On the shoulder of the desert highway leading due west of Cairo to 6 of October City, the kind of burgeoning community filled with commuters and construction that would be familiar to suburban Americans, a lone vendor hawks watermelons from a wooden pushcart. In his dingy galabeya, parked strategically near a speed bump on the six-lane highway, the seller looks out of place - a relic of old Cairo amid the barren desert sprawl. But asked why he chose this of all spots to sell his wares, he doesn't hesitate: "To catch the shoppers going to the market," he says, pointing down the road.
He's referring to the mammoth Hyper One outlet a few miles away. Another 10 minutes farther along the highway is the gleaming new Mall of Arabia, which houses Spinneys, another cavernous retail operation. So-called hypermarkets are expansive facilities, often comprising tens of thousands of square meters, which include, Walmart-style, everything from furniture to lipstick to ground beef - essentially combining a supermarket with a department store. These big box, one-stop superstores first became popular in the United States and Europe in the late 1980s. The emergence of hypermarkets in Egypt over the past decade has begun changing shopping patterns here. While this shift comes with benefits for consumers, observers say, it could also transform the face of Egyptian retail. It will also likely come at a cost, one that will mainly be shouldered by small, independent operations.
Hypermarket growth in Egypt is largely driven by the attractive fundamentals of the broader retail market.
Ahmed Kamaly, chair of the economics department at the American University in Cairo, notes that retail is among the most stable and resilient aspects of the economy, thanks to high consumption driven by a young, expansive population and a growing middle class. Government figures show that retail sales grew by 13.8 percent last year despite political and economic uncertainty, far outpacing overall dismal GDP growth in the same period. Officials forecast compound annual growth of nearly 15 percent in the sector through 2015, a figure also expected to far outpace the rest of the economy.
The country's retail market also remains extremely fragmented. Of more than a million private retail enterprises, upwards of 99 percent are microenterprises employing less than five workers. This scattered market coupled with a youthful populace receptive to branding has created a natural opportunity for retail goliaths that offer customers shopping convenience and cheaper goods.
Hyper One is among three major, self-described hypermarket businesses currently operating in Egypt and the only one based here. The other two are Lebanon-based Spinney's and Carrefour, which is based in France. Hyper One's general manager, Hesham Zaki Yousef, says that Egypt is still a vastly untapped market for "modern retail" concepts like hypermarkets. The chain recently opened its second location in Cairo's northeast suburbs, and in 2013 a third store is planned in Alexandria. Then it's on to the rest of the country. With Hyper One's average sales expected to grow from 15 to 20 percent annually, Yousef is optimistic. "This is the future in Egypt" he says. Zaki's optimism is in step with the industry as a whole.
British Monitor International, an industry research firm, estimates that mass grocery sales in Egypt (including supermarkets and hypermarkets) will grow more than two and a half-fold by 2015.
What makes these stores attractive to customers is simple: convenience and discounts. "I'm too busy, I can't stop by the local supermarket every few days, so I go to Carrefour once or twice a month and buy everything I need," says Randa Fahmy, a married, working mother of one from Mohandeseen.
The growing number of shopping malls in Egypt is also a big factor driving the success of hypermarkets; they have become staple components of the merchandising mix of many of the big malls in and around Cairo. Malls provide them with several strategic benefits: space and infrastructure, ample parking, a diverse clientele and, in some cases, a wider array of financing options. (Revenue sharing allows mall developers to benefit from the sales growth of hypermarkets while reducing operational risk during times of economic decline.) Real estate consultancy Jones Lang LaSalle recently forecast that available retail space in Egyptian malls would increase from 761,000 square meters to nearly 1.6 million by 2014. This only spells more growth and opportunity for superstores. Carrefour, the country's largest hypermarket in terms of both floor space and stores, can be found in malls throughout Cairo and Alexandria. Spinneys, Egypt's number two operator, has become the anchor for two of the capital's largest and most lavish malls, City Stars in Heliopolis and Mall of Arabia in 6 of October City. The Spinneys chain, a grocery retailer that specializes in high-end, imported goods, has placed Egypt at the heart of its regional expansion.
While some of this growth will come from increased consumer spending, much will inevitably be at the expense of the independent neighborhood vendors that have long been the backbone of Egyptian retail.
Traditionally, shopping here has entailed multiple stops to small, neighborhood specialists: meat from the corner butcher, fruit and vegetables from the souq, milk and soft drinks from the local kiosk or grocer. But as more women juggle work and family responsibilities, and many employees work longer and harder to make ends meet, time has become a precious commodity. Massive hypermarket facilities offer an enormous selection of products fresh and preserved, imported and domestic, luxury and basic, as well as toiletries, appliances, cosmetics and electronics - all in one place. Time and frustration are also saved thanks to spacious parking facilities, something smaller supermarkets in urban centers tend to lack.
Low prices are another major draw. Unlike small, independently owned stores, economies of scale allow big box retailers to make bulk purchases from suppliers in exchange for steep discounts. Explains the manager of an electronics store in downtown Cairo: "Carrefour and we use the same vendor, but Carrefour will buy 500 items while I may only buy 50." Giving the big players even more of an edge is the fact that they have the resources to shop around for the best price. Hyper One, for example, typically deals with as many as 1,400 wholesalers, while the small electronics shop relies on just one. Hypermarkets further reduce costs and maximize sales by using more up-to-date inventory technologies that allow for more efficient ordering of stock via bar codes, for example, thereby saving on space, manpower and transportation, while creating happy customers. "Our stores will kill convenience stores in each kind of business," Hyper One's Zaki Yousef frankly stated. Indeed, the downtown electronics shop manager estimates his sales have dropped 30 percent in the last decade. And the changes to consumer shopping patterns wreaked by these newcomers have yet to be fully realized. The Egyptian market can accommodate as many as 30 to 40 hypermarket outlets, according to a 2010 Foreign Agricultural Services report by the U.S. Department of Agriculture. Currently, there are just 12.
Local officials agree that these chains have hurt small businesses. The head of the grocery division at the Cairo Chamber of Commerce, Ahmed Yehia, says that many of the 150,000 grocers he represents complain they have been negatively impacted by hypermarkets. In downtown Cairo, appliance store operators and electronic vendors also bemoan their dwindling sales.
Of course, this isn't the first time a large discount retailer has upended a local market. The world's largest retailer, Walmart, based in Bentonville, Arkansas, is infamous for killing mom-and-pop operations in virtually every community in which it sets up shop. On the other hand, some have suggested that big box retailers like Walmart may ultimately have little impact on the viability of local businesses. That's the argument of Russell Sobel, an economics professor at West Virginia University. Although in the short term small businesses who compete directly with Walmart often fail, concludes Sobel in a 2008 paper, eventually new local companies emerge to take their place, ventures that provide products or services Walmart doesn't offer, such as a health food shop or an athletic equipment store. Moreover, writes Sobel: "The money consumers save on their general merchandise purchases because of Walmart's lower prices is extra money that can be spent on other goods and services." In other words, Walmart might actually increase overall economic activity, thus actually benefitting small businesses - if perhaps not the same ones that were there before. The idea is that storeowners who can't compete or reinvent themselves are forced to close, but they are eventually replaced by more innovative entrepreneurs who can adapt.
Whether you buy this premise or not, however, the job losses and other fallout from the closure of small businesses is often politically untenable for local officials, especially given the fragile political and economic landscape here. Yehia argues that the government should help initiate the modernization of small, independent businesses in order to help them better compete. He suggests that this should include implementing better supply chain and inventory technologies as well as training personnel to better serve customer needs. (The government did, in fact, launch such an effort prior to last year's revolution in Cairo's Helmayat El Zaiton district, but was shelved when unrest broke out in January 2011.)
Yehia agrees with Sobel on one thing, at least - that for small, locally-owned businesses to survive in the 21st century, the key is specialization. That might mean offering a certain kind of niche product, or a level of personal service not available at a big, impersonal chain store. Ahmed Bahnas, a country club employee who lives on the outskirts of Maadi, remains loyal to his local grocer because they have a long relationship.
"He allows me to buy things on credit," explains Bahnas. Since the vast majority of Egyptians still don't have credit cards, this is a valuable service, one not available at a hypermarket, where customers are more or less anonymous.
Sometimes, simply offering a superior version of a certain product is enough to gain the competitive advantage. Take the vendor in the hot sun on the side of the highway, hawking his watermelons to drivers on their way to the mall. He's successful, he says, because his giant green melons are much fresher and tastier than the ones customers might find in Hyper One's produce section. By exploiting this niche - and the increased traffic - he has not just stayed afloat, he has managed to raise prices. In short, he's become a successful capitalist.
© Business Monthly 2012
