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Al-Ahram Weekly 23 - 29 March 2000 Issue No. 474 
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Published in Cairo by AL-AHRAM established in 1875 |
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Al-Ahram Weekly 23 - 29 March 2000 Issue No. 474
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| Published in Cairo by AL-AHRAM established in 1875 |
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Egypt Region International Economy Opinion Culture Features Focus Travel Living Sports Profile People Time Out Chronicles Cartoons Price wars hit the high street
By Mona El-Fiqi and Niveen Wahish
Keen to stress the importance of human resource development, Mrs Mubarak insisted that the flow of capital into developing countries must be translated, not only into productive investment, but as well "help in the protection and development of its human resources". UK supermarket chain Sainsbury is fast becoming a household name here and the reason is simple. It is offering basic items -- including milk, vegetable oil, sugar, flour and soap -- at heavily discounted prices. And consumers are happy to flock to the group's flagship store on Pyramids Road from all over Cairo to take advantage of the offers.
Sainsbury's promotional tactics, though, are wreaking havoc among its competitors. The trouble began when, soon after opening, Sainsbury slashed the price of a litre of milk to LE1.80 when the same brand was being sold by competitors at LE2.50. Other supermarkets became angry that the producing company was not giving them the same discount and threatened to boycott its products. The company concerned decided to extend the discount to them as well. But the situation did not end there. The milk war continued as a second large dairy producer slashed its own prices, making a litre of milk available at LE1.50 per litre. While these two large producers could bear the temporary losses they incurred, other smaller producers withdrew from the fray and have slowed their own production until the promotions end.
The milk war was followed by a battle over soap powders.
Sainsbury is offering 5 kg boxes of Ariel at LE28.50, LE3 less than the wholesale price, leading to a widespread boycott of the product among rival supermarkets who have been refused equivalent discounts by the manufacturer.
Consumers can expect such sharp promotional offers to be an intrinsic part of Sainsbury's pricing policy, says Dean Thompson, the company's commercial director. The supermarket intends to take a small number of products that are important to a wide range of consumers and offer them as cheaply as possible.
"If we can offer the basics at a reasonable price, then we free some money from the household budget," Thompson said, "for customers to spend on other products."
Egyptian consumers, Thompson points out, have until now been unfamiliar with such promotions. "Generally promotions in Egypt are because goods were running out of code. It made Egyptians suspicious of any goods that may be given away."
Sainsbury's pricing policy has not been well-received by other supermarkets. Mohamed Ragab, owner of one supermarket chain, insists that while Sainsbury does offer attractive prices on the basic items, it makes up for its losses by charging higher prices on the remaining products it is selling.
Ragab claims that Sainsbury's policies could lead to a virtual monopoly of the domestic retail market in certain products. It is a situation that is compounded by the absence of legislation covering domestic trading practices.
Given the current legal void, the Federation of Egyptian Industries decided to take action and two weeks ago secured an agreement with Sainsbury that included a pledge that the British supermarket chain would not offer items in its Egyptian outlets at less than cost price.
While Thompson insists that Sainsbury has no ambitions to sell products below their cost, he thinks the supermarket will continue to undercut its rivals through exploiting economies of scale.
Sainsbury has also introduced its own label range, an innovation in the Egyptian food retail market, though one that accounts for 60 per cent of the company's sales in the UK. Currently it is packing sugar, vegetable oil, flour, rice, and pasta in its own name.
According to Thompson, the market is ripe for competition. "The most efficient retailers are the ones that will survive, because they actually provide the best value for their customers," he said.
Sainsbury, he said, has not been surprised by the defensive reaction of the other supermarkets. And Thompson believes that what is actually happening is that other retailers are starting to work harder to keep their customers, and are catching on to the idea of promotion as well.
To place themselves on an equal footing with Sainsbury, a number of local retailers have decided to unite. Masriyatna, an umbrella company capitalised at LE200 million, will incorporate 20 existing supermarkets. According to Mohamed Abu Zikri, owner of Abu Zikri supermarket chain, Masriyatna will, among other things, purchase in bulk from suppliers and distribute to the various member supermarkets. At a later stage, a chain of supermarkets carrying the same name is planned.
