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Tue 1 May 2007 12:00 AM

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Pioneers of Syria’s modern trade

FMCG retailers and producers remain optimistic about the potential of Syria as the first signs of a modern trade appear in the country.

Syria has long been a cause of frustration for the region's FMCG industry. While the country has a fast growing population of 18.8 million people, with an average median age of about 20 years, it has been slow to adopt a modern retail trade.

But while multinational FMCG exporters are hampered by this slow pace of change, and other problems such as high tariffs on imports from non-Arab countries, there have been definite signs of progress in the past couple years.

Indeed, a modern hypermarket sector, while at an embryonic stage of development, has appeared in the past few years, and Syria now has eight independent hypermarkets split evenly between Damascus and Aleppo. But while the bulk of FMCG sales are from smaller grocery stores and wholesalers, Syria's nascent modern trade is already catching the attention of other players, and Saudi Arabian hypermarket group Al Sadhan has already signalled its intention to expand its business into Syria, while French retail giant Carrefour has also confirmed its interest in the market.

Furthermore, producers and distributors of FMCG items are also optimistic about Syria, despite the market being notoriously difficult to operate in owing to its underdeveloped retail trade and restrictions on imports. For example, Sherif Fawzi, Unilever's country manager for Syria and Lebanon, said that sales growth of Unilever brands such as Lipton, Sunsilk and Dove are strong, and that the growth of country's modern retail trade does appear to be helping fuel this growth.

"We are growing very well in the last two years, more than the market growth. The new supermarkets are changing consumers trends," he said. "They are giving very good service. In 2007, I can see a tremendous growth in these outlets, which I think will help to change the market in Syria in the next few years."

But for companies such as Unilever it is the wholesale trade that remains the most important channel in Syria, as it allows the company to achieve a far wider distribution to the country's many grocery stores than it otherwise would. "Wholesale is still very important for us and because this is a fragmented market and we cannot cover the universe 100%," Fawzi said. He added that wholesalers account for about 60% of Unilever's trade in Syria.

Al Islami, a Dubai-based meat producer, is also confident that Syria will modernise and become an important market for its products. The company started exporting frozen products such as burgers and nuggets to Syria at the beginning of 2006 and is already experiencing a growing demand. "This market has been closed for so many years, so the market there is waiting for this kind of modern food, which is processed items and the hypermarket range of products ,instead of the commodities which they are used to," said Saleh Abdullah Lootah, CEO, Al Islami Foods. "The change is happening, especially with more hypermarkets and businesses setting up there."

Lootah is convinced that now a modern trade has started to develop, it will gain momentum, largely because there is a strong demand for modern products and retail outlets from the Syrian population. "There is a lot of thirst to have such products. They want this kind of hypermarket, which families can visit and enjoy doing their shopping...It is not an easy market but it is a market that has a big demand for such new products."

Bader Aujan of Al-Muhaidib Group, a Saudi Arabian company with a significant FMCG distribution business, is also active in Syria. The company distributes products from Sc Johnson, a US producer of cleaning brands, in Syria, as well as food items from Iffco, a UAE-based producer of cooking oil, biscuits and other products. Al-Muhaidib Group, which has been distributing its FMCG items in Syria for about 18 months as part of its Levant operations, is experiencing strong sales growth, according to Aujan.

He added that one of the keys to success in the country is to have good distributions systems in place. "There is a great opportunity there and the growth is in the high teens," he said. "Everything is selling well providing that you have a very good distribution system there. The key is really how good your systems and processes are. We are trying our best to put a very professional distribution system to create a very good business," he added.

Furthermore, Syria is becoming more like the rest of the Middle East in terms of FMCG distribution, and the trade is likely to develop in the same way as KSA and other GCC countries developed about 20 years ago, with wholesalers losing their dominance, according to Aujan. "Now the trade in Saudi Arabia is completely different with the wholesale sector being reduced. It used to be 80% and now is probably less than 30% because," he said.

Retailer’s perspective

Adnan Shaaban, manager and owner of a 2,500 sq metre hypermarket in a Damascus shopping mall known as Sham Centre, said he is seeing a steady increase in business, although consumers are responding more slowly than he had hoped. "Business is picking up quite well these days. It is going good, although not as good as European markets." He thinks supermarkets will develop more rapidly in Syria in the next few years.

Bilal Ekryem, who manages a hypermarket based in Town Centre, a Damascus-based mall owned by his family, said development of the modern trade is partly hampered by a lack of awareness among Syria's population. Part of the problem is that consumers are used to making regular but small shopping trips, while hypermarkets are intended more for bigger transactions. "The customers are changing, but not fast," he said. "More supermarkets will open, and people will get used to them."

Khaled Dyab, manager of Adonis, a 5000 sq metre hypermarket also in Damascus, agrees that it will take time for the industry to develop. "It [the modern trade] is a new business for Syria and it will take time. We're hoping a foreign company will come in and help develop it." He added local supermarket groups lack the resources to develop the market and that one of the main challenges is finding experienced managers.

However, on a more upbeat note, Dyab thinks the sector will experience stronger growth in the next few years. "No more than 2.5% of the population shop in supermarkets so it is a very low percentage but we are expecting growth in the coming five years of between 17% and 20%," he said. "This is a new kind of shopping for Syrian people, but we have had growth of 16% this year compared to last year. Business is growing for retailer shops and we are hoping for the coming two or three years to double our business of the first year. There are four supermarkets in Damascus and we expecting about six more to open in 2007."

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