Shop ‘til you drop: The growth of the middle class is changing spending habits

Increased exposure to international retailers, rising purchasing power and continuing urbanisation has led to a rapid evolution in Moroccan urban consumer habits. Though the local market remains fragmented and suffers from a large informal market, multinational retailers are increasingly investing in brand development, contemporary retail spaces and more developed supply chains to tap into a burgeoning middle class and a growing interest in high-quality products.

In 2012 Morocco was named as one of 10 new major markets most likely to attract multinational store groups in the next several years by consultants Deloitte and Planet Retail. According to their report, net retail sales have increased from $36.5bn in 2010 to $41.13bn in 2011, with a rise in net retail sales per capita from $1146 to $1278 between 2010 and 2011.

A VISION FOR THE FUTURE: In 2007 the Ministry of Trade, Industry and New Technologies launched a national plan to encourage the development of the kingdom’s retail sector, known as Rawaj Vision 2020. The strategy outlines a number of general sectorial objectives that include the modernisation of current stores, the promotion of major national brands through the establishment of commercial networks and the attainment of 8% annual growth in the sector. Rawaj Vision 2020 also aims to increase the retail sector contribution to national GDP to 15%, up from 11% in 2006, and triple the sector’s GDP while also increasing the contribution of domestic trade to GDP to Dh98bn (€8.17bn).

Other more specific objectives include: the establishment of 15 malls to house 3000 franchise stores, creating an estimated 21,000 jobs; the development of 600 hypermarkets and supermarkets by 2020, of which 50 hypermarkets will account for 80,000 jobs; and the launch of 15 factory outlets and discount stores, generating 5000 jobs. In total, this ambitious programme seeks to create more than 450,000 new employment opportunities to combat national unemployment, adding to the estimated 1.2m Moroccans employed in the sector, which would constitute 12.8% of the national labour force. The state also invested approximately Dh200m (€17.7m) annually between 2009 and 2012 to fund local community projects that provide development sites and commercial space for informal traders, notably wholesale markets, fish markets and slaughterhouses.

CONSUMER CONFIDENCE: The retail sector suffered from low consumer confidence in 2009 and 2010, in part due to more modest levels of growth. However, the stable performance of the country’s economy in 2011 against the backdrop of global uncertainty helped underwrite a sense of optimism both on the supply and demand side, to such an extent that Morocco climbed to a rank of 17th on the AT Kearney Global Retail Development Index for 2011, a measure that ranks the top 30 developing nations for retail development in the context of global investment. In 2012, though, Morocco dropped a few places to 27th place on the same index.

Consumer optimism was partly encouraged by a rise in disposable incomes that led to increased spending on basic foodstuffs and non-essential products like electronics and clothing. Major investments by large-scale retailers in 2010 and 2011 also encouraged sector development. However, by the fourth quarter of 2011, consumer confidence began to fall again, due to delayed effects of the global economic crisis, a trend that continued through to the second quarter of 2012, according to Morocco’s High Planning Commission (HCP). From April to June 2012, the consumer confidence index measured a fall of 5.1 points from the same period in 2011 and 2.2 points from the first three months of 2012.

An HCP study attributed the decline to expectations of rising food prices in the next year accompanied by a declining standard of living. Growing unemployment and rising consumer and energy prices, among other economic woes, have lead 57.9% of Moroccans to reduce their spending, while 36.6% of the population said they were taking on debt or relying on their savings and only 5.5% were reportedly saving their money.

FOOD & BEVERAGE RETAILERS: The development of the grocery sector has evolved significantly in recent years. According to the Ministry of Commerce and Industry and the Agricultural Affairs Office, at the end of 2011 Morocco had an estimated 48 large supermarkets (over 3716 sq metres), 70 small supermarkets and convenience stores (over 1115 sq metres) and 200 small self-service grocery stores (over 93 sq metres). Approximately 5000 stores between 21-93 sq metres and around 285,000 stores of less than 21 sq metres were recorded the end of 2011.

Though 80% of Morocco’s retail food sector is accounted for by traditional small grocery stores, the entry of large retail food outlets, national and international, has steadily increased, representing around 13% of food retail sales in Morocco, according to a 2011 study conducted by marketing company Nielsen.

The contributions of large-scale distribution outlets are expected to grow due to a number of reasons, namely competitive promotions, prices and discounts that smaller stores are unable to match, the expansion of consumers pursuing Western lifestyles, a rising middle class with less time to shop for food, and the growing acceptance of packaged and processed products by Moroccan shoppers.

As of 2012, the leading grocery retailer was the Société Nationale d’Investissement’s subsidiary Groupe Marjane with 65% of the market in terms of turnover estimated at $1bn in 2011, a sum that the firm hopes to increase through a $142m investment in the opening of 40 new stores by 2015. “We believe in the potential of the Moroccan market. If we follow the example of Turkey, which is more advanced than we are, the turnover for the sector could double in five or six years. For that to happen, we would have to make our presence denser in the big cities and target medium-sized cities. There is little supply and big expectations to meet in the provinces,” said Mohamed Lamrani, the CEO of Marjane. The company is represented in the sector by 23 Marjane hypermarkets (129,000 sq metres) and 32 Acima supermarkets (35,000 sq metres).

ELECTRICAL GOODS: With predictions that consumption of electronic goods will increase major producers such as South Korea’s Samsung and LG have begun investing in the market. The market’s current value is estimated to be about $1.5bn. Mobile phone sales and television sales were tied at $300m. While LG, Samsung, Sony and Panasonic lead the domestic market, Chinese firms offering cheaper products have entered in recent years. The market for consumer electronics is steadily growing, but has seen the arrival of various Chinese companies that make competition for the lower segments of consumer electronics particularly fierce, according to Yong Geun Choi, the former director of LG’s operations in Morocco, and Soufiane Benabadji, the firm’s corporate marketing manager.

Expectations for rising consumer demand for high-end products have encouraged LG to move into the supply of more expensive, higher-end goods despite the price sensitivity present in the kingdom, demonstrating optimism for future sectorial growth. Samsung also sees the growth of the market in coming years being especially fuelled by the development of business-to-business areas.

Once dominated by mobile network operators, the retail telecoms market has now fallen under the direct control of mobile phone manufacturers and retail stores, with Samsung maintaining approximately 70% of the market, a feat facilitated by its coordination with major Moroccan retailers such as Electroplanet, Marjane and Carrefour. LG has also announced plans to enter the mobile phone market in 2013 in partnership with Meditel, Maroc Telecom and Inwi.

Room remains for growth in the TV market, with Samsung holding a 50% market share, which it aspires to increase towards 70%, and LG maintaining around 30% of the market. Within the market, the sale of smart TVs has risen, though currently TV sets are equipped with digital video broadcasting technology. “In general, the key to developing the consumer electronics market is to change people’s mindsets to make them want the products on offer and not remain too price-conscious,” said Chris Chung, president of Samsung Electronics Morocco.

DOMESTIC VS. FOREIGN RETAILERS: In terms of value sales, local firms continue to dominate the retail sector, with the top three revenue generators in 2011 Moroccan brands: Marjane Holding, Hyper SA and Groupe Chaabi. All three are in grocery retailing and benefit from large budgets that facilitate considerable investments in opening new outlets, expanding current stores and offering regular promotional schemes.

However, these stores are withstanding rising competition from global companies like BIM that are investing in additional stores and providing new services to entice customers. Despite a decline in consumer confidence over the past year, some multinational brands are becoming attracted to the Moroccan market due to its sustained economic growth, its rapidly growing youth population, and the relative underdevelopment and fragmentation of the retail sector.

The Moroccan franchise sector has demonstrated a potential for impressive growth, posting an average annual growth of around 18% between 2000 and 2010. As of 2010, there were 3653 outlets and 407 franchise networks in the kingdom, the Ministry of Industry Trade and New Technologies told local media. The number of outlets and franchise networks has continued to rise since 2008, posting 8% growth in networks from 342 in 2008 to 370 networks in 2009 and 12% growth in outlets from 2290 in 2008 to 2560 in 2009.

Franchise development has been particularly strong in the equipment sector, which comprises 39% of total franchise growth, followed by a sector share of 16% for the food industry and 7% for furniture stores. Franchise operators in Morocco are approximately 45% French, with major contributions from Spanish, Italian and American franchise firms as well, while 15% of the market is comprised by Moroccan companies like Hanouty Group, which oversees networks of convenience stores through franchisees. Around 27% of franchises are located in Casablanca, with another 11% in Rabat and 8% in Marrakech. Franchising operations are dominated by distribution activities, at 55% of total activity, while 45% of activity is devoted to service. In general, home furnishing, shoe retail, clothing and food services account for around 45% of the market.

MALLS: Rabat’s Mega Mall, built in 2005, was one of the country’s first large-scale contemporary spaces and has helped to foster a burgeoning mall culture. More recently, after four years of construction and an investment of $250m, Casablanca’s Morocco Mall, was inaugurated in December 2011. With a total retail floor area of 250,000 sq metres spread out over 10 ha, 30,000 sq metres of outdoor space and 14,000 sq metres of landscaped gardens, the shopping centre houses over 350 stores, including Galeries Lafayette and an IMAX cinema. The mall anticipates 12m annual visitors, of which 20% are expected to be tourists, particularly from Africa and Europe, Jenane Laghrar, the mall’s secretary general, told the media in 2012.

Anfaplace, a mixed-use project on the Casablanca waterfront that was developed by Spanish firm Inveravante, has been open since February 2013. It includes a 234-room hotel and 36,000 sq metres of retail space.

“The construction of new malls is always a good thing for us. Though we cannot properly speak of competitiveness in its natural form in Morocco because the sector is still developing, new shopping centres bring a dynamism to the sector,” said Malik El Harim, the general manager of Mega Mall. Growing competition has ensured a steady source of retailers for Mega Mall, which has around 80 stores and 20 restaurants and cafes. Though it contains several Moroccan stores, including the popular brand Marwa, the majority of Mega Mall’s shops are European stores that tailor to the preferences of a major consumer base of professionals. The global economic downturn and the eurozone crisis have led to changes in purchasing power for both tourists and domestic shoppers alike, leading to a decline in turnover for the retail sector. Mega Mall, for example, saw a decline of 10-15% between 2011 and 2012.

Nevertheless, optimism remains for future growth in the mall sector. “Due to its geographic location, Morocco has always served as an economic, commercial and tourist platform for Europe and it will increasingly do so with its growing number of economic agreements with the EU. Morocco will also become an important platform for those in sub-Saharan Africa looking abroad, allowing for the country’s malls to continue to grow and diversify themselves to satisfy the maximum customers possible,” El Harim told OBG.

However, tourists from Africa comprise less than 5% of the kingdom’s visitors, while the euro crisis has added to a decline in European tourists acutely felt in the retail industry, casting uncertainty over the potential for sustained increases in growth over the next several years. Morocco Mall also stands in stark contrast with the abject poverty of much of Morocco’s population. Designed and built by International Concept Management, the $255m project was undertaken by Groupes Aksal, Nes Investment and the Akhnouch family, of which half of the funding was supplied by the Saudi Al Jedaie Group. The mall is expected to create 5000 direct employment posts and up to 20,000 indirect jobs.

ONLINE SHOPPING: With over 13m internet users and a steady increase in the number of debit and credit cards to over 7.3m, e-commerce is steadily growing. According to the National Federation of E-commerce in Morocco, total online transactions enjoyed a turnover of over Dh504.2m (€44.8m) in 2011, up 72% from 2010.

Growth has also been facilitated by technological improvements in online security for internet transactions. The first six months of 2011 saw an increase in revenues from Dh120m (€10.66m) during the same period in 2010 to over Dh230m (€20.44m) in 2011, according to the Centre for Interbank Payment Systems, while online purchases and sales increased by 2.4% from 115,000 to 277,000 transactions over the same period of time.

Although the number of transactions has grown, average spending amounts per order have fallen, with the cost of e-commerce purchases averaging at approximately Dh800 (€71.12) in 2011 in comparison with Dh2000 (€177.80) in 2010. The change in order size has been attributed to an increase in the number of online shopping sites and changes to supply with the entrance of new players, Samira Gourrom, the development director at Maroc Telecommerce, told local media in September 2011. By the end of 2011 more than 120 retail websites utilised Maroc Telecommerce’s online payment system.

OUTLOOK: Important challenges remain in the local market, notably consumer uncertainty over food prices and the lack of affordable real estate (see Real Estate chapter). Nevertheless, the rapid expansion of foreign participation in the market demonstrates the impressive potential of the retail sector, highlighting the opportunities for continued growth.

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The Report: Morocco 2013

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