A changing landscape: The market continues to expand, although consumer confidence has recently dipped

The formal retail industry in Morocco remains fairly limited, but it has been gathering steam at an impressive pace over the past three years. A growing middle class and urbanisation rate, as well as a modernisation of consumer shopping habits bode well for the sector’s future potential. While the traditional and largely informal segment of the market will not disappear anytime soon, particularly in smaller cities and rural areas where the local market culture is more entrenched, major international brands and franchises are increasingly entering and expanding into Morocco, taking advantage of a significant rise in dedicated retail properties.

The retail sector has witnessed a temporary slowdown due to the economic situation in Europe, which has been further hampered by the generally limited purchasing power of a large swathe of the local population. However, in light of new and encouraging demographic and economic trends, the long-term potential is clear.

OPENING UP: The retail sector in Morocco has undergone significant change in recent years with the arrival of multinational chains and franchises such as US coffee chain Starbucks, while the Swedish furniture store IKEA announced in late 2013 that it was planning to open a store in greater Casablanca.

Much of this is the result of a government drive to transform the sector, which remains dominated by smaller, more traditional, businesses. As much as 85% of businesses in Morocco consist of retailers, vendors and wholesalers in the traditional small-scale and informal sector.

In 2007 the Ministry of Trade, Industry and New Technologies rolled out a nationwide programme to transform the retail sector. The Rawaj Vision 2020 programme injected Dh900m (€79.9m) between 2008 and 2012 in order to modernise traditional businesses and fund the establishment of new commercial zones. The government plan further aims to increase the sector’s contribution to GDP to 15%, or Dh98bn (€8.7bn), add 450,000 jobs to the sector and encourage the development of 600 supermarkets and hypermarkets, of which 50 will be hypermarkets that will create 80,000 jobs alone. A further 5000 jobs are expected to be created in the discount segment. The plan also targets the development of 15 malls as well as 15 outlet stores.

The retail sector currently accounts for 11% of GDP and employs around 1.2m, which represents 12.8% of the workforce, according to the Moroccan Investment Development Agency. Should the Ministry of Industry, Commerce and New Technologies attain each of its targets, it expects the sector to grow at 8% annually through until 2020. By 2025, large retailers are expected to account for 30% of the market, according to Inforisk.

DISTRIBUTION: The government’s plan to reshape the retail sector has not only begun to change consumer purchasing habits, but has also had an impact on the local distribution and supply chain. “Before 2008 the market was very traditional, but since 2009, the situation has changed quite a bit, with the entrance of new players in the market, which led to a modernisation of the distribution and supply chains. The power relationship between stores and product manufacturers has changed. The retail stores have more bargaining power than smaller traditional stores, which allows them to negotiate lower prices for products. This has decreased profitability for product manufacturers,” said Soufiane Benabadji, the corporate marketing manager at LG Electronics.

CONSUMER CONFIDENCE: The government’s efforts and the influx of retailers seeking new and more robust markets has certainly had an impact – as a glance around the centre of Casablanca reveals. However, retailers have still had to grapple with a challenging 12 months, as a result of the EU slowdown, as well as low consumer confidence.

While Morocco fell several places between 2011 and 2013 in A.T. Kerney’s Global Retail Development Index, for example, which is a measure of the top 30 developing nations for retail development in the context of global investment, from 17 to 27, this drop was attributed largely to the ongoing fallout from the economic downturn in Europe.

LOCAL BUYERS: While consumers in Morocco are increasingly favouring modern shopping centres and supermarkets, consumer confidence has nevertheless declined by 4.2 points in 2013, from 78.4 in 2012, due to a more pessimistic view of their current and future financial situations.

At the end of 2013, 83.3% of Moroccans believe that they will be less able to save for the future, which represented a 2.2-point drop in the index. Also, 92% of households felt food prices increased over the previous year, which negatively impacted their purchasing power. The number that believed food prices will continue to increase in the future climbed from 72% to 77% year-on-year (y-o-y), according to High Planning Commission figures.

The growth in consumer loans has helped stabilise household consumption, however. Loans provided to consumers have increased on a steady basis, which reflects a growing confidence in the national economy. According to Bank Al Maghrib, Morocco’s central bank, in 2011 banks provided Dh30bn (€2.7bn) in consumer loans, which increased to Dh36.9bn (€3.3bn) in 2012. By September 2013 the figure had further risen to Dh44.5bn (€3.9bn). Bank Al Maghrib has maintained a steady rate for consumer loans. In 2012 the rate was 7.28% and increased slightly to 7.37% y-o-y in September 2013.

Consumption has, moreover, been supported by lower income taxes and rising incomes. Purchasing power rose consistently at a rate of 3.9% between 2001 and 2011. This has been driven in part by a reduction in income tax between 2007 and 2011, which was reduced from 44% to 38%. Furthermore, salaries increased annually between 2006 and 2012 by 5.3% in the public sector and 3.9% in the private sector. Demographic changes have resulted in changes to consumption patterns. While the population continues to grow slowly at around 1%, the urbanisation rate has risen every year at 1.8%. In 2003 some 55% of the population lived in cities, while in 2013 the figure rose to 59.2%. It is projected to rise to 59.6% in 2014, according to the High Commission for Planning.

FOOD & BEVERAGE RETAILERS: The grocery retail industry is growing particularly quickly, with several major international supermarket and hypermarket brands expanding their operations in Morocco. According to the Ministry of Commerce and Industry, at the end of March 2014 Morocco had 58 hypermarkets and 154 supermarkets.

One of the largest players on the market is Marjane, a subsidiary of local holding group Société Nationale d’Investissement. Marjane Holding operates 32 stores in the kingdom under three brands – Marjane, Acima and Electroplanet – and reached Dh10bn (€888m) in revenue in 2012. The company has implemented an aggressive strategy to expand the network. It has begun opening stores in small cities and has been diversifying its business strategy through the expansion of Electroplanet brand stores, which specialise in electronics.

FOREIGN PLAYERS: Although domestically owned chains have a strong presence, the foreign entrants have been moving aggressively to expand their networks. Label’Vie, which partnered with French supermarket brand Carrefour in 2009 and is owned by Hyper SA, holds about 28-30% of the market. Carrefour Market Label’Vie is expecting to open two stores in Fez and Oujda and currently operates 54 stores, 40 under the Carrefour Market brand, nine Atacadao stores, two Carrefour Expresses and three Carrefour hypermarkets. The company spent Dh750m (€66.7m) on expansion projects in 2013, and foresees spending a further Dh1bn (€67m) in 2014 and 2015, including the opening of as many as 10 new Express stores per year, according to local reports.

The third major player in the market is Aswak Assalam, a subsidiary of Ynna Holding of the Groupe Chaabi, which represents 8-10% of the market, with 11 hypermarkets. Another significant player is BIM, which is a Turkish discount supermarket chain, which has been expanding quickly in Morocco since its entry into the market in 2009. The company operates more than 164 stores in the country, and has set an objective of reaching a total of 400 stores by 2015. In 2013 it opened 54 stores, as well as a major logistics centre in Bouskoura, near Casablanca. The supermarket landscape will soon be more crowded as the French company Groupe Casino plants to open 15 stores in Morocco between 2013 and 2015 under its Monoprix brand.

FRANCHISES THRIVING: The franchise sector has also continued to perform strongly. As of 2013 there were 4100 points of sale and 650 brand networks, representing a 17% annual increase. The sector is dominated by foreign brands, which constitute 85% of the market, while Moroccan ones represent the remainder. French brands names alone represent 39% of the local franchise market, and a total of 25 countries are present through franchise operations. The furniture and home decoration and restaurant segments have been the top performers.

Morocco’s retail market has low regulatory entry barriers, which has allowed major international brands to easily set up shop. Currently, no specific regulations for large-scale supermarkets exist in Morocco. The sector is governed by legislation oriented toward food retail businesses, which consists mainly of pricing regulations, product sale conditions, health safety, as well as the preservation and transport of goods and foodstuffs.

In 2013, the Swedish brand through its Kuwaiti partner, Al Homaizi, announced that the country’s first IKEA would open in the greater Casablanca area. Kitea is a local brand that also specialising in kit furniture and is currently Morocco’s largest operator in the market with 26 stores as of March 2014. In 2011 the company reported that it had brought in Dh600m (€53.3m) in total revenue and had captured 16% of the local furniture market.

Indeed, Morocco’s growing middle class is presenting a wide range of opportunities for retailers in the furniture and home wares sector. According to Abed Chagar, the general manager of Colorado, a Moroccan architectural paints company, “There is an emerging middle class in Morocco, and that gives us strong growth potential in the consumer and home goods sectors.”

ELECTRICAL GOODS: The electronics and consumer goods sector has seen a steady growth in sales, but this has varied depending on the product. Tablets have been the best-selling item on the local market, with a 100% growth rate. The domestic market is dominated by foreign brands, which include Samsung, LG, Sony and Panasonic.

Consumer electronics spending will likely continue to grow in correlation with the increase in the size of the middle class in the coming years. Small gadgets such as smartphones and tablets have performed well, while some bigger appliances have lagged. “Spending has gone down because people are trying to save, which has been the result of an increase in everyday prices, such as energy. However, TV sales, which have been stable, will increase in 2014 due to the World Cup,” Soufiane Benabadji, the corporate marketing manager at LG Electronics, said. Smartphone sales have performed well, with a 22% y-o-y jump in volume by September 2013, and premium models set to grow with the launch of a 4G network.

SHOPPING CENTRES: Morocco’s tourism sector has recorded continued growth, which has had a positive impact on the performance of malls. While originally oriented toward the domestic market, malls have attracted a number of foreign shoppers with larger disposable incomes. This has attracted the interest of mid-range to luxury brands, which have begun to establish a local presence.

Galeries Lafayette, an upmarket French department store, opened its doors in Morocco in 2010. The department store not only attracts local customers, but also caters to the tastes and needs of French tourists, which represent the largest group of foreign travellers to the country.

The promising growth of the retail sector is demonstrated by the number of large-scale shopping centre projects that are expected to enter the market in 2014 and 2015. In 2011 Casablanca witnessed the roll-out of the largest mall on the African continent, Morocco Mall, which covers a total of some 250,000 sq metres. The Dh2bn (€177.6m) investment by Nesk Investment, a subsidiary of the Al Jedaie Group, and Aksal, receives 15m visitors annually. The mall has a wide range of high-end brands, such as Gucci, Louis Vuitton and Fendi, as well as fast-fashion brands such as Zara and Massimo Dutti, as well as 45 restaurants and an IMAX theatre.

“The ready-to-wear sector has posted constant double-digit growth over the past five years due to the construction of shopping malls, which have quickly grown in popularity and become a bigger part of Moroccans’ shopping habits,” Fady Elmayss, the general manager of Nesk Investment, which represents nine different brands including Mango, Promod, Aldo, Stradivarius, Okaidi, Call It Spring, Parfois, Blanco and Vincci in Morocco, told OBG.

Also in Casablanca, several new projects are expected to be delivered, including Les Arènes in 2014 with 25,000 sq metres of shopping space, a 120,000-sq-metre shopping mall in the new city of Zenata starting in 2015, and the Casa-Port train station’s major renovation project, which will create a further 3500 sq metres of retail space. Tangiers also has several major infrastructure projects under way, one of which is a 45,000-sq-metre shopping centre. It will be located in the city centre and is scheduled to open by the end of 2014.

In 2013 two major malls were opened in the country. Anfaplace was the most anticipated mixed-use project in Casablanca, which opened along the city’s waterfront. The 36,000-sq-metre mall, which was a Dh829m (€73.6m) investment, features 80 national and international brands, such as Marks & Spencer and Polo, as well as a 14-screen movie theatre. A 75,000-sq-metre mall also opened its doors in Fez, which was developed by the real estate firm Petra through a Dh400m (€35.5m) investment. The shopping centre is expected to create around 1000 jobs and receive some 5.4m visitors per year.

OUTLOOK: The current modest size of the middle class in Morocco constrains the growth of the retail sector. However, this situation is slowly changing thanks to the growth of the economy, which has created jobs and boosted wages. Consumers are also more frequently financing purchases through loans. Although confidence is low and the contagion from the EU slowdown is still a drag, the arrival of new supermarket chains and franchises, as well as the increase in dedicated retail properties, are positioning the sector to see a dramatic uptick in growth over the medium term. As the retail industry continues to pick up momentum and consumer habits change, the sector’s future seems full of potential.

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The Report: Morocco 2014

Industry, Mining & Retail chapter from The Report: Morocco 2014

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