The automotive aftermarket in the Kingdom of Saudi Arabia (KSA) is large and lucrative, with relatively low barriers to entry. Despite the dip in new vehicle sales in 2016 and unstable demand forecast for 2017, the overall number of vehicles in operation (VIO) continues to grow, bolstering the aftermarket. As customers reduce spend per vehicle in the short term, the independent aftermarket brands, which offer more competitive pricing, can leverage this key advantage over genuine parts suppliers. However, all businesses in this space will have to change the way they conduct operations and communicate with customers or risk losing out to agile competitors.
“Customers are definitely becoming more demanding, and this is one of the factors transforming the market,” said Frost & Sullivan Mobility Senior Consultant Vitali Bielski. “Well-organized businesses with an expanded portfolio of vehicle parts (as opposed to only focusing on 5-7 quick moving categories) will be able to capture a bigger share in the market, which is set to reach 33 billion riyals by 2021. Streamlining business operations is no longer an option, it becomes a necessity and only those businesses that are keen to find new ways to retain customers in the long term will have the edge over competition.”
Overview of Opportunities for New and Existing Aftermarket Companies in the KSA, a recent white paper from Frost & Sullivan’s Mobility practice finds that, as a result of steadily declining profitability, automotive aftermarket companies in KSA are becoming smarter and leaner. Eventually, smaller independent companies will consolidate due to lower margins and limited financial resources for future investments.
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Key trends reshaping the KSA automotive market include:
- Increasingly price-conscious and demanding customers
- Steadily declining gross profits that are getting closer to the global average
- Inevitable industry consolidation and increased investment in new customer engagement channels, such as online sales and quick delivery options
- Market entry of aftermarket companies with “all-make all-part” type of offerings and country-wide reach as opposed to region-wide
“With more than 10 million vehicles expected on Saudi roads by 2021, which will be operating under harsh weather conditions and have an average annual mileage that is close to 25,000 km, the aftermarket companies will have numerous opportunities to grow,” added Bielski. “Strong opportunities will also emerge for genuine parts suppliers and independent aftermarket companies as government efforts drastically reduce the market share of counterfeit parts.”
Overall, the growing customer base will require more organized supply channels, transparent pricing, and convenient logistics. Wheels, window tinting, and paint protection will remain the largest revenue generators in the car accessories segment, but car electronics and car care products are likely to outperform other accessories in terms of growth rates until 2021. The quickly growing share of Korean brands in VIO units also means that parts—genuine and independent aftermarket—for these vehicles will be in demand in the growing KSA automotive aftermarket.
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