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HYPERMARKETS CROWD FOR CONSUMERS
BY AMENA BAKR
Egypt’s increasingly liberalized market is giving
consumers more options when it comes to grocery shopping and many
say they are willing to pay a little more, if necessary, for the
convenience of one-stop shopping. To fill this demand, the country
has witnessed the ascendancy of local and foreign-owned hypermarkets
– spacious retail stores where shoppers can purchase items
ranging from fresh produce to household goods and large appliances.
As the consumer base for these chains grows, new enterprises are
making their way into the market and existing players are looking
to expand, even as a range of market factors edge out other chains
altogether.
One of the newcomers to Egypt is the Middle East retail chain Spinneys,
set to open its first 13,500-square-meter outlet in Cairo’s
Citystars mall in June. Although rumors surrounding the $10 million
hypermarket’s opening date have circulated for nearly two years,
Michael Wright, managing director of Spinneys Holding, says the
company took on the project at the end of 2004 and expected to have
the store ready in about a year’s time. “So in fact we
are only about three months late,” he insists.
Spinneys started in Alexandria back in 1924 as a British-owned catering
business, but left Egypt after just a year of operation, reinventing
itself as a supermarket chain operating in various countries including
Iraq, Lebanon, Palestine, the UK and the Far East – though
by the 1980s it had retreated to the UAE.
Wright, who brought the chain back to Lebanon in 1998 and spearheaded
its growth, has plans to open 15 new stores in Arab countries, Pakistan
and Iran by 2010. Backed by a heavyweight consortium that includes
UAE asset management firms Abraaj Capital Group and Cupola Group,
as well as Wafra, the investment arm of the Kuwaiti government’s
pension fund, the retailer sees an opportunity in Cairo.
Market studies conducted by the Spinneys team concluded that the
Egyptian market for supermarkets and hypermarkets is far from saturated.
“It’s clear that Egypt has a lot of potential, mainly
due to its large population,” says Wright. Egypt’s 72
million inhabitants, nearly 20 million of which live in the Greater
Cairo area, are served by some 700 supermarkets and less than 10
hypermarkets. According to a report by US-based management consulting
firm A.T. Kearney, the estimated market share for these mass retailers
was less than 5 percent in 2004. The study predicts that as consumers
switch from the traditional baqqal (small grocery) and produce markets,
this share is destined to grow immensely.
Madiha El Safty, a sociology professor at the American University
in Cairo, believes the mass media is helping it along. “What
sparked this trend [the shift to large retailers] is the media and
advertising. Everywhere you look you find consumer goods being promoted
and there is a kind of bandwagon effect,” she says. But while
shopping at large stores is convenient for some, it is frustrating
for lower-income consumers who can barely afford basic commodities.
“People here in Egypt like to imitate each other, and that’s
one of the main strategies that these stores play on. [This] makes
the poor feel more frustrated.”
For those pressed for time, however, hypermarkets are a relief.
“I have no time to go to three or four different stores each
week,” says Jihan Hagag, 43, a working mother of two. “That’s
why I find hypermarkets very attractive.”
Price-cutting
formulas
An underlying challenge for Egypt’s hypermarket chains has
been to overcome the widespread perception that they are pricier
than smaller grocery stores. “Grocery stores give the impression
of being cheaper because they fail [in areas such as] hygiene, cleanliness
and staff... which gives you a very cheap feeling,” says Wright.
Herve Majidier, head of Carrefour Egypt, has seen a significant
shift in public opinion since he arrived in 2003 to manage Egypt’s
first Carrefour outlet near Maadi, whose first-year sales had been
sluggish. At that time, he says, conventional wisdom held that foreign-owned
stores faced an uphill battle in the market, due largely to the
public’s unfamiliarity with the chains’ names. “At
that time, the market was convinced that if you are not Egyptian,
you cannot succeed,” he says.
Majidier reversed the French chain’s fortunes by adopting what
he calls a “killing the price” strategy. The approach,
which aims to undercut all competitors even if required to take
a loss on some products in order to sell others, succeeded in attracting
customers. “I believe that the main motivation to get people
to shop here [is] the price factor,” he says.
Hypermarkets use economies of scale to keep prices low. Their business
model is based on low overheads – a result of expansive stores
located on the outskirts of cities where property prices are lower
– coupled with selling large volumes of goods at low profit
margins. The savings are passed along to the consumer.
One way in which Carrefour was able to shave percentage points off
prices was by lower packaging costs. The company sells fast-moving
products like rice, cereal and detergent in economy packages weighing
more than five kilograms. It also negotiated contracts with local
suppliers to supply a growing line of private-label brands, thereby
employing economies of scale while satisfying a demand for cheap,
high-quality goods. Carrefour currently stocks 275 private-label
products; by year’s end, Majidier expects the line to grow
to 600.
The desire to sell at the lowest possible prices initially discouraged
the chain from importing goods, which were subject to high tariffs
and lengthy customs procedures. However, tariff reductions in late
2004 and the prospect of less tortuous customs clearance encouraged
Majidier to resuscitate plans to stock
imported goods. Carrefour now imports 2-3 percent of the store’s
products – a share that is expected to grow significantly.
“It’s our duty to have many categories of items under
the same roof, so these imported items add a wider selection to
our store,” he says.
HyperOne, the lone domestic-owned hypermarket in Egypt, which opened
a two-story outlet in Sixth of October City in 2005, claims it has
benefited from the erratic performance of its foreign competitors.
HyperOne chairman Mohamed El Hawary argues that foreign chains still
lack understanding of what Egyptian consumers want. “Understanding
the mentality and culture of our consumers is what gives us our
competitive edge,” he says.
While he concedes that foreign-owned hypermarkets have a clear advantage
when it comes to electrical goods, El Hawary insists HyperOne has
a decisive advantage when it comes to fresh food. “We have
a larger fresh food section than any other supermarket,” he
boasts.
The big squeeze
The growth of hypermarkets is bringing new products to the Egyptian
market and giving consumers an ever-greater range of options, which
is putting more pressure on medium-sized supermarkets such as Seoudi
and Ragab & Sons. A report by the USDA Foreign Agricultural
Service issued in 2002 predicted that medium-sized supermarkets
with an area of about 500 square meters would be forced out of business
unless they expanded their shelf space, as Egyptian consumers were
demanding a more comprehensive shopping experience.
South Africa’s Shoprite, with seven supermarkets in Cairo,
recently pulled out of Egypt after suffering undisclosed losses,
a move it says resulted from persistent difficulties in importing
products. Meanwhile, the burgeoning potential for larger stores
has put expansion on the agenda for almost every large supermarket
and hypermarket chain in Cairo.
Among these is Alfa Market, arguably Egypt’s first hypermarket
chain, which has grown to six outlets with the opening of a new
store in Cairo and its first outlet in Alexandria. Mansour Group,
meanwhile, has been aggressively expanding its Metro supermarket
chain to reach over two dozen outlets. The company also plans to
open a new line of medium-sized discount supermarkets, Kheer Zaman,
to cater to lower- and middle-income consumers.
Carrefour, the French chain operated in the Middle East by Dubai-based
franchise holder Majid Al-Futtaim Group, has three outlets near
Cairo and one in Alexandria. The chain has plans to open 18 stores
in Egypt over the next decade, beginning with one on the Suez Road
expected to draw customers from nearby Heliopolis. It also intends
to open stores in the yet-overlooked Delta cities.
In the increasingly competitive market, location will play a pivotal
role. Space constraints have so far kept these mass retailers on
the outskirts of Cairo and Alexandria, making accessibility an issue
– though their perpetually full parking lots may suggest otherwise.
Size, explains HyperOne’s El Hawary, has been one of the biggest
challenges in selecting suitable locations for hypermarkets, whose
store space alone often exceeds 10,000 square meters. “There
is not enough space to build a hypermarket and have a storage area
and a big parking area anywhere in central Cairo,” he says.
Spinneys, however, is challenging this assumption with plans to
open branches in some of the capital’s most populous areas.
Citystars, set between the two relatively affluent suburbs of Heliopolis
and Nasr City, was a natural place to open the first outlet, maintains
Wright. The mega-mall complex has become a magnet for Cairo’s
pocket change since its 2004 opening, and was one of only a handful
of places in Cairo able to accommodate a full-sized hypermarket.
Spinneys has also said it will open outlets in Zamalek, Mohandiseen
and Sixth of October City. “You can’t rely on people to
travel all the way across town to come to you,” says Wright.
“You’ll find that there’s somebody else between you
and your customer.”
A customer who can’t reach the store in 20-30 minutes, says
Carrefour’s Majidier, is likely to go elsewhere. “There’s
no denying the loss of potential customers due to the location of
our stores,” he admits. Carrefour recently launched a shuttle
bus service to transport customers from locations such as Mohandiseen
and Dokki to its second outlet in Dandy Mall. “This costs us
both time and money, but we have no other option,” he says.
Despite the challenges, many retailing experts agree that the market
is responding well, and expect dramatic expansion to occur in the
near future. Majidier calls the stiff competition a healthy sign,
and believes it is likely to generate innovative approaches. “I
love competition,” he says, “and I am ready for the challenges
that it brings.”
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