Company Trend Analysis - Carrefour Strengthens MENA Presence - JAN 2018

BMI View: A wealthy consumer base, that is embracing hypermarket offerings is driving sales growth for the likes of Carrefour and will be a key reason behind the company strengthening its operations in the Middle-East by acquiring Geant hypermarkets, expanding its presence in UAE, Kuwait and Bahrain.

Carrefour is expanding its presence in the Middle-East and North Africa (MENA), further diversifying its global operating portfolio and increasing its exposure to a region, where consumer spending continues to increase. Majid Al Futtaim, the leading shopping mall/retail conglomerate and franchise owner of Carrefour in MENA, acquired Retail Arabia, the franchise owner of Geant and Gulfmart grocery stores across the UAE, Bahrain and Kuwait in June 2017. The deal was then finalised between Majid Al Futtaim and Retail Arabia's parent company, BMA International. All the acquired stores, including hypermarkets and supermarkets will be rebranded under the Carrefour brand by the end of 2017, increasing the number of Carrefour outlets to 80 in the UAE, 11 in Bahrain and 8 in Kuwait.

According to the financial results released by Carrefour for Q317 (ending September 2017), Carrefour's net sales by geography recorded the highest sales growth as coming from 'Other Countries' segment, which is where the company's Middle East operations are recorded, along with Africa and the Dominican Republic. This segment grew by 4.6% in constant currency terms. This is compared to sales growth in France and Asia which recorded a drop in sales growth of -1.3% and -3.5% respectively. As such, Al-Futtaim's acquisition of Retail Arabia comes as no surprise, with Carrefour building up its business operations in the high growth markets of the Middle-East.

Strong Growth Coming From Middle-East and Africa
Sales Growth By Region In Constant Currency ( % change y-o-y)
Source: Carrefour Company Filing, BMI

The acquisition of Retail Arabia and rebranding of Geant hypermarkets to Carrefour comes on the back of strong forecast growth in food and non-alcoholic drink spending in the Middle-East. We project that food and non-alcoholic drink spending in the UAE, Bahrain and Kuwait will grow by 6.9%, 5.4% and 8.9% respectively per annum between 2017 and 2021 in USD terms. As a result, the value of these food and non-alcoholic drinks markets will reach USD35.9bn, USD2.8bn and USD8.4bn in 2021 for UAE, Bahrain and Kuwait, respectively.

Kuwait Tops Growth Forecast For Food And Non-Alcoholic Drink Spending
Food and Non-Alcoholic Drinks Spending, USD %y-o-y
e/f= BMI estimate/ forecast. Source: National Sources/BMI

While we project strong growth in the food and non-alcoholic drink spending across the Middle-East as whole, Kuwait will be the fastest growing market according to our forecasts. The rise in spending of food and non-alcoholic drinks comes on the back of rising disposable incomes, and rapidly expanding middle-income households (disposable income of USD25,000 and above), with this income bracket projected to account for 41.5% of total households in 2021, up from 34.6% of households in 2017.

We note Kuwait's growth is coming from a lower base, when compared to the UAE for example (USD3,396 for food and non-alcoholic beverage spending per capita, compared to USD1,517 in Kuwait in 2018). The growth in spending, suggests increased demand for premium food and non-alcoholic beverage offerings, as Kuwait's population size of 4.1mn in 2017 and its growth projection of 7.6% between 2017 and 2021 suggests that the growth in food and non-alcoholic drinks spending will be driven by the Kuwaiti consumers trading-up on price points, rather than a volume spike in food purchases.

Carrefour's main competitors in the Kuwaiti grocery sector include; SaveCo, a subsidiary of the Al-Qatami Group, which is the largest hypermarket chain in Kuwait, and LuLu, another hypermarket chain popular in the Middle-East, operated under the LuLu Group International, which has stores across the UAE, Qatar, Kuwait, Bahrain and Egypt.

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