Food, beverages and tobacco increasing their share of the retail segment

On the back of 2014, when a major expansion in mall supply was executed in Jordan’s capital city, Amman, the kingdom’s organised retail sector has continued to move forward. Meanwhile, sustained economic and population growth have also meant increasing demand. In the food and beverage segment, traditional retail has held its ground in a cost-sensitive market. According to Nabil Rassam, Chairman of Al Nabil Company for Food Products, “Sustained economic development, coupled with healthy population growth, will increase the consumer base for frozen food manufacturers.”

However, 2015 holds a number of serious challenges for the sector overall. Poor weather and security concerns dented demand in the early part of the year, while a danger of oversupply at the high end is a possibility. Competition remains fierce, and the costs of doing business have remained relatively high, particularly in energy.

At the same time, inflationary pressure as a result of an influx of refugees and higher taxes has also impacted purchasing power. Nonetheless, the Jordanian retail sector is more diversified than ever before, with consumers increasingly brand conscious when it comes to both quality and range. E-commerce, too, continues to make gains.

By The Numbers 

The Jordanian economy saw nominal GDP growth of 3.1% in 2014, up from 2.9% in 2013, according to the Central Bank of Jordan (CBJ). In monetary terms, this was a shift from around $33.9bn to $36.6bn. In terms of contribution to nominal GDP, wholesale and retail contributed around 8.1% in 2013, the latest available figures, according to the Amman Chamber of Commerce (ACC). Restaurants and hotels contributed a further 1.4%. Preliminary figures for the trade, restaurants and hotels segment from the CBJ show a contribution of around JD2.43bn ($3.4bn) in 2014, out of a nominal GDP of JD25.4bn ($35.8bn). This gave the sector a 9.65% contribution. The corresponding figures for 2013 were a JD2.28bn ($3.2bn) contribution from the segment, out of a total nominal GDP of JD23.8bn ($33.5bn), or 9.55%, indicating a moderate rise in the sector’s share.

The Department of Statistics (DoS) yearbook for 2013, meanwhile, shows 15.7% of the national workforce was employed in wholesale and retail trade, which included motor vehicle and motorcycle repair. This made the segment the largest employer in the country, after the public sector, which employed 26.2%.

Major Segments

The most recent comprehensive survey by the DoS, for 2012, shows that non-specialised retail stores, selling predominantly food, beverages and tobacco, accounted for JD1.2bn ($1.7bn) in gross value added (GVA) that year – the biggest single contribution of any line in the wholesale and retail segment.

Sales of other products in non-specialised stores had a GVA of JD977.8m ($1.4bn), which was the third-largest line – the second-largest was wholesale of construction materials, at JD1.1bn ($1.5bn). Sales of food in specialist retail stores had a GVA of JD720m ($1bn), while sales of beverages in specialist retail stores had a GVA of JD100m ($140m) and tobacco had JD25.3m ($35.6m). This means there is a non-specialist to specialist split in these product areas of JD1.2bn ($1.7bn) to JD845.3m ($1.2bn), showing the continued strength of the non-specialist retail segment in this area.

The non-specialised segment is largely “mom and pop” stores, which are almost always run as family businesses. As a result, they are more likely to be in a position where they have to draw on their own labour and capital. Traditional market stalls accounted for a GVA of just JD4m ($5.6m) in the food, beverage and tobacco segment, however, showing their declining role in the retail business.

Safwat Al-Farouqi, Chairman and CEO of Middle Eastern Company for Trade and Investment, told OBG that, “In most cases people prefer to shop in hypermarkets because they can have access to all the products and brands in one single place. In addition, they trust it more because the prices are fixed. With resellers, clients only have access to certain products and they have to negotiate, leaving them with a bad aftertaste that they could have had a better deal. As a consequence, resellers are losing market share.”

Specialisation Matters

In the non-food and beverage segment, the specialist areas were more successful than non-specialist ones. Retail sales of information and telecoms equipment in specialist stores amassed a total GVA of JD496.3m ($698.4m), half of the non-specialised total for all product lines. Other major GVAs were recorded by specialised stores in clothing and footwear at JD836.3m ($1.2bn), in white goods at JD806.4m ($1.1bn), hardware at JD503.4m ($708.3m), and in pharmaceuticals and cosmetics at JD455m ($640.2m).

Indeed, electrical and electronics (E&E) retailer Smart Buy reported strong growth in 2014 and opened a new store in February 2015, with one more new opening planned for later in the year. The chain reported that big-ticket E&E items were also increasingly dominated by organised retail, although mobile phones were still in the province of the small stalls and shops. These businesses were often able to offer price reductions by operating through the grey economy. In terms of sales, the corner and independent stores still account for the vast majority of purchases, however, with a January 2014 HSBC report suggesting the top-five organised retail brands in the kingdom still only accounted for around 5% of the market.

Consumer Numbers

According to the DoS, Jordan currently has an estimated total population of 6.722m, while the last census, in 2012, recorded the capital as having a population of 2.47m out of a total 6.39m, or around 38.6%. A new census is due to be carried out in 2015.

Jordanian consumers are known for their price consciousness, with per capita GDP standing at $5357 in 2014, according to the IMF. Yet this also masks a wide income disparity between the majority of Jordanians and a wealthy minority, while also masking urban and rural disparities, as well as differences between incomes in the capital and elsewhere. Economic growth has undoubtedly increased standards of living for all in recent years though – in 2003, per capita GDP was just $1973.90 – and boosted overall purchasing power while altering consumer preferences upwards.

Challenging Market

Jordanian consumers continue to face a number of challenges. Inflation was running around 5% per annum between 2010 and 2014, hitting 5.5% in 2013. The consumer price index (CPI) has fallen since – hitting 2.8% in 2014, largely on the back of falling international oil prices (Jordan imports 97% of its energy needs) and commodity prices. Lower energy prices may mask key areas where prices rose much faster. The government has been reducing subsidies on energy since 2012, with this resulting in energy price rises even while internationally, oil and gas prices have come down. This has largely been passed on to consumers as higher prices for many products.

Preliminary CBJ data shows that if a 2010 base line of 100 points is used, overall, the CPI had reached 117.4 by year-end 2014. Certain product lines were above this, however. Clothing and footwear hit 125.2, while rents stood at 120.8 and fuel and lighting was at 122.5. The Jordanian Gas Station Owners Association estimates some 30% of household budgets goes to fuel. At the same time, Jordan has a relatively high unemployment rate, with this rising to 12.9% in the first quarter of 2015, from 12.3% in the fourth quarter of 2014.

Jordan is also home to many Syrian refugees – the UN High Commissioner for Refugees registered 628,427 of them, or around 10% of Jordan’s total population, in April 2015. The overwhelming majority of refugees were extremely poor, with the protracted nature of the conflict in their homeland having eroded their savings.

These factors mean that for most inhabitants, low-end, non-specialised stores and markets are the main areas of retail exchange. Yet as the growth in high-end malls and destination stores has shown in recent times, there is also a Jordanian population that continues to spend. This population is also internationally aware. Many Jordanians work in the GCC countries and bring back expectations of the kind of retail experiences available in Dubai or Doha. These expatriates also send major remittances home – averaging JD465.64m ($655.2m) per quarter over the 2000-14 period.

Working Together

Still, it could improve the business climate if the kingdom were more closely linked to other countries in the region, especially the Gulf. “Jordan not being a part of the GCC is a major drag on certain businesses,” Mohd Nasir bin Nasuha, managing director of Arab Ready Meals, told OBG. “The GCC is a large market with high purchasing power; a lucrative market indeed for Jordanian exporters.” Rassam echoed those sentiments and told OBG, “The Jordanian market is relatively limited, and some manufacturers must consequently look abroad to expand their business.”

However, Jordan continues to see a steady increase in its organised retail segment, particularly in Amman. AT Kearney’s “2014 Global Retail Development Index (GRDI)” report states that retail sales in the country overall averaged 7.8% growth in the 2011-14 period, with grocery sales up 5%. These were cited as positive underlying trends, despite Jordan losing two points overall in the index, year-on-year. The kingdom came out 22nd in the survey for country attractiveness in retail, a ranking that also made it 5th in the MENA region countries surveyed. The four ahead of it were all GCC countries, with the UAE first, or 4th in the overall GRDI rankings.

Magnificent Malls

The first luxury mall to open in Jordan was the Abdoun Mall in 2001. With Abdoun one of the most affluent districts of Amman, this was a natural choice and the 25,000-sq-metre shopping centre was a first major success in the market for its owners, the Kurdi Group. Two years later, this group also opened the Mecca Mall, the first large-scale shopping centre in Jordan. This has some 195,000 sq metres, with 95,000 sq metres of letting space, parking for 3500 and a weekly footfall of 175,000.

Other small-scale malls include the Zara Centre, with 11,500 sq metres in total, on four levels, and a weekly footfall of 5000. The Al Baraka Mall, meanwhile, fills a medium format size, at 41,000 sq metres, in Amman’s Al Sweifiyah district. Also including a cinema complex, it has parking for 300 vehicles and a weekly footfall of 40,000.

Other large-format shopping centres include City Mall, which opened in 2007 in Amman’s city centre. With a total area of 160,000 sq metres, 55,000 sq metres of which are leasable, it includes a 10-screen Cineplex and a Carrefour hypermarket. Zara, Debenhams, Gap, Mango and H&M also have space there, while there is room for 2400 cars. Owned by Jordan’s Al Khayr Real Estate Investment Company, the mall is visited by an average 30,000 customers a day, according to its website.

Later, in 2011, the Taj Lifestyle Centre in Amman’s affluent Abdoun district opened its doors. Taj has 150,000 sq metres of indoor and outdoor space, with some 190 outlets. Entertainment facilities include a 16-screen cinema complex, while a number of global names have space there. These include M&S, Louis Vuitton, H&M, Gap, Emporia Armani and many others, with the anchor supermarket provided by Cozmo. Preliminary figures from Taj supplied to OBG showed some 8m customers in 2014, up from 7m the year before.

The Galleria Mall opened in 2013, adding a further 46,000 sq metres of retail, restaurant and public space along with offices and parking for 1200 cars. Located in Sweifeh, it also has an anchor Carrefour hypermarket, along with M&S, Monsoon and a full range of other global brands. The upscale retail market has seen further growth recently, too, with 2014 seeing the Abdali Boulevard open its doors and add some 22,000-sq-metres of space to the capital’s organised retail sector. The Boulevard has 120 new stores, with these arranged in a street format among a mixed-use high-end residential and commercial development. More is promised too in this downtown district, as the complementary Central Market Place/Abdali Mall is due to be completed in the third quarter of 2015 and open in 2016. This will radically shift the retail space in the capital upwards, adding some 57,000 sq metres of gross leasable space within its 227,000 sq metre site. On five floors, including an 11-screen cinema, dining and shop plazas, it is being developed by the United Real Estate Company and is a $150m investment. The year 2013 also saw a major breakthrough with the opening of Ibid City Centre Mall. An 87,000-sq-metre offering, it has some 250 local and international brands, a seven-screen cinema, and a 1000-seat food court. The mall is the first major modern shopping complex outside Amman.

At The Store

In terms of supermarkets, Kuwait’s The Sultan Centre has the Safeway line in Jordan, with six stores in full-service operation, six Safeway X-Press convenience stores and two wholesale stores. These are located across the kingdom, from Aqaba to Ibid. At the same time, THE Group’s Cozmo supermarkets have a variety of locations in Amman and elsewhere, including their flagship Cozmo Centre at the 7th Circle of the capital.

Carrefour is also a major presence in this segment. In addition to its City and Galleria Mall hypermarket sites, the French giant – operating in Jordan in a joint venture with Dubai’s Maid Al Futtaim – also has a hypermarket at the Ibid City Centre. It runs 11 supermarkets in Amman, one in Irbid, one in Al Zarqa and one in Madaba. In the home furnishings and decorating segment, IKEA opened its first store in Jordan in 2014, on a 42,000-sq-metre site in Al Yadoudeh, which is on the airport road.

The e-retail segment is also seeing some success. Jordan-based online retailers can take advantage of the country’s strategic location to ship to many neighbouring countries, as well as supplying the domestic market. Souq.com, for example, was founded by a Jordanian, and now has over 23m visits per month to its retail site. Its technical base is in Amman, while its commercial centre is Dubai.

Outlook

While 2015 got off to a shaky start, many retailers remained optimistic that business would pick up into the warmer months. Regional instability will likely continue to affect consumer behaviour, although often this is for short periods following a new development, rather than for any length of time. The year ahead may also see some oversupply in the mall market, as the Abdali Mall comes on-line. Other Jordanian cities continue to be under-served by organised retail, a factor that may draw investors out of the capital region.

Costs may also continue to be a challenge – particularly in energy, where electricity prices have risen, even if oil and gas prices have fallen. This has had a positive effect in one way, however, making many mall operations sensitive to energy conservation. Retail will thus remain a highly competitive sector and there is a sense of untapped demand for a variety of products. With continued economic and population growth, too, the future looks likely to involve a lot more time at the mall for many.

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The Report: Jordan 2015

Industry & Retail chapter from The Report: Jordan 2015

The Report: Jordan 2015

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