Jordan's FMCG retail sector is booming amid high levels of immigration, growing modern trade and buoyant economy.
Jordan's FMCG retail sector has experienced its share of change in the past few years. As with many other Middle Eastern countries, Jordan's modern trade has enjoyed solid growth, with hypermarkets such as Safeway and Carrefour starting to take an increasing slice of business from smaller grocery stores.
Jordan's economy has also experienced significant change owing at least partly to the war in Iraq, which has led to between 800,000 and one million Iraqi's relocating to the country, in addition to immigration from other neighbouring nations.
Khalid Salamat, vice president of HBG Holdings, a Dubai-based holding company that specialises in FMCG distribution, has seen first hand how the changing demography of Jordan's capital, Amman, is affecting the economy.
"The key drivers are the influx of people from neighbouring countries, in particular Iraq," Salamat said. "A lot of wealthy Iraqi's have come down and settled in Amman and they are investing in businesses. Then the situation in Lebanon is also driving people out of Lebanon and into Jordan." He added that the situation in Lebanon has also fuelled a rise in tourism to Jordan.
While these factors have led to an increase in grocery sales, the FMCG sector has also benefited from a steady shift towards a modern trade as more supermarkets and hypermarkets open up and take ground from the traditional trade. The modern trade now accounts for about 25% of Jordan's FMCG sales, according to Salamat.
"Carrefour entered the market near the end of 2006. You can also see the mall culture coming in. In Amman recently two new malls have come up. One is Mecca Mall and the other is City Mall where Carrefour operates," Salamat said. "Then there are other malls in other areas. Crystal Mall will be coming up in 2008, which will be colossal from the standard of Jordan."
Ashraf Bakry, general manager at Unilever for Mashreq countries including Jordan, has also experienced enormous change in the country in the past few years. "The shift of consumer traits from traditional retail trade to modern retail trade has been obvious and positive in Jordan," he said. "During the past two years, modern trade accounts have increased by more than 40%, consisting of local, regional, and most recently international key account chains."
He added that during the past year, all key accounts have either expanded their shopping area or opened new outlets to assist in the surge of consumer shopping trend at modern outlets.In the supermarket segment, Safeway is a significant player with 11 stores. Other supermarket groups operating in the country are C-Town.
Outside of the Amman and Aqaba, the modern trade is less prevalent, and the grocery sector accounts for by far the biggest slice of the grocery retail trade. In terms of the universe, the grocery sector would still be the biggest in terms of the number of stores, according to Salamat, accounting for between 12,000 to 15,000 stores across the country. "All the remote areas if you go out of the main urban centres, it is all grocery business where the middle to low income groups shop. These stores are all independent, there are no chains," he said.
Nevertheless, Bakry estimates that for Unilever, the modern retail trade contribution has gone from 10-15% to 20-25% recently, due to the shift to modern trade accounts and the drop of traditional trade outlets. "Growth of the modern trade channel is well over 80%, mostly due to the expansions of outlets, new locations, and entry of many players focusing on more modern retail."
He added that this modern trade growth was helped by huge investment from Unilever and other multinational FMCG companies, resulting in strong market share gains of up to 30% over the last couple of years in many categories such as tea and personal care. "As we continue to experience the shift of buying habits in Jordan at modern trade outlets we expect that the growth and contribution will continue to be encouraging, at least for the near future," he said.
But despite the high levels of growth, Salamat said Jordan is not particularly strong in terms of FMCG production of distribution. This is mainly down to a lack of scale in the sector. While food items such as processed meat, confectionery and pickle are produced in Jordan, the scale remains small, according to Salamat. "If you look at the GDP break down, only 30% of the GNP is manufacturing, as against service sector which is 64%," he said. "Manufacturing isn't really the backbone of the economy."
A natural outcome of this is likely to be consolidation in the sector, with the stronger players from the region and beyond looking to acquire promising FMCG companies with untapped potential - and this is certainly an area that HBG Holdings is interested in. "Consolidation is a natural consequence and this is also HBG's central philosophy," Salamat said. "We are a distribution company but we are engaged in the process of evaluating joint venture possibilities with a manufacturing concern."
Looking forward, HBG Holdings and Unilever are both optimistic about Jordan's FMCG sector. Indeed, Bakry said Unilever is expecting further strong growth in Jordan owing to the country's stability. "The economic growth of Jordan will continue and so will our growth and investment level in the country. This will lead to better products and services available to our Jordanian consumers," he added.