12 October 2010
Yesterday saw the announcement of a proposed agreement for Electrolux to buy a majority 52% stake in OlympicGroup. With the Memorandum of Understanding signed, Euromonitor International assesses the impact of the dealon the competitive landscape and the potential of the deal for Electrolux AB.
Egypt is one of eight new research markets currently being finalised, with data due for publication in November.Whilst analysing the deal we take a look at the potential forecast growth of the country and how the Olympic Groupacquisition is a strong fit for medium-term value returns and not just unit volumes in this high-growth Africanmarket.
What Electrolux is getting for its money
In short, Electrolux is gaining a market leading manufacturer with a strong retail, importation and distributionfootprint in a high-growth African market. The only other distributor with the same clout is Bahgat Group, althoughthat company's focus is also on construction.
Olympic Group currently leads consumer appliances in Egypt (in NBO terms) with a 25% unit volume share.However, the company operates as both a manufacturer of its own brands as well as a key importer and distributor ofinternational brands, including Electrolux and its Ideal Zanussi brand, so its footprint in terms of own brand sales isactually 15% of unit volumes in 2010. However, according to industry sources, the deal has the potential to raise thecompany's market share in Egypt to 40% of unit volumes over the next five years if it were to go ahead.
According to trade interviews with the leading manufacturers, distributors and retailers in Egypt, the company iscurrently focused on the middle-classes for future earnings. This can be demonstrated by its recent interest inimporting built-in appliances as a way to target mid to high-end Egyptian consumers. In addition, according toretailers, the company's distribution has focused on how to differentiate its own brand stores to make sure theyappeal to mid to high-end consumers, something which, according to trade interviews, they have managed to dosuccessfully. This retail repositioning will enable the company to focus on mid to high-end appliances, which is astrong fit for Electrolux's product portfolio.
Macroeconomic and social context important
The Egyptian economy has performed strongly over the past five years, with total GDP increasing from US$87billion in 2004 to US$187 billion in 2009. This performance has helped facilitate strong growth in consumerappliances, which registered a CAGR of 24% over 2005-2010 as per capita earnings helped aid growth in disposableincomes, incomes Egyptian consumers have been more than willing to spend on consumer appliances.
Euromonitor International has also identified Egypt as one of the new Future 7 (F7), the world's next big emergingmarket economies, along with Argentina, Indonesia, Mexico, South Africa, Turkey and Vietnam. The F7 offer long-term investment opportunities thanks to their young, growing and urbanising populations, rising income levels andexpanding middle-classes. In 2020, the F7 population will account for 1-in-10 global consumers and per capitadisposable income will rise by 52% in real terms over 2009-2020. See Euromonitor International's article "In Focus:The Future 7"
Olympic Group, with a strong Egyptian presence in terms of own brands and as a distributor, has managed to securea leading position in the country. However, the company has been increasingly concerned about focusing its productportfolio on the mid to upper-tier for two key reasons. Firstly, competition from lower-end brands is intensifying,with a number of Chinese brands entering the market since 2006, and, secondly, the expected completion ofArcelik's production facilities in the country is likely to squeeze competition in this price segment even further. Inaddition, the company has an eye on changing household profiles in Egypt over the medium term. Over the next fiveyears, the percentage of households with earnings of over US$10,000 is expected to rise from 7% to 14%, and afocus on mid-tier products and European brands is likely to reap dividends in terms of volume and value increases,as well as differentiate the company from players with lower-end product portfolios.
Is the investment a winner?
Put simply, as long as it goes ahead, then yes. Electrolux is gaining access to a high-growth, low-cost manufacturingmarket which offers the company the benefit of controlling long-term costs while positioning itself for growth infrontier markets. In addition, assuming the economic forecasts for Egypt remain positive, this looks like being a solidfit for Electrolux's product portfolio over the medium term.
- Ends -
Yesterday saw the announcement of a proposed agreement for Electrolux to buy a majority 52% stake in OlympicGroup. With the Memorandum of Understanding signed, Euromonitor International assesses the impact of the dealon the competitive landscape and the potential of the deal for Electrolux AB.
Egypt is one of eight new research markets currently being finalised, with data due for publication in November.Whilst analysing the deal we take a look at the potential forecast growth of the country and how the Olympic Groupacquisition is a strong fit for medium-term value returns and not just unit volumes in this high-growth Africanmarket.
What Electrolux is getting for its money
In short, Electrolux is gaining a market leading manufacturer with a strong retail, importation and distributionfootprint in a high-growth African market. The only other distributor with the same clout is Bahgat Group, althoughthat company's focus is also on construction.
Olympic Group currently leads consumer appliances in Egypt (in NBO terms) with a 25% unit volume share.However, the company operates as both a manufacturer of its own brands as well as a key importer and distributor ofinternational brands, including Electrolux and its Ideal Zanussi brand, so its footprint in terms of own brand sales isactually 15% of unit volumes in 2010. However, according to industry sources, the deal has the potential to raise thecompany's market share in Egypt to 40% of unit volumes over the next five years if it were to go ahead.
According to trade interviews with the leading manufacturers, distributors and retailers in Egypt, the company iscurrently focused on the middle-classes for future earnings. This can be demonstrated by its recent interest inimporting built-in appliances as a way to target mid to high-end Egyptian consumers. In addition, according toretailers, the company's distribution has focused on how to differentiate its own brand stores to make sure theyappeal to mid to high-end consumers, something which, according to trade interviews, they have managed to dosuccessfully. This retail repositioning will enable the company to focus on mid to high-end appliances, which is astrong fit for Electrolux's product portfolio.
Macroeconomic and social context important
The Egyptian economy has performed strongly over the past five years, with total GDP increasing from US$87billion in 2004 to US$187 billion in 2009. This performance has helped facilitate strong growth in consumerappliances, which registered a CAGR of 24% over 2005-2010 as per capita earnings helped aid growth in disposableincomes, incomes Egyptian consumers have been more than willing to spend on consumer appliances.
Euromonitor International has also identified Egypt as one of the new Future 7 (F7), the world's next big emergingmarket economies, along with Argentina, Indonesia, Mexico, South Africa, Turkey and Vietnam. The F7 offer long-term investment opportunities thanks to their young, growing and urbanising populations, rising income levels andexpanding middle-classes. In 2020, the F7 population will account for 1-in-10 global consumers and per capitadisposable income will rise by 52% in real terms over 2009-2020. See Euromonitor International's article "In Focus:The Future 7"
Olympic Group, with a strong Egyptian presence in terms of own brands and as a distributor, has managed to securea leading position in the country. However, the company has been increasingly concerned about focusing its productportfolio on the mid to upper-tier for two key reasons. Firstly, competition from lower-end brands is intensifying,with a number of Chinese brands entering the market since 2006, and, secondly, the expected completion ofArcelik's production facilities in the country is likely to squeeze competition in this price segment even further. Inaddition, the company has an eye on changing household profiles in Egypt over the medium term. Over the next fiveyears, the percentage of households with earnings of over US$10,000 is expected to rise from 7% to 14%, and afocus on mid-tier products and European brands is likely to reap dividends in terms of volume and value increases,as well as differentiate the company from players with lower-end product portfolios.
Is the investment a winner?
Put simply, as long as it goes ahead, then yes. Electrolux is gaining access to a high-growth, low-cost manufacturingmarket which offers the company the benefit of controlling long-term costs while positioning itself for growth infrontier markets. In addition, assuming the economic forecasts for Egypt remain positive, this looks like being a solidfit for Electrolux's product portfolio over the medium term.
- Ends -
© Press Release 2010
