Emerald Emerging Markets Case Studies
Sainsbury’s in Egypt
Terrence C Sebora Michael Rubach Richard Cantril
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Terrence C Sebora Michael Rubach Richard Cantril , (2014),”Sainsbury’s in Egypt”, Emerald Emerging Markets Case
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Sainsbury’s in Egypt
Terrence C. Sebora, Michael Rubach and Richard Cantril
Terrence C. Sebora is an
Associate Professor
based at University of
Nebraska, Lincoln,
Nebraska, USA.
Michael Rubach is a
Professor based at
University of Central
Arkansas, Conway,
Arkansas, USA.
Richard Cantril is a
Director of special tactics
and research, Fiserv,
Lincoln, Nebraska, USA.
If you lived in Cairo in 1999, the name Sainsbury’s was spoken on every corner. Everyone
was talking about the new grocery store chain that sold its products at prices much lower
than anyone else. Young men and women hung out in front of the stores just to be
associated with the new chain. Consumers who never before would dare to enter a
supermarket went to Sainsbury’s to get their groceries and supplies. Even competitors
bought products from Sainsbury’s retail outlets. Sainsbury’s stores were flooded with
consumers, and the cashier lines were always busy.
Yet, by the end of 2000, speculation in the media had risen concerning Sainsbury’s ability
to be profitable in Egypt, and there were rumors about the sustainability of Sainsbury’s
international strategy. During an interview on BBC Radio 4’s Today program on
Wednesday, November 22, 2000, Sir Peter Davis, newly elected Chairman of Sainsbury’s,
indicated that unrest in the Middle East, delayed store openings, and “licensing difficulties”
contributed to a £10 million loss in Egyptian supermarket operations, in which Sainsbury’s
has invested £100 million. He noted that, although the Egyptian market may have attractive
longer-term growth opportunities, Sainsbury’s was concerned about its investment in
Egypt. Davis outlined Sainsbury’s three strategic options in Egypt: to scale down its
operation, to find new local partners or sell the business. Davis noted that there was some
question of whether Sainsbury’s should have gone into Egypt in the first place.
Sainsbury’s: an overview
In March 1999, J Sainsbury plc wanted to revolutionize the under-developed Egyptian retail
food industry. It entered the Egyptian market with a vision of expanding rapidly, and during
1999, Sainsbury’s opened, on average, one retail outlet every eight days; more than 100
stores were opened in less than two years. The Egyptian market had never witnessed such
an expansion in any industry. Sainsbury’s phenomenal growth even caused some Egyptian
grocers to go out of business because they were unable to compete with the new
supermarket giant (Figure 1).
Sainsbury’s was a UK-headquartered multinational corporation (MNC). It was a leading UK
and US food retailer, and it also operated in financial services and real estate. The group
comprised Sainsbury’s Supermarkets and Sainsbury’s Bank in the UK and Shaw’s
Supermarkets and Star Markets in the USA. Sainsbury’s mission was to be “First for Food,”
offering outstanding quality and delivering great service, all at a competitive price.
Sainsbury’s objectives were to meet its customers’ needs effectively and thereby provide
shareholders with good, sustainable returns (Table I).
The chain was Britain’s oldest existing major food retailer. Sainsbury’s first supermarket
was established in 1869 by John James and Mary Ann Sainsbury. The founders’ principles
and values – to be the customer’s first choice for food shopping by providing high quality,
Disclaimer. This case is written
solely for educational
purposes and is not intended
to represent successful or
unsuccessful managerial
decision making. The author/s
may have disguised names;
financial and other
recognizable information to
protect confidentiality.
DOI 10.1108/EEMCS-04-2013-0031 VOL. 4 NO. 8 2014, pp. 1-27, © Emerald Group Publishing Limited, ISSN 2045-0621 EMERALD EMERGING MARKETS CASE STUDIES PAGE 1
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value for money, excellent service and attention to detail – have historically guided its
management. A large Sainsbury’s supermarket offered over 23,000 products, 40 per cent
of which were Sainsbury’s own brand. In addition to a wide range of quality food and
grocery products, many stores offered bread baked on the premises, delicatessens, fresh
meat and fish counters, pharmacies, coffee shops, restaurants and gasoline or petrol
stations. Although it had been decreasing, Sainsbury’s 11.9 per cent market share was the
second largest among UK retail supermarkets. Its Shaw’s Markets chain with almost 150
stores was number two in its US market, the New England states. In fact, Sainsbury’s was
the 14th largest grocery retailer in the world (Table II).
Sainsbury’s management believed that the company had a loyal customer base in the UK,
which trusted the Sainsbury’s brand and valued the range of services that the company
offered. Management believed that the strength of the Sainsbury’s brand was transferable
to new markets and that new markets might offset the erosion of market share in the UK.
The operating companies shared similar brand values: excellent quality, range, service and
value. Sainsbury’s had previously leveraged its brand name successfully within the UK, for
example, Sainsbury’s Bank coupled the trusted quality of J Sainsbury’s plc with the Bank
of Scotland’s experience and infrastructure. The Sainsbury’s Bank had expanded its
financial services by establishing an extensive range of products and services, all under
the Sainsbury’s banner.
Figure 1
Table I Sainsbury’s group profit and loss account (in £m)
2001 2000 1999
Sales (excluding VAT and sales tax) 17,244 17,414 16,433
Cost of sales (16,082) (15,201) (15,116)
Gross profit 1,162 1,070 1,317
Total administrative expenses (629) (542) (481)
Operating profit 533 528 836
Profit on disposal of properties 21 53 107
Impairment of Egyptian business (111) – –
Profit on ordinary activities before interest 510 581 943
Net interest payable (76) (72) (55)
Profit before tax 434 509 888
Taxes (168) (162) (292)
Equity interest (4) 2 2
Profit for year 266 349 598
Dividends (274) (274) (294)
Retained profit (12) 75 304
Earnings per share 13.8p 18.3p 31.4p
Diluted earnings per share 13.7p 18.2p 31.1p
PAGE 2 EMERALD EMERGING MARKETS CASE STUDIES VOL. 4 NO. 8 2014
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In January of 2000, Sainsbury’s released its chief executive officer (CEO), Dino Adriano, the
first non-family member to run the company. Adriano was criticized for a lack of vision and
strong leadership skills. Sir Peter Davis was appointed CEO in hopes of reversing the
sluggish growth of its core supermarket business and to stop the losses in market share to
Tesco, the UK market leader.
Egyptian retail food industry
The Egyptian market offered considerable potential: 65 million people lived in a very
concentrated area. There was a sizeable, yet largely unexploited domestic food market,
where supermarkets claimed only a 5 per cent share. Relatively, Egyptians spent more than
three times as much of their incomes on food than UK consumers. Over 12 million of
Egypt’s 69 million people could afford to purchase imported food products. Western
products and new products had wide appeal among Egyptian consumers (Table III).
In Egypt, a supermarket that sold groceries, meats and poultry was still quite unusual in the
1990s. People were accustomed to using traditional channels: specialized small grocery
stores, butcher shops and bakeries located close to their residences where they negotiated
the price with sellers whom they knew personally. The typical Egyptian consumer bought
meat from a butcher shop and fresh vegetables and fruits from open markets. Prior to the
entry of foreign retailers, Egyptian consumers rarely went to supermarkets. However, this
began to change. This was especially true for more affluent Egyptians who purchased
much of their food from supermarkets. Historically, supermarkets had been located
primarily in Cairo and Alexandria, Egypt’s two largest cities, with populations of over 15 and
5 million people, respectively (Table IV).
Table II The top 15 Grocery Retailers (2002)
Group Country of origin Dominant store type
Net sales
(€million 2001)
Grocery
sales (%)
Domestic
sales (%)
Foreign
sales (%)
1) Wal-Mart USA Warehouse 243,281 40 82 18
2) Carrefour France Hypermarkets, supermarkets,
discount stores
69,486 70.5 49.4 50.6
3) Ahold Netherlands Supermarkets 66,593 92 13.5 86.5
4) Kroger USA Supermarkets 55,959 91 100 0
5) Metro Germany/Switzerland Mixed 49,522 49.7 55.6 44.4
6) Albertson’s USA Supermarkets 72,781 90 100 0
7) Kmart USA Warehouse 38,665 37 100 0
8) Safeway USA Supermarkets 38,314 92 89.9 10.1
9) Costco USA Warehouse 38,131 41 82 18
10) Tesco UK Supermarkets 38,059 90 85 15
11) Rewe Germany Mixed 37,540 70.3 79.5 20.5
12) Aldi Germany Disc stores 32,400e 84 60.6 39.4
13) ITM France Hypermarkets, supermarkets 31,900e 82.4 74.5 25.5
14) Sainsbury’s UK Supermarkets 29,743 90 85 15
15) Ito-Yokado Japan Mixed 29,624 47 64 36
Source: M&M planet retail (2002)
Table III Egypt–economic data
1998a 1999a 2000a 2001a 2002a 2003b
Nominal GDP (US$ bn) 84.8 90.5 97.9 90.4 84.1 71.1
Population (m) 65.2 66.5 67.8 69.1 70.5 71.9
GDP per head (US$ at PPP) 3,041 3,246 3,431 3,565 3,658 3,719b
Private consumption per head (US$) 997 1,021 1,096 985 879 722
Number of households (’000) 13,328 13,653 13,996 14,356b 14,731b 15,127b
Notes: aActual; bEconomist intelligence unit estimates
Source: economist intelligence unit
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The retail market in Egypt is highly stratified. A few small-scale, privately owned operations
competed for wealthy customers. These groups, comprised three to four branded outlets,
stocked imported foodstuffs and generally offered a wide range of services including home
delivery and customer loyalty cards. A second tier of less luxurious stores generally
competed on price and omitted service. State-owned retailers competed at the lower end
of the market.
Egyptian consumers had become increasingly aware of quality and variety. Affluent
Egyptian consumers expected cleanliness, product range, ease of service and a
responsive staff. Consumption of prepared foods increased dramatically in the 1990s due,
in part, to the growing numbers of working women who demanded ready-made meals and
easy-to-cook foods (Table V).
Out of a total population of 69 million, only six million people had bank accounts and less than
half a million carried out more than two banking transactions a year. The credit card market
grew quickly in the 1990s – from 200,000 cards in 1990 to 450,000 in 1999. However, it was still
much smaller than either Morocco or Lebanon. Meanwhile, there are no mortgages, private
pensions, consumer loans or life insurance policies in this Moslem country.
Table V Food expenditures in Egypt
Consumer expenditure 1998a 1999a 2000a 2001a 2002a 2003a
Food, beverages and tobacco (US$ m) 28,361 27,702 30,039 27,288 25,266 21,333
Food, beverages and tobacco (% of household spending) 43.6 40.8 40.4 40.1 40.8 41.1
Food
Meat consumption (kg per head) 20.9 21.3 22.2 19.4 20 20
Fish consumption (kg per head) 11.7 13 13.9 14.4 13.6 14.5
Fruit consumption (kg per head) 81.8 88.3 88.6 89.6 93 90.5
Vegetable consumption (kg per head) 163.1 180.1 190.4 172.5 174.8 182.3
Confectionery, sales volume (’000 tonnes) 76 78 80 82 84 85
Beverage
Milk consumption (ml) 46.6 50 49.4 50.7 52.4 62.1
Coffee consumption (kg per head) 0.1 0.1 0.1 0.1 0.1 0.1
Tea consumption (kg per head) 1.00 1.02 0.9 0.9 0.8 0.7
Alcoholic drinks, sales volume (ml) 34 50 67 80 84 84
Soft drinks, sales volume (ml) 961 1,015 1,075 1,166 1,206 1,232
Tobacco
Cigarettes, sales volume (m units) 57,600 59,100 60,800 62,600 63,435 64,271
Notes: aEgypt Retail Food Sector Report 2000, GAIN Report #EG0034. http://apps.fas.usda.gov/gainfiles/200011/60678872.pdf
Source: Economist intelligence unit
Table IV Food affordability in Egypt
Item Price (US$)
% monthly
disposable income
Affordability
rank
White bread, 1 kg (supermarket) 1.05 2.06 45 out of 52
Sugar, white, 1 kg (supermarket) 0.40 0.78 43 out of 53
Milk, pasteurized, 1 l (supermarket) 0.49 0.95 43 out of 52
Instant coffee, 125 g (supermarket) 2.25 4.41 45 out of 53
Wine, common table, 750 ml
(supermarket) 4.61 9.04 42 out of 51
Cigarettes, Marlboro, pack of 20
(supermarket) 1.21 2.38 46 out of 53
Note: Affordability rank: for each country the price of an item as a percentage of monthly personal
disposable income is calculated; countries are ranked according to these percentages; the most
affordable country will have the lowest percentage and be ranked first
PAGE 4 EMERALD EMERGING MARKETS CASE STUDIES VOL. 4 NO. 8 2014
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The USA, France, Germany, Italy, Switzerland, Greece, Holland, Denmark and South Africa
were the predominant suppliers of consumer-ready food products in Egypt. Multinational
firms started to invest in Egypt, especially the French firm, Carrefours; the German firm,
Metro; and the South African firm, Shoprite. With the expansion of supermarkets through
international partnerships, it was likely that international companies and hypermarkets
would soon dominate the Egyptian retail food business. Metro developed the “Metro
Express” in Cairo and Alexandria, outlets half the size (250 m2) with a quarter of the product
line (3,000 items) of its regular Metro stores. A Metro Express did not carry fresh meat,
vegetables or fruits. The new stores were located in middle-income, residential
neighborhoods in Cairo and Alexandria. Carrefours sought to expand in Egypt, and
intended to open its first hypermarket after 2000. Majid Al Futaim of Dubai, the Middle East
franchisee for the French Carrefour hypermarket chain, had announced that it will open 15
stores in Egypt over the next 15 years (Tables VI and VII).
Entry to Egypt
J Sainsbury’s plc foresaw a need to consider additional growth opportunities outside its
domestic markets. The specter of Wal-Mart entering the UK market motivated Sainsbury’s
to increase its worldwide volume to cover the anticipated loss of UK market share.
Moreover, its top managers believed that Sainsbury’s needed to become a global retailer
to compete in the twenty-first century and to leverage potential global sourcing
opportunities. The top management team saw three opportunities for international
expansion:
 Short-term return on investment: Largely available in more developed markets such as
North America, Western Europe and Australia.
 Medium-term return on investment: Emerging markets where investment returns were
expected within four to seven years. While growing and offering less competition,
emerging markets generally lacked necessary infrastructures. Egypt was perceived as
such an investment opportunity; the Egyptian population and economy were projected
to grow faster than many European countries, and the Egyptian domestic food market
was already greater than that of The Netherlands or Belgium. For Sainsbury’s, Egypt
represented a relatively stable country in terms of political and economic risk.
Table VI Number of retail food outlets and Sainsbury’s major competitors (1999)
Wholesalers Supermarkets Groceries Kiosks Gas stations Other retail outlets* Total
Cairo 1,575 143 22,410 4,506 194 2,186 31,014
Alexandria 450 25 7,753 2327 110 487 11,152
Delta region 750 15 9,978 2975 77 450 14,245
Middle Egypt 117 5 3,021 407 35 59 3,644
Upper Egypt 104 24 3,251 337 22 296 4,034
TOTAL 2,996 212 46,413 10,552 438 3,478 64,089
Note: *Other retail outlets do not include coffee shops, nut shops, and haberdashery shops; convenience stores, kiosks, and gas
stations sell candies, snacks, juices and soft drinks
Source: US department of agriculture (2000), Egypt: Retail food sector report (2000)
Table VII
Retailer name Ownership
Sales
($Mil/Avg)
No. of
outlets Locations
Sainsbury Joint venture $100 111 Cairo & Alexandria
Ragab sons Local $45 10 Cairo & Alexandria
Fathalla Local $22 7 Cairo & Alexandria
Zahran Local $14 5 Alexandria
Alfa Local $7 3 Alexandria
VOL. 4 NO. 8 2014 EMERALD EMERGING MARKETS CASE STUDIES PAGE 5
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Sainsbury’s was not totally unfamiliar with Egypt; the company had already imported
Egyptian products to the UK. Through the use of expatriates, Sainsbury’s believed it
could transfer its key retail skills to its Egyptian stores. While currently weak, Egypt had
the potential to become competitive in the international supermarket industry.
 Long-term return on investment: Significant returns only after seven or more years.
These investments were perceived as “seedcorn” investments in countries such as
India, China or Central Africa.
In 1999, Sainsbury’s decided to enter the Egyptian market. The decision was consistent
with the company’s continuous search for growth opportunities outside the UK and US
markets. The Egyptian market was attractive because of the size of the potential market,
high consumption patterns for consumer goods, the excellent performance of consumer
goods multinationals in Egypt over the past 10 years, the quality of the workforce, favorable
investment conditions and good relations between the Egyptian and British Governments.
The Egyptian market, with its diversified demographics in terms of economic and social
classes, together with its large and growing population, was very attractive. Egypt was also
viewed as a stepping stone for further expansions into the Middle East region.
Sainsbury’s international organizational structure was purely functional. This model was
characterized by tight simple controls, with key strategic decisions made at headquarters.
Sainsbury’s Egypt reported to the company’s top management team headquartered in the
UK. Headquarters tightly controlled the business both from overseas and through their
staffing strategies. In Egypt, Sainsbury’s used expatriates. The Egyptian subsidiary was run
by 64 expatriates who held senior management-level and other operational positions. The
company expected these expatriates to transfer their knowledge, expertise and systems,
and then later hand over the operations to the Egyptian staff.
Sainsbury’s experiences in the USA were thought to provide some insights into its new
market penetration. The recent acquisition of Star Markets helped Sainsbury’s to build
scale economies in the USA with its existing Shaw’s supermarkets. Additionally, while
achieving a high level of value, Star Markets applied its core skills in its own label
development, supply chain management and distribution systems integration. Star Markets
skill sets, upscale brand position, locations, customer-tailored product offerings and strong
food court operations and formats fit well with Sainsbury’s existing US operations and
positioned Shaw’s Supermarkets for further expansion in the USA. However, a total
integration between its UK and USA businesses had not been fully realized prior to the
rollout in Egypt.
Sainsbury’s international operations had previously been restricted to the USA, so it was a
challenge to apply what was learned in America to Egypt. Sainsbury’s management
believed that its “[s]uccess in the USA is not the limit of our international ambitions and our
firmly established world-class retailing skills will drive expansion into other regions”
(J Sainsbury’s plc Annual Report and Accounts, 1999, p. 4). Sainsbury’s standardization
processes went beyond utilizing global efficiency; it had standardized processes and
procedures for most activities. However, standardization was not for the purpose of scale
or scope economies, but rather based on the belief that what worked in the UK and USA
markets, would work just as well in the Egyptian market.
Entry mode
The Edge retail group was established by the El Nasharty Group in 1997 and listed on the
Cairo Stock Exchange in October 1998. Its Egyptian owners wanted to expand the Edge
chain by adopting international business standards and attracting foreign investors to fund
these expansions. As part of its plans, the Edge group sought an international retail chain
as a partner. The Edge Group was attractive: it operated nearly 100 stores in Cairo, had
strong links to the Egyptian Government (it contract managed 50 government stores), had
an extensive distribution network and had a strong management. One disadvantage was
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Edge’s relatively weak brand name. In March 1999, the Edge group reached an agreement
with J Sainsbury’s plc to form a joint venture. Sainsbury’s initially acquired a 25.1 per cent
share of Edge. Prior to 1999, Sainsbury’s had not launched a venture outside the UK or
USA, and the Sainsbury’s name was not widely known to the Egyptian public. The first
Sainsbury’s branded stores opened in September 1999, adopting a “neighborhood store”
concept of convenience and value.
David Rowe, chief executive of Sainsbury’s Egypt, outlined Sainsbury’s strategy as seeking
to appeal to different social groups, having spent many months examining customer needs
through focus groups. What Sainsbury’s Egypt discovered was that Egyptian customers
wanted greater competition over prices. Rowe stressed that “in the UK, Sainsbury’s is a
mass market retailer, and we will be in Egypt too.” According to Abdel-Razek (1999) in the
Al-Ahram Weekly:
With Sainsbury’s determined to compete on price, the lower end of the market could well be
facing its own shake-up. And given the government’s plans to privatize up to half of the seven
public sector and retail companies by the middle of next year, there is always the possibility that
other multi-nationals will be seeking to make inroads into the local retail market.
Initially, all new store openings experienced strong sales. Based on these initial successes,
Sainsbury’s decided to increase its ownership of the joint venture to 80.1 per cent. In
January 2000, Sainsbury’s opened its first “food, family and home” store, which was much
larger than the neighborhood store, and focused on quality and choice. Sainsbury’s debut
in Egypt had looked promising. Crowds of shoppers filled its first warehouse-sized blue and
orange store on the Pyramids Road. Rowe stated that the $150 million Egypt operation was
well ahead of expectations. Rowe believed that Egypt’s retail market was so fragmented
that Sainsbury’s lacked any real competitors.
Sainsbury’s staffing
Sainsbury’s transferred 64 expatriates from its headquarters to launch the supermarket
business in Egypt. These expatriates were the core of the Egyptian subsidiary. Generous fringe
benefits were offered to the expatriates to entice them to relocate to Cairo, including family
relocation allowances, luxurious cars and apartments. The cost of the expatriates during this
initial phase was high. Human resource management was a significant issue for Sainsbury’s in
Egypt. One of the main tasks of the expatriate team was to develop and train the personnel
required to run the stores. Initially, the recruitment of locals went smoothly. The company
targeted new graduates and professionals with limited experience to tailor the new hires to fit
Sainsbury’s strategy and culture. Labor costs turned out to be higher than originally forecast,
due to low productivity. Sainsbury’s initial assumptions for labor costs/revenues were never
met. Local regulations exacerbated the labor costs. For example, Sainsbury’s was guilty of
failing to secure the proper work permits for laborers at one store in Cairo, so the employees
were on the payroll but without a place to work.
Extensive training of local staffers over a short time period did not provide them with
adequate time to digest and adapt to the new techniques and standards required by
Sainsbury’s. Sainsbury’s culture did not get passed on to all Egyptian employees. Not every
employee bought into the mission, and employees often lacked direction. This was
especially true at lower levels where employees perceived Sainsbury’s as a foreign partner
whose strategy was to extract profits from Egypt. Moreover, Sainsbury’s store managers
did not listen to their local employees, who made suggestions. The outcome was often a
low level of employee loyalty that led to high levels of shrinkage. Problems were not
restricted to employees. Problems also arose when activities were outsourced, and often
the performance of these outsourced activities did not meet Sainsbury’s expectations.
For Sainsbury’s, developing processes that reflected the Egyptian market was a risk not
undertaken in the first year of operations. For instance, a driver in Egypt who would normally
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earn £.E.500 was earning £.E.2,000 because the compensation and benefits scheme was
standardized worldwide and was not adjusted for local circumstances.
Sainsbury’s marketing
Shifting consumers’ buying habits to supermarkets was a major challenge. Sainsbury’s was
extremely successful in removing the fears of many consumers. Sainsbury’s tackled the
problem through store designs tailored to match its target customers. The designs
concentrated on simplicity, moderate illumination and basic graphics configurations, all of
which encouraged people to go to the stores. One of the challenges faced by the meat
departments was overcoming the perception that the meat was not fresh; display
adjustments and different product positionings were helpful in overcoming this problem.
Just as these perception problems were addressed, the fear of mad cow disease led to
almost zero demand for beef products.
The complete range of products sold by Sainsbury’s Egypt included 10,000 items, but store
location determined what was stocked. Continuous modifications were made in response
to sales reports and the sales figures for different items. For example, contrary to initial
assumptions, it was discovered that higher-quality meats with their higher prices were
actually more appealing in lower-income areas. Beverages in cans had unexpected high
turnover because teenagers in some lower-income neighborhoods would buy them
although they cost more than bottled beverages. These purchases were seen as a sort of
social differentiation among friends. Initially, Sainsbury’s expected to import a wide range
of its products from the UK. However, high customs duties jeopardized this strategy.
Further, problems with customs officials often meant only non-perishable items could be
imported.
Sainsbury’s made use of its brand name in the Egyptian market, where it branded its own
fresh bread and fresh juices and distributed other Sainsbury’s branded products. In Egypt,
people started going to Sainsbury’s supermarkets to obtain Sainsbury’s products, and,
while in the stores, they started shopping longer and bought more. Sainsbury’s branded
products were promoted in Egypt just as they were in the UK. Sainsbury’s brands proved
to be very popular in Egypt, especially the freshly squeezed fruit juices.
Sainsbury’s main distribution channels were through large stores located in key areas; it
focused on big stores located in highly populated areas where potential customers had
medium purchasing power. Sainsbury’s tried to appeal to a wide-based market. The initial
stores were in areas where price was the main driver (C-class areas). Areas with more
affluent consumers (A-class stores) were exploited later. The performance of A-class stores
did not meet forecasts because Sainsbury’s was not well received by sophisticated
consumers, who perceived Sainsbury’s stores as cheap and not offering quality products.
The A-class stores’ images were adversely affected by inconsistent marketing messages
generated by this dual marketing approach. Although all A-class stores replaced older,
existing stores located at key locations with high traffic, these stores failed to attract the
affluent customer and, consequently, reported poor performance. The wider-based target
market, which was usually served by local stores, also caused some of the resentment by
the public and opposition by competitors.
Sainsbury’s offered the best prices in the market. A number of techniques were used to
reduce costs and improve margins. Sainsbury’s attracted consumers by identifying 130
Key Value Items (KVIs). Sainsbury’s KVIs generally had profit margins that were quite low,
and Sainsbury’s used the KVIs to project its image as a low priced vendor. The KVIs were
products that generated traffic when competitively priced. The KVIs were usually the items
that gave consumers a feeling about the whole store, i.e. whether the store was inexpensive
and prices were reasonable. Based on the KVIs, many consumers decided that
Sainsbury’s was the best store for their needs. The KVIs were very competitively priced,
often being cheaper than other stores. This technique targeted the entire purchase made
PAGE 8 EMERALD EMERGING MARKETS CASE STUDIES VOL. 4 NO. 8 2014
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by the consumer, both KVIs and other regularly priced items. The KVI strategy succeeded
in attracting many customers and the average expenditure reached £E.50, considerably
higher than other competitors’ averages of £E.28. The success of the strategy was more
obvious in specific stores, especially those located in C-class areas, where sales records
were achieved for a limited time. One of the most successful stores had daily sales of over
£E.500,000, unprecedented in the Egyptian market.
Exclusive supply arrangements with producers were a strategy used for groceries, poultry
and meats. The procurement department would buy all of the production of reliable
suppliers, which enabled Sainsbury’s to secure lower costs. In addition, after its first quarter
of operation Sainsbury’s began to offer private label products produced for it by Egyptian
manufacturers. Similarly, Sainsbury’s contracted to buy a complete production run for a
specific time period and have it packaged with its brand name. This approach was used
successfully for products such as detergents, soap, and macaroni.
Sainsbury’s promotion techniques did not include television advertising, only newsprint.
This allowed the company to control promotional costs and to match product offerings to
target customers. Sainsbury’s was a market leader in making promotional product offers.
Sainsbury’s made special offers by bundling products, with supplier support and
cooperation. Less appealing products were often bundled with key selling items in special
promotions. This bundling enhanced Sainsbury’s buying power with its suppliers.
Sainsbury’s marketing techniques depended greatly on speed of service, timely
replenishment, and comprehensive sales analysis. Speed of service was achieved through
offering items in a convenient visual display, using shelf height and product locations. Meat
products were offered in pre-cut packages in weights usually ordered by the consumers,
thus matching the customer’s expectation while providing quick service. Given the high
sales turnover, the challenge was to keep items in stock and displayed. This required
stringent controls on the reordering process, including inventory control systems and point
of purchase registers. A basic requirement of these systems was the bar coding of all items
sold throughout the stores. However, in the Egyptian market, bar coding was not required
of suppliers. Sainsbury’s was able to impose bar-coding requirements on some suppliers.
Until a bar-coding requirement was fully implemented, each store had to use bar-coded
stickers. The stickers were placed on items by hand, which was quite costly in terms of both
materials and labor. Moreover, the cashiers often found items with missing bar codes, yet
they sold the items by using the bar code of any other item that had the same price, which
led to inventory control problems. Marketing analysis reports were developed from the
automated sales systems, and these reports were used to make marketing decisions about
which items should be bundled, the pricing of products to maximize profit, and the
reordering of profitable products. However, the inaccuracies of the inventory control
systems jeopardized the effective use of these reports.
Other issues
When Sainsbury’s moved into Egypt, it had hopes of earning huge profits as the first
company to introduce wide-scale Western supermarket techniques into Egypt’s
40-year-old socialist retail scene. However, the competitive tactics adopted by Sainsbury’s
created problems. Sainsbury’s strategy of discounts, mass marketing and weekly sales
had not endeared itself to Egyptians whose shopping habits were formed under the Nasser
era and had not changed much. Sainsbury’s low price strategy had very negative effects
on price stability in the Egyptian market. The pricing of some KVIs under cost led to
accusations of dumping and attempts to monopolize. This created yet another challenge
for Sainsbury’s, the formation of “Misriyitna” (“Our Egypt”), a cartel of large Egyptian
merchandisers. The cartel was able to purchase products at prices comparable to
Sainsbury’s and consequently matched many of Sainsbury’s retail prices. There were also
media denunciations of Sainsbury’s competitive pricing policies. As a result, Sainsbury’s
was forced to abandon its loss leader policy.
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Politically, the Palestinian Intifada in September 2000 led to a boycott of products made by
American and English suppliers. (Procter & Gamble had similarly been the subject of
boycotts, when its flagship Ariel laundry soap, produced in Egypt, came under fire by
anti-Israeli protesters. Ariel laundry soap was targeted because of a perceived connection
with Ariel Sharon, the Israeli Prime Minister). Angry local competitors persuaded Egyptians
to boycott Sainsbury’s. M Ali Ibrahim, editor of the Egyptian Mail, reported that:
[. . .] beleaguered shopkeepers who ran businesses near Sainsbury’s [. . .] asked local
preachers to help them. The imams obliged. Worshippers were told that if they bought from the
store they would “suffer on the day of judgment.”
Some Muslim clerics issued edicts (fatwas) against shopping at Sainsbury’s. Many
Egyptian students took to the streets to vent their anger at Sainsbury’s, spurred by the
widespread belief that Sainsbury’s was a Jewish-owned supporter of Israel. Chief executive
Peter Davis was quoted as saying:
[. . .] a few trouble makers in the region said all the profits from our stores were going straight
to Israel – depite the fact that the stores were not even profitable.
Stone-throwing protests were waged outside stores. These students damaged Sainsbury’s
stores and wounded some of Sainsbury’s 3,000 Egyptian employees. A large segment of
Egyptian consumers decided to purchase their groceries from their traditional stores even
at higher prices.
When many people were speaking out on the boycott of Sainsbury’s, Egyptian President
Hosni Mubarak tried to persuade citizens to still shop there. President Mubarak expressed
that he understood why Egyptians were boycotting Jewish products and assured them that
Sainsbury’s was not a Jewish supporter (Smucker, 2000). As a dimension of its marketing
efforts, Sainsbury’s had anticipated that the Egyptian Government would support its
beneficial economic activities. From the outset, however, the Egyptian Government was not
proactive in helping Sainsbury’s to deal with chronic bureaucratic problems such as
clearing goods through customs and licensing its products, or in stamping out the
campaign against Sainsbury’s orchestrated by local competitors. The Egyptian
government, worried about losing foreign investment, took some action by putting out a
message in government newspapers that the boycotts were actually hurting the Egyptians
who own franchises and work there.
Sainsbury’s future in Egypt
So, it is against a background of great market potential, rising competition and operational
adjustments in Egypt and shrinking market share in his home market that Sir Peter Davis
must chose among the three strategic options he outlined for Sainsbury’s in Egypt:
1. scale down its operation;
2. find new local partners; or
3. sell the business entirely.
Pressure was significant to sell the Egyptian holdings. But, he wondered, would this be the
best decision for the company?
* The annual reports for J Sainsbury’s Plc can be found on the company’s website under
reports by year or in the report archives.
References
Abdel-Razek, S. (1999), “Sainsbury’s shopping spree”, Al-Ahram Weekly On-line, 11-17 November,
p. 455.
Keywords:
International strategy,
Global expansion
PAGE 10 EMERALD EMERGING MARKETS CASE STUDIES VOL. 4 NO. 8 2014
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J Sainsbury’s Plc Annual Report (1999), available at: www.j-Sainsbury’s.co.uk/files/reports/ar1999/
arep99.pdf *
Segal-Horn, S. (2002), “Global firms – heroes or villains? How and why companies globalise”,
European Business Journal, Vol. 14 No. 1, pp. 8-19.
Smucker, P. (2000), “Boycott ‘forcing Sainsbury’s to sell up in Egypt”, Telegraph Newspaper, 27
December, available at: www.telegraph.co.uk/news/main.jhtml?xml/news/2000/12/27/wsain27.xml
(accessed 22 November 2006).
Further reading
Abdi, A. and El Masry, M. (2000), “Egypt retail food sector report 2000”, GAIN Report No. EG0034,
available at: www.fas.usda.gov/scriptsw/AttacheRep/attache_lout.asp
Anonymous (2001), “Debacle on the Nile”, Country Monitor, Vol. 9 No. 4, p. 5.
Bowers, S. (2001), “Protests for Sainsbury our of Egypt with £125m loss”, The Guardian, 10 April.
Business Middle East (2000), “Egyptian retailing: gaining an edge”, Business Middle East, 16 January.
Business Today Egypt (2001), “Learning to love FDI”, Business Today Egypt, 1 April.
Business Today Egypt (2001a), “Playing the Sainsbury’s blame game”, Business Today Egypt,
1 May.
Business Today Egypt (2001b), “The long kiss goodbye”, Business Today Egypt, 1 May.
Economist (2000), “Cairene shoppers’ intifada”, Economist, Vol. 357 No. 8195, p. 50.
Eltahawy, M. (2000), “Pyramid selling”, The Guardian, 12 April.
Eurofood (2000), “Chain of helm at Sainsbury’s – J Sainsbury’s PLC”, Eurofood, 20 January, available
at: http://findarticles.com/p/articles/mi_m0DQA/is_2000_Jan_20
Executive Briefing: Egypt (2005), “Economist intelligence unit”, available at: http://eb.eiu.com/index.
asp?layoutoneclick&country_id1640000164
Giant British Supermarket forced out of Egypt (2001), available at: www.islamonline.net/english/news/
2001-04/10/article5.shtml#top (accessed 24 November 2006).
J Sainsbury’s Plc Annual Report (2000), available at: www.j-Sainsbury’s.co.uk/files/reports/ar2000/ar
2000report.pdf *.
J Sainsbury’s Plc Annual Report (2001), available at: www.j-Sainsbury’s.co.uk/files/reports/ar2001/
report_2001.pdf *
J Sainsbury’s Plc company website, available at: www.j-Sainsbury’s.co.uk
Kapner, S. (2001), “Grocer ends Egypt expansion to rebuild its British market”, New York Times,
10 April.
MM Planet Retail (2002), “The top 30 grocery retailers 2002”, available at: www.planetretail.net
Orme, W.A. Jr (2001), “A grocer amid mideast outrage: Sainsbury’s becomes target of rumors and
Israel boycott”, New York Times, 25 January.
Owen, T. (2001), “Regional retail: supermarkets vs the souq”, Middle East, Vol. 311, pp. 38-39.
Postlewaite, S. (2001a), “How a fatwa altered Sainsbury’s strategy”, Ad Age Global, Vol. 7 No. 1.
Postlewaite, S. (2001b), “Sainsbury’s nixes return to Egypt”, Business Monthly Week, April, available at:
www.amcham.org.eg/Publications/BisinessMonthly/Dec01/Follow%20up%20(SainsY)
Profits down at Sainsbury’s (2001), “BBB news web site”, available at: http://news.bbc.co.uk/2/hi/
business/1358884.stm (accessed 25 November 2006).
Sainsbury’s pulls out of Egypt (2001), “BBC News web site”, available at: http://news.bbc.co.uk/1/hi/
business/1268099.stm (accessed 6 December 2006).
VOL. 4 NO. 8 2014 EMERALD EMERGING MARKETS CASE STUDIES PAGE 11
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Sami, A. (2001), “Supermarket in hysterics”, “Al-Ahram weekly web site”, available at: http://weekly.
ahram.org.eg/2001/530/ec1.htm (accessed 23 November 2006).
Schemm, P. (2001), “Sainsbury’s Egypt retreats at a loss”, Cairo Times, Vol. 5 No. 7, pp. 1-4.
Wahish, N. (2000), “Clearing its shelves?”, Al-Ahram Weekly On-Line, 21-27 December, p. 513.
Corresponding author
Terrence C. Sebora can be contacted at: [email protected]
PAGE 12 EMERALD EMERGING MARKETS CASE STUDIES VOL. 4 NO. 8 2014
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Abstract
Title – Sainsbury’s in Egypt.
Subject area – International Strategy
Study level/applicability – Undergraduate or graduate capstone course in strategy or international
management course.
Case overview – Faced with increased competition at home, Sainsbury’s decided to expand its
international operations by entering Egypt. Sainsbury’s initially created a joint venture with an Egyptian
food retailer, but quickly increased its commitment by opening over 100 stores in Egypt. Sainsbury’s
dream of capturing the Egyptian food market faded as quickly as it was started. Due to declining profits,
Sainsbury’s eliminated its exposure in Egypt by selling its interests to its Egyptian partner. Sainsbury’s
first developing-country venture could be regarded as an object lesson in how not to operate. The
company failed to properly investigate its market and its partners, and showed insensitivity to local
conditions. Moreover, entering the Egyptian consumer business sector may have been ill-advised.
Egypt, with a low gross domestic product (GDP) per head of about $1,300 and a population of 65 million,
while having growth potential, is a daunting market. Why a poor and frequently disorganized country
was perceived as having excellent growth potential was not addressed by Sainsbury’s in its headlong
rush to invest. The case should be interesting for students because it highlights a situation where a firm’s
international expansion efforts failed after the firm had success expanding internationally previously.
Numerous reasons are presented in the case for Sainsbury’s failure. The case highlights the multiplicity
of issues which a company faces when it “goes global.” While Sainsbury’s withdrew from Egypt, the
case affords students the opportunity to evaluate whether they would have made the same decision by
providing a discussion of the alternatives suggested by Sainsbury’s Chairman.
Expected learning outcomes – The Sainsbury’s case is capable of addressing several important
teaching objectives: the case is an appropriate vehicle to demonstrate what can happen to a firm as it
expands globally; students will gain more knowledge concerning why companies expand into foreign
markets and the impact of cross-country differences in market conditions; the case presents the
multifaceted complexities involved in globalization efforts and issues faced by companies concerned
with global competition and global strategy; students should apply the concepts and tools of industry
and competitive analysis; students should gain a better understand how to manage globally; students
should gain an understanding of the challenges of globalization and global competition; students
should gain a better understanding of the evolution of strategy as industry conditions change and new
opportunities arise. As with any case study, students should learn to translate good analysis into
appropriate recommendations for action.
Supplementary materials – Teaching Notes are available for educators only. Please contact your
library to gain login details or email [email protected] to request teaching notes.
Subject code – CSS 5: International Business
VOL. 4 NO. 8 2014 EMERALD EMERGING MARKETS CASE STUDIES PAGE 27
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This article has been cited by:
1. 2015. Sainsbury’s Egyptian misadventure. Strategic Direction 31:3, 4-6. [Abstract] [Full Text] [PDF]
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