RETAILER DISTRIBUTION IN SOUTHERN COUNTRIES AND IN MOROCCO - 1st REGIONAL TRAINING LACTIMED - ANIMA Investment Network

RETAILER DISTRIBUTION IN SOUTHERN
COUNTRIES AND IN MOROCCO

                                          Prof. Abdelaziz SBAÏ,
                    Institut Agronomique et Vétérinaire Hassan II,
                                                         Morocco

     1st REGIONAL TRAINING LACTIMED
       BIZERTA, TUNISIA, 2-3 APRIL 2014

Brainstrorming exercise
Considering you own experiences in your country, discuss the following subjects:

1-) Does the implementation of the supermarkets have an impact on the traditional
         systems? If so, in which sense?
2-) What are in your opinion the factors that have contributed to the acceleration of
         the retailers phenomenon?
3-) In your own experience of small and medium producer, do you think that the large
         distribution is inclusive of your category of producer?
    If not, why?
    If so, what is your real degree of negotiation with them?
4-) If you are a retailer provider, do you think that the specifications between retailers
         and providers are equitable?
5-) Does the retail sector have an impact on the value and promotion of the local
         products?
6-) In what sense traditional channels and informal distribution are not fully adapted to
         your products?
7-) As a consumer, how do you rate the retailers implementation (hyper and
         supermarkets) on your way of life?
8-) Do you think that the convenience stores will disappear in the long term?
9-) Are you aware of successful results between the benefits of the hyper and
         supermarkets and the benefits of the convenience stores?
10-) Do you agree that retailers must stay in the medium-sized cities? Or only in big
         metropolis?

Overview of the situation of
retailer distribution in Morocco

 the market sector reprensents 13 % of GDP, about 3 % of volume
des IDE and the income of 13% of the working population (1,5
Milllions of people)

 The modern distribution realizes in terms of turnover 16 Billions of
Dirhams it is 1,4 bilions of euros, what represents 13 % of retail
market, croit de 9 % par an

 106 stores in 2010 and an objectif of 600 for 2020

 Industry concentration (oligopoly position) with the predominance of
Marjane and important imbalance in terms of territorial coverage:
43% of the total area of the retailers distribution is focused on the
Atlantic axis: Casablanca / Mohammedia / Rabat / Kenitra

Geographical distribution of the Hyper&Super
                            Markets, by number (2010)

Competition Council 2011

Distribution of the stores by brands and city (2010)

Competition Council 2011

Competition Council 2011

Competition Council 2011

Banned in France and in
                               some countries

Competition Council 2011

Evolution of the hyper and supermarkets
                 creation

                                 Evolution of hyper and supermarket openings

                        Competition Council 2011

3 main growth phases in the development of the retailer distribution. Before
2002: with an average of less than 3 stores / year created. Between 2002 and
2006 : between 7 and 10 new stores / year. After 2007: with an average of 12
openings /year. Consumption pattern drawn by the wealthy class and followed by
the middle class.

2 main groups share 92 % of the market (4 brands: Metro, Label Vie,
Marjane and Acima). Asswaq Salam is an outsider with 8 % of the
market. BIM is new arrived and announced in 2012 the opening of
50 news points of sales, to be added to the 76 that already has.

                                                  Competition Council 2011

Evolution of the implementation strategies of the
                      brands

                             Competition Council 2011

- In emerging countries, the modernisation of the distribution system is
launched by the wealthy calsses and disseminate by middle classes.

- Massive establishment of new foreign distribution formats that are
added grafted to the national commercial context.

- Risks and limitations of the establishment in the SD countries: country
risk, significance of local purchasing power, degree of urbanization and
development perspective …

- Strategies of the major groups in different regions (PVD): privilégient
les pays émergents à forte population urbaine, ayant une faible densité
du commerce moderne et avec une classe moyenne importante

Global Index Retail Development (GRDI), an study of the AT Kearney
counsulting firm in order to help companies to prioritize their
international expansion strategy.

ranking of countries according to their market potential (market
attractiveness), the levels of economic and political risks, the level of
commercial equipment and competitive intensity (saturation of the
market) and the speed in which the economy grows (time pressure)

The top ten countries in 2012 are: Brazil, Chilli, china, Uruguay, Inde,
Georgia, United Arab Emirates, Oman, lMongolia and Peru

 «Concerning Middle East and North Africa, il faut remarquer la récupération face
 à la récession et une plus grande confiance des consommateurs dans la plupart des
 pays avec une croissance du PIB entre 3% et 5%, avec un niveau de revenu
 relativement élevé, une population jeune et une classe moyenne qui n’arrête pas de
 grandir. The regional potential is shown on its ranking: Koweit (5), Saudi Arabia
 (7), United Arab Emirates (9), and not to forget Turkey (10), Lebanon (12) and
 Morocco (17). Concerning these ones, Turkey is the country with the higest
 evolution, 6 places won thanks to its strong sconomic growth.».

The internationalization of the retailer distribution
 face to crisis, by the A.T.Kearney firm (2012)

« economic stagnation of the markets in developed countries, combined
with the attractiveness of emerging economies, makes that the
internationalization be essential in the maintain of the growth levels.
On the other hand, he also stressed the need to analyse the
international expansion from a multichannel perspective (physical store,
e-commerce and m-commerce), even in less developed markets, as well as
the importance of attracting local talent to organizations »

«Economic and political tensions can speed up or slow down some
decisions, but the general trend is that globalization will continue. In
any case, more than focus attention on particular regions or countries,
what is need is to build a portfolio of markets in order to establish a
balance between short-term risk and long-term growth aspirations»

Driven by the rise of Brazil, Chile (2nd) and Uruguay (3rd) confirm their attraction
for the third consecutive year thanks to strong growth (around 10%) of disposable
income and low inflation. More generally, Latin America continued its extraordinary
dynamism, with seven countries represented in the Top 30. The shopping centers
play a key role in the structuring of these markets like the new Village Mall in Rio de
Janeiro and JK Iguatemi Sao Paulo, or the Costanera Chile. In particular, they
attract large luxury industry players such as Valentino, Miuccia Prada, Sephora,
Gucci, Lanvin or Van Cleef & Arples.

Political instability in the Maghreb countries continue to have different
consequences in the countries of the MENA region. If the Arab revolutions have
impacted negatively many countries such as Tunisia, which comes out of the rankings
this year, after Egypt in 2012, other countries are doing better (Morocco, Saudi
Arabia, Oman, Jordania) and have increase their attractiveness like the United Arab
Emirates (+2 places) and Koweit (+3 places).

Reasons

Markets with needs to be cover, attractive economic and fiscal
policies (lower toll fees, implementation assistance)

Investment in transport infrastructure, etc.

Saturation (near) of the European or North American domestic
markets with a low development potential

Specific legal constraints in some developed countries
restricting new store openings

Absence of a regulatory framework laying down the rules of
business activity (delimitation of retail space, schedules, etc.)

Lack of access to other developed markets due to the presence
of strong local competitors and a strong commercial density,

Potentiel de développement qu’offrent les pays émergents en
tant que levier de croissance externe

Adhesion and permeability of a growing portion of consumers
in emerging countries to these new distribution concepts

- However, these countries cover a variety of realities, from rapid and
  large opening to the modernization of distribution and private
  investments (Brazil) to a slow and measured opening (India)

Anticipatory Policies

  EX. Fragmented market    Ex Emerging market   Ex Mature market   Consolidated market

  Pakistan                    Vietnam           South Africa       W. Europe
  Key factors:            Key factors:          Supermarkets       Supermarkets
  dominant                dominant              sales > 45%; few   sales > 65%; few
  traditional             traditional           traditional wet    traditional wet
  markets,                markets, markets      market             markets, high
  markets                 modernisation                            level of markets
  modernisation           degree > 10%                             modernisation
  degree > 5%

•“Politiques institutionnelles peu averties sur le LT”
•“Or si on comprend cette évolution, on peut choisir les mesures
appropriées pour guider les orientations futures

Development and specificities of modern distribution
              in Southern countries

- Fragmented traditional distribution system

- Opacity of its structure and legal vacuum in terms of
distribution law, competition or planning

- Socio-cultural changes in household lifestyles: time constraints,
seeking comfort, well-being and quality of products, media and
communication development, improving education and cultural,
women’s employment, knowing the modern distribution system
thanks to travels and satellite channels, etc.

- macroeconomic and tax measures                 facilitating   the
implementation of modern distribution

 - Overlapping distribution formats rather than sequential
 development of the classic life cycle distribution formats

 - In emerging countries, local consumers are joining quickly the
   modern distribution system

 - Strongher local and international competition, meaning quickly
 saturation for modern commerce

- Coexistence of multiple retail systems (duality)

The conditions of the evolution: does all depend on the evolution of the GDP?

                         Evolution du PIB par tête et de la distribution au M aroc

   20

   15

   10

    5

    0
        1994 1995 1996 1997 1998 1999 2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010

                                GDP / capita (MAD)
                                Retail sales / capita (MAD)
                                Grocery retail sales / capita ( MAD)
                                Modern grocery distribution, total sales / capita (MAD)

Effect of the traditional distribution in southern
                    countries

- Two functions (distribution and social) integrated into each
other

- The convenience store was able to resist the development of
  modern commerce (which, in fact, was not able to attract the
  great mass of low income consumers) compared to its
  European counterpart or French

- Le commerce moderne bute sur cette contrainte malgré son
développement dans les quartiers urbains (ex Acima in Morocco,
Label Vie, etc.)

Developement perspectives of the hyper and
    supermarkets in southern countries

Comparing the contexts and distribution systems in
          mature and emerging markets

Source : Amine, Dupuis, Obadia and Prime (2005)

Expansion and braking factors of the modern
     distribution in transition markets

Facteurs de développement de la GD                                Facteurs freinant le développement de la
          dans les pays du Sud                                              GD dans les pays du Sud

- Accroissement de la densité de la population et                    - Difficultés d’adaptation de la distribution moderne à certaines
  développement de la classe moyenne                                   habitudes culturelles de consommation : vente à crédit,
- CM répond à un volume croissant de la demande et permet de           horaires d’ouverture et de fermeture, faible prise en charge de
  faire face aux problèmes de faiblesse de la taille des points de     la clientèle peu instruite ou analphabète dans le magasin
  vente du commerce traditionnel, d’incapacité à gérer                 livrée à elle même
  rapidement de grands flux de consommateurs, du coût                - concurrence du secteur informel
  croissant du travail et du manque de contrôle de la fidélité des   - faible croissance de la classe moyenne cantonnant la
  employés                                                             localisation de la GD dans les grands centres urbains
- Existence d’attentes non comblées par l’offre traditionnelle       - Commerce traditionnel de proximité répond à des attentes et
  locale (diversité en quantité et qualité/hygiène…) facilitant        des demandes sociales et culturelles que la distribution
  l’adhésion d’une partie des consommateurs aux formats de la          moderne ne réussit pas encore à combler
  distribution moderne                                               - faible pouvoir d’achat d’une part significative des ménages ;
- Besoins et comportements de consommation en évolution en           - Insuffisance des moyens de transport individuels et/ou
  raison de l'accès quasi-généralisé de la population aux chaînes      collectifs pour accéder sans contraintes aux nouveaux temples
  satellitaires et à la diffusion des médias internationaux            de la consommation à la périphérie des villes ;
  diffusant les valeurs du modèle culturel occidental de             - forte concurrence sur certaines catégories de produits sur
  consommation                                                         lesquelles les GMS ne sont pas compétitives par rapport au
- Faible densité de l’appareil de distribution                         marché parallèle (habillement, produits d’hygiène et
- Apparition d’une classe moyenne significative                        cosmétique, produits électroniques), aux marchés de plein air
- Main-d’œuvre bon marché (propice aux groupes de                      ou couverts (légumes et fruits frais), etc. ;
  distribution étrangers)                                            - cherté du foncier pour l’achat de terrains ou la location de
- Multiplication des filiales de sociétés multinationales              surfaces en centre ville qui constitue un grand handicap à
  installées dans les grandes villes des pays émergents et le          l’extension de la grande distribution dans les pays émergents ;
  gonflement du personnel expatrié                                   - problèmes de risque de change (pénalisation en cas de
- Augmentation de la proportion des femmes actives                     dévaluation de la monnaie, augmentation brusque des taxes
                                                                       douanières) pour les importations de produits, de denrées et
                                                                       de matériels.

The impact of modern distribution on market
                 system

- Job creation – direct and indirect (subcontrators, suppliers) in a
context of an important unemployment rate.
- Restructuring the industrial sector offer, mainly composed by SMEs
  /SMIs, by respecting high quality standards; more rigor in the
  delivery and cost rationalization

- Total revision of the supply chain to optimize transport, open platform
for storage and distribution, ensuring non-breaking cold chain, increase
inventory turns and improve product packaging

- Large producers are avantaged because retailer distribution allows
them greater regularity incomes and a higher sales rate as of network
expansion.

- Small producers harmed or excluded, can not work permanently with
retailer distribution because of their lack of tecnical and monetary
capacities.

- rebalancing of power in the channel for distributors profit

- The rise of hyper and supermarkets began to question the
hegemony of convenience stores in emerging countries because of
its purchase and negotiation power and their capacity to attract
customers.

- Nevertheless, convenience stores are still an important actor
on the distribution level.

- At the international distribution level, this implementation
comes with transfert of knowledge but also by adapting mais
par touches et paliers d’adaptation au contact de la réalité du
pays d’accueil (example Auchan/Marjane)

- Placing hypermarkets not only on the outskirts of the cities but
also at the city centrum

- This emplacement is competing with the convenience stores but
changes are done in order to adapt the format and become more
like a discount stablishment.

- A readjustment of merchandising and improving the store
  atmosphere allowing low prices all the time («soft discount») =
  in order to adapt itselfs to the population expectations
  (including lower income classes) : ex. Russia and Morocco (see
  picture on next slide: Carrefour Maxi in Casablanca)

The    new    concept   of
warehouse – store       of
Carrefour Maxi

Relations between Retailers and suppliers in Morocco,
          by the competition council (2011)

- « it appears that the production of some essential food products
(sugar, oil and dairy products) - highly concentrated in the domestic
market – are responsible of critical situations in terms of competition.
Indeed, some retailers, such as Marjane and Acima, may be tempted to
gain a competitive advantage because of the fact of belonging to groups
with major suppliers of these basic foods products».

- « Unbalanced relationships between retailers and suppliers, as is
known abroad. Indeed, it is often criticized to the supermarkets are
often criticized because of their abusing position in front of their
suppliers. Thus, the use of restrictive clauses for suppliers in commercial
contracts is often criticized, especially in terms of prices, supply and
logistic conditions. This imbalance affects particularly affects domestic
firms, which are depending on the hyper and supermarket conditions to
develop their business ».

- « the annual commercial contracts between suppliers and distributors
may contain highly demanding clauses vis-à-vis suppliers, particularly in
terms of performance conditions (retroactive application of the current
fiscal year, settlement between 30 and 90 days) price practiced
(guarantee of the lowest prices), back margins (invoicing of sales efforts
provider), end-year rebates (unconditional discounts) and logistics and
supply conditions (management of risk taken by the supplier) ».

- « Suppliers highlight the severity of certain clauses and the difficulty
of the negotiations. This position is more serious when the supplier’s
turnover depends on the Supermarkets - even when this figure does not
exceed 15% of its total revenue - to ensure the development of its
brands».

Commercial contracts with hyper and
                       supermarkets

                    The access to retail distribution

- the regulation of the entrance fee is based on a percentage of the
  turnover of the first year.

- With every new opening, extention or renovation of a store, a fee is
  charged to the supplier.

- Tout référencement d’un article d’un fournisseur fait également
  l’objet de droit de référencement.

-    « The degree of these fees depend on the bargaining power of the
    actors».

Guarantee the lowest prices

- Some clauses stipulate that if the distributor shows that price
  discrimination comming from a supplier does not allow him to offer a
  similar price than his direct competitors, the supplier must offer a
  lowest price, and this retroactively to the date on which the price
  discrimination was done.

- Any increase in prices done by the supplier has to be justify, which if
  accepted will be effective after a period (usually one month) after
  the reception of the new price.

- In terms of price reductions, financial compensation on the retailers
  stocks is made by providers

Logistic conditions

- Retailers charge suppliers for logistics

- Beyond a rate of non-delivery which depends on distributors and on
  products, usually between 8% and 15%, the entire revenue excluding
  taxes lost by the distributor will be reintegrated into the calculation
  of the trade agreements due by the supplier.

Suppliers are in charge of the promotion and communication tools

- Suppliers undertake to pay distributors partially or totally of all the
  actions and efforts made by the distributors to accelerate sales.

- Internal campaigns in store: competitive prices for customers,
  communication activities through flyers and poster campaigns,
  highlighting products on gondolas or through gifts to customers

- Suppliers agree to grant to the distributor with a additional discount
for all the promoting products during the promotion campaign

- Agreements do not need a prealable acceptation by supplier of the
  terms and implementation of promotions times.

The rebates in commercial contracts

- At the end of the year unconditionals (calculated on a basis of a
  percentage of the sales charged by the supplier to the distributor)

- conditional (calculated on a basis of a percentage of the sales charged
  by the supplier to the distributor per completion).

- The rebates degree depend on the product and on the bargain power of
  suppliers.

The bargaing power of the large international suppliers

Balanced situation. The current situation is not unfavorable for large
international suppliers. They need obviously the Hyper and Supermarkets to
arrive to the consumer, but also, the large retailers need these brands to
stablish their credibility and to strengthen the sector. The balance of
power is well balanced, even on the basis of these criteria, slightly in favor
of this category of suppliers.

The bargaing power of the small national suppliers

High unbalanced situation. The development of national companies depends
largely on their success in retailers sector. Thus the balance of power is
unfavorable except for monopoly / near-monopoly situation (ex. Sugar)

                                                      Conseil de la concurrence 2011

The bargaing power of the small national suppliers

Potential indifference situation. The low share of the market of the retail
distribution gives the opportunity to small domestic suppliers to achieve their
sales in the traditional trade. Thus, those suppliers who can negotiate with
retailers can assert their independence. However, their growth still stays, as for
top-level providers, subject to the supermarkets rules. In addition, the small
supplier accessing to large retailers has the risk of depending on a single client
that will be the main source of its turnover.

The impact of modern distribution on buyer’s
                  habits

- changing the importance of the different criteria to choose
stores and products

- Confiance dans le format de vente et dans l’enseigne qui
véhiculent une image moderne et dynamique valorisée par les
clients/confiance dans le vendeur de proximité.

- By sensorial dimensions (mixing lights, sounds, spaces and
coulours) the fact of buying become an entertainment for
families

- Buying at hyper and supermarkets has become a social status
reference

 - Socialisation by the consomption / strategies on wealthy
 classes

Competition Council 2011