FMCGs and retailers: Do they need that physical space?

Egypt’s FMCG market is growing at a “rate of 17% on a weighted average for the high selling categories in the market”

Egypt is a haven for fast-moving consumer goods (FMCG) and retailers given its population size. Despite threats to consumer spending, such as the devaluation of the local currency, subsidy cuts and inflation rates, wholesale and retail trade accounted for 13.8% of Egypt’s GDP in 2018, according to Bank Audi, as cited in Oxford Business Group’s The Report: Egypt 2019.

Global measurement and data analytics company Nielsen revealed last month that Egypt’s FMCG market is growing at a “rate of 17% on a weighted average for the high selling categories in the market”.

“The FMCG market spending in Egypt continued to grow throughout 2018, with value increasing in double digits due to high inflation. Volume growth has started to recover from the significant earlier losses, as inflation, whilst still high, has eased from more than 30% two years ago, providing some relief to Egyptian consumers,” managing director of Nielsen Egypt and Levant Nihal El Koussi said in a recent press release.

While forecasts on consumer spending differ amongst research institutions, real estate companies are banking on providing retail space around Cairo. About 1.4 million square meters of retail gross leasable area were available in 2014, rising to 1.9 million square meters in the third quarter of 2018, according to JLL real estate consultancy, quoted in OBG’s report. Despite the introduction of the value-added tax (VAT) in 2016 and the weight it imposed on retailers and real estate developers alike, retail spaces are expected to reach 2.4 million square meters in 2020.

The government has also been supportive of the move by passing the Shopping Centers Act in May 2018, which addresses the establishment of malls.

But is physical retail space really the path of the future?
The dilemma of either owning a physical retail space or penetrating the online space very much depends on the geographic location of the targeted consumers as well. Since Egypt is characterized by a traditional trade heavy retail market, only 40% of the stores contribute to 80% of the revenue, with over 395,000 operating stores. Highlighting the gap between spending in governorates as opposed to spending in bigger cities, 17% of districts contribute to 50% of FMCG sales.

Mobile internet users in Egypt have reached 32.49 million in February 2019, with general internet penetration hitting almost 50% in 2018/2019, as per the Ministry of Communications and Information Technology (MCIT).

In parallel to the rising numbers of internet users, Egypt is planning to double the number of businesses selling their products and services online by 2020, according to a statement by the United Nations Conference on Trade and Development (UNCTAD). At the end of 2017, less than 18% of big companies did so.

Additionally, the rise of smartphone apps providing not just the delivery of clothes and appliances, but rather groceries and household items has been making itself noticeable in Cairo specifically. Names like Goodsmart and The Grocery Shop have been making their debut by offering consumers to shop for everyday household items on their phones. While both apps, as a matter of example, have their own warehouses to store the goods they distribute, they do not have a physical retail space.

Although the government is working on a financial inclusion strategy, the size of Egypt’s banked population is still low. While this may seem like a hurdle to online ordering of goods, service providers offer the cash-on-delivery option. In the region as a whole, 62% of online shoppers choose to pay cash once they receive their order. Hence, a bank account is not mandatory to order retail and FMCG products from the convenience of one’s home.

In general, online sales are forecast to reach $2.7 billion by 2020, according to online payment gateway Payfort. Moreover, the value of online sales in the MENA region are expected to grow by 28% annually by 2022, a report by Google and Bain and Company reveals.

 

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