Morocco's retail sector driven by urbanisation and rising household consumption

 

Increased tourist arrivals coupled with GDP per capita hikes and a rising consumer price index all contribute to Morocco’s expanding retail segment. Tourist arrivals increased by 8.3% in 2018. In addition, GDP per capita reached an all-time high of $7480 in 2017, and the consumer price index rose by 2.4% in 2018, marking the highest increase in over five years. The retail sector is estimated to account for 12% of the country’s GDP, and employment in the sector represents 12.8% of total jobs, with as many as 1.2m people employed. In the 2017 Global Retail Development Index, published by US consulting firm AT Kearney, Morocco ranked seventh out of 30 countries in attractiveness for retail development, up seven spots from 14th in the 2016 index. In addition, national retail sales in the country increased by 13% in 2017, to total about $40bn.

Sector Strategy

Growth in the retail sector is spearheaded by Rawaj Vision 2020, a government strategy launched in 2008 that is intended to position the country as a commercial centre with a high value-added retail segment. To reach this goal, the government seeks to modernise local commerce, encourage the establishment of commercial activity zones, and launch regional trade and distribution schemes. The objective is to increase the retail sector’s contribution to GDP to 15% by 2020 and create more than 450,000 jobs.

To achieve this, Rawaj Vision 2020 targets four main commercial actors: independent businesses; franchises; merchants in public spaces, such as in wholesale markets or fish halls; and hypermarkets and supermarkets. In line with this plan, the government’s goal is for modern, formalised retail to account for 30% of all commerce by 2020. The plan also included the establishment of a commerce fund, which would support informal traders to organise or relocate to specific city areas. According to the Moroccan Agency for Investment Development and Exports, the fund allocated Dh200m (€17.9m) annually between 2009 and 2012.

In 2017 the government also introduced the Maroc Commerce 2020 strategy, which oversees the state’s contract programme for large-scale retail sector development. The objectives of this new plan are largely similar to the first. The three axes are: the modernisation of distribution through upgrades of the classic distributors; the financial and technical support of the various segments in a progressive manner; and the creation of an appropriate sectoral framework to drive the sector’s transformation. This aims to overhaul the fiscal and administrative framework as well as improve the market’s operation and factors of production. The strategy intends to provide domestic trade with a fresh start while improving retail’s contribution to the national economy. Although in theory this strategy appears to be an ideal roadmap for sector growth, in practice, concrete developments of the Maroc Commerce 2020 have yet to be realised. With two years left to complete the strategy, the government will need to turn the wheels of the programme in order to secure economic growth.

Consumer Demands

In 2018 a widespread consumer boycott of products took place to protest high commodity prices in the market. Consumers were upset by market monopolisation and corrupt business practices. For example, certain products doubled in price when their demand increased during the month of Ramadan, although this is illegal under Moroccan law. Therefore, consumers boycotted milk, bottled water and petrol. The campaign circulated widely on online social media platforms, and the Facebook page for the protest had more than 2m supporters. Although various laws are already in place to protect consumer rights, in March 2018 the government took measures to reinforce Law 31-08, which concerns safety measures for consumer protection. The law now drafts resolutions to better track product prices of widely consumed products. Additionally, the government implemented a price cap on fuel prices to diffuse anger over the cost of living. This measure allows the government to adjust prices every 15 days, letting them impose temporary measures to counter excessive fluctuations in prices. For the boycott on milk prices, French food group Danone pledged to reduce milk prices. This measure was taken to regain consumer trust in the face of the boycott. Although the viral online protest caused both the government and the private sector to take measures to lower consumer prices, the rising cost of living continues to concern Moroccans.

E-Commerce

Online commerce is a relatively new economic sector for Morocco and there is significant room for development. However, the country has made many strides in recent years. In the 2018 UN Conference for Trade and Development, Morocco ranked fifth out of the African countries for e-commerce and the country advanced from 85th place to 81st out of the 151 countries studied globally. The classification is based on the business-to-consumer e-commerce index. Criteria include number of online buyers, level of security for servers, ease of access to online payment methods and efficiency of delivery methods, among other indicators. With regards to the percentage of the population with access to the internet, Morocco leads all the African countries with 62% overall.

In other areas, however, there is still work to be done, including improving consumer confidence in online purchases and increasing online payment methods. The Digital Morocco Plan 2020, which aims to accelerate the digital transformation of the country, has also been a central driver for e-commerce growth. Online shoppers are showing increasing appetite each year, and in 2017 Moroccans spent Dh2bn (€179.9m) in online shopping – a 51.4% increase over the previous year. These sales were achieved through 4.8m online payment transactions via Moroccan and foreign credit cards, marking a rise of 86.1% compared to the same period the previous year. The main contributors to e-commerce are billing websites, which account for nearly half of all online purchase volumes, representing an increase of 67% compared to 2016. The second-largest contributors are airline websites, with 22.8% of the overall volume, yielding an 18.9% increase overall. At the same time, foreign credit cards activity recorded a 1.5% hike in transactions, and 24.8% increase in volume to total Dh147.5m (€13.3m) throughout the first nine months of 2017.

Rocket Internet’s online retailer Jumia, one of the kingdom’s first e-commerce platforms, also recorded all time highs for online purchases. Larbi Alaoui Belrhiti, Jumia’s director general, told local media that one of the most impressive statistics for 2018 was the strong performance of online sales in rural areas, which grew by 25%. This shows that e-purchases are extending beyond urban centres to a larger reach of the population. However, there remains significant room for growth, and the e-commerce dynamic will continue increasing in importance as one of the country’s key economic stimuli.

Hypermarkets & Supermarkets

Hypermarkets and supermarkets in Morocco have undergone major changes in recent years, notably with the market entry of new players – namely the Turkish hard-discount store BIM, or more recently the French company Leader Price.

The segment has also experienced the transformation of the Label’Vie supermarket into Carrefour Market and the introduction of a new hypercash concept through the conversion of Metro stores acquired by Label’Vie in Atacadao. Despite these changes, the sector continues to be dominated by two players: Cofarma Group/Marjane, with a market share of 53%; and Label’Vie Group with a 30% market share. Large distribution retail has significant growth potential in the Moroccan market as the penetration rate is just 15%. In fact, a recent market study shows that a third of consumers have never set foot in a hypermarket or supermarket. Around 20% of people visit a general merchandise store (GMS) at least once a week, and this rises to 35% in larger centres like Casablanca and Rabat. In addition, approximately 12% of people visit a GMS at least once every two weeks and an additional 18% go roughly once per month.

In order to develop this segment, there need to be better logistics platforms for large-scale distribution, particularly for fresh fruits and vegetables, as this continues to be a roadblock for the sector’s growth. Also, established companies need to unfairly compete with the informal segment, which has long dominated a significant part of the market. Therefore, in order to maximise growth in the hypermarket and supermarket segment, increased efforts need to be focused on tackling the issues that are hindering further segment expansions.

Convenience Stores

Although hypermarkets and supermarkets have experienced growth, the vast majority of food and beverage shopping continues to be conducted in neighbourhood or small convenience stores. These small stores are scattered across the country and range from general food stores to butcher shops and bakeries, accounting for 58% of the sector’s turnover, 36% of jobs and 80% of sales outlets. Therefore, a government plan for the modernisation of local convenience stores has benefitted 25,700 merchants across various regions in the country. This programme created 10,000 indirect jobs, generated an additional added value of Dh1.8bn (€161.9m) and increased the sales revenues for the segment by Dh1.5bn (€134.9m).

However, convenience stores continue to resist modernisation and change, and in January 2019 owners went on strike in protest of electronic billing systems. Since the paralysis of convenience stores was harming Moroccan consumers, the Ministry of Economy and Finance reached an agreement with convenience stores, which removed the requirement that these stores must issue the company’s common identifier (l’Identifiant Commun de l’Entreprise, ICE) to their customers. The agreement specifies that the ICE remains optional for local merchants and that a study will be commissioned on the efficiency of tax measures for the 2020 Finance Law. Although this agreement found a short-term solution for unblocking the paralysis of convenience stores, this agreement is a major step back for the government efforts attempting to tackle the informal sector, which permeates the retail segment. Retail remains the most affected by the informal economy. It accounts for more than 50% of the informal sector, which has 1.68m informal production units (unités de production informelles, UPIs) in 2013 against 1.55m UPI in 2007, an average annual increase of 19,000 UPIs, or an increase of 1.2% per year. The new 2019 Finance Law attempted to tackle the informal sector by introducing a measure that required companies to be registered digitally under a common identifier. Failure to properly register would result in a Dh100 (€8.99) fine for omission or inaccuracy. As a result, as of January 2019 invoices needed to include both the vendor and customer ID. However, the strike reversed this measure for small merchants, which gives room for the informal sector to continue operating.

Vehicle Sales

In 2018 Morocco’s automobile sector broke sales records for the fourth year in a row. The number of passenger cars sold reached 142,000 units at the end of November 2018, representing year-on-year growth of 3.41%, while the light commercial vehicle segment increased by 5.46% to 12,800 units. “Growth in the segment of new cars should keep going following a stable trend in Morocco, with more than 177,000 vehicles sold in 2018,” Marouane Tarafa, CEO of Sopriam, told OBG. By dealer, the Dacia brand remains the market leader with a total of 42,700 registrations during the first 11 months of 2018, achieving an increase of 3.33% over 2017 and capturing 30% of the market. The French car manufacturer Renault remains second with 19,800 vehicles sold in 2018, a growth of 5.53% and a market share of nearly 14%, followed by Volkswagen (up 1.34% to 10,336 units) and Peugeot (up 4.88% to 9153 units). Morocco also saw the emergence of hybrid vehicles in 2018, which notably included the entry of Lexus, Toyota’s luxury brand, to the market. Therefore, the vehicle retail segment is has been rising on an annual basis, and in 2019 this trend is expected to continue with sales estimated to increase by an additional 5%.

Retail Real Estate

Mall developers are experiencing increasing opportunities for retail space expansion, notably with the creation of real estate investment trusts (REITs) in 2015. Although Morocco has yet to see REITs on the Casablanca Stock Exchange, REIT-like transactions have been ongoing in the country for many years and have increased further since the framework to standardise REIT transactions was established. In 2017 Vecteur LV merged with Petra, establishing a new commercial real estate platform with 27 assets in 15 Moroccan cities. REITs expand the market to a larger range of investors by lowering the amount of investment required to own real estate. Therefore, real estate is expected to attract more investment through REITs and new innovative platforms in the coming years.

In particular, the commercial real estate sector in the country should also develop, with a number of companies announcing their intention to list the assets separately as REITs. Shopping centres in the city of Casablanca are increasingly coveted, given the high rate of activity in malls such as Morocco Mall and Anfa Place Shopping Centre. In this regard, seven malls are set to open in 2020, more than doubling the country’s available mall retail space. Major international retailers are following suit with these expansions and are also setting up shop in the country. Other cities are also experiencing large store growth, including Marrakech, which in December 2018 saw the opening of Africa’s largest Decathlon sports store. The expansion of retail spaces are positive developments not only for the retail sector, but also for tourism. Tourists are increasingly attracted to Morocco’s shopping centres and stores. According to local media sources, around 10% of the sales made at Morocco Mall are from African and Asian shoppers visiting the country. Therefore, as retail real estate expands, it will also bring better prospects for tourists who are looking for shopping experiences in the kingdom.

Outlook

The retail sector in Morocco is expected to continue to grow due to the demographic shifts in the population, such as urbanisation, increases in the consumer price index, rising levels of household consumption and improving GDP per capita. The expanding number of younger urban households has also created increased demand for modern retail. In addition, higher internet penetration rates and the increasing popularity of online shopping are all levers for sector growth.

In order to fully harness the retail sector’s potential, the government needs to properly implement the 2020 strategy in an organised manner. While the government has put in place a series of economic plans and strategies aimed at boosting the retail sector, these are still yet to be fully implemented. Prioritising expansion in the largest cities has meant that retail distributors are concentrated in the country’s main economic centres, where disposable incomes are higher, and where consumers have greater inclination to look for choice and the imported goods that most modern chains carry. Therefore, one of the key challenges for the future will be finding a strategy to extend the concept of modern retail into smaller urban areas as well.

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The Report: Morocco 2019

Industry & Retail chapter from The Report: Morocco 2019

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