Dominated by foreign players, notably from France and South Africa, the Madagascan supermarket sector is still recovering from the crisis that destabilised the fourth-largest island in the world in 2002. Retailers are banking on a much hoped for rise in purchasing power, which would open up consumer access to different types of retail outlet. CAD & Catherine Sleep report.

Madagascan retailers were shaken by the arrival of the South African giant Shoprite at the end of 2002. A clear market leader in Africa, last November Shoprite announced it was buying Champion, the number two in Madagascar, with five supermarkets, as well as its central purchasing organisation.

This ambitious move is evidence of Shoprite’s expansion strategy in Africa and, more recently, the Indian Ocean. The South African company’s stated aim is to generate half its profit in Africa, not including South Africa. Well versed in the ways of emerging markets, Shoprite is expecting an economic upturn and in the meantime is pursuing an aggressive strategy based on low retail prices.

Established leader unruffled by Shoprite’s entry

Despite Shoprite’s recent entry, the Réunion group Bourbon, market leader via its retail division Vindémia, remains confident in its own position. Operating one Cora hypermarket and two Score supermarkets, Vindémia has a market share three times the size of that of its new rival. The country’s economic situation also offers grounds for optimism. “Even if the economic climate is only evolving slowly, the supermarket sector is witnessing satisfactory growth,” Vindémia says cautiously.

Marc Ravalomanana, the president of Madagascar and nicknamed the ‘Yoghurt King’ thanks to his interests in the dairy sector, has inspired confidence in retailers. “Previously mayor of the capital of Antananarivo, Ravalomanana has proven himself to be an outstanding leader,” explains Tobie Visser, head of new supermarkets at Shoprite.

Furthermore, Ravalomanana is himself involved in the Madagascan retail sector via his ownership of the Magro banner, a chain of wholesalers serving the independent retail sector. And as Visser adds, “It is encouraging to see the international community willing to lend the island its support by way of development aid”.

Retailers playing their part in economic reconstruction

The supermarket chains did not emerge unscathed from the crisis unleashed in December 2001 by the controversial election of Ravalomanana. While the Madagascan economy was enjoying a relatively high rate of growth before the crisis (+6% in 2001), this figure turned negative in 2002 (-10% according to estimates). This was a direct result of the political and economic turbulence the country underwent and was exacerbated by periods of flooding and drought.

For example, during 2002 Champion saw its sales plummet by 30%. Clashes between Madagascan supporters of Ravalomanana and those who favoured the former president Didier Ratsiraka led to the erection of so-called ‘anti-economic’ barriers, which saw bridges blown up and the capital blockaded.

Paralysed for some seven months, the Madagascan economy is just now beginning to get back on its feet. Although retail was not the most severely affected sector, the economic standstill severely impeded the progress of many development projects.

Development plans on ice

Shoprite is still waiting for more prosperous times before opening five new stores in various towns across the country. Vindémia, for its part, plans to set up shop in the near future in the towns of Majunga and Antsirabé. The Réunion group has another change ahead of it too: while Casino took a 33.4% stake in Vindémia for €91.5m (US$106.9m) in 2001, Cora is said to be planning its exit from the company. The branding and supply contract that binds Cora to Vindémia expires at the end of 2003.

Vindémia will therefore have to undertake a comprehensive overhaul of its stores and logistics set-up. The retailer is currently analysing the type of clientele that each of its stores attracts to decide which should be incorporated into the Casino banner, and which are better suited to one of the company’s other formats.

As for the supply side of the business, last March Vindémia announced it was going to collaborate with EMC Distribution, Casino’s purchasing organisation. Right now there is no mention of cooperation with Leader Price, although the latter group is affiliated to Casino and operates two stores on Madagascar.

Despite the risks the island nation presents, retailers on Madagascar have not lost sight of the potential for market growth. Above all, they are waiting for consumer purchasing power to rise to a satisfactory level. Then they will be able to exploit new market niches, starting with convenience stores. This will allow them to target the majority of Madagascans who do not yet have their own means of transport.

The Madagascan market:

Restricted access to supermarkets and hypermarkets

The average income of Madagascan consumers remains modest. Of a total of 16 million inhabitants, 70% live below the poverty line. Consumers saw the price of their average shopping basket increase by 13% in 2002, largely as a result of the sudden inflation prompted by the crisis that hit the island between January and July of that year. Moreover, Madagascans remain attached to their local grocers.

Supermarkets and hypermarkets account for just 3-5% of the national market, compared with 30% of the market in the capital, Antananarivo. Indeed, the capital city accounts for half of the country’s super- and hypermarket sector. Only the privileged classes (700,000 of Antananarivo’s two million residents) earn enough money to shop in supermarkets on a regular basis. The vast majority only go there very occasionally, generally to take advantage of a special promotion they have seen advertised.

The major players

Foreign companies

Score Cora: Headquartered in the Réunion Islands, Vindémia arrived in Madagascar at the beginning of the 1990s. Today the company operates one Cora hypermarket and two Score supermarkets, and payrolls 600 employees. With annual sales worth €525m, Vindémia dominates the Madagascan market. Before the 2002 economic and political crisis, its Cora hypermarket enjoyed a 10% market share in the country’s capital city, Antananarivo.

Shoprite: The market leader in Africa, South Africa’s Shoprite acquired five Champion supermarkets at the end of 2002, each boasting sales space of 800-1000m2. Having imposed its own banner on the stores, Shoprite is now working to renovate them. Group turnover comes in at €2.6bn, of which 10% is generated in Africa, not including its home market of South Africa.

Leader Price: A franchise of French group Casino, Leader Price operates two supermarkets of 1100m2 in Madagascar.

Horizon: Chinese-backed Sogecoa opened a 4000m2 store in Antananarivo three years ago. With 7-8000 product lines, the company focuses primarily on goods imported from Asia.

One solitary domestic company…

Conquête: Owned by local traders, Conquête currently has just one store, of 1000m2.

Catherine Sleep translated this article from the French with the permission of its authors, French retail news service CAD.