Diversification spurs Egypt's retail sector

Egypt’s rising population, affluent middle class, and emerging secondary cities have led to rising sales growth in shopping malls, convenience stores, supermarket and hypermarket chains, and e-commerce platforms. Recent government legislation supporting the development of commercial retail spaces has also encouraged the private sector to make significant investment in the space, particularly in the form of new malls, food retail and digital marketplaces. While the first year of the Covid-19 pandemic disrupted non-grocery outlets, with consumers reining in spending on non-essential goods in the short term, demand looks set to grow across most segments in the country.

Performance & Size

Egypt is one of the few emerging markets to have maintained positive GDP growth in the wake of the pandemic. The government’s swift and measured response, and overarching structural reforms prioritising diversification, have helped to stabilise the economy. According to data from the IMF real GDP grew by 5.6% in 2019, 3.6% in 2020 and 3.3% in 2021, and is forecast to reach 5.2% in 2022. On the supply side, the Central Bank of Egypt (CBE) noted that the retail sector was among the greatest contributors to this growth.

Indeed, the retail and wholesale sector has expanded steadily, posting a real growth rate of 3.9% in FY 2018/19, 3.9% in FY 2019/20 and 4.4% in FY 2020/21. According to the Ministry of Supply and Internal Trade, this was the fastest growth in the Middle East in the retail space.

In terms of its overall economic contribution, the retail and wholesale sector accounted for 13.6% of total GDP in FY 2017/18, or LE490.4bn ($31.2bn); 13.5% in FY 2018/19, at LE509.3bn ($32.4bn); 13.6% in FY 2019/20, equivalent to LE529bn ($33.6bn); and 14% in FY 2020/21, measuring LE552.5bn ($35.1bn). At the same time, the sector’s total banking deposits have seen positive growth, amounting to around LE3.9trn ($247.8bn) in FY 2020/21, an increase of approximately 20% on FY 2019/20.

In terms of its labour footprint, the retail and wholesale sector was the third-largest employer in FY 2018/19 and FY 2019/20, representing 13.6% and 13.4% of the workforce, respectively. In the second quarter of 2021 it was the second-largest employer, with approximately 4.1m workers, or 15.3% of the total, and 206,000 new employees.

Rankings

Egypt’s retail sector performance was reflected on Kearney’s 2021 Global Retail Development Index, where the country ranked seventh out of 35 global emerging economies – up 19 positions from 2019. As of 2020 the country’s retail market was worth approximately $200bn, and forecast to grow at a compound annual growth rate (CAGR) of around 5% in 2020-25 to reach $254bn.

Consumer confidence has also improved, increasing from 85 points in the second quarter of 2020 to 98 points in the fourth quarter of 2020 and 104 points in the third quarter of 2021, before moderating to 95 points by the end of that year. Investors have taken note of this increase, with the bulk of investment in the sector driven by the private sector. In FY 2019/20 and FY 2020/21 the private sector’s share of total investment in the retail and wholesale sector amounted to 95%, attracting LE149.5bn ($9.5bn) and LE116.7bn ($7.4bn), respectively, according to the latest statistics from the CBE.

Cairo Retail Space

The capital’s commercial real estate sector remained strong in 2021, supported by new retail projects and increased demand as landlords introduced new food and beverage outlets, as well as entertainment and “edutainment” concepts to increase visitor footfall and boost dwell times in shopping establishments. According to JLL’s “Cairo Real Estate Market” report for 2021, 116,000 sq metres of retail floor space was added that year to reach a total of 2.5m sq metres of gross leasable area (GLA). Much of the new floor space was in the form of community malls in New Cairo, ranging from 10,000 to 30,000 sq metres in size.

Primary malls saw no change in rents in 2021, while secondary malls saw an increase of 2%. According to the JLL report, in the short term the average cost of rent in the capital’s retail market is expected to continue climbing in line with annual price escalations linked to inflation – a provision that is stipulated in most lease contracts. “Despite the positive results [we have], the retail sector needs to consider the inflationary pressures that are expected to lead to consumers reining in spending on non-essential goods in the short term, which could have repercussions for high-end fashion and luxury stores in particular,” Ayman Sami, country head for JLL Egypt, said in a statement. Meanwhile, average vacancy rates in Cairo increased from 11% in the third quarter of 2021 to 13% in the fourth quarter of that year.

In 2022 some 240,000 sq metres of retail GLA is forecast to enter the market, with new space concentrated at strip retail and community malls in West Cairo, and regional and super-regional malls ranging from 30,000 to 90,000 sq metres in New Cairo.

Shopping Malls

The country’s expanding retail market has seen the development shopping malls across a variety of segments. Over recent years malls have grown increasingly popular, reflecting economic growth and a steadily expanding middle class. Additionally, the Shopping Centres Act, which was passed by the government in 2018, eased legislation for the establishment of malls. The law requires that all new real estate projects include a commercial area, which makes it more appealing for retail developers to begin new projects. “Real estate is doing well and the level of competition is very fierce now, with this playing out mostly in payment terms, which are being stretched to 15 years,” Hisham Al Kabbani, vice-chairman of City Stars, told OBG.

Cairo is home to more than 20 operating shopping malls, often clustered in crowded areas of the city, with more under development. Among the largest malls in the country are the 620,000-sq-metre Mall of Arabia in 6th of October City, built by mixed-use real estate developer Marakez, which has 154,000 sq metres of GLA across 500 stores; and the Mall of Egypt in 6th of October City, developed at an investment cost of $722m in 2017 and operated by UAE shopping mall developer Majid Al Futtaim, with around 165,000 sq metres of GLA.

In December 2019 Majid Al Futtaim announced that it would invest $996m in Egypt’s retail sector between 2020 and 2023. In addition, in March 2022 the company stated its intentions to invest a further LE250m ($15.9m) in Egypt’s retail market by the end of the year – with investments as of early 2022 amounting to around LE2.3bn ($146.1m).

Meanwhile, Marakez – a subsidiary of Saudi holding company Fawaz Al Hokair Group – is implementing LE20bn ($1.3bn) in a variety of strategic investments, including the Mall of Mansoura, a shopping establishment spread over 150,000 sq metres with 40,000 sq metres of GLA, which is set to open in 2023. The Mall of Mansoura is the second commercial mall development by Marakez in the Delta region, after the Mall of Tanta opened in 2019. Furthermore, in January UAE-based retailer GMG announced that it plans to open 100 sports retail stores by 2026, and IKEA opened its second large-format store in early 2021, spread across 19,500 sq metres, in Mall of Arabia.

Food Retail

While the pandemic hit non-grocery outlets and low-end retailers hard due to nationwide lockdowns and health concerns in 2020, grocery retailers performed relatively well as consumers chose to stay home and stocked up on food.

The retail food and grocery sector in the country is dominated by traditional, family-run grocery stores and wet markets, although supermarket and convenience store chains have grown both in size and popularity in recent years. In particular, the online segment surged in the wake of the pandemic as consumers turned to digital platforms such as Souq and Jumia for grocery shopping and essential items, a trend that is continuing (see analysis).

The number of grocery retailers grew by 4.3% between 2015 and 2020, with the highest rate of growth recorded in hypermarkets (153%) and discounters selling at wholesale prices (162%). In 2020 traditional stores represented 96.6% of all grocery retail outlets in the country and 75% of total sales for the sector, at an estimated $25.1bn. Modern formats like supermarkets, hypermarkets and convenience stores comprised 3.3% of outlets and 26% of sectors sales, totalling some $8.8bn, and this is forecast to grow consistently over the coming years.

Despite recent pandemic-induced economic headwinds and the subsequent rise in inflation – which has seen some consumers rein in spending on non-essential goods in the short term – demand from high-income shoppers has increased. In 2015-20 food retail sales grew at a CAGR of 9.5%, peaking at roughly $34bn in 2020 as consumers opted for in-home cooking and home-delivery services from supermarkets. According to forecasts from the US Department of Agriculture, however, sales in the segment are expected to decline by 3.2% between 2020 and 2025 as middle- and lower-income consumers return to normal consumption patterns.

The country imported a combined $3.2bn in consumer-oriented products in 2020, marking a 3% increase on 2019. The top-five exporters of consumer-oriented products in that year were the EU, accounting for 42%, at 974m; Brazil (22%, $510m); India (15%, $352m); the US (8%, $199m); and Kenya (7%, $164m). The top-five imported consumer products for the year were beef and beef products, dairy products, spices, fresh fruits and teas.

Supermarkets

French grocery chain Carrefour topped YouGov’s 2021 retail rankings for Egypt, which measure overall brand health. The chain, owned and operated in Egypt by Majid Al Futtaim, has 59 stores around the country: 14 hypermarkets and 45 supermarkets and a market share of just over 20%. In 2021 Carrefour announced a LE400m ($25.4m) investment campaign to establish 20 new branches, in addition to spending more on e-commerce and its online food-delivery portal. Online sales made up 4-5% of the chain’s revenue in 2020 and around 6.5% in 2022, with the firm planning to increase the share to 10% by end-2022.

Abu Dhabi’s ADQ, meanwhile, signed an agreement at the end of 2020 with regional retail firm Lulu International to expand in Egypt, at an investment of $1bn. According to a statement from ADQ, it plans to develop 30 hypermarkets and 100 express mini-market stores across the country, in addition to logistics, distribution and fulfilment centres to bolster its e-commerce business.

In addition, Géant – part of France’s Groupe Casino – has declared its intention to enter the Egyptian market. In 2021 the company announced plans to open 15 stores at an investment cost of around LE1bn ($63.5m) over the following five years.

E-commerce

Rising internet and mobile penetration is fuelling the growing popularity of e-commerce in Egypt, with 75.7m internet users in the country as of January 2022, up from 46.6m in January 2019. Indeed, revenue in the sector has risen significantly in recent years, from $1.6bn in 2017 to $2bn in 2018, $2.8bn in 2019, $4.6bn in 2020 and $6.6bn in 2021. Earnings in the sector are forecast to increase to $7.7bn in 2022 and $13.2bn in 2025, supported by Egypt’s young, urban and tech-savvy population, and expanding middle class.

Confidence in the space has grown since the onset of the pandemic, as Egyptian consumers reduced their use of cash in favour of e-payments and ordered more goods online due to lockdowns and social-distancing measures. According to a 2021 study by Visa, nearly 90% of Egyptian consumers had high levels of confidence in digital payments, which saw a substantial increase in usage that year of 690%. Souq, which rebranded as Amazon Egypt in 2021, and Jumia are the leading e-commerce retailers in the country, with more than 50% of market share. The most popular consumer goods categories purchased online in 2021 were electronics, with a 27% share of revenue; fashion (20%); toys, hobbies and do-it-yourself items (18%); and beauty, health, personal and household care (14%).

Outlook

Despite pandemic-induced economic headwinds and rising inflation, the Egyptian retail sector has made significant progress over recent years, particularly in the food retail and e-commerce segments, which saw rapid growth due to lockdowns and rising internet penetration rates. In the short to medium term, retailers are expected to benefit from growing consumer spending in real terms as the middle class expands and a number of private sector investments and projects begin to bear fruit.