OBG talks to Mohamed Farag Amer, Chairman, Faragalla Group

Interview: Mohamed Farag Amer

What needs to be done to improve the distribution of fast-moving consumer goods (FMCGs)?

MOHAMED FARAG AMER: In Egypt the retail distribution sector is very fragmented and there are a great number of trucks of different sizes and types – ranging from air conditioned to frozen transport to open air – shipping refrigerated or fresh items all around the country.

The demand for domestic distribution is very sizable, but this means that transport networks are overburdened. As a result, conditions are not ideal. We have problems with fuel, traffic, road quality and also with the ports. Companies have so far been able to manage with extra cost and time, but it is not easy.

How would you characterise the expansion in modern supermarket chains and retail facilities?

AMER: The retail sector in general has seen considerable improvement over the last ten years in terms of both distribution and product presentation. I think operating major supermarkets and chains is currently one of the most profitable businesses in Egypt.

Nevertheless, we shouldn’t forget that although there is a large Egyptian market, spending power amongst the population is not very significant and this results in intense competition. For this reason retailers must focus on quality, as well as competitive pricing.

How significantly has the recent labour unrest affected Egypt’s manufacturers?

AMER: When we discuss Egyptian workers we must acknowledge that it is a very complex issue that involves many different aspects. One of the main factors is the poor quality of Egypt’s education system. The manufacturing industry is making major efforts to provide skills training, and teach discipline and responsibility to each worker; however, there is still a long way to go.

We also need to provide workers with health care, social care and incentives for productivity, such as profit sharing. Society needs to understand there must be a balance between every part, and we cannot accept the latest episodes of strikes, in which workers have been stopping the factories with little control, prior notice or proper dialogue with company ownership.

What needs to be done to maintain competitive wages in the long-term?

AMER: I’m not sure if the current situation will be sustainable and therefore we need to think ahead and find solutions to remain competitive. I believe that investing heavily into more automation will be a key factor. On the other hand, the government should give more incentives to promote the industry and assign brave professionals and technocrats to help guide the sector. These “overseers” would need to be capable decision-makers with a business-oriented vision and a strategic plan for the short, medium and long term.

In what ways does price-sensitivity in the market affect the rollout of new products?

AMER: It largely affects profitability. It’s tough because, as I said, you need to make a very high quality product, which typically requires sophistication and major expense, but you also need to sell it at very competitive price. The solution we’ve found to this equation is to enhance productivity, as the profit will come from large volumes. The production needs to be massive and the margins low, but in the end you get a good result.

What sort of opportunities do you see for increasing Egyptian FMCG exports?

AMER: The potential is huge. Egyptian industrial products are well received worldwide and this is particularly true for processed food and beverages, which the country exports in large amounts. The export-oriented segment of our industry is running well and it continues to grow in premium markets such as the US, Europe, Japan, Korea, East Asia and Australia. Our greatest potential and advantage to date is the fact that Egypt is able to manufacture good quality products that are highly price competitive on the international market.