Retail chains are chipping away at the dominance of informal markets

Consumption patterns in Algeria are beginning to shift towards modern retail, supported by rising income levels and greater exposure to formal shopping outlets and international brands. Small neighbourhood stores and the informal sector still account for the majority of retail turnover, but in recent years several domestic chains have expanded their footprint. Authorities hope that the rise of modern retail stores, particularly in the grocery segment, will have a positive knock-on effect for locally produced goods.

Growth Factors

The Algerian retail sector today is highly fragmented, dominated by a multitude of small, privately owned stores and hard-to-monitor informal vendors. However, Algeria’s expanding middle class, relatively young population and steady economic growth – which the IMF expects to average just over 4% a year in 2014-15 – stand to shift consumer tastes. By the estimates of Numidis, the retail and distribution arm of Cevital, a major local private sector group, modern retail accounts for only 3% of annual turnover, leaving considerable room for growth.

Although up-to-date figures can be hard to come by, a 2012 report by consultancy Deloitte showed that retail sales increased 30% from €21.1bn in 2007 to €27.6bn in 2011, while per-capita spending rose by 22% over the same period, to reach €752 in 2011. However, in an effort to diffuse social unrest, the government introduced back-to-back public sector wage hikes in 2010 and 2011, which has prompted further moderate increases in consumer spending.

Consumer price inflation settled at a more stable rate of 3.25% in 2013 and a projected 4% in 2014 after jumping to 8.9% in 2012, its highest level in 15 years. This spike was largely attributed to lower agricultural output in the 2011/12 season, in addition to macroeconomic factors. The prices of produce went up across the board in 2012, including 36% for potatoes, 15% for fresh vegetables and 7.3% for fresh fruit. Lamb and chicken prices rose by 30% and 20%, respectively, according to the National Statistics Office.

Shopping Malls

While urban centres are still dominated by small and informal outlets, at the high end of the market, investors are increasingly seizing on Algeria’s potential for large-scale shopping malls. The country’s first modern shopping centre, Bab Ezzouar, was inaugurated in Algiers in 2010. The centre required a €70m investment from the developer, Société des Centres Commerciaux d’Algérie (SCCA), a joint venture between two Swiss firms – Valartis Group and the department store operator Jelmoli – and Algeria’s Darsi Investment. Bab Ezzouar added 45,000 sq metres of gross leasable area (GLA), of which Algeria is in short supply. The centre reportedly attracted 5.6m visitors in 2011, and retailers confirm that foot traffic remains at this level today.

Following the success of this first venture, the partners announced that they will replicate the concept in Algeria’s second-largest city, Oran. SCCA plans to construct a 32,000-sq-metre shopping centre, including 20,000 sq metres of GLA, in the community of Es Sénia by 2015. The facility will require a total investment of €323.4m. Valartis indicated in August 2014 that it would also seek to construct a second shopping centre in Algiers for €35m, though no plans had been announced as of December.

Two more large-scale shopping centres round out the offerings in Algiers. The Algerian group Arcofina Holdings opened its 140,000-sq-metre Ardis Commercial Centre in 2012, operated by its Ardis retail brand, as part of the company’s Alger Medina mixed-use development. French retailer Carrefour was set to participate in the project, but withdrew from this and other joint retail projects in 2009. Sidar Algeria, a subsidiary of the Saudi-based real estate developer, launched the Al Qods shopping centre in 2008, which targets mid-range consumers.

Foreign Retail Chains

Algeria’s rules on foreign direct investment (FDI), which limit foreign companies to a minority share in any joint venture, along with high import duties, a lack of available GLA in urban centres and unfair competition from the informal sector, contribute to challenging retail conditions.

However, the spread of modern commerce is starting to draw more international attention and foreign brands are beginning to trickle in, attracted by the healthy fundamentals of the country’s consumer market. European brands Alain Afflelou, Mango, Aldo, Zara and United Colors of Benetton have all set up operations in the country, and the French café chain Paul has likewise been considering an entry. Nespresso opened its second store, a 63-sq-metre space in Oran, in July 2014 and plans to open a third in Bab Ezzouar, according to local media.

Grocery Stores

Large-scale grocery retail outlets began haltingly in Algeria, as neighbourhood stores and informal retailers continue to account for the vast majority of grocery sales. The domestic retail chain Blanky used to manage a network of supermarkets in the capital, but closed in 2008, citing problems with its distribution and supply network. Carrefour agreed with Arcofina in 2006 to build a network of 18 hypermarkets, but the partnership failed in 2008 over difficulties related to high import tariffs and competition from informal retailers.

Numidis has expanded its network quickly in the past five years, benefitting from its sister companies in agro-industry and logistics and distribution, also part of the Cevital group. Since 2010, the group has opened a supermarket in the capital (UNO city), a UNO hypermarket of 5000 sq metres in the Bab Ezzouar mall, and another three UNO hypermarkets in the less-concentrated areas of Bouïra, Ain Defla and Mostaganem. Since 2012, Numidis has also opened nine roadside stores on the country’s major highways, hoping to capitalise on the recent up-tick in automobile ownership and increasing mobility. Galaxy, another domestic grocery chain, has opened one supermarket and one hypermarket in the Algiers area since 2009.

Modern Challenges

Competition among major grocery chains is still relatively modest, since modern retail is still so underdeveloped in the capital. The real competition is with the country’s network of small urban stores, superettes and informal vendors. In this regard, supermarkets and hypermarkets are at a disadvantage, since the lack of available rental space in urban centres prevents them from competing directly with small neighbourhood stores, most of which purchase imported products from wholesalers and stock multiple brands. As a result, consumers need access to a vehicle in order to shop at the larger stores located on the city’s outskirts; in Algiers, the limited options for public transport and the city’s frequent traffic jams can be a strong deterrent.

To overcome these hindrances, many modern grocery retailers are working to position themselves as leisure centres, building restaurants and play areas meant to encourage consumers to turn their shopping trip into an outing. So far, this model has proved successful in the capital, where the options for family-friendly leisure activities are very limited. Given Algeria’s rising income levels and the rapid growth of personal automobile sales in the last 5-10 years, supermarket chains are looking to expand outside of Algiers into other population centres in the north, including Oran, Annaba and Sétif.

Informal Market

Considering the constraints on Algeria’s transport and urban space, small neighbourhood stores will always retain a place in the retail market. However, the government is working to reduce the role of the informal economy in order to ensure fair competition. Some modern chains complain that the presence of informal wholesalers, which import a variety of products and then supply both informal and formal vendors, supports the informal sector and contributes to price volatility.

Large, entrenched wholesalers will be hard to dislodge. Instead, the government is working to bring vendors into the formal sector. The Ministry of Commerce conducted some 300,000 inspections in the first half of 2013, resulting in the seizure of irregular merchandise worth AD3bn (€27.9m). Amendments to the commerce law passed in 2013 also eased restrictions on individuals who have committed civil infractions but who wish to start a commercial operation. Officials contended that the earlier, tougher measures pushed a number of people who were ineligible for a vendor licence into the informal sector. However, the licence ban will be maintained on offences such as counterfeiting and copyright infringement, in order to encourage retailers’ confidence in the market.

The Ministry of Commerce is also investing in the construction of smaller, urban retail spaces that meet industry standards elsewhere. The general disorganisation of the retail sector – including market fragmentation, irregular competition from the informal economy, high logistics costs and product wastage due to improper storage or poor supply planning – fuels price volatility. In July 2014, Algeria’s ministers of commerce and agriculture reiterated the importance of strengthening the regulated, modern retail network to ensure price stability, especially for food staples.

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The Report: Algeria 2014

Industry and Retail chapter from The Report: Algeria 2014

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