Ramadan rush spurs spending

Clothing retailers, jewellers, electronics shops, mall operators all reap significant profits.

Signalled by the first sighting of the crescent moon, the holy month of Ramadan unites over 1.6 billion believers in fasting and spiritual reflection. Across the Gulf, offices shut early, employees go on vacations, business lunches dwindle and major deals, especially in the public sector, are put on hold. But despite the common perception of lower economic activity during Ramadan, the reality is rather more complex.

While many aspects of business life do indeed slow down, some areas, such as spending on food and consumables witnesses heightened economic activity during Ramadan. According to a Mena-based survey conducted by Bayt.com, nearly 75 per cent of professionals feel that business is slow during Ramadan while 56 per cent of the respondents tend to postpone important decisions and vital meetings until the holy month is over. However, the same survey also suggests that spending on goods and services increase drastically for 82 per cent of professionals, given the upsurge in social activities amongst family and colleagues, and increased charity at a personal and corporate level.

Consequently, the food and beverage (F&B) sector typically registers growth of 10-20 per cent during Ramadan and is actually one of the busiest times of the year for food manufacturers and retailers. Moreover, for certain Gulf countries such as Saudi Arabia, the volume of food consumption during the holy month can account to up to 20 per cent of annual sales. Large F&B manufacturers such as Pepsi and Unilever often gear up months in advance and take up several initiatives such as promotions and Ramadan-specific launches to tap this demand upsurge.

While price restrictions imposed by several Gulf countries to counter inflationary pressures might curtail profitability for the F&B sector, most big retailers find that a large percentage of their annual turnover is obtained from the holy month. As a result, the drop in profitability is offset by higher sales volume. The small groceries and neighbourhood retailers have a different approach for profitability and tend to sell commodities which are not covered under fair price list or bulk buy at Ramadan prices and freeze commodities from big retailers to ensure long term profits.

The gift-giving Eid Al Fitr that immediately follows Ramadan is also big business for the retail sector. Shopping malls are open till the early hours of the morning, offering promotions, sales and offers which last throughout the month. Clothing retailers, jewellers, electronics shops, mall operators and online stores, have all been reaping significant profits during Ramadan. Moreover, the automobile showrooms and dealership across the Middle East also enjoy bumper sales (up to 300 per cent increase) during the period, on back of promotional offers, increased advertising and end-of-season sales.

Television is one of the main drivers for increased spending as the lifestyle shift translates into more time spent in front of the TV. Accordingly, TV advertising budgets soar to unprecedented levels and it is not uncommon for companies in the region to spend a third or more of their advertising budget over Ramadan, according to the Pan Arab Research Center (PARC). Food manufacturers such as Coca Cola and Pepsi, being the largest beneficiaries of the ‘Ramadan Rush’, are amongst the biggest spenders in the Middle East during the month, with TV advertising budgets ranging in the tens of millions of dollars.

While increased consumer spending is blissful for certain sectors, it also presents a downside in term of waste particularly of food items. Every year nearly half of Ramadan feast ends up in the trash which is clearly against the charitable spirit of the holy month. The economic implications of increasing quantities of food waste may be unquantifiable but we all should practice frugality, as guided by the Holy Prophet, and not give in to over-indulgence and lavishness. 

In conclusion, the Gulf economies change during Ramadan rather than simply slowing down, with rise in consumer spending helping to make up for the fall in other economic sectors. While the total impact of Ramadan on the economy is difficult to ascertain, the economic sectors have in large adapted to the change.

Overall, Ramadan is a peaceful, spiritual and very special month for every Muslim that lifts our morale at work and personal lives.

 

The writer is the founder and CEO of Al Masah Capital Management Limited. Views expressed by him are his own and do not reflect the newspaper’s policy.

• UAE