Invest in Egypt

Invest In Egypt

Retail

Retail

Invest in Egypt

Contents
Retail: Sector Overview
Competitive Strengths and Capabilities
Policy Support for the Retail Sector
Sector Snapshots
Top 5 Grocery Retailers
Sector Drivers
Success Stories
Leading Retail Companies in Egypt

Retail

Invest in Egypt

Retail

Sector Overview
Total retail sales are expected to grow from USD 76.40 bn in 2009 to USD 141.66 bn by 2014; the key
factors behind the retail sales boom are a large and youthful population, the emergence of a more affluent
middle class, an active tourism industry, and the entry of more women to the workforce.
Egypts substantial population makes it the largest market in the Arab world, with the population increasing
from 78mn in 2009 to an estimate of 84mn by 2014, and GDP per capita predicted to rise by 72% reaching
USD 4,201 by 2014.
Of the total Egyptian population, 65.1% is estimated to be active, while the proportion of those in the 15-39
age bands is 38.1%, a figure that is far larger than the entire population of UAE, one of the world's top
shopping destinations. Moreover, Egypt receives an average of 10 million tourists a year who incorporate
luxury, ethnic and business shopping in their itineraries.
Retail sale as a percentage of the nominal GDP in USD recorded 40.3% in 2009, employing 11.4% of the
country's labor force. Consisting mainly of small enterprises, the sector is beginning to consolidate,
reflected in a wave of vertical integration and expansion of supermarkets and department stores. At the
same time, the size of retail shops of all descriptions is growing, driving higher inventory turnover and
creating new jobs. And as companies consolidate multiple small shops into one larger outlet, they are
creating an effective decrease in the density of retail outlets. In some cases, small enterprises are re
emerging as part of larger chains or are cooperating in franchise agreements, often oriented towards more
specialized segments of the market.
With retail demand growing, there is also greater consumer interest (at all rungs on the income ladder) in
value-added services, quality products and international brands. These factors are merging in an
environment of economic deregulation to create a sector ripe with opportunities for foreign investment.
International brands Carrefour and Spinneys have already taken advantage of Egypts investor friendly,
low-cost environment, establishing themselves as the number two and three players in the sector
respectively, while every other day sees the introduction of a new consumer-goods brand, restaurant or
clothing label to Egypts retail scene.
Recognizing the key role of foreign investment in expanding and modernizing the sector, the Egyptian
government is encouraging real estate developments in large shopping centers and prioritizing the
introduction of modern grocery distribution, including hyper and supermarkets, as well as taking steps to
ensure that local suppliers implement international quality standards to meet the needs of market entrants.
The retail subsectors that are expected to grow include: pharmaceuticals with sale projection of USD 0.84
bn in 2014; a double increase since 2009, while consumer electronics' sales are expected to increase by
80% to reach USD 5.18 bn in 2014 and finally, the automotive sales are forecasted to increase by 148% and
record USD 23.5 bn in 2014.

Competitive Strengths and Capabilities

Core Areas for Investment: Large shopping centers, modern grocery distribution, hypermarkets,
supermarkets, retail and mixed-use real estate development.

Invest in Egypt

Retail

Growth Trend of Sales by Format (US$ Million)

1,970

2003
2006
Source: Business Monitor

2011

Regional retail sales (USD nm) 2009

120

107.3

100
80

76.4

73.2

63.3

60

41.6

40
20
0
UAE

Egypt

KSA

South Africa

Kuw ait

Source: Business monitor 2010

Regional retail sales by % share 2009 compared to 2014

30
25
20
15
10
5
0

26.3

23.6

22.3
18.7

15.5 15.9
10.2 9.3

UAE

Egypt
2009

Source: Business monitor 2010

17.9 19.5

KSA

South Africa
2014

Kuw ait

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Retail

Retail sales Break down by Key segment, 2009

others, 36.4%

food and drink,

47.0%

pharmaceutical
, 0.5%
consumer
electronics, automotive,
12.4%
3.7%

Source: Business Monitor 2010

Several factors make investing in Egypts retail sector an attractive and promising opportunity:

Growing Domestic Market. In 2008/2009 GDP grew at 4.7% even though the world witnessed a severe
financial crisis and most of the European and American countries exercised a negative GDP, a population
of 78 mn and retail sales projected to be USD141.66 bn by 2014 - all are signs of a market with
significant retail opportunities.
Retail Greenfield. Still populated by micro enterprises, the Egyptian retail sector is a Greenfield for
investors. 70% of the grocery retail sales were from non organized and independent enterprises in 2007;
this number is expected to fall by 7% in 2017. The top five retail players hold only 1.8% of total market
share, leaving plenty of space for new market entrants, while regional centers outside of Cairo and
Alexandria are virtually untouched markets with millions of under-served consumers.
Growth Potential. The global retail development index ranks Egypt 15th in the world in terms of growth
potential and second in terms of low market saturation. And with the retail market increasingly saturated in
previous key growth countries such as China and Russia, retailers are turning to the Middle East for new
opportunities.

Low Cost Base. The Egyptian labor force is internationally recognized for its high-skills and low-cost.
Wages in the wholesale and retail sector average US$ 32.20 weekly. Every year, more than 324,000
university graduates enter the workforce, manual labor is in abundant supply, and high school graduates
speak European languages. Businesses in Egypt also enjoy some of the lowest energy costs in the world,
while the domestic building materials industry including cement and steel producers are amongst the
worlds cheapest suppliers, making retail space affordable.

Policy Support for the Retail Sector

The Egyptian government has proven its commitment to improving the ease of doing business in the
country, which was reflected in recent tax reforms and the cutting of red-tape for foreign investors.
The government is looking to develop an efficient retail environment supporting various sectors of the
growing economy. To this end, it sees itself as a key strategic partner in the coordinated development of
Egypts retail sector and is keen to attract foreign investment to enhance competition and modernize the
retail environment.

Invest in Egypt

Retail

Sector Snapshots
Retail Shops
There are over 11 000 companies established under trade services between 1970-2009, with a total flow of
over USD 6.7 bn; with 4.7% of total retail sales, food a beverage is the largest component of the sector. But
remain largely fragmented, dominated by small family-run independent stores in highly populated urban
areas
Retail outlets account for 59% of total business establishments in Egypt. Within the sector, 99.7% of all
establishments are microenterprises, employing between one and four workers. The approximately US$ 31
billion food, beverage and tobacco retail market is the largest component of the sector, but remains largely
fragmented, with mass retailers accounting for only 8.6% of the total market (by value), while traditional
convenience grocery stores dominate the retail scene.
In total, there are just over 1 million private enterprises active in retail. Food and beverage retailers account
for 50.9% of total establishments and 43.5% of employment in micro enterprises. This is followed by
textiles, garments and footwear enterprises, which make up 8.6% of total establishments and 9.6% of
employment in the sub-sector.

Supermarkets and Hypermarkets

The late 1970s saw a small number of supermarkets emerging in Cairos large neighborhoods, followed by
the introduction of hypermarkets in the 1980s through foreign licenses. The hypermarket concept was
popularized by local companies including Ragab Sons, Abu Zikri and El-Hawary, which operate at the
middle and lower end of the market, specializing in retail sales at highly discounted prices. Carrefour began
its operations in 2003,and opened a second branch in 2005. It now has operations in both Cairo and
Alexandria. One of the most recent comers to Egypts retail sector is the Middle Eastern chain Spinneys,
which opened its first 13,500-square-meter, US$ 10 million hypermarket outlet in 2006.
The development of the supermarket/hypermarket sector in Egypt is exerting significant pressure on
traditional neighborhood grocery stores. In affluent neighborhoods in particular, they are being increasingly
transformed into convenience stores catering on an ad-hoc basis to consumers, rather than their previous
role of making consistent larger-value household sales. In the less affluent and more densely populated
districts of Cairo and in regional towns, traditional grocery stores have survived due to the fact that modern
supermarkets have been almost exclusively catering to middle and higher income levels.
While still lacking the level of sophistication of western-type stores, the scope for further growth of
supermarket/hypermarket enterprises in Egypt remains large, with studies indicating that the Egyptian
market is far from saturation: The 20 million people who live in the Greater Cairo area are served by only
700 supermarkets and fewer than 10 hypermarkets.

Department Stores and Clothing

Department stores have long been present in Egypt. In the early part of the 20th century, Cairo and
Alexandria boasted a large number of department stores, at that time on par with those in Europe. The
decline of such department stores was matched by the expansion of small-scale clothing retail shops.
In 1986, the first shopping mall was opened as an annex to the Cairo Ramses Hilton, following which,
malls spread across Cairo. Today, international brands including Nike, Mango, Esprit, Levis, Benetton,
Sisley, Tommy Hilfiger and H&M have launched their own-brand stores here.

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Retail

Despite the increased competition, the market is far from saturated. Department stores currently target a
small percentage of the market, consisting of wealthy consumers constituting around 4.9% of the total
population (approximately 3.55 million people). This small percentage, however, still remains significant in
relative terms, since it is larger than the entire population of Dubai and almost as large as the population of
Lebanon - the regions traditional retail hubs.

Wholesale
The public sector plays a large role in the sub-sector, making up 25% of total establishments and 44% of
total employment, the majority in the food and beverages area. As with retail, food and beverages activities
dominate the sub-sector, making up 47% of establishments in the private sector and 34% of employment.
Metro Cash & Carry, the Germany-based international leader in self-service wholesale, is to set up 10
stores in Egypt, with an estimated US$ 23 million investment per shop.

Chains and Franchising

Franchising has developed extensively in Egypt over a short period, particularly in the fast-food sector. The
current food franchise market is valued at an estimated more than US$ 300 million. Popular chains include
Chilis, TGI Fridays, Hard Rock Caf, KFC, Little Caesars Pizza, McDonalds, Pizza Hut and Baskin
Robins. The nation also has popular home-grown chains, though few of them have adopted the franchise
concept.
Momen, a poplar Egyptian fast-food brand, recently attracted significant investment from emergingmarket private equity specialists, Actis. From seven chains in 1993, Egypt currently boasts 45 franchises
either operational or with imminent plans to open. Market sources project the franchising business to
continue growing at an annual rate of 10-20% over the coming years.
The presence of franchise business in Egypt has been extensively beneficial to both the fast food and
garment sectors. In the fast food-sector, where the bulk of ingredients are sourced locally, franchising has
created strong backward links with the agricultural and industrial sectors. The quality standards imposed by
the franchisee has also upgraded the standards adhered to in the agricultural field as well as in the industrial
sector.

Top 5 Grocery Retailers (2007)

Metro Supermarkets:

USD 110 million in sales across 40 stores with an average sales area of 863 square meters.
Domestic chain owned by Mansour Group.
Mainly mini-markets in middle-income residential areas.
The company has introduced discount format at three stores under the name Kheir Zaman.

Carrefour:

USD 54 million in sales across five stores with an average sales area of 9,000 square meters.
International company operating with regional partner Maijd Al-Futtaim Group.
Market leader, driving trend towards hypermarket shopping in Egypt.
Plans further developments targeting affluent segments of society.

Invest in Egypt

Retail

Spinneys:
USD 25 million in sales at one store of 9,000 square meters.
Gulf retailer is present in Cairos CityStars modern shopping facility.
Plans further expansion in the country.

Alfa:
USD 17.6 million in sales across five stores with an average sales area of 2,500 m2 .
Established Egyptian chain of department stores with an aging profile.

HyperOne:

USD 17.6 million in sales at two stores with an average sales area of 10,000 m2
Owned by Egyptian retailer El-Hawary.
More discount oriented than Carrefour, targeting average and lower income.
Located outside central Cairo.

Source: Planet Retail

Sector Drivers

Egypts Value Proposition

Investor Benefits

Growing Domestic
Market

Egypts per-capita income has doubled over

the last five years resulting in increased
consumer spending power. The per-capita
spend on food and other retail products is
among the highest in the region.

Growing demand for modern

shopping facilities and highquality products, needs not
currently fulfilled by the
domestic market.

Support and Feeder

Industries

Egypt has a sophisticated infrastructure to

support retail activities, from local farms and
food producers to IT and store-design firms
that cater to regional retailers.

Reduced need to source

expensive inputs or services
from outside Egypt, helping
control costs.

Retail Greenfield

Microenterprises and fragmented

Market share characterize the retail sector.
Modern grocery distribution is a nominal
percentage of the market, with the top five
retail players holding only 1.8% market share.

Major
investment
opportunities abound as the
Egyptian retail sector shifts
along the retail cycle from an
opening
market
to
a
developing one.

Low Cost Base

Wages in Egypt are among the most

competitive in the region. The average weekly
wage in the wholesale and retail sector is USD
32.20.

Consistent and competitive

labor
costs
improve
profitability year after year,
while low input
prices
keep
initial
establishment
costs down.

Wages are also quite stable, growing at 5%

per year as opposed to 10% in China and 15%
in India. In addition, land, energy and building
material prices are among the lowest in the
region.

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Retail

Labor Force

Total labor force of 25 million, 324.3

thousand university graduate. and an industrial
training program that is aiming to turn out
500,000 workers, along with broad language
skills.

Large potential talent supply

with the skill sets necessary
for a range of business
activities.

Government Support

The Egyptian government is aiming to provide

a red-tape free investor friendly business
environment to modernize Egypts retail
sector.

Improved ease of doing

business and government
Facilitated investment
opportunities.

Success Stories
CityStars
The 2004 opening of CityStars coincided with the lifting of the import ban on clothing; it is one of the
largest malls in the Middle East and has added a new dimension to the standards and quality of retail
shopping in Cairo.
Covering 750,000 square meters and established with an investment cost of more than US$ 800 million,
CityStars is the first integrated urban development project of its kind in the Middle East. The complex,
which consists of three international hotels, an integrated shopping and entertainment center, a medical
center and office and residential towers, is continuing to attract major international brands ranging from
hoteliers such as Holiday Inn and InterContinental to a wealth of North American and European retail
brands.

Metro Supermarkets
From its first store opened in Heliopolis in 1998, the Metro chain owned by local giant Mansour Group,
which also has franchise rights to global brands including McDonalds has expanded to 40 stores with
sales around US$ 110 million. While these are mainly mini-markets in middle-income residential zones, the
chain also owns distribution and processing centers, and discount stores under the brand name Kheir
Zaman.
Metros strategy centers on quality, ensuring staff loyalty through incentives tied to profitability, and a
cutting-edge approach to data management. Today, the retailer is number one on Egypts grocery scene.

Americana
An example of franchising success is the Kuwait Food Company, the food-processing arm of the Al
Kharafi Group, better known under the brand name Americana. The Group owns the largest food
company in the Middle East and has invested US$ 700 million in Egypts food processing industry, the
tourism sector (which includes the franchise business segment) and infrastructure projects. Americana is
the market leader for franchise business in the Middle East and is the franchisee for KFC, Pizza Hut,
Subway, Hardees, and TGI Fridays in Egypt.

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Leading Retail Companies in Egypt

Americana Group
www.americana-group.net
Carrefour
www.carrefour.com.eg
CityStars
www.citystars.com.eg/citystars
Hertz
www.hertzegypt.com
HyperOne
www.hyperone.com.eg
Metro Cash & Carry
www.metro-cc.com
Metro Supermarkets
www.mansourgroup.com/docs/metro_markets.htm
M.H. Al-Shaya
www.alshaya.com
Radio Shack
www.radioshackegypt.com
Spinneys
www.spinneys.com

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Retail