Contradicting these divs, on the other hand, show a projected shift to online shopping. Oxford Business Group expects Egypt’s online retail industry to see a 33% annual growth rate, reaching approximately $3 billing in value by 2022. A trend that indicates a significant shift in consumer habits.
To get a better understanding of how these trends are impacting retail giants in the market, Arab Finance sat with Mohanad Adly, CEO Spinneys Egypt, for a one-on-one interview about consumer behavior, market outlook, and their investment plans.
In your opinion, what is Spinneys’ competitive edge?
I think we have more than one actually, which proved instrumental in allowing us to expand the network of stores and grow the business profitably over the past years.
An important competitive edge is our ability to operate multiple store formats. Our current store network has hypermarkets as big as 11,000 square meters as well as smaller ones with less than 900 square meters of selling space.
Additionally, we are capable of operating inside malls as well as in standalone street locations.
This diversity in formats and flexibility in the choice of locations has allowed us to expand at a much faster pace —over the past six years— than we were able to when we were focused only on growth in the hypermarket segment.
More recently, we introduced online shopping and this represents a new and convenient shopping channel for customers who choose to do their grocery shopping from the comfort of their home.
One other major edge we have is our fresh food offering. Our stores clearly stand out from the rest of the competition in the quality and variety of our fresh food sections such as the bakery, meat, poultry, fruit, vegetables, deli, fish, etc.
Equally essential is that even though our fresh food offering is superior to most other supermarkets, our prices are quite competitive too. Customers always appreciate that winning combination of good quality at affordable prices.
Among the other advantages we have is our strong rewards program which we use to recognize customers for their loyalty. We have a very attractive scheme, which a significant portion of our customers actively uses to collect and redeem points in exchange for extra discounts and gifts.
What are the most significant challenges Spinneys and the retail industry are facing nowadays?
The biggest challenge to retail investments in my opinion is bureaucracy. Unfortunately, it has remained virtually unchanged since the inception of the company almost 15 years ago to this very day. There has been little progress concerning cutting the red tape, which presents an obstacle to the growth of the organized sector.
The government recently announced the introduction of new licensing legislation that has yet to come into effect. If the legislation is implemented as intended, it will represent a turning point in the market, and thus help attract more local and foreign investments into the sector.
On top of that, the market itself is currently quite challenging due to weak demand. Consumer buying power is still subdued as a result of the negative impact the Covid-19 pandemic has had on disposable incomes.
Spinneys’ branches are mostly in major cities or on their outskirts (i.e. Mostakbal city). Do you see the potential of expanding to other smaller cities?
I think we have done considerably well to branch out to other cities outside Cairo and Alexandria. We currently have stores in Hurghada, Tanta, Sadat City, the North Coast.
Other retail players are either big companies focused on Cairo and Alexandria only, or smaller local ones operating in one region outside the capital.
But you are absolutely right, there is still more room to grow by penetrating new cities. I think there is tremendous potential in the Delta region and Upper Egypt in particular.
In your opinion, what are the main challenges of opening in Cairo and Alexandria versus other less populated cities?
I think there are advantages and disadvantages to operating stores in different areas. In Cairo and Alexandria, for instance, most neighborhoods are heavily populated and its buying power tends to be significantly higher than in smaller cities. However, the retail space is usually more expensive to lease or buy and competition is tougher in the main cities when compared to less dense areas.
On the other hand, smaller cities are usually underserved, and consequently, there is a gap to be filled there and first movers will be able to capture market share more easily. Also, retail space is easier to be found outside Cairo and it is less costly.
That’s why I think it is always important to have a flexible expansion plan, one which allows us to seize the good opportunities when they come across rather than a rigid strategy that is squarely focused on certain geographic areas. The latter would unnecessarily limit our expansion when demand for groceries is there in every part of the country.
How has the pandemic impacted consumer behavior? Are people spending less in comparison to a year ago?
Yes, we have seen some dramatic changes in shopping habits. Consumers have become more value-driven than before the pandemic, for sure. It is normal to see this kind of behavior at times of economic challenges.
The pandemic has negatively impacted many sectors of the economy and this has translated into lower disposable income for a significant percentage of the population. A recent consumer survey showed that about two-thirds of respondents reported a decline in their income levels. As a result, many have had to cut back on spending and/or trade down in search of greater value.
In response to our customers’ needs, we have stepped up our promotional activities and are now offering deeper discounts across all stores. We believe Spinneys has an important role to play to help our customers maintain the same standard of living in spite of the difficult economic situation.
Also, has the pandemic affected the type of commodities most purchased?
Absolutely. We can see that there is generally more demand for essential food products and less consumer spending on big-ticket items such as general merchandise and, in particular, heavy household and textile products.
There is also increased appetite for our Spinneys’ private-label line which shoppers find more affordable than mainstream brands and at comparable quality.
Imported product sales have also witnessed a decline as more customers choose local alternatives that are affordable.
How do you view the current performance of the retail sector in regards to investment and demand?
Despite the challenges I mentioned, I strongly believe that there is still ample room to develop and grow the sector. We have to remember that organized retail represents only 20-25% of the industry sector thus far.
With over 100 million consumers, Egypt is also by far the biggest market in the Middle East and North Africa (MENA) region. Such a powerful combination of having an underdeveloped sector with huge market demand makes the country uniquely positioned to lure more local and multinational retail investments.
What are your investment plans? And has the pandemic impacted them?
Not in the least bit. Our investment plans for the local market are long-term and we recognize that the health crisis will only have a short-term impact on the economy. So I do not believe that we should our course for Egypt, based on what we know, will only be a temporary challenge.
We intend to continue expanding our existing store network into new geographic territories and also increase our new revenue channels such as home delivery and e-commerce by introducing these services in all the neighborhoods in which we operate.
Has the pandemic influenced your marketing efforts?
If anything, we are investing more in marketing now compared to before the health crisis. We have done a lot of changes in Spinneys to accommodate the changing shopping habits of our customers and we need to make sure that everyone is aware of this.
For example, we are spending more to highlight our promotions and discounts. We are also dedicating more time and effort to maximize awareness of the newly introduced online shopping platform.
How has COVID-19 changed your operations?
Among the most notable changes in market trends is the accelerated shift from brick-and-mortar stores to e-commerce shopping. In today’s very dynamic market, a digital retail presence is almost as important, if not more so, than a physical store presence. Hence, we are investing more to increase the capacity at our call center to cater for the increased phone ordering demand.
We are also constantly growing the range of categories and the assortment of products we are offering online to allow our customers to purchase their favorite goods without having to be physically present.
How can the government spur further investment in the retail sector?
As I explained earlier, there has been some recent progress made by the government to make the licensing procedures for retail stores faster. I think it is a good start but there is still much more than can be done to reduce the encumbering bureaucracy, not just in the licensing domain but also in the number of government authorities that oversee the industry.
Establishing one governing body for the sector would go a long way in helping to bring in more investments.
How do you compare the performance of the retail industry in Egypt versus other neighboring countries, such as Saudi and UAE?
The retail industry in Egypt is largely underdeveloped compared to some of our neighboring markets in the Gulf area. However, I see this more as an opportunity for additional investment in the sector rather than a disadvantage.
Our market is the biggest in the MENA region and the second biggest in Africa after Nigeria. We also enjoy a significantly higher GDP growth rate than all the other regional markets. Even at the peak of the pandemic, our economy grew by 3.5% this past fiscal year when most of the other economies had negative growth. Once the world recovers from the pandemic crisis, I expect Egypt to go back to the 6% average growth rate that we were experiencing before the pandemic which was the envy of other developing markets.
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