Courtesy TO DO
Switching from Kit Kat to Katakito, rediscovering the wonders of Bisco Misr and good old Bimbo, and hitting Egypt’s beaches instead of that promised trip to Paris are several of the many ways consumers are adapting to the recent hike in prices of most commodities and services.
For homegrown Egyptian brands, that’s great news: with the float causing a steep increase in prices of imports and Egyptians starting to seek alternatives, many Egyptian brands are beginning to see a silver lining to the economic situation.
Because prices of imports and products that use mostly imported raw materials are facing more price increases than others, many local players are seeing an opportunity in matching imports on quality but competing on price. But that doesn’t mean it’s a walk in the park for Egyptian brands, however—imported raw materials, lack of original designs and loose quality control are just some of the challenges they will face if they want to meet consumer demands and fill that newly-arising market gap.
Switching consumer habits
With increasing prices, customers are generally tightening their belts, but they have the choice of either cutting certain luxuries out, buying less of certain items or buying the same quantity of the products as before but finding less expensive alternatives. Market indications show consumers are following a combined strategy of the three options, depending on the nature of the product.
Sami Gabrial, CEO of local market research company Marketeers Research, explains that consumer habits are generally changing, even those of upper and upper-middle classes, not only switching to less expensive alternatives, be they local products or otherwise, but also finding homemade solutions for things like detergents, for instance. “People are starting to use ingredients in their kitchens to clean; things like vinegar and baking soda. They might also use cheaper products and add things to them to make them smell better,” Gabrial explains.
Gabrial adds that it is still too early to tell the exact impact of the economic reforms on the market. Amanda Milano Marketing Consultant Noha El Sherbiny agrees with Gabrial, adding that the real impact of the currency float will be more apparent in the second quarter. “The float happened in November and companies probably have enough stock to last them four months, which means that they were still selling this stock,” she explains. “The huge increase in prices we will see when the stocks are finished, which already started around February, but the real effect will reflect on Q2 figures.”
What’s clear at the moment, however, is that demand across the board has decreased by around 30% on average, but luxury items like cars, for instance faced greater decreases of around 40%, according to Marketeers Research. “Outside of necessity, the purchase power is not there. If I bought my kid a chocolate every day, this changed to once a week or so,” Gabrial adds. Heba El Araby, chief marketing officer of Egyptian fashion manufacturer and retailer Concrete, says that the fashion retail industry as a whole has seen an overall decline of 30% in terms of purchasing power.
With that said, some of the demand for imported goods is switching over to local brands. “Our research shows that upper classes are now buying products that are similar to international brands but cheaper,” Gabrial says.
Vice President for Marketing at Edita Food Industries Inas Abdel Rahman tells bt that Edita has been seeing a 20% increase in sale revenue year-on-year. El Sherbiny has also been seeing a trend toward local products in the past six months, “But I am not sure whether customers prefer it or whether they are forced to purchase local products due to price hikes in international products and less supply of imports in the market,” El Sherbiny adds.
This means that this is a market window for local companies to compete to fill this gap. “We increased production and marketing activities because we see a great opportunity,” El Sherbiny says, adding that they are looking at strategies, including introducing new lines, to seize this market window and re-channel some of the lost consumption toward their brand. “We are now studying the market to see what we will introduce to answer the now-unfulfilled needs,” El Sherbiny adds.
Abd El Rahman believes that it’s an opportunity for local players, so long as they are able to match the requirements of premium products.
“A pack of imported brownies costs LE 50 now, but you can buy Todo, which is better quality because it’s fresh, and you will not pay anywhere near that amount,” Abd El Rahman explains. Todo sells for around LE 4.
El Araby explains that with economic fluctuations and price sensitivity, “customers tend to search for affordable offerings [that still guarantee] unique looks. So if that is available in brands they have history with, they would surely refer to these brands, [especially if] they have positive experiences with [them].” Concrete stands in the line of local favorites like Corona and BiscoMisr, having been present in the market since 1989 and having undergone a facelift in the past few years.
El Araby adds that with travelling becoming far more expensive, customers are diverting some of their purchasing powers to the local market. “Accordingly, brands that reflect quality and [good] designs in adequate prices sustained the shift in the equilibrium of the market,” she adds. Despite a general decline in clothing sales, Concrete has sustained their sale volume—but hasn’t seen significant increases yet.
In addition to a generally decreasing purchasing power and spending and companies having to raise employee salaries accordingly, local brands that depend on imported materials, either in full or in part, still need to increase prices. Both Amanda Milano and Concrete import a lot of their materials, leaving them with a steep hike in production costs after flotation and forcing them to jack up prices. Both brands, however, have absorbed some of this increase in cost.
Many believe that the cheap cost of labor, given the recent float, is also an opportunity to export, given the cost advantage compared to the international market. “On the long term, we will be able to open markets and we have the right formula and packaging to do so and establish ourselves in those markets,” Abdel Rahman says. “My edge in the export changed; in the Middle East and North Africa, you had Turkish competition that is very strong because it’s supported and subsidized so the product competed on price, even if you have better quality. Now, with the currency float, the price became an edge.”
Many Egyptian brands in the market have had a strong existence and loyal clientele, even before the float. Concrete is one such company. The brand is fresh in our minds with billboards of Asser Yassin, Aly Mazhar and Ramy Ashour dressed in their formal and casual wear, but Concrete was launched in 1989 and has, since then, grown to be a staple of formal and smart casual men’s and kids wear in the country with 40 retail outlets across Egypt. In 1996, the brand was acquired by the fashion retail giant Arafa Holding and in 2010 brought on board the internationally acclaimed Italian designer Ettore Veronese as head fashion designer.
El Araby explains that the brand’s key to success has been their continuous investment in innovation, from design to production techniques, and always keeping an eye on international best practices.
Original design and innovation, something we more often than not miss in local brands, is also key to designing clothes that can compete with international products. “We closely monitor world market fashion trends and tailor them to match Egyptian masculinity and culture,” El Araby explains.
Another key to success is ensuring quality throughout all the production phases. El Araby explains that their end product “reflects the immense hard work, craftsmanship and dedication” that goes into each step of the process.
Maintaining a happy customer and a happy employee is important to Concrete, El Araby says, because without their customers, employees and partners, the brand would have “never reached the status it has to date,” she says. “This is the crucial part of the equation that led to our success throughout the years; loyal partners and customers.”
Another leading homegrown company is Edita. Established in 1996, Edita Food Industries has grown into a leading FMCG player in the region, with more than 5,680 employees, four factories and a total capacity of 151,000 tons per annum exporting to 16 markets. Best known for the local favorite Molto packaged croissant launched in the late 1990s, the company now has various popular packaged snack products like Todo, Bake Rolz, Twinkies and Freska. At the moment, Edita is the second biggest snacks company in Egypt and is a market leader in cakes (with 60% market share), croissants (also 60%), rusks (46%) and candies (19%).
Abdel Rahman credits four main pillars for the company’s success, with research and development to get the latest technologies in the industry topping the list. “We invest very heavily in the most recent technologies in the food industries, so you find our factories, if not better, at least on par with other factories in Europe,” Abdel Rahman says. “We consider research and development to be our locomotive.”
The second on Edita’s list is distribution: “We have a very strong distribution network and reach 65,000 traders directly, in addition to those we reach indirectly, so we have very strong retail coverage.”
Like Concrete, Edita values their human resources and puts them among one of their four key ingredients to success, bringing in the right talent locally and hiring international experts to fill the gaps.
Lastly, Abd El Rahman believes that their strong emphasis on branding has truly set them apart. “We build the brand so the consumer doesn’t want croissant, he wants Molto in specific,” she says. “We take our brands very seriously and they all have their very unique personalities.”
The winning formula
With Chinese and Turkish products in the market remaining strong competitors, demand is not likely to switch automatically to local brands; the local players need to exert an effort to attract consumers and replace imported products.
Gabrial explains that this shift in consumer habits is an opportunity for local players and he expects consumers to redirect their spending to local products if they develop themselves and depend mostly on local raw materials and contents so they’re able to compete on price. “The more Egyptian materials increases, the more competitive they will be in terms of prices,” he adds. “It is easy to have good quality, technology is there and it’s no secret that labor is cheap—it’s one of the cheapest in the world.”
Gabrial cites Russia and Greece as examples of economies that made use of economic recession to their advantage, improving local companies and providing government support in terms of facilitations, procedures and controlling corruption.
“Change is the only success factor in the fashion industry,” El Araby says. “Focus on your customer needs and exceed their expectations.”
Abd El Rahman argues that local players need to focus primarily on product quality and packaging. “The packaging here is a disaster; the snack sector is so cluttered and looks very poor. The packaging might not be reflective of the product but local players, with some exceptions, don’t really look at that. They imitate the formula and the packaging,” she says. “Each product should have its own identity, taste, look. We need to focus on building something that is our own.”