Race for opportunity

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Carrefour has emerged as the Middle East’s leading hypermarket group.

After the South Africans, French retailers hold the second highest regional share, reflecting Carrefour and Casino's operations in Northern Africa and the Middle East via franchises. Their collective share of sales within the Top 30 amounts to 12% of the regional total, although individually they only obtain single-digit shares. Kenyan retailer Nakumatt is a player to watch. It holds the leading position in Kenya and has ambitions to open stores throughout East Africa. Apart from Nakumatt, no other African retailer (excluding South African ones) has made it into the ranking.

One of Shoprite's latest openings in Angola in December 2006: the 5,000 square metre store in the Belas Shopping Centre, Luanda. Shoprite's leading position in the ranking is due to its presence in South Africa mainly, while its presence in 15 countries across the rest of Africa is largely symbolic of its leading position in the ranking. The retailer's activities in countries such as Ghana, Nigeria and Angola have been vital to the development of modern retail structures in these countries.

Shoprite is now concentrating on these three markets as their size and economic structure promises the best return on investment in the long term. Both Nigeria and Angola have been attracting investment because of their oil reserves, while Ghana's stability and economic growth make it a fertile ground for development.

Shoprite is planning to open several new stores in each country. Despite structural and bureaucratic problems, most of these new Shoprite outlets are trading well, mainly with the small, but rich, social elite. The first store in Lagos, Nigeria, was profitable within a year, despite the fact that 90% of products are imported from South Africa. However, Shoprite believes that structures will develop inside its foreign bases to improve trading and sourcing conditions in the long term. Across its Sub-Saharan markets, the retailer continues to fund local projects aimed at helping farmers and manufacturers to achieve appropriate standards so that regional products can eventually be stocked across all Shoprite stores.

At home, Shoprite, which has historically targeted the lower segment of the market, is upgrading most of its locations to address changes in consumer spending power. Shoprite's Checkers stores, for example are being upgraded to compete more directly with Woolworths, a retailer that is positioned to attract more affluent consumers.

The other retailers within the top-five, all of which originate from South Africa, have held onto their positions in the ranking for some time. Their domestic operations have continued to grow as a result of an increase in consumer spending and a growing black middle class that has been empowered by economic development. However, macroeconomic challenges are presenting themselves in the form of rising interest rates and curbs on borrowing, while supply shortages of grocery items have hampered retailers' operations. Despite these difficulties, the market is growing nonetheless.

With more consumers moving into more affluent socio-demographic categories, these retailers which had previously targeted the mass market have been developing store concepts and product ranges to attract these new types of customers. Pick ‘n Pay in second place, like Shoprite, has been improving its upmarket product ranges, particularly in the fresh and ready meals sectors.

Woolworths' trend-setting credentials further. Further down the ranking in sixth place, Woolworths has been the champion of the more upmarket sector for some time; its stores and product ranges have traditionally been an attraction for the smaller, above-average income segment of the population. However, Woolworths' dominance of the more affluent South African consumer market is likely to be challenged by the new positioning of market leaders Shoprite and Pick ‘n Pay.

Outside of the Top 10, East Africa's leading retailer Nakumatt, in 25th position in Africa and the Middle East, is looking at an ambitious expansion strategy across East Africa, with stores scheduled to open in Rwanda's capital Kigali, Uganda's capital Kampala, and the Tanzanian cities of Arusha and Dar es Salaam. More stores across Kenya are also on the cards. Nakumatt has said that while this expansion is ongoing, manufacturers in Kenya should adapt their strategies and package sizes to the future market conditions.

The COO of Nakumatt, Mr Ramamurthy, has challenged the manufacturing sector by saying: "The manufacturing sector should prepare in terms of product innovation, changes in packaging and volume production while they economise their operation."

Nakumatt is also considering opening smaller outlets with a convenience store strategy at petrol stations across Kenya. Overall, the retailer has seized the moment to become Kenya's leading operator while former rival Uchumi recovers from bankruptcy.

Other than the principal South African players and Nakumatt, there is little to report on movements by other chains across Sub-Saharan Africa. Good news comes in light of Uchumi showing signs of recovery after last year's financial collapse that saw the retailer close down its operations and lose its position in the Top 30 ranking.

However, with government help and a refinancing programme, stores have gradually opened again. Uchumi's revival is like to lead to a revival of competition with Nakumatt again, which could have a positive impact on the Kenyan market. However, Uchumi has a tough act to follow, with rival Nakumatt receiving government certification for its high level of corporate governance.

Given their head-start, most South African retailers present in 2006 will continue to dominate the ranking in 2012. However, a few of them are likely to lose their positions to French and GCC retailers, which are forecast to climb up the ranking due to the growing importance of their markets and network size. Carrefour is forecast to be the region's number three by 2012. Its operations in numerous MENA markets are expected to pay off for the French international while rival Casino achieves similar importance, lagging just two spots behind.

By 2012, the Top 10 is expected to include two ambitious GCC retailers, Panda and Emke, buoyed by their expansion in key regional markets. Panda has made a significant surge upwards, illustrating the importance of the Saudi market, and its position in it.

For both retailers, there will still be plenty of room for growth, allowing them to challenge the dominance of other retailers. As these markets grow in the Middle East and hypermarkets become more commonplace, most retailers are likely to diversify their portfolio of banners, opening supermarkets and convenience stores in the process. This will spur ongoing growth in the region. In the Gulf, this development will take place quickly, and the outlook points to a future in which opportunities abound.

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