Feeding a nation: Formal, modern grocery chains see expansion on the back of middle class growth

 

As Djibouti’s economy evolves and the number of modern shopping outlets grows, grocers and the distribution channels that supply them have proven to be key drivers of the country’s retail industry. The retail foodstuff segment had traditionally been dominated by independently run, small-scale grocery stores called mercatos, but consumer habits have changed in recent times with the expansion of regional supermarket groups such as Coubèche.

MARKET STRUCTURE: The segment has seen significant annual growth since 2005, ranging between 5% and 10%. This can largely be explained by a growing middle class, for which retail supermarket chains are highly convenient and therefore increasingly popular. Growth has also been spurred by expatriates moving to Djibouti who are accustomed to a similar grocery shopping experience at home.

Large-scale formal retailers currently account for between 30% and 40% of the country’s retail foodstuff segment. The leading company is domestic firm Coubèche Distribution, which is the commercial arm of Groupe Coubèche. Founded in Obock in 1885, Coubèche was transferred across the Gulf of Tadjoura to the capital, Djibouti City, in 1893. The company operates on 28,000 sq metres of property near the Port of Djibouti and 17,000 sq metres in the adjacent industrial free zone. Coubèche, which directly employs around 630 people, has an estimated 60% market share. Next in size is Supérette La 5, which has a 20% share, while the remaining 20% is split equally between Nougaprix supermarkets, run by Groupe Al Gamil, and the Napoléon market chain.

Although this model is popular, the rate of expansion of modern foodstuff retail could decelerate in the coming years as the pace of expatriate arrivals slows and the market matures. This prospect has led some of these operators to begin seeking entrance to markets in neighbouring territories, with an eye on a future where those markets become more secure.

IMPORT STRATEGY: The vast majority of Djibouti’s food is imported from nearby countries such as Ethiopia and Kenya, as well as from further afield, such as Asia, Latin America and Europe. The country’s arid climate and limited agro-processing capabilities also requires it to import food with short shelf lives, such as fruit. This dependence on importation can result in high food prices – which in turn have an impact on inflation rates in the country – and can also lead to spoilage if goods are not efficiently transported.

Djiboutian companies are therefore working to source products regionally whenever possible. Egypt and Saudi Arabia, for example, from which transportation is often less costly, offer competitive prices.

QUALITY CONTROL: While a growing middle class has driven the popularity of supermarkets in Djibouti, it has also resulted in an increase in disposable income. As such, competition on the basis of price and quality is shaping the market as retailers seek to capture a greater share of residents’ grocery budgets. However, as some new businesses enter the market with a focus on low prices, quality and service can be overlooked. More robust quality control standards for grocery chains would not only ensure that the value of goods meet consumers’ expectations, but it would also help dampen a rapidly developing informal market.

In addition to food and beverages, supermarkets often carry durable goods and small kitchen appliances. Quality concerns stretch to these items as well, as established companies must contest with new businesses that saturate the market with cheaper imitation products. There are also worries surrounding free trade zones. In March 2018 the OECD reported that the creation of a new zone, with its relaxed regulations, brings a 5.9% increase in the value of counterfeit exports from the host economy. This could be addressed with stricter patent regulations to reduce the activities of the informal sector and ensure fairer competition among all market players.

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The Report: Djibouti 2018

Industry & Retail chapter from The Report: Djibouti 2018

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