How Egypt's supermarkets are attracting customers

 

After the 2016 currency devaluation and IMF-backed economic reforms that led to an increase in the prices of necessities such as fuel, electricity and basic foods, Egyptian consumers began to rationalise their spending habits. Many began to opt for cheaper brands, or stopped purchases in certain categories altogether. Fast-moving consumer goods (FMCGs) and food retailers were particularly affected by the changes, as high inflation drove down demand. However, a fall in the unemployment rate – from 10.9% in FY 2018/19 to 8.6% in FY 2019/20 – has resulted in a slight improvement in consumer spending.

According to a February 2020 report from Fitch Solutions, consumption was expected to increase by 3.5% in 2020, up from 0.8% in 2019. The company noted that the stabilisation of inflation and a 66% increase in the public sector minimum wage in March 2019 both contributed to higher levels of consumption, a trend that at the time was expected to continue through 2020. However, this assessment came before the impact of the Covid-19 pandemic was apparent, and it is expected that the economic ramifications of the outbreak and the resulting shutdowns will have a negative impact on consumption.

Local Scene

Local FMCG producers and food retailers benefitted from Egyptian consumers’ shift towards the preference of cheaper goods, offering more competitive prices than multinational brands. As these companies were already embedded in the market, they were often able to more quickly and effectively reach consumers. For example, in response to consumer sensitivity to price increases following the devaluation, supermarket chains and grocery stores in Egypt incentivised customers through loyalty programmes, discounts and other promotions, according to a June 2019 report from the US Department of Agriculture. Locally produced substitutes including cookies, crackers and chips started to replace more expensive imported products in shoppers’ carts, although many higher-income consumers did not make the switch.

Innovation

Technological innovations are helping to boost the contribution of local FMCG firms to the supply chain. In September 2019 local business-to-business (B2B) e-commerce start-up MaxAB closed a $6.2m seed round with UAE-based early-stage venture capital (VC) firm Beco Capital, Africa-focused VC 4DX Ventures and early-stage investment fund Endure Capital.

According to MaxAB, traditional retailers comprise 90% of the FMCG market, with intermediaries making large profit margins. The start-up connects informal food and grocery retailers directly with suppliers and brands in categories including groceries, beverages, dairy, confectionery and non-food products. It manages three apps: one that allows store owners to purchase goods, one for their delivery staff and one for customer support. The seed funding will be used to increase the company’s reach in Egypt and into North Africa. “Currently the B2B grocery market is offline from beginning to end,” Belal El Megharbel, CEO of MaxAB, told international media in October 2019. “There are no optimisation tools to ensure that it is running efficiently, and there is no direct connection between FMCGs and retailers. What this means is that there is a huge gap in the market for reorganisation using technology.”

Companies in Egypt’s FMCG and food retail scene are working to increase the volume of sales back to pre-flotation levels, and moderating inflation levels and an appreciating currency have both aided in this rebound. The ability of local firms and retailers to be flexible in their responses to shifting consumer preferences during a time of country-wide economic hardship helped domestic companies weather the storm. Meanwhile, entrepreneurs have provided technologically advanced solutions that connect traditional retailers directly to the supply chain.

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The Report: Egypt 2020

Industry & Retail chapter from The Report: Egypt 2020

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