Growing number of malls and supermarkets support Morocco's retail plans

While Morocco’s retail sector remains fairly limited, an expanding middle class, increasing urbanisation and a more competitive formal sector are set to propel the industry in the coming years. Strong economic growth has seen the proliferation of malls and supermarkets, and in turn the entrance of an increasing number of foreign brands and franchises into the country.

In addition, the availability of new forms of secure online and cash payment options enabled e-commerce growth in 2015, while rising numbers of women in the workforce contributed to an increase in direct sales. Although the traditional and informal sector continues to dominate, particularly in rural areas, changing consumer habits and a heightened awareness of quality bodes well for Morocco’s modern retail industry.

Nevertheless, accessibility remains limited, particularly outside urban areas where formal retail penetration has lagged and low ownership rates limit mobility. Poor infrastructure has also resulted in higher distribution costs and shipping.

Key Figures

According to the Moroccan Investment Development Agency, the retail sector accounts for 11% of GDP and employs 1.2m people, or 12.8% of the labour force. Morocco’s consumer market is also relatively large, with 60% of the population living in urban areas, and while slow macroeconomic growth – estimated at 2.3% for 2016 – has limited the rise in annual consumption, consumer confidence among Morocco’s 34.6m people remains stable. Consumption at the higher end of the market is also fairly sizeable, and according to Bloomberg, four-fifths of Africa’s luxury mono-brand shops operate in Morocco and South Africa.

Morocco’s middle class has steadily expanded in recent years, with an uptick in formal retail activity as a result. According to Pew Global Research, one in five Moroccans could be classified as middle-income or higher in 2011, and between 2001 and 2011, the number of middle-income Moroccans grew from 11% to 19%. Regionally, only Tunisia saw a similar rise, with its middle-income population increasing from 17% to 27%.

Consumer Confidence

In the third quarter of 2015, Morocco became the 61st nation to be included in the Nielsen Global Consumer Confidence Survey. Index scores over 100 indicate degrees of optimism, while scores below 100 point to levels of pessimism. Morocco debuted with a score of 85, placing it 32nd overall and fifth out of six nations in the Africa and Middle East region, one place above South Africa.

For the second quarter of 2016, in the most recent survey to have been released at the time of writing, Morocco posted an index score of 83, putting it 31st out of 63 economies worldwide and fourth in the Africa and Middle East region, above South Africa and Egypt, but below the UAE, Saudi Arabia and Pakistan. Gains of one percentage point were achieved in the categories of “ job prospect sentiment” and “personal finance sentiment” over the first quarter of 2016, while “immediate-spending intentions” were above average at 29%, which was four percentage points less than in the third quarter of 2015.

According to the Higher Planning Commission, household purchasing power growth dropped from an average of 3% between 2008 and 2010 to 2% between 2011 and 2014. This deceleration could continue with the consumer price index rising 0.4% year-on-year (y-o-y) in 2014 and by 1.6% in 2015. In terms of borrowing, figures from Bank Al Maghrib, Morocco’s central bank, showed a 0.4% y-o-y increase in consumer loans in December 2015 and a 5.6% y-o-y increase in March 2016.

Government Plan

In 2007 Morocco’s Ministry of Trade, Industry and New Technologies introduced the Rawaj Vision 2020 programme, a new government strategy aimed at modernising distribution and supply chains to manage the shift away from the informal market and towards organised retail. The national plan aims to boost the sector’s contribution to GDP from 11% to 15% by 2020, in addition to creating 450,000 new jobs. Under the plan, the authorities will oversee the development of a total of 600 supermarkets and hypermarkets, as well as the development of 15 malls and 15 outlet stores.

Formalisation

It is estimated that 85% of retail business is conducted by operators in the traditional small-scale and informal sector, though changing consumer habits have helped decrease its market share in recent years. Moroccans are increasingly concerned with quality and prices, which in turn is pushing them towards formal retailers. Modern retail stores have a number of perceived benefits over their traditional counterparts, with fresh produce, for example, being well-controlled for quality and kept in the correct conditions and at the right temperature.

Shopping Malls

The expansion of dedicated retail property has also helped encourage a rise in formal retail activity and supported a shift in consumer behaviour. “With the opening of malls, consumer habits have been changing,” Malik El Harim, general director of Rabat’s Mega Mall, told OBG. “In the past, Moroccans would travel abroad to shop. Now there are all the brands here, and the consumer is buying in Morocco instead of outside.”

With over 300 stores and a total area of around 250,000 sq metres, Casablanca’s Morocco Mall saw 17m shoppers in 2015, making it the most visited mall in the country. This figure represented an increase of 11% over the mall’s first year of operation in 2011/12. Records were also broken in January 2016, when 1.6m visitors were recorded, 23% more than the same month a year previously. Nevertheless, those involved in the sector, recognise that choice could be broadened to grow footfall further. “Competition is increasing in the retail sector in Morocco with the construction of new malls, but there is a need to better diversify the amenities and stores on offer,” Harim told OBG According to London-based market research firm Euromonitor International, malls in Morocco’s popular tourist cities saw robust footfall as well. Fez’s Borj Fez Mall, built in 2013, saw 5m shoppers in 2015 and Marrakech’s Al Mazar and Eden Square – built in 2010 and 2013, respectively – saw 5m and 3m each. In the same year, Rabat’s Mega Mall, which was built in 2005 and consists of 27,000 sq metres of retail space, saw 3.36m visitors. In each of the aforementioned shopping centres there is an occupancy rate of at least 95%, as per Euromonitor International figures, highlighting the high demand for purpose-built retail space, as well as emphasising the potential for further growth. “International brands remain dominant in Morocco,” Franco Giannichi, vice-president of Procter&Gamble in North-west Africa, told OBG. “However, we have seen new innovative and local entrants that have been shaking the market over the past three years with cheaper prices, strong brand recognition and innovative products that match Moroccan needs.”

New Properties

To fulfil this demand, seven new malls are expected to open by 2020 in Casablanca, Rabat, Marrakech and Tangiers. This will double the available retail space and bring the total number of malls in Morocco to 18. The details of one of these major projects were announced in 2015 by local holding company Aksal Group, which plans to build a new 6-ha shopping mall in Rabat to house more than 200 retail stores and restaurants. The group, which built Casablanca’s Morocco Mall, signed a memorandum of understanding to build the mall with Wessal Capital – a joint venture created by Morocco involving sovereign wealth funds from Saudi Arabia, Kuwait, the UAE and Qatar. Investment in the project totals $1.1bn. In March 2016 Tangiers City Mall, a 30,000-sq-metre shopping centre integrated into the Tangiers City Centre, opened its doors. The mall hosts 116 stores and saw 250,000 visitors in under three weeks.

Investment Trusts

Legislation passed in 2015 to allow for the creation of real estate investment trusts (REITs) could also help support the development of modern retail infrastructure in Morocco. In early 2016, the government restructured Vecteur LV (VLV), a subsidiary of Moroccan retail distributor Label’Vie Group, into the country’s inaugural REIT, with the aim of attracting greater investment in Morocco’s real estate sector. This expansion of dedicated retail property is likely to help encourage a rise in formal retail activity.

Online Shopping

While brick-and-mortar retailing continues to account for virtually all of the sector’s activity, an increasing number of middle and upper-middle income Moroccans are using e-commerce websites. According to Euromonitor International, internet retailing increased by 14% in 2015. Morocco’s largest retailer, Marjane, was the most successful internet retailer, with an 8% value share. Other online retailers include Hellofood.ma, Lamudi.ma, Kaymu and Jumia.

Figures released by Nielsen for the second quarter of 2016 put internet penetration at 61%, and at 65%. Morocco’s banking penetration rate is one of the highest in Africa, as per the most recent central bank figures from June 2015. Nevertheless, the spread of e-commerce beyond a small segment of society has been somewhat constrained. Concerns about payment security represent a significant hurdle, forcing online retailers to adapt to a still-dominant cash culture. Moroccan hypermarket chain Marjane, for example, has introduced cash-on-delivery options for internet purchases.

Grocery

Although the traditional market continues to dominate 85% of the food retail sector, particularly in rural areas, an increase in the number of modern food retailers in the country has led to a change in the purchasing habits of urban consumers. As of 2016, Morocco was home to six supermarket chains owned by four groups. The player with the largest market share remains Marjane, a subsidiary of Société Nationale d’ Investissement, operating 38 Marjane hypermarkets and 47 Acima supermarkets. Label’Vie follows closely behind, operating 60 stores, including six Carrefour hypermarkets, 47 Carrefour Market supermarkets and 11 Atacadao retail stores, the last of which opened in Meknes September 2016.

Turkish discount grocer BIM operates 279 stores in the kingdom, and in March 2016 company officials announced plans to open 80 new stores in Morocco. Meanwhile, Aswak Essalam, which is owned by Ynna, operates 13 stores.

Supermarket chains have continued to expand operations throughout Morocco, including in smaller cities and markets. This has led to strong revenue figures from Label’Vie, for example, which posted Dh6.73bn (€617.1m) in 2015, according to the company’s financial statements.

Clothing & Footwear 

The growing number of shopping malls has aided the expansion of several Moroccan brands and facilitated the entrance of a large number of new foreign franchises in the clothing and ready-to-wear segment. Morocco Mall, for example, has attracted several high street and luxury brands, including Zara, Massimo Dutti, Gucci and Louis Vuitton, since its inauguration in 2011. Over the next few years, Turkish store LC Waikiki plans to invest Dh44m (€4m) to increase the number of stores in the kingdom. The company currently operates four stores in the country following its opening at Tangiers City Mall in 2015.

As the middle class expands and consumption habits continue to evolve, local brands, which are still fairly limited in number, are expected to increase, too. Established in 2003, Moroccan women’s clothing store Marwa has become one of the country’s most popular labels, with more than 60 stores, and has expanded into Spain, France, Saudi Arabia and Bahrain.

“The constant increase in household purchasing power, coupled with better distribution networks, increases demand for consumer products in the domestic market,” Andres Monroy, managing director for North and West African French speaking countries at BASF, told OBG. “However, North Africa is less dynamic than West Africa in terms of opportunities for growth.”

Durable Goods

The durable goods segment has seen the entrance of several major international players in recent years, with Swedish furniture company IKEA establishing a store in Zenata, near Casablanca, in 2015. The branch employs 300 members of staff, measures 26,000 sq metres and cost Dh500m (€45.8m) to build. IKEA’s entrance into the market followed Spain-based furniture and interiors company Mi Casa, which opened in Casablanca earlier in 2015. “The opening of IKEA is good news for the furniture sector,” Amine Benkirane, CEO of KITEA, told OBG. “With the traditional sector accounting for 60% to 70% of activity, we expect a growing market over the next years thanks to changing consumer habits.”

The domestic companies Kitea and Mobilia remain the two major local brands operating in the furniture segment. At the beginning of 2015, the two companies signed a franchise agreement with Belgium’s Casa to open three new stores in Casablanca, Rabat and Marrakech. Mobilia also has plans to open three new stores in Marrakech, Fez and Agadir, bringing its total number of stores in Morocco to 20. The company is also looking to expand elsewhere in the region.

Direct Sales 

The direct sales sector has come into focus in recent years, posting solid income figures and giving a large number of female workers access to a labour market that has consistently been dominated by men. According to the World Federation of Direct Selling Associations’ annual report 2015, the direct sales industry in Morocco generated an estimated Dh118m (€10.8m) in revenues in 2014, a 14% y-o-y increase, with an estimated 99,310 people working in the sector.

According to Euromonitor International, beauty and personal care players like Oriflame and Avon dominate direct selling in Morocco, with women occupying 77.4% of jobs in the segment. However, Moroccan women accounted for only 27% of the workforce in 2014, compared to 25.2% of the workforce in 1990, according to data published by the World Bank. Though there has been a push to improve on these figures, in October 2015 the UN Committee on Economic, Social and Cultural Rights expressed concern about the low participation of women in the labour force.

Rural Retail

Access to land also continues to be a problem for retailers in Morocco, where available space is lacking, particularly in larger cities. As a result, many retailers have begun to target smaller towns and cities, where square metreage is more readily available and significantly cheaper.

Sector stakeholders to point to the high potential of the country’s non-urban areas for the sector’s future development, particularly with a mass, modern distribution network still in the early phases of development. Food retail looks to be one segment where demand for an increase in distribution channels is particularly high, with owners of small traditional stores in rural areas travelling long distances to purchases goods in bulk from supermarkets and hypermarkets in or near to urban centres. A broader distribution network would also provide retailers with an opportunity to improve market penetration.

Outlook

Propelled by a growing middle class, increasing urbanisation and a more competitive formal sector, modern retail in Morocco has expanded significantly in recent years. With a number of new shopping malls and supermarkets set to open in the coming years, there is great potential for foreign brands looking to enter the market. The government’s Rawaj Vision 2020 programme has also made a shift to modern retailing standards a priority; however, the traditional segment is unlikely to see a significant decrease in activity in the near term, given its longstanding dominance. A prolonged decrease in household purchasing power could also slow the government’s desired transition, meaning that elevating quality appreciation in consumers will be important in order to achieve a shift in attitudes as well as ensure the future success of formal retail.

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The Report: Morocco 2016

Retail chapter from The Report: Morocco 2016

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