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Thu 5 Oct 2006 04:00 AM

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Searching for agreement

Food producers and distributors are often at odds with the retailers who sell their products. But each party has more to gain by co-operation rather than only looking after self interests.

|~|handshake200web.jpg|~|Agreement is needed between FMCG producers and the retailers who stock their products.|~|Yemen often seems to be a forgotten market in the Middle East’s FMCG retail sector. It lacks the rapid development of the UAE and the level of oil wealth enjoyed by other Gulf countries. It’s economy has also been lacklustre in recent years, while the world economy has boomed. But this should not dampen the enthusiasm of supermarket groups looking to invest in the country.

Emke Group’s decision to open a LuLu hypermarket in Yemen makes sense when looking at the demographics of the country: It has a population of about 21.5 million people, and about 46% of the population is below the age of 16. In 2005, the country had a gross domestic product of about US $14.3 billion.

And with a lack of any significant developed supermarket or hypermarket sector, it is likely that the LuLu hypermarket, which opened in the port city of Aden in September, will perform strongly. The hypermarket model has worked well in emerging markets across the globe, and there is no reason why Yemen, with a growing young population, should be any different.

It is also likely that other supermarket groups will follow. French retail giant Carrefour is already rumoured to be looking at the market, according to Emke’s marketing director, V. Nandakumar. But while the emergence of a more developed retail sector will no doubt be welcomed by consumers, the reaction of food producers and distributors could be more mixed.

In the more developed FMCG market of the UAE, food producers are increasingly voicing discontent about the growing power of large hypermarket groups, particularly those that hail from certain West European countries.

Listings fees, rental fees, and even de-listing fees tend to be the main bugbears of FMCG producers, many of which claim their profit margins are in decline. Ayman Hammed, group marketing director of Al Ghurair, a Dubai-based food producer and distributor, said that he thinks supermarkets are increasingly using listing fees to raise revenue rather than to raise the quality of products looking for a listing.

But despite these faults, modern hypermarkets do give producers and distributors the opportunity to market their goods to a wider audience than they otherwise would. It is possible that for many FMCG producers, some degree of hypermarket presence is a force for good. Certainly greater dialogue between producers and retailers is necessary to prevent the two factions from becoming embroiled in a pitched battle where both parties lose site of the value that they offer eachother.

Roger Field. Editor, Retail News Middle East. ||**||

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