Processed food to Egypt

(Last updated: 18 Jul 2007)

Trends and opportunities

The market

Food processing is Egypt’s second largest industry after textiles with annual production valued at around US$3.5 billion and an average annual growth rate of 20 per cent per annum over the past decade.

Egypt remains one of the world's largest food importers due to its high population growth and increasing disposable incomes. A burgeoning middle class (estimated as some 10-20 per cent of the population) is increasingly adopting Western consumption patterns favouring imported products and services.

The steadily increasing population and developing purchasing habits of the Egyptian people stand to generate great opportunities for food manufacturers. In the past Egyptian consumers would buy meat from butchers, and fresh vegetables and fruit from open markets. However, with the increasing number of supermarkets in Cairo and Alexandria more affluent consumers have started to look for cleanliness and quality.

Consumers, advertisers, and food exporting nations are now targeting teenagers to the late-20s group for future expansion. These Egyptian consumers continue to demand more internationally branded products in a larger variety with increased levels of sophistication.

General trends:

• Savoury snack foods, such as natural potato chips, pelleted/starch/powder potato chips and corn curls, including cheese balls are becoming more popular with Egyptian consumers. Compared to the developed markets, the Egyptian savoury snack sector is relatively small. Per capita consumption levels and expenditure are directly linked to the level of Gross Domestic Product (GDP). Therefore, it’s reasonable to expect that expansion in the Egyptian savoury-snack market with future increases in GDP will provide market suppliers with room for growth. At the same time, Egyptian snack producers have entered the market over the past two years, increasing competition.
• Consumer demand for confectionery is expanding rapidly.
• Consumption of prepared foods is growing rapidly. As more women join the workforce, there has been an increase in the purchasing power and demand for ready-made meals.
• The beverages segment of the food industry consists of: natural juices and juice drinks, soft drinks, beer and other alcoholic beverages. The beverage industry in Egypt is under-serviced. Beer consumption is still low and the unmet market demand remains high despite a slow economic environment.
• The canned food sector is relatively under-developed mostly due to stringent hygienic/sanitary requirements and an inability among local companies to meet these requirements. The main companies active in the sector are Harvest, Americana Group, Edfina and Kaha.

The current challenges in the Egyptian retail food industry include:

• Lack of consumer awareness and limited income.
• High tariffs, which limit supplier interest in the Egyptian market.
• With the growing number of supermarket chains, there is a need to introduce new-to-market products.
• Egyptian import regulations and labelling requirements are stringent.

Opportunities

With the expansion of local and international supermarket chains in Egypt, consumers' purchasing habits are beginning to change dramatically. Good opportunities exist to introduce new-to-market products and increase sales of products already in the market.

There are many opportunities for joint ventures in food processing – especially as Egypt has an abundant supply of good quality fresh produce. The following products have good potential for Australian exporters of processed food:

• Products present but not in significant quantities are microwave popcorn, cheese and confectionery.
• Products not present due to significant trade barriers are:
  • wine (high custom tariff rate)
  • beer (high custom tariff rate)
  • high quality beef (maximum seven per cent fat content)
  • turkey (only modest quantities of processed turkey are imported)

Other promising sub-sectors include:

• Sugarbeet processing equipment and refining mills
• Edible oil (sunflower and soybean oils)
• Animal and chicken feed
• Potato processing equipment
• Fresh and preserved fruits and vegetables
• Tomato paste and ketchup industries
• Natural juices and concentrates
• Cheese and milk
• Winery equipment
• Water-pipe tobacco equipment

Competitive environment

Multi-national firms such as Nestle, Fine Food (Unilever), Pepsico-Snacks, Cadbury, and others are investing in Egypt. South African supermarket and department store chain, Shoprite now operates in Egypt partnering with Americana, the largest food company in the Middle East.

Metro, a huge modern local supermarket chain, operates about 20 outlets in Egypt. Metro is developing a new marketing concept in Cairo and Alexandria, namely ‘Metro Express’, a supermarket half the size of its regular stores. At Metro Express, there will be no counters for meat, vegetables and fruits. Instead, they’ll stock pre-packaged products from a limited number of brand varieties. Metro Express stores will be located in strategic locations convenient to middle income residential areas in Cairo and Alexandria. The idea is to capture revenue from new and existing customers that need to restock with a limited number of items.

With the expansion of supermarkets through international partners, it’s expected that medium-size supermarkets (500 square metres) and grocery stores will be rationalised. The future, as perceived by large supermarket chains, lies with major local and international companies and hypermarkets. However, small grocery stores (25 square metres) will continue to provide products such as cigarettes and chocolates.

Coca-Cola and Pepsi-Cola have serviced the beverage sector aggressively over the past five years through their local subsidiaries in Egypt. The level of rivalry between both competitors, and their huge economies of scale in production, promotion, and distribution, has effectively blocked the entrance of new players. Potential entrants, therefore, will be limited to the upper side of the sector. Specialist soft drinks, sporting drink or fruit flavoured beverages may have potential.

Al-Ahram Beverage Company (ABC) has a natural monopoly over the Egyptian beer sector. The company currently commands over 90 per cent of the alcoholic beer sector and more than 95 per cent of non-alcoholic beer.

Tariffs, regulations and customs

Egyptian customs regulations are complicated and rigid in areas such as duty rates and are designed to eliminate trading loopholes. Authorities don’t have to explain or justify their decisions and there’s no formal appeal process. Customs procedures are subjective when it comes to identifying which tariff category a commodity fits into.

There are severe entry barriers that discourage the importation of alcoholic drinks, significantly reducing competition from abroad. Importers of alcoholic beer must pay a minimum custom duty of 1200 per cent, most bottled wine is from 1800 per cent to 3000 per cent and all spirits are 3000 per cent. Non-alcoholic beer import duty is only 55 per cent.

Although tariff levels have fallen in recent times, as a result of Egypt adhering to WTO rules, the government now levies an ad valorem service fee on imported shipments in return for inspection, listing, classification and re-examination of shipments. In addition to the customs tariff, a sales tax ranging between five per cent and 25 per cent is added to the final customs value of the imported item.

Industry standards

All Egyptian products can be exported without obtaining export approvals and quality control is voluntary.

To reform its import/export regime, the Egyptian Government took a significant step towards streamlining the process of import inspection by issuing a new decree to centralise the process.

In the past, there were five government entities involved in the import clearance process. With the new decree, only the Central Authority carries out inspection for the Import/Export Control Authority of the Ministry of Economy and Foreign Trade.

There are certain food import requirements that must be observed:

• Labelling requirements
• Multiple product samples
• Restrictions on use of artificial colours
• Certification
• Shelf life standards and product specifications
• Shipping documents

Domestic food and agriculture industries must comply with the specifications of Egyptian standard definitions. The Egyptian Organization for Standardization and Quality Control, under the Ministry of Industry, is responsible for issuing industrial quality control certificates for local industries and for approving quality certification bodies in Egypt.

The Ministry of Health and Ministry of Home Trade and Supplies apply shelf life standards and product specifications to food and agriculture products. Any product that exceeds its established shelf life is considered no longer fit for human consumption and may be confiscated.

New domestic products, such as confectionery, launched on the Egyptian market should have a licence from the Institute of Food Industries.

The General Authority for Veterinary Services, an affiliate of the Ministry of Agriculture, is the main inspection body monitoring livestock production. The law stipulates that animals must be slaughtered in government slaughterhouses, where attempts are made to regulate production and ensure quality control. Each carcass must have a government stamp if it’s to be transported to or sold in butcher shops.

Marketing your products and services

Market entry

Recommended market entry strategies into Egypt’s food industry varies depending on:

• Strategic importance of the sector
• Historical structure of the industry
• Fragmentation and competitive situation in Egypt
• Complexity of the product
• Current availability of the product in Egypt

The government controls strategically important sectors (for example beer, alcoholic drinks, agricultural commodities) either directly or indirectly. For such sectors it is advisable to deal with a government or semi-government body for quick access to decision makers – preferably using a local agent or partner to manage this process.

Established value chains should be considered when determining a strategy to penetrate a particular sector. In some cases, appointing a distribution partner who is already dealing in your type of product can be an efficient way to decrease time-to-market.

In almost all cases, whether the final buyer is a government agency, a distributor or a supermarket chain it is preferable to have a local agent who can make representations to them on a continuous basis. It is recommended therefore that suppliers appoint a reliable agent or a local representative/marketing office.

Teaming up with another Australian supplier of complimentary/non-competitive products can also be a good option, which will add market strength and save costs.

Overall, direct contact with clients is recommended in order to establish product credibility and ensure proper contract execution. Even when your customer is a local wholesaler it is wise to spend some time with his customers in order to build recognition of your product. Generally market penetration is achieved gradually through word of mouth recommendations rather than large advertising campaigns.

There are three supermarket chains that import food products directly. However, most rely on Egyptian importing companies for wholesale distribution. Regardless of whether they source from wholesalers or buy directly entering these supermarket chains requires a similar marketing strategy to that in major Western countries. Some supermarkets now have ‘own brand’ products – which may be sourced locally or imported directly. Provision of such ‘own brand’ products can present opportunities for suppliers – especially when their own brand is not well recognised in the market.

Egyptian commercial agents are required for foreign firm bids on most government tenders but are optional when selling to the private sector. Egyptian law requires that all commercial agents and importers have Egyptian nationality. Agents also must have lived continuously in Egypt for at least five years and be certified by a local chamber of commerce or professional association. Agency agreements do not need to be exclusive and can be limited in time, geographic area or to specific product lines. They can be terminated relatively easily.

Commission rates vary according to the type of product or service, volume of sales, and effort needed by the agent. The larger the volume of sales, the smaller the commission. For commodities such as rice, wheat, sugar, lumber or cotton, the commission ranges between one and three per cent; for foodstuffs three-five per cent, and for equipment about 10 per cent. All rates are negotiable and in the early stages of developing market or brand recognition they may be higher.

General advice on how to market your products in Egypt:

• The advertising environment in Egypt is still relatively undeveloped and can be cost-effective in marketing to end-consumers. In the Middle East, advertising activity is very seasonal with the major push being exercised during the month of Ramadan (which moves forward by approximately 10 days every year) when extremely long advertising breaks are aired. Eid Al-Adha and back-to school periods are other peak times to consider.
• Advertising should be specially designed for Egypt and not just translated from the Western original. Humorous and celebrity-related advertising has great appeal.
• Conducting in-store promotions in prominent supermarket chains in Cairo can help to increase visibility in Egypt and to introduce new-to-market products.
• Consideration should also be given to conducting an educational seminar in conjunction with the in-store promotion. The objective of the seminar would be to educate government officials on food safety, quality control, shelf life, labelling, and packaging. Similar tactics could be employed in the private sector to educate supermarket operators, and food manufacturers about topics such as introducing new-to-market products, maintaining consumers loyalty, promotions, consumer trends and much more.
• Western appeal gives the products an additional advantage, especially given the Australian image is a ‘green and clean’ country with no negative political connotations (links with Israel, for example).
• Also, consider participating in exhibitions and trade fairs, as they are usually very well attended.

Distribution channels

Australian products will primarily target A and B+ class consumers – only found in the largest two cities of Cairo and Alexandria. There is some opportunity to sell directly to supermarket chains but most of these source from local distributors. Exporters are therefore advised to appoint registered local agents or country distributors for their products.

Agency agreements do not need to be exclusive and can be limited in time, geographic area or to specific product lines. They can be terminated relatively easily.

Links and industry contacts

Food-related resources

Americana Group - www.americana-group.net/index.php
Shoprite - www.shoprite.com

Government, business and trade resources for Egypt

Arab Chamber - www.arabchamber.com/arab-countries/egypt
Central Agency For Public Mobilization And Statistics (CAPMAS) - www.capmas.gov.eg
Egypt State Information Services (ESIS) - www.uk.sis.gov.eg
Egyptian Exporters Association - www.expolink.org
Egyptian Ministry of Foreign Trade and Industry - www.moft.gov.eg/english/english.asp
Egyptian Organization for Standardization and Quality Control - www.eos.org.eg/En_web/en_home.htm