Hypermarkets prompt changes to Egypt's retail scene

Dubai With international and regional hypermarket operators drawn to Egypt s booming retail hubs of Cairo and Alexandria, local grocery stores or the baqal are seeing the departure of their neighbourhood shoppers.

Gom aa grocery in Heliopolis, an affluent neighbourhood in Cairo, has seen sales drop by 30 per cent over the past 12 months and is losing repeat customers to hypermarkets, its owner Mahmoud Ahmad said in a phone interview.

They are opening more branches and taking away our customers, he said. Three supermarkets down the street have closed down. They can t face the competition.

The mom-and-pop food retailers are the worst hit by the hypermarket invasion, according to Sahar Nazmy, research analyst for the Middle East and North Africa region at Euromonitor International in Cairo.

Traffic to these small independent stores is now slow and the transaction value [has] dropped drastically as shoppers shifted their major home shopping to hypermarkets several times a month, she added.

Six hypermarkets and supermarkets have set up shop in Egypt with five more expected to open in the near future, Sahar said. LuLu Hypermarkets was expected to open shortly, HyperPanda was looking for locations, and the German cash-and-carry store Makro is already there.

Reshaping retail scene

Egypt has an urban population of 20 million in Cairo and nine million in Alexandria, which creates a massive consumer base. Hypermarkets have the lion s share, with 85 per cent of the market and an annual growth rate of 60 per cent, Sahar said.

It is a reshaping of the retail scene, Sahar said. The culture of hypermarkets was not there before the entrance of Majid Al Futtaim s Carrefour and Spinneys.

Customers were lured by the lowest prices in the market, attractive promotions, a wide range of products and a one-point shopping destination that was convenient, hygienic and air-conditioned, Sahar said.

You ll be amazed, hypermarkets are flooded by traffic from middle- to low-income classes. Consumers are happy to have them because other retail outlets Alpha, Metro and Oscar attract the upper-class only.

Hypermarkets have an edge over the local, traditional, neighbourhood grocery stores because of their sheer size. [They] have excellent negotiating skills in terms of buying from suppliers, Sahar said. Private labels across many food segments are also cheaper by almost 25 per cent than branded products.

Suppliers were happy to lower prices for these retail giants in return for better distribution, cost-effectiveness, brand promotion, guaranteed payments and sustainable business, Sahar said.

Direct sales in Egypt are becoming very hectic and complicated due to traffic problems and lack of good sales calibres, Sahar said. Egypt very soon will become similar to Saudi Arabia or the UK talking to three-quarters of buyers means covering 60 per cent of the market.

The owners of local grocery stores and smaller supermarkets are angry about the price advantages that suppliers offered hypermarkets, which allow them to monopolise the market.

Ahmad said his grocery was badly affected because he couldn t afford to offer discounts like those in Carrefour. Low prices at the supply level mean hypermarkets can pass on the discounts to consumers and groceries can t compete with that, he added.

Another problem is that the foreign brands sold in hypermarkets are hurting Egyptian production, he noted. It s not an advantage to the country, there s no production, Ahmad added. It s easy for us to make the same products. They are a threat to many supermarkets and labourers. The managing director of Alpha, Egypt s first hypermarket, told Gulf News that Alpha deals with suppliers as the biggest chain in the market, but now things are different.

Carrefour is pressuring suppliers for better prices and now it was given one price while Alpha and local chains were given another.

Then there s no competition, Alpha managing director Mahmoud Zada said.

Industry leaders have raised concerns over the increasing hypermarket monopoly and investments from the Gulf that have been backing this expansion.

They are a threat to internal trade in Egypt, Zada said.

They are giants and can open 10 to 20 stores and control the market. The profits are pouring out of Egypt.

Where is the advantage to the local economy? Where is the monitoring of internal trade? They are a monopoly because they can take a different price.

A prime example of the impact of aggressive hypermarket expansion on local businesses is the case of Omar Effendi, one of Egypt s oldest department stores with 85 branches. Omar Effendi has recently been in decline.

Carrefour picked the best-performing 15 Omar Effendi branches and rented their basement space for itself, much to the anger of the local community and media.

Some Egyptian grocery stores and supermarkets have taken up the challenge and are dealing with the presence of hypermarkets by improving the look of their stores, opening new ones, and lowering prices, Sahar said.

Others are using hypermarkets as the supplier for their outlets rather than dealing with the original suppliers. The government is trying to help them improve instead of fighting overseas investors, Sahar said.

Richard Reed, senior vice-president of development at MAF Properties, said the rising standard of living, higher disposable incomes, the lifting of barriers for foreign retailers to enter the market, and a large market have made Egypt a very attractive destination .

It s been in the last two years that the retail market looked quite seriously at Egypt, Reed said. It s a very successful market for Carrefour business. It s certainly on the radar for international retailers.

Now it is up to Egypt s retail industry leaders and the government to balance the drive to attract foreign investment, against the potential drawbacks for local businesses.