Finding Chicken Nuggets in Bahrain: A Guide to MENA Consumer Segmentation
The traditional regional or national consumer segmentation is outdated and unhelpful. Innovators and investors need a more nuanced approach to understanding the market.
On a recent trip to the island Kingdom of Bahrain, I learned that one can find “chicken nuggets” very far from the supermarket or their local McDonalds. Bahrainis use the term chicken nuggets to refer to locals that are highly westernized, more comfortable speaking English than Arabic, and are often the product of private schools. Chicken nuggets are more likely to be consumers of global trends and might be more comfortable in westernized settings.
A closer look at this phenomenon across the MENA region makes it clear that chicken nuggets are not constrained to Bahrain but abound more broadly. Most attempts at segmenting the MENA consumer stack tend to group it into GCC vs. other, or GCC vs. Levant vs. North Africa at best. As such, they are not very helpful for startups and investors looking to navigate the region. These segmentations belie the actual diversity (and unfortunate inequality) within MENA countries.1
A better way for startups and investors to conceptualize the MENA consumer stack, especially when considering product market fit for edtech or tech in general, is to count chicken nuggets. The Arabic speaking region can be broken down into three distinct groups according to income and size that correspond more closely to France, Indonesia and Pakistan.2 We can call these MENA 1, MENA 2 and MENA 3 respectively. Each of these MENA markets has its distinct audience profile that comes with unique linguistic preferences, cultural attributes, price sensitivity, and competitive dynamics. Importantly, product market fit and traction in one market doesn’t translate to the possibility of a fit in another.
MENA 1 has a GDP of $1.7 trillion across 42 million potential consumers leading to a GDP per capita of $40,476 - numbers that put it very close to an advanced economy like France. Consumers in MENA 1 are the quintessential chicken nuggets. They are English-first (or French first - it is France) and quick to adopt western trends. In that sense, they are the easiest segment for foreign companies to expand to. Regional startups focusing on this segment of MENA are often copycats of foreign startups (or their business models). Arguably, most VC funding in MENA is currently focused on this segment of the market, and as will become clear below might be leaving a lot of opportunity on the table.
MENA 2 has a GDP of $850 billion, across 171 million consumers and is akin to Indonesia with a GDP per capita of approximately $4912. Consumers in MENA 2 are more comfortable in Arabic but tend to still consume a fair amount of western content and trends in English. They are happy to adopt foreign products but might rely on the Arabic UI to explore the full offering. Social mobility allowing, the children of MENA 2 parents often become chicken nuggets.
The overwhelming majority of MENA sits in MENA 3, or the land of no chicken nuggets. With over 224 million consumers and a GDP per capita of $1250, MENA 3 operates in an orbit much closer to that of Pakistan. Consumers in MENA 3 often have low educational attainment, cannot read English (or French), and are generally more religiously and culturally conservative. Foreign products, and regional products that often find product market fit in MENA 1, do not get any traction in this segment. Barring a few exceptions, with Facebook’s Whatsapp as the poster child, product market fit in MENA 1 almost precludes traction in MENA 3.
Implications for Edtech Startups:
With this segmentation in mind, entrepreneurs and investors should consider a few key factors as they navigate the three MENAs and think of product market fit in each segment:
Language: Sidestepping the sizable distinction between dialect and standard Arabic, education entrepreneurs looking to create impact and scale across MENA2 and MENA3 should be Arabic-first. They should be very wary of early success with an English or French first product in MENA 1 unless they plan on sticking to that market. You cannot hope to support learners in a language they do not understand - unless of course you are teaching English (which is a sizable opportunity in itself).
UI: Most products in the region are not optimized for Arabic speaking users - starting with basic left to right optimization and moving on to deeper issues. Products that succeed in MENA 2 and MENA3 are built, first and foremost, for these users and keep these constraints in mind. We are starting to see more successful examples here such as Hsoub.com’s portfolio of offerings and many others.
Data Accessibility: Once you get out of MENA 1, most users are using an android phone and are quite data conscious. For successful traction in MENA 2, and certainly MENA 3, products need to be optimized for offline usage and should not require excessive bandwidth.
Payments: Regardless of which MENA you operate in, it’s safe to assume that most consumers are unbanked. Even in Dubai, the likely capital of a MENA 1, banking services focus on the top 30% of earners. The overwhelming majority of people in MENA are unbanked, and most people in MENA 2 and all of MENA 3 (almost 400 million people), prefer alternate payment methods to paying online (e.g. Cash on Delivery). As such, any entrepreneur, especially one intent on a B2C model, must factor this reality into their product.
Legislation: The rules and regulations might differ within these groups. These differences will be a concern primarily for business models that are not online and/ or direct to consumers. Given that any of these segmentations might present a bigger opportunity than a single country with MENA, edtech entrepreneurs might be better off avoiding these business models.
I strongly believe that MENA is Edtech’s “Sleeping Giant” - with the potential to transform the learning of millions of people across a region that suffers from poor educational outcomes and high unemployment. While there is a growing number of startups in the space, and regional investors finally supporting them, the overwhelming focus remains on a smaller and more westernized subset of consumers. This skew harms the region in many ways but most notably two. It leaves the overwhelming majority of consumers (+390M), and their needs unmet. Second, it does not provide solutions and innovations that are locally relevant and unique. It’s time to serve more than chicken nuggets in the MENA edtech buffet.
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This article was inspired by a similar segmentation done on the Indian market. See: Inspiration: India1, Avocado Startups and Product-Market Fit by Sajith Pai https://bit.ly/2OoHfsY
The segmentation was created using the latest data from the World Inequality Lab which can be accessed here: https://wir2018.wid.world/part-2.html . Data for GDP per capita was sourced from the World Bank using current $US see: https://data.worldbank.org/indicator/NY.GDP.PCAP.CD
This was such an enjoyable read, Nafez. Any chance you'd be willing to share which cities fall in each of the MENAs?
Are we including the significant expat population in many of the GCC countries here? They also get distributed among the 3 segments at income levels but cannot be culturally fit (non-Arabic) to be included here.