Despite a spending dip in most sectors, Saudi hotel spending sees a notable rise, highlighting shifting consumer priorities

In a week marked by declining consumer activity across many sectors, Saudi Arabia’s hotel industry stood out as a rare bright spot. According to data from the Saudi Central Bank (SAMA), hotel spending increased by 8.5% during the week of 13-19 October 2024, reaching an impressive SR293.8 million ($78.2 million). This spike came even as overall point-of-sale (POS) transactions across the Kingdom saw a significant drop, falling 7.5% to SR11.3 billion.

The upward trend in hotel spending sharply contrasts with declines in other industries. The education sector bore the brunt of the fall, recording a steep 25.3% drop in spending to just SR94.1 million. Telecommunications and public utilities also experienced notable declines, with spending in these sectors falling 14.7% and 12.4%, respectively. The downturn in public utilities spending, at SR48.4 million, reflects a broader tightening of household budgets, while telecom services, typically resilient, saw reduced activity.

Despite these challenges, Saudi Arabia’s hotel sector continues to flourish. Industry insiders attribute this growth to a mix of domestic tourism, international business travel, and the Kingdom’s ongoing hosting of high-profile events. With the Kingdom positioning itself as a global hub for tourism and investment under Vision 2030, hotels are capturing an increasing share of consumer spending, even as other sectors struggle to keep pace.

Regional Spending Trends

The data paints a mixed picture across different regions of Saudi Arabia. Riyadh, the nation’s bustling capital, remains the dominant player in terms of POS transactions, accounting for 34.7% of the total. Spending in Riyadh reached SR3.9 billion, down 6.9% from previous levels but still leading the pack. Jeddah followed closely, where transactions dropped by 6.8%, totalling SR1.5 billion. Dammam, another major city, saw spending fall by 6.3%, reaching SR587 million.

Smaller cities like Hail felt the sting of the downturn even more acutely. Hail recorded the largest decrease in spending, down by 10.3% to SR174 million. Other regions, including Abha and Buraidah, weren’t far behind, with spending dropping 8.3% and 9.1%, respectively. These figures suggest that while major urban centres are maintaining a degree of economic resilience, smaller cities are feeling the effects of broader consumer caution more keenly.

Consumer Behaviour Shifts

SAMA’s report sheds light on shifting consumer behaviours, as reflected in the decline across various sectors. The education sector, which led the downward trend, saw its spending drop to SR94.1 million. Industry analysts point to seasonal factors, with the back-to-school rush now behind us and families tightening their belts. Similarly, the telecommunications sector saw spending decrease to SR103.6 million, a 14.7% drop, indicating reduced demand for new devices and data packages.

Public utilities, always a reliable indicator of essential household expenditure, also saw a downturn. Spending in this category fell 12.4%, reaching SR48.4 million, suggesting that consumers are finding ways to cut costs on non-discretionary items like electricity and water bills. Even construction and building materials, a sector that has benefited from Saudi Arabia’s booming infrastructure projects, saw a 4.1% decline in spending to SR331.2 million.

Meanwhile, the restaurant and cafe sector, traditionally a significant driver of consumer spending, saw a 5% reduction to SR1.76 billion. Gas stations also witnessed a dip, with spending falling by 5.7% to SR866.4 million. These figures suggest that consumers are curbing non-essential activities and discretionary spending, particularly in the food and leisure categories.

Hotel Industry Defies the Trend

In contrast to the downward trajectory of most sectors, Saudi Arabia’s hotel industry continues to thrive. The rise in hotel spending underscores the ongoing strength of the Kingdom’s tourism and hospitality sectors, bolstered by major events, domestic travel, and international visitors. Analysts note that as Saudi Arabia pushes ahead with its Vision 2030 goals, which aim to diversify the economy and reduce dependency on oil, tourism and hospitality are becoming increasingly vital components of the economy.

The hotel sector’s resilience is partly driven by Saudi Arabia’s growing reputation as a destination for both leisure and business. Major cities like Riyadh, Jeddah, and Dammam are playing host to a range of international conferences, sporting events, and festivals, all of which are drawing both domestic and international visitors. This influx of visitors has translated into higher hotel occupancy rates, pushing up revenues even as other sectors falter.

The Road Ahead

As Saudi Arabia continues to implement reforms and investments under its Vision 2030 strategy, the performance of the hotel industry could offer valuable lessons for other sectors. The government’s focus on tourism, coupled with major projects aimed at boosting infrastructure and international investment, has provided a lifeline for hotels. However, the broader consumer caution reflected in the SAMA report indicates that many industries still have significant challenges ahead.

While hotels may be thriving, sectors such as education, telecoms, and utilities are feeling the pinch. As consumer spending patterns continue to evolve, businesses across the Kingdom will need to adapt to the new economic landscape.