Egypt - the Future of Foodservice to 2021

20/10/2017 - 14:01
Egypt is the 32nd largest economy in the world, with a nominal GDP of over USD$ 330 billion in 2016. The country has suffered from political and economic instability following the Arab Spring revolution in 2011.

The unemployment rate rose sharply after the protests began, and has since been consistently over 12%, but despite this, GDP per capita has steadily increased over the last five years. Inflation oscillated around 10% after the 2008 global financial crash, but it has soared to over 30% due to a sudden devaluation of the Egyptian Pound in November 20161.

The country’s economy relies heavily on tourism. It’s primary exports are textiles, representing approximately 15% of exports by value, and products derived from fossil fuel, which account for over 20%2. Cairo contributes roughly a third of Egypt’s GDP, and with urbanization steadily increasing, the most promising growth opportunities will be found in cities.

Profit sector summary

The Egyptian foodservice profit sector generated a total revenue of over EGP 222 billion (USD$ 21.9 billion) in 2016. The value of the sector increased at a CAGR of 1.3% from 2014-2016, and growth is forecast to accelerate to a CAGR of 1.7% during 2016-2021.

Although overall growth across profit sector channels is, and is forecast to continue being, primarily attributed to rising outlet numbers, rather than increasing transactions, these two growth rates are expected to approach parity.

The paradigm shift towards convenience driven purchases is becoming increasingly pervasive worldwide. In all key Egyptian channels, growth in revenue generated from takeaway transactions is forecast to be stronger than that of dine-in transactions.

Quick service restaurants summary

Valued at approximately EGP 68.0 billion in 2016, the QSR channel represents a 30.6% market share of the Egyptian foodservice sector. The channel’s sales value increased at a CAGR of 1.0% between 2014-2016, and is forecast a marginally accelerated CAGR of 1.3% during 2016-2021.

Although just 4.6% of QSR outlets are owned by chain operators, they generate 15.7% of the channel revenue. Independent operators are expected to continue dominating the channel, but chains are forecasted a higher rate of revenue growth during 2016-2021.

The channel is highly fragmented, with the five largest operators accounting for just a 6.1% share of the total sales value in 2016. American and Egyptian operators dominate the channel. The largest operator is Yum! Brands’ KFC franchise, which generates 3.6% of the channel’s revenue.

Although the rate of surveyed consumers with children is high, the percentage of consumers whose choice of QSR was influenced by children is notably low.

In an effort to compete with the FSR channels, an increasing number of chain QSR operators are ‘premiumizing’ their menu offerings. Surveys highlighted large portions of consumers claimed to find difficulty in eating healthily when out. This indicates there are growth opportunities to be found in offering ‘healthy indulgent’ options, a foodservice trend which has achieved great success in mature foodservice markets such as the US and UK.

Full service restaurants summary

At a market valuation of just under EGP 78.5 billion in 2016, the FSR channel is the largest foodservice channel by sales value, accounting for 35.3% of the total revenue generated within the foodservice profit sector. Between 2014 and 2016, the value of the FSR channel increased at a CAGR of 1.3%, and it is forecast an accelerated CAGR of 1.7% during 2016-2021.

The FSR channel is more consolidated than the QSR channel, which tends not to be the case in most other countries. 20.1% of FSR outlets are owned by chain operators, but they over-trade relative to this, generating 33.6% of the channel’s sales value. Over the next five years, revenue growth of chain operators is forecast to be marginally stronger than that of independents.

The FSR channel will be the greatest beneficiary of the paradigm shift towards takeaway transactions, with revenue generated by takeaway transactions forecast a CAGR of 4.2% during 2016-2021, compared to a CAGR of 1.5% for takeaway transactions . The advent of UberEATS and rival delivery services will mean that consumers no longer need to compromise between convenience and the quality of their meal. However, for the foreseeable future, dine-in transactions will remain the primary source of revenue in the channel, given that approximately 90.6% of channel’s revenue was generated by such transactions in 2016.

In future years, the FSR channel will face intensifying competition from the QSR channel as QSR operators expand their menus and ‘premiumize’ their offerings.

Pubs, clubs, and bars summary

In 2016, the pub, club and bar channel was the fourth-most valuable foodservice profit sector channel; it generated a revenue of over EGP 13.5 billion, representing 6.1% of the total market sales value. During 2014-2016, the channel increased in value at a CAGR of 1.2%, and the rate of growth is forecast to accelerate to a CAGR of 1.5% between 2016 and 2021.

The channel’s growth is, and will continue to be driven primarily by a rising number of transactions, rather than outlet expansion. Whereas the number of pub, club and bar outlets increased at a CAGR of 0.6% over 2014-2016, the number of transactions in the channel increased at a CAGR of 1.0% throughout the same period.

The pub, club and bar channel is heavily fragmented, with chain operators representing just 1.6% of the number of outlets in 2016. These operators under-traded relative to this market share, accounting for just 1.4% of the channel’s total revenue.

The pub, club and bar channel has suffered due to the decline of tourism at the hand of increase sociopolitical tension. Approximately 90% of the Egyptian population practise Islam, and followers of this religion tend not to consume alcohol. If the rate of tourism continues to fall, the performance of the pub, club and bar channel will continue to be affected disproportionately compared to other channels.

50% of surveyed Egyptians claimed to visit their most recent pub, club or bar either on impulse or with the intention of going out, but with no particular venue in mind.

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