New trends: The future lies in modern shopping outlets

Benefitting from rising income levels supported by economic growth and strong hydrocarbons receipts, the country’s young and growing population increasingly expects to find international brands in local shops. While smaller, informal outlets still dominate the retail landscape in Algeria, new and modern shopping centres have recently started to spring up, particularly in the major cities. As a result, consumers have been exposed to a new shopping experience – and they seem to like what they see.

Algeria was less affected than most by the global economic downturn of 2008-09 and it has since bounced back strongly, with its GDP growth projected to hit 2.5% in 2012, rising to 3.5% in 2013, according to figures released by the IMF in mid-November 2012. Around 40% of Algerians still prefer to do their shopping in the more informal markets, especially outside larger cities where new shopping malls do not yet exist. However, this is starting to change.

GROWTH MARKET: The country is considered an attractive growth market for mall development. Despite a number of new developments, Algeria still has a shortage of modern shopping centres and retail outlets. The capital Algiers hosts the majority of new shopping facilities, with other outlets either under construction or being planned elsewhere in the country, most notably in the provincial city of Oran, some 350 km from Algiers. In addition, half of the nation’s population of around 36m is under 30 years of age, making it well suited to international retail brands in areas like fashion and technology.

While the expansion of outlets slowed in 2011, retail sales nevertheless improved. Growth potential for the sector remains high going forward as new outlets will increasingly replace the traditional shops that have served the populace in the past.

CONSUMER SPENDING: Consumer spending in Algeria is picking up again, despite a recent decline. In 2009 the retail sector experienced a 10% decrease in revenues. A bill for consumer price controls was passed in parliament in November 2010, with the new law expanding the government’s scope to set price ceilings and reinforce sanctions for traders that overcharge. State subsidies cover key consumer items such as sugar, milk, water, petrol and flour.

In another move that will help buoy consumer spending, the monthly minimum wage for public sector workers was raised in January 2010 from AD12,000 (€115) to AD15,000 (€144), while employees in the public and private sectors have also successfully negotiated pay rises, most recently in 2012.

After a significant drop during the past decade, unemployment has steadily decreased since 2007 and stands at around 10%, according to the IMF.

Algeria’s consumer price index stands at 127.74, up from 117.61 a year ago, a change of 8.61%, while inflation stood at 7.2% in August 2012.

Certain segments of the retail sector are expected to expand within the next five years. For example, per capita food and beverage consumption is forecast to grow by 8.5% until 2016 at a compound annual growth rate of 5.1%, according to Business Monitor International’s “Algeria Food and Drink Quarter Three 2012 Report”. In addition, the report also indicates that mass grocery retail sales will increase by 20.3% in 2012, while the forecast until 2016 anticipates compound annual growth of 21.9%.

MODERN MALLS: Bab Ezzouar in Algiers is the second-biggest mall in the Maghreb after the Morocco Mall in Casablanca. Construction started in 2007 and the mall was officially opened in August 2010.

Since the opening, it has attracted a largely affluent clientele. During 2011 the centre was visited by a total of 5.5m customers, according to Société des Centres Commerciaux d’Algérie (SCCA), a company founded in 2007 under Algerian law to develop commercial and leisure centres in Algeria. This translates into 15,220 customers per day on average, with more than 1.2m vehicles entering the mall’s car park in 2011. The 10m-visitor mark was reached in 2012.

The €58m project was developed by SCCA, which is owned by a consortium made up of Jelmoli (45%), Darsi Investment (35%) and Valartis International (20%). Bab Ezzouar offers 31,000 sq metres of retail and entertainment space; among its outlets 55% of the businesses are local and 45% are foreign franchises. In addition, the mall features a cinema, a bowling alley and a children’s play area, as well as 16,000 sq metres of office space.

Following the success of Bab Ezzouar, SCCA has embarked on a plan to build the first high-end mall outside of Algiers, in the provincial capital of Oran. The €440m project will be built on 4 ha in Es Sénia in the south-western part of the city near the University of Oran and the Ahmed Benbella airport. Construction is scheduled to commence by the end of 2012, and the new centre should be completed three years later. The Es Sénia complex will offer 20,000 sq metres of retail space around a 7500-sq-metre hypermarket. In addition, some 10,000 sq metres will be reserved for leisure purposes, while SCCA forecasts that there will outlets available for about 100 tenants. The contract was awarded to L35, a Spanish architecture firm known for its contemporary projects in the Mediterranean region.

Meanwhile, the 140,000-sq-metre Ardis Commercial Centre, located on the Bay of Algiers about halfway between the airport and the city centre, opened on July 5, 2012 after three years of construction. Arcofina Holdings initially planned the mall in partnership with French retailer Carrefour; however, in 2009 Carrefour decided to withdraw from the project, citing high import duties and the size of Algeria’s informal retail sector as reasons. Arcofina and Carrefour had discussed plans to build an additional 18 hypermarkets across the country by 2012, but the retailer abandoned these projects due to difficulties in acquiring appropriate land.

Since 2009 it has no longer been possible to construct shopping malls in built-up urban areas, due to the scarcity of land for large projects in these areas. Instead, new mall developments have to be built in designated areas such as business parks or areas where new economic activities are taking place.

LAND FOR RETAIL: Land in Algeria usually comes in the form of concessions rather than sales, and zoning of suitable plots is an ongoing process. “We have not yet delimited the zones where we would like to see developments in the future. This reality is delaying the development of shopping malls,” Jean Rizk, director-general of SCCA, told OBG. In Algiers the only existing urban plan defines the historical city centre with its colonial architecture. With the recent economic development, new infrastructure such as roads and access to water and electricity needs to be planned and built. However, coherent zoning areas have yet to be defined.

In April 2012 international shopping centre specialist Sonae Sierra entered the Algerian market. The company established Sierra Cévital, a service provider that specialises in shopping centre development and management and letting of retail space. Sonae Sierra co-owns Sierra Cévital with Algerian private conglomerate Cévital. The partnership between the two firms has opened doors for development and property management services for third parties in the Algerian shopping centre market. In September 2012 Sierra Cévital signed three leasing and property management service contracts with Immobis, the real estate subsidiary of Cévital. The three shopping centres involved are Uno Shopping Centre Ain Defla, Uno Shopping Centre Bouira and Uno Mostaganem. These have 40,390 sq metres of combined retail space, including a total of 22 food outlets.

CAR SALES: In the past six years Algeria imported around 200,000 cars per year on average. A ban on car loans by the authorities was introduced in 2009 in a bid to rein in imports; this was part of a broader move under the Complementary Finance Law of 2009 to limit consumer loans. The ban worked initially, leading to a drop in imports in 2009 of more than 23%; however, by 2010 car imports were on the rise again. In 2011 total imports jumped to 390,000 vehicles, up from 285,000 in 2010, an increase of 36%, according to the Ministry of Industry, Small and Medium-Sized Enterprises, and Investment Promotion. In terms of value, the increase was around 30%, from €2.6bn in 2010 to €3.41bn in 2011. According to the Algerian Automobile Dealers Association 280,803 new cars were sold in Algeria during 2011, up 26.4% over 2010, when 222,123 were sold.

In terms of sales during the first quarter of 2012, Renault remained at the top of the list. The French carmaker, including its Dacia brand, sold 26,549 cars during the first three months of the year, followed by Peugeot with 11,857 vehicles. Korean carmaker Hyundai, previously the long-time holder of second place, came third with 10,378 sales. Toyota (10,232) and Volkswagen (10,174) followed closely, with Chevrolet (8202), Nissan (4,122) and Citroen (2422) behind them. Of all the cars sold, the mid-size Renault Symbol saloon is the most popular model. Second-placed Peugeot had great success with its 207 and 308 models, while Toyota’s popular Hilux pickup truck also stands out for its high sales figures.

With a total of 83,936 vehicles sold during the first quarter of 2012, it is likely that new car sales figures will remain strong throughout the year; growth for the year has been estimated at more than 10%. Beyond 2012, growth figures may slow down, but are expected to pick up again once the local car manufacturing industry gets into gear (see Industry overview). It is expected that prices for locally produced vehicles will be affordable enough to significantly increase new car sales.

ONLINE SHOPPING: According to the International Telecommunications Union, around 4.7m people were using the internet in Algeria in 2010, with the penetration rate reaching 13.4%, while Algérie Télé- com projects broadband internet users will reach 6m by 2013 compared with 830,000 in 2011. This continued growth in internet users is likely to lead to an increase in demand for online shopping.

A new online shopping facility has recently been launched in Algeria under the name of Epay.dz. This is the country’s first online payment service, developed by an Algerian start-up company located in Sidi Abdellah Cyber Park in Algiers. The system was presented at Algeria’s main information and telecommunications fair, the 13th International Exhibition of Future Technology, which was held at the Oran Convention Centre in June 2012.

Based on a secure internet platform, Epay.dz provides customers with 24/7 access to shopping; customers can buy and sell products online or pay their bills from anywhere provided they have access to the internet. Towards the end of 2011, the company also launched the country’s first online bookstore, awras.dz. The launch of the online retailer was conducted by Moussa Benhamadi, the minister of post, information technologies and communication.

Currently more than 4200 electronic payment terminals, operated by various banks, are available in shops nationwide. Despite concerns by customers about their security, the electronic payment terminals are considered safe, according to officials from the Ministry of Finance. The usage of the terminals is gradually rising, indicating that customers enjoy the convenience of cash-free shopping, which also had a positive impact on the retail sector, with more terminals to be installed in the future. According to the finance minister, Karim Djoud, banks and financial institutions must be more proactive regarding the use of modern payment facilities, such as electronic payment terminals or online shopping.

OUTLOOK: Informal family-owned shops dominate the retail sector in Algeria, as most people prefer to do their shopping close to home. Despite an increasing number of people owning cars, access to new shopping malls remains largely limited to the middle and upper classes. However, formal retailing is starting to take off and the industry is likely to become less fragmented going forward, while factors such as a growing young population and rising income levels indicate that many opportunities for modern retailers do indeed exist in the domestic market.

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The Report: Algeria 2012

Industry & Retail chapter from The Report: Algeria 2012

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