East, housing-related expenditure remained at the same level for the UAE and KSA between 2019 and 2022 at 5.9 and 10.9 percent respectively.

Broad spending and business robustness

The outlook expects broad spending to remain resilient to inflation, with consumers opting for wallet-friendly brands and the best value.

For example, grocers made 31 per cent more trips to the store this year compared to 2019. Although this is partly due to a reduction in food waste, the average consumption is around nine per cent lower than before.

As of September 2022, consumers in the United Arab Emirates increased their grocery shopping trips by 28 percent compared to September 2019. However, spending per visit has decreased by 21.4 percent.

Similarly, the rate of spending at restaurants in the UAE was almost a third higher in September 2022 than in September 2019, while the average ticket size was a fifth lower as consumers with even higher incomes rein in.

The effect of inflation

As food and energy costs eat up a larger share of the consumer budget, households with lower incomes will feel a particularly strong squeeze.

From 2019 to 2022, the outlook saw discretionary spending by high-income households growing almost twice as fast as lower-income households. However, much of this gap will decrease with the normalization of inflation.

However, the outlook expects inflationary pressures to ease this year, with the average inflation rate in developed economies falling from 7.1 percent YOY in Q4 2022 to 3.1 percent YOY in Q4 2023.

Middle East and Africa markets show a wider gap between 2019 and 2022 in discretionary spending by affluent and non-affluent households.

The gap is largest in Morocco with 71 per cent, followed by Madagascar, Jordan, Senegal, Kenya and Zambia which have a gap of 34 per cent.

In Qatar, however, the trend is different. From 2019 to 2022, discretionary spending for wealthy cardholders grew 104.9 percent. However, discretionary spending for non-wealthy cardholders simultaneously increased by 103.9 percent; which only marks a difference of one percentage point.

The omnichannel key

Companies with an omnichannel presence are more likely to withstand the shock of meeting the customer where they want to shop; according to the outlook.

The analysis suggests that in 2022, retail sales experienced an increase of six percentage points due to the presence of multi-channel options.

Small and large restaurants were saved from losing another third of their sales during the height of the shutdowns with their omnichannel presence. Similarly, small omnichannel clothing stores outperformed online and brick-and-mortar firms, growing 10 and 26 percent faster, respectively.