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Emerald Emerging Markets Case Studies
\nSainsbury\u2019s in Egypt
\nTerrence C Sebora Michael Rubach Richard Cantril
\nArticle information:
\nTo cite this document:
\nTerrence C Sebora Michael Rubach Richard Cantril , (2014),”Sainsbury\u2019s in Egypt”, Emerald Emerging Markets Case
\nStudies, Vol. 4 Iss 8 pp. 1 – 27
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\nhttp:\/\/dx.doi.org\/10.1108\/EEMCS-04-2013-0031
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\nClaudio Vignali, (2001),”McDonald\u2019s: \u201cthink global, act local\u201d \u2013 the marketing mix”, British Food Journal, Vol. 103 Iss 2 pp.
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\nAyman El-Amir, Steve Burt, (2008),”Sainsbury’s in Egypt: the strange case of Dr Jekyll and Mr Hyde”, International Journal
\nof Retail & Distribution Management, Vol. 36 Iss 4 pp. 300-322 http:\/\/dx.doi.org\/10.1108\/09590550810862697
\nN\u00fckhet Vardar, (2014),”A global brand in a local market”, Emerald Emerging Markets Case Studies, Vol. 4 Iss 8 pp. 1-11
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\nSainsbury\u2019s in Egypt
\nTerrence C. Sebora, Michael Rubach and Richard Cantril
\nTerrence C. Sebora is an
\nAssociate Professor
\nbased at University of
\nNebraska, Lincoln,
\nNebraska, USA.
\nMichael Rubach is a
\nProfessor based at
\nUniversity of Central
\nArkansas, Conway,
\nArkansas, USA.
\nRichard Cantril is a
\nDirector of special tactics
\nand research, Fiserv,
\nLincoln, Nebraska, USA.
\nIf you lived in Cairo in 1999, the name Sainsbury\u2019s was spoken on every corner. Everyone
\nwas talking about the new grocery store chain that sold its products at prices much lower
\nthan anyone else. Young men and women hung out in front of the stores just to be
\nassociated with the new chain. Consumers who never before would dare to enter a
\nsupermarket went to Sainsbury\u2019s to get their groceries and supplies. Even competitors
\nbought products from Sainsbury\u2019s retail outlets. Sainsbury\u2019s stores were flooded with
\nconsumers, and the cashier lines were always busy.
\nYet, by the end of 2000, speculation in the media had risen concerning Sainsbury\u2019s ability
\nto be profitable in Egypt, and there were rumors about the sustainability of Sainsbury\u2019s
\ninternational strategy. During an interview on BBC Radio 4\u2019s Today program on
\nWednesday, November 22, 2000, Sir Peter Davis, newly elected Chairman of Sainsbury\u2019s,
\nindicated that unrest in the Middle East, delayed store openings, and \u201clicensing difficulties\u201d
\ncontributed to a \u00a310 million loss in Egyptian supermarket operations, in which Sainsbury\u2019s
\nhas invested \u00a3100 million. He noted that, although the Egyptian market may have attractive
\nlonger-term growth opportunities, Sainsbury\u2019s was concerned about its investment in
\nEgypt. Davis outlined Sainsbury\u2019s three strategic options in Egypt: to scale down its
\noperation, to find new local partners or sell the business. Davis noted that there was some
\nquestion of whether Sainsbury\u2019s should have gone into Egypt in the first place.
\nSainsbury\u2019s: an overview
\nIn March 1999, J Sainsbury plc wanted to revolutionize the under-developed Egyptian retail
\nfood industry. It entered the Egyptian market with a vision of expanding rapidly, and during
\n1999, Sainsbury\u2019s opened, on average, one retail outlet every eight days; more than 100
\nstores were opened in less than two years. The Egyptian market had never witnessed such
\nan expansion in any industry. Sainsbury\u2019s phenomenal growth even caused some Egyptian
\ngrocers to go out of business because they were unable to compete with the new
\nsupermarket giant (Figure 1).
\nSainsbury\u2019s was a UK-headquartered multinational corporation (MNC). It was a leading UK
\nand US food retailer, and it also operated in financial services and real estate. The group
\ncomprised Sainsbury\u2019s Supermarkets and Sainsbury\u2019s Bank in the UK and Shaw\u2019s
\nSupermarkets and Star Markets in the USA. Sainsbury\u2019s mission was to be \u201cFirst for Food,\u201d
\noffering outstanding quality and delivering great service, all at a competitive price.
\nSainsbury\u2019s objectives were to meet its customers\u2019 needs effectively and thereby provide
\nshareholders with good, sustainable returns (Table I).
\nThe chain was Britain\u2019s oldest existing major food retailer. Sainsbury\u2019s first supermarket
\nwas established in 1869 by John James and Mary Ann Sainsbury. The founders\u2019 principles
\nand values \u2013 to be the customer\u2019s first choice for food shopping by providing high quality,
\nDisclaimer. This case is written
\nsolely for educational
\npurposes and is not intended
\nto represent successful or
\nunsuccessful managerial
\ndecision making. The author\/s
\nmay have disguised names;
\nfinancial and other
\nrecognizable information to
\nprotect confidentiality.
\nDOI 10.1108\/EEMCS-04-2013-0031 VOL. 4 NO. 8 2014, pp. 1-27, \u00a9 Emerald Group Publishing Limited, ISSN 2045-0621 EMERALD EMERGING MARKETS CASE STUDIES PAGE 1
\nDownloaded by UNIVERSITY OF GREENWICH At 10:23 02 June 2015 (PT)
\nvalue for money, excellent service and attention to detail \u2013 have historically guided its
\nmanagement. A large Sainsbury\u2019s supermarket offered over 23,000 products, 40 per cent
\nof which were Sainsbury\u2019s own brand. In addition to a wide range of quality food and
\ngrocery products, many stores offered bread baked on the premises, delicatessens, fresh
\nmeat and fish counters, pharmacies, coffee shops, restaurants and gasoline or petrol
\nstations. Although it had been decreasing, Sainsbury\u2019s 11.9 per cent market share was the
\nsecond largest among UK retail supermarkets. Its Shaw\u2019s Markets chain with almost 150
\nstores was number two in its US market, the New England states. In fact, Sainsbury\u2019s was
\nthe 14th largest grocery retailer in the world (Table II).
\nSainsbury\u2019s management believed that the company had a loyal customer base in the UK,
\nwhich trusted the Sainsbury\u2019s brand and valued the range of services that the company
\noffered. Management believed that the strength of the Sainsbury\u2019s brand was transferable
\nto new markets and that new markets might offset the erosion of market share in the UK.
\nThe operating companies shared similar brand values: excellent quality, range, service and
\nvalue. Sainsbury\u2019s had previously leveraged its brand name successfully within the UK, for
\nexample, Sainsbury\u2019s Bank coupled the trusted quality of J Sainsbury\u2019s plc with the Bank
\nof Scotland\u2019s experience and infrastructure. The Sainsbury\u2019s Bank had expanded its
\nfinancial services by establishing an extensive range of products and services, all under
\nthe Sainsbury\u2019s banner.
\nFigure 1
\nTable I Sainsbury\u2019s group profit and loss account (in \u00a3m)
\n2001 2000 1999
\nSales (excluding VAT and sales tax) 17,244 17,414 16,433
\nCost of sales (16,082) (15,201) (15,116)
\nGross profit 1,162 1,070 1,317
\nTotal administrative expenses (629) (542) (481)
\nOperating profit 533 528 836
\nProfit on disposal of properties 21 53 107
\nImpairment of Egyptian business (111) \u2013 \u2013
\nProfit on ordinary activities before interest 510 581 943
\nNet interest payable (76) (72) (55)
\nProfit before tax 434 509 888
\nTaxes (168) (162) (292)
\nEquity interest (4) 2 2
\nProfit for year 266 349 598
\nDividends (274) (274) (294)
\nRetained profit (12) 75 304
\nEarnings per share 13.8p 18.3p 31.4p
\nDiluted earnings per share 13.7p 18.2p 31.1p
\nPAGE 2 EMERALD EMERGING MARKETS CASE STUDIES VOL. 4 NO. 8 2014
\nDownloaded by UNIVERSITY OF GREENWICH At 10:23 02 June 2015 (PT)
\nIn January of 2000, Sainsbury\u2019s released its chief executive officer (CEO), Dino Adriano, the
\nfirst non-family member to run the company. Adriano was criticized for a lack of vision and
\nstrong leadership skills. Sir Peter Davis was appointed CEO in hopes of reversing the
\nsluggish growth of its core supermarket business and to stop the losses in market share to
\nTesco, the UK market leader.
\nEgyptian retail food industry
\nThe Egyptian market offered considerable potential: 65 million people lived in a very
\nconcentrated area. There was a sizeable, yet largely unexploited domestic food market,
\nwhere supermarkets claimed only a 5 per cent share. Relatively, Egyptians spent more than
\nthree times as much of their incomes on food than UK consumers. Over 12 million of
\nEgypt\u2019s 69 million people could afford to purchase imported food products. Western
\nproducts and new products had wide appeal among Egyptian consumers (Table III).
\nIn Egypt, a supermarket that sold groceries, meats and poultry was still quite unusual in the
\n1990s. People were accustomed to using traditional channels: specialized small grocery
\nstores, butcher shops and bakeries located close to their residences where they negotiated
\nthe price with sellers whom they knew personally. The typical Egyptian consumer bought
\nmeat from a butcher shop and fresh vegetables and fruits from open markets. Prior to the
\nentry of foreign retailers, Egyptian consumers rarely went to supermarkets. However, this
\nbegan to change. This was especially true for more affluent Egyptians who purchased
\nmuch of their food from supermarkets. Historically, supermarkets had been located
\nprimarily in Cairo and Alexandria, Egypt\u2019s two largest cities, with populations of over 15 and
\n5 million people, respectively (Table IV).
\nTable II The top 15 Grocery Retailers (2002)
\nGroup Country of origin Dominant store type
\nNet sales
\n(\u20acmillion 2001)
\nGrocery
\nsales (%)
\nDomestic
\nsales (%)
\nForeign
\nsales (%)
\n1) Wal-Mart USA Warehouse 243,281 40 82 18
\n2) Carrefour France Hypermarkets, supermarkets,
\ndiscount stores
\n69,486 70.5 49.4 50.6
\n3) Ahold Netherlands Supermarkets 66,593 92 13.5 86.5
\n4) Kroger USA Supermarkets 55,959 91 100 0
\n5) Metro Germany\/Switzerland Mixed 49,522 49.7 55.6 44.4
\n6) Albertson\u2019s USA Supermarkets 72,781 90 100 0
\n7) Kmart USA Warehouse 38,665 37 100 0
\n8) Safeway USA Supermarkets 38,314 92 89.9 10.1
\n9) Costco USA Warehouse 38,131 41 82 18
\n10) Tesco UK Supermarkets 38,059 90 85 15
\n11) Rewe Germany Mixed 37,540 70.3 79.5 20.5
\n12) Aldi Germany Disc stores 32,400e 84 60.6 39.4
\n13) ITM France Hypermarkets, supermarkets 31,900e 82.4 74.5 25.5
\n14) Sainsbury\u2019s UK Supermarkets 29,743 90 85 15
\n15) Ito-Yokado Japan Mixed 29,624 47 64 36
\nSource: M&M planet retail (2002)
\nTable III Egypt\u2013economic data
\n1998a 1999a 2000a 2001a 2002a 2003b
\nNominal GDP (US$ bn) 84.8 90.5 97.9 90.4 84.1 71.1
\nPopulation (m) 65.2 66.5 67.8 69.1 70.5 71.9
\nGDP per head (US$ at PPP) 3,041 3,246 3,431 3,565 3,658 3,719b
\nPrivate consumption per head (US$) 997 1,021 1,096 985 879 722
\nNumber of households (\u2019000) 13,328 13,653 13,996 14,356b 14,731b 15,127b
\nNotes: aActual; bEconomist intelligence unit estimates
\nSource: economist intelligence unit
\nVOL. 4 NO. 8 2014 EMERALD EMERGING MARKETS CASE STUDIES PAGE 3
\nDownloaded by UNIVERSITY OF GREENWICH At 10:23 02 June 2015 (PT)
\nThe retail market in Egypt is highly stratified. A few small-scale, privately owned operations
\ncompeted for wealthy customers. These groups, comprised three to four branded outlets,
\nstocked imported foodstuffs and generally offered a wide range of services including home
\ndelivery and customer loyalty cards. A second tier of less luxurious stores generally
\ncompeted on price and omitted service. State-owned retailers competed at the lower end
\nof the market.
\nEgyptian consumers had become increasingly aware of quality and variety. Affluent
\nEgyptian consumers expected cleanliness, product range, ease of service and a
\nresponsive staff. Consumption of prepared foods increased dramatically in the 1990s due,
\nin part, to the growing numbers of working women who demanded ready-made meals and
\neasy-to-cook foods (Table V).
\nOut of a total population of 69 million, only six million people had bank accounts and less than
\nhalf a million carried out more than two banking transactions a year. The credit card market
\ngrew quickly in the 1990s \u2013 from 200,000 cards in 1990 to 450,000 in 1999. However, it was still
\nmuch smaller than either Morocco or Lebanon. Meanwhile, there are no mortgages, private
\npensions, consumer loans or life insurance policies in this Moslem country.
\nTable V Food expenditures in Egypt
\nConsumer expenditure 1998a 1999a 2000a 2001a 2002a 2003a
\nFood, beverages and tobacco (US$ m) 28,361 27,702 30,039 27,288 25,266 21,333
\nFood, beverages and tobacco (% of household spending) 43.6 40.8 40.4 40.1 40.8 41.1
\nFood
\nMeat consumption (kg per head) 20.9 21.3 22.2 19.4 20 20
\nFish consumption (kg per head) 11.7 13 13.9 14.4 13.6 14.5
\nFruit consumption (kg per head) 81.8 88.3 88.6 89.6 93 90.5
\nVegetable consumption (kg per head) 163.1 180.1 190.4 172.5 174.8 182.3
\nConfectionery, sales volume (\u2019000 tonnes) 76 78 80 82 84 85
\nBeverage
\nMilk consumption (ml) 46.6 50 49.4 50.7 52.4 62.1
\nCoffee consumption (kg per head) 0.1 0.1 0.1 0.1 0.1 0.1
\nTea consumption (kg per head) 1.00 1.02 0.9 0.9 0.8 0.7
\nAlcoholic drinks, sales volume (ml) 34 50 67 80 84 84
\nSoft drinks, sales volume (ml) 961 1,015 1,075 1,166 1,206 1,232
\nTobacco
\nCigarettes, sales volume (m units) 57,600 59,100 60,800 62,600 63,435 64,271
\nNotes: aEgypt Retail Food Sector Report 2000, GAIN Report #EG0034. http:\/\/apps.fas.usda.gov\/gainfiles\/200011\/60678872.pdf
\nSource: Economist intelligence unit
\nTable IV Food affordability in Egypt
\nItem Price (US$)
\n% monthly
\ndisposable income
\nAffordability
\nrank
\nWhite bread, 1 kg (supermarket) 1.05 2.06 45 out of 52
\nSugar, white, 1 kg (supermarket) 0.40 0.78 43 out of 53
\nMilk, pasteurized, 1 l (supermarket) 0.49 0.95 43 out of 52
\nInstant coffee, 125 g (supermarket) 2.25 4.41 45 out of 53
\nWine, common table, 750 ml
\n(supermarket) 4.61 9.04 42 out of 51
\nCigarettes, Marlboro, pack of 20
\n(supermarket) 1.21 2.38 46 out of 53
\nNote: Affordability rank: for each country the price of an item as a percentage of monthly personal
\ndisposable income is calculated; countries are ranked according to these percentages; the most
\naffordable country will have the lowest percentage and be ranked first
\nPAGE 4 EMERALD EMERGING MARKETS CASE STUDIES VOL. 4 NO. 8 2014
\nDownloaded by UNIVERSITY OF GREENWICH At 10:23 02 June 2015 (PT)
\nThe USA, France, Germany, Italy, Switzerland, Greece, Holland, Denmark and South Africa
\nwere the predominant suppliers of consumer-ready food products in Egypt. Multinational
\nfirms started to invest in Egypt, especially the French firm, Carrefours; the German firm,
\nMetro; and the South African firm, Shoprite. With the expansion of supermarkets through
\ninternational partnerships, it was likely that international companies and hypermarkets
\nwould soon dominate the Egyptian retail food business. Metro developed the \u201cMetro
\nExpress\u201d in Cairo and Alexandria, outlets half the size (250 m2) with a quarter of the product
\nline (3,000 items) of its regular Metro stores. A Metro Express did not carry fresh meat,
\nvegetables or fruits. The new stores were located in middle-income, residential
\nneighborhoods in Cairo and Alexandria. Carrefours sought to expand in Egypt, and
\nintended to open its first hypermarket after 2000. Majid Al Futaim of Dubai, the Middle East
\nfranchisee for the French Carrefour hypermarket chain, had announced that it will open 15
\nstores in Egypt over the next 15 years (Tables VI and VII).
\nEntry to Egypt
\nJ Sainsbury\u2019s plc foresaw a need to consider additional growth opportunities outside its
\ndomestic markets. The specter of Wal-Mart entering the UK market motivated Sainsbury\u2019s
\nto increase its worldwide volume to cover the anticipated loss of UK market share.
\nMoreover, its top managers believed that Sainsbury\u2019s needed to become a global retailer
\nto compete in the twenty-first century and to leverage potential global sourcing
\nopportunities. The top management team saw three opportunities for international
\nexpansion:
\n Short-term return on investment: Largely available in more developed markets such as
\nNorth America, Western Europe and Australia.
\n Medium-term return on investment: Emerging markets where investment returns were
\nexpected within four to seven years. While growing and offering less competition,
\nemerging markets generally lacked necessary infrastructures. Egypt was perceived as
\nsuch an investment opportunity; the Egyptian population and economy were project ( help with nursing paper writing from experts with MSN & DNP degrees)ed
\nto grow faster than many European countries, and the Egyptian domestic food market
\nwas already greater than that of The Netherlands or Belgium. For Sainsbury\u2019s, Egypt
\nrepresented a relatively stable country in terms of political and economic risk.
\nTable VI Number of retail food outlets and Sainsbury\u2019s major competitors (1999)
\nWholesalers Supermarkets Groceries Kiosks Gas stations Other retail outlets* Total
\nCairo 1,575 143 22,410 4,506 194 2,186 31,014
\nAlexandria 450 25 7,753 2327 110 487 11,152
\nDelta region 750 15 9,978 2975 77 450 14,245
\nMiddle Egypt 117 5 3,021 407 35 59 3,644
\nUpper Egypt 104 24 3,251 337 22 296 4,034
\nTOTAL 2,996 212 46,413 10,552 438 3,478 64,089
\nNote: *Other retail outlets do not include coffee shops, nut shops, and haberdashery shops; convenience stores, kiosks, and gas
\nstations sell candies, snacks, juices and soft drinks
\nSource: US department of agriculture (2000), Egypt: Retail food sector report (2000)
\nTable VII
\nRetailer name Ownership
\nSales
\n($Mil\/Avg)
\nNo. of
\noutlets Locations
\nSainsbury Joint venture $100 111 Cairo & Alexandria
\nRagab sons Local $45 10 Cairo & Alexandria
\nFathalla Local $22 7 Cairo & Alexandria
\nZahran Local $14 5 Alexandria
\nAlfa Local $7 3 Alexandria
\nVOL. 4 NO. 8 2014 EMERALD EMERGING MARKETS CASE STUDIES PAGE 5
\nDownloaded by UNIVERSITY OF GREENWICH At 10:23 02 June 2015 (PT)
\nSainsbury\u2019s was not totally unfamiliar with Egypt; the company had already imported
\nEgyptian products to the UK. Through the use of expatriates, Sainsbury\u2019s believed it
\ncould transfer its key retail skills to its Egyptian stores. While currently weak, Egypt had
\nthe potential to become competitive in the international supermarket industry.
\n Long-term return on investment: Significant returns only after seven or more years.
\nThese investments were perceived as \u201cseedcorn\u201d investments in countries such as
\nIndia, China or Central Africa.
\nIn 1999, Sainsbury\u2019s decided to enter the Egyptian market. The decision was consistent
\nwith the company\u2019s continuous search for growth opportunities outside the UK and US
\nmarkets. The Egyptian market was attractive because of the size of the potential market,
\nhigh consumption patterns for consumer goods, the excellent performance of consumer
\ngoods multinationals in Egypt over the past 10 years, the quality of the workforce, favorable
\ninvestment conditions and good relations between the Egyptian and British Governments.
\nThe Egyptian market, with its diversified demographics in terms of economic and social
\nclasses, together with its large and growing population, was very attractive. Egypt was also
\nviewed as a stepping stone for further expansions into the Middle East region.
\nSainsbury\u2019s international organizational structure was purely functional. This model was
\ncharacterized by tight simple controls, with key strategic decisions made at headquarters.
\nSainsbury\u2019s Egypt reported to the company\u2019s top management team headquartered in the
\nUK. Headquarters tightly controlled the business both from overseas and through their
\nstaffing strategies. In Egypt, Sainsbury\u2019s used expatriates. The Egyptian subsidiary was run
\nby 64 expatriates who held senior management-level and other operational positions. The
\ncompany expected these expatriates to transfer their knowledge, expertise and systems,
\nand then later hand over the operations to the Egyptian staff.
\nSainsbury\u2019s experiences in the USA were thought to provide some insights into its new
\nmarket penetration. The recent acquisition of Star Markets helped Sainsbury\u2019s to build
\nscale economies in the USA with its existing Shaw\u2019s supermarkets. Additionally, while
\nachieving a high level of value, Star Markets applied its core skills in its own label
\ndevelopment, supply chain management and distribution systems integration. Star Markets
\nskill sets, upscale brand position, locations, customer-tailored product offerings and strong
\nfood court operations and formats fit well with Sainsbury\u2019s existing US operations and
\npositioned Shaw\u2019s Supermarkets for further expansion in the USA. However, a total
\nintegration between its UK and USA businesses had not been fully realized prior to the
\nrollout in Egypt.
\nSainsbury\u2019s international operations had previously been restricted to the USA, so it was a
\nchallenge to apply what was learned in America to Egypt. Sainsbury\u2019s management
\nbelieved that its \u201c[s]uccess in the USA is not the limit of our international ambitions and our
\nfirmly established world-class retailing skills will drive expansion into other regions\u201d
\n(J Sainsbury\u2019s plc Annual Report and Accounts, 1999, p. 4). Sainsbury\u2019s standardization
\nprocesses went beyond utilizing global efficiency; it had standardized processes and
\nprocedures for most activities. However, standardization was not for the purpose of scale
\nor scope economies, but rather based on the belief that what worked in the UK and USA
\nmarkets, would work just as well in the Egyptian market.
\nEntry mode
\nThe Edge retail group was established by the El Nasharty Group in 1997 and listed on the
\nCairo Stock Exchange in October 1998. Its Egyptian owners wanted to expand the Edge
\nchain by adopting international business standards and attracting foreign investors to fund
\nthese expansions. As part of its plans, the Edge group sought an international retail chain
\nas a partner. The Edge Group was attractive: it operated nearly 100 stores in Cairo, had
\nstrong links to the Egyptian Government (it contract managed 50 government stores), had
\nan extensive distribution network and had a strong management. One disadvantage was
\nPAGE 6 EMERALD EMERGING MARKETS CASE STUDIES VOL. 4 NO. 8 2014
\nDownloaded by UNIVERSITY OF GREENWICH At 10:23 02 June 2015 (PT)
\nEdge\u2019s relatively weak brand name. In March 1999, the Edge group reached an agreement
\nwith J Sainsbury\u2019s plc to form a joint venture. Sainsbury\u2019s initially acquired a 25.1 per cent
\nshare of Edge. Prior to 1999, Sainsbury\u2019s had not launched a venture outside the UK or
\nUSA, and the Sainsbury\u2019s name was not widely known to the Egyptian public. The first
\nSainsbury\u2019s branded stores opened in September 1999, adopting a \u201cneighborhood store\u201d
\nconcept of convenience and value.
\nDavid Rowe, chief executive of Sainsbury\u2019s Egypt, outlined Sainsbury\u2019s strategy as seeking
\nto appeal to different social groups, having spent many months examining customer needs
\nthrough focus groups. What Sainsbury\u2019s Egypt discovered was that Egyptian customers
\nwanted greater competition over prices. Rowe stressed that \u201cin the UK, Sainsbury\u2019s is a
\nmass market retailer, and we will be in Egypt too.\u201d According to Abdel-Razek (1999) in the
\nAl-Ahram Weekly:
\nWith Sainsbury\u2019s determined to compete on price, the lower end of the market could well be
\nfacing its own shake-up. And given the government\u2019s plans to privatize up to half of the seven
\npublic sector and retail companies by the middle of next year, there is always the possibility that
\nother multi-nationals will be seeking to make inroads into the local retail market.
\nInitially, all new store openings experienced strong sales. Based on these initial successes,
\nSainsbury\u2019s decided to increase its ownership of the joint venture to 80.1 per cent. In
\nJanuary 2000, Sainsbury\u2019s opened its first \u201cfood, family and home\u201d store, which was much
\nlarger than the neighborhood store, and focused on quality and choice. Sainsbury\u2019s debut
\nin Egypt had looked promising. Crowds of shoppers filled its first warehouse-sized blue and
\norange store on the Pyramids Road. Rowe stated that the $150 million Egypt operation was
\nwell ahead of expectations. Rowe believed that Egypt\u2019s retail market was so fragmented
\nthat Sainsbury\u2019s lacked any real competitors.
\nSainsbury\u2019s staffing
\nSainsbury\u2019s transferred 64 expatriates from its headquarters to launch the supermarket
\nbusiness in Egypt. These expatriates were the core of the Egyptian subsidiary. Generous fringe
\nbenefits were offered to the expatriates to entice them to relocate to Cairo, including family
\nrelocation allowances, luxurious cars and apartments. The cost of the expatriates during this
\ninitial phase was high. Human resource management was a significant issue for Sainsbury\u2019s in
\nEgypt. One of the main tasks of the expatriate team was to develop and train the personnel
\nrequired to run the stores. Initially, the recruitment of locals went smoothly. The company
\ntargeted new graduates and professionals with limited experience to tailor the new hires to fit
\nSainsbury\u2019s strategy and culture. Labor costs turned out to be higher than originally forecast,
\ndue to low productivity. Sainsbury\u2019s initial assumptions for labor costs\/revenues were never
\nmet. Local regulations exacerbated the labor costs. For example, Sainsbury\u2019s was guilty of
\nfailing to secure the proper work permits for laborers at one store in Cairo, so the employees
\nwere on the payroll but without a place to work.
\nExtensive training of local staffers over a short time period did not provide them with
\nadequate time to digest and adapt to the new techniques and standards required by
\nSainsbury\u2019s. Sainsbury\u2019s culture did not get passed on to all Egyptian employees. Not every
\nemployee bought into the mission, and employees often lacked direction. This was
\nespecially true at lower levels where employees perceived Sainsbury\u2019s as a foreign partner
\nwhose strategy was to extract profits from Egypt. Moreover, Sainsbury\u2019s store managers
\ndid not listen to their local employees, who made suggestions. The outcome was often a
\nlow level of employee loyalty that led to high levels of shrinkage. Problems were not
\nrestricted to employees. Problems also arose when activities were outsourced, and often
\nthe performance of these outsourced activities did not meet Sainsbury\u2019s expectations.
\nFor Sainsbury\u2019s, developing processes that reflected the Egyptian market was a risk not
\nundertaken in the first year of operations. For instance, a driver in Egypt who would normally
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\nearn \u00a3.E.500 was earning \u00a3.E.2,000 because the compensation and benefits scheme was
\nstandardized worldwide and was not adjusted for local circumstances.
\nSainsbury\u2019s marketing
\nShifting consumers\u2019 buying habits to supermarkets was a major challenge. Sainsbury\u2019s was
\nextremely successful in removing the fears of many consumers. Sainsbury\u2019s tackled the
\nproblem through store designs tailored to match its target customers. The designs
\nconcentrated on simplicity, moderate illumination and basic graphics configurations, all of
\nwhich encouraged people to go to the stores. One of the challenges faced by the meat
\ndepartments was overcoming the perception that the meat was not fresh; display
\nadjustments and different product positionings were helpful in overcoming this problem.
\nJust as these perception problems were addressed, the fear of mad cow disease led to
\nalmost zero demand for beef products.
\nThe complete range of products sold by Sainsbury\u2019s Egypt included 10,000 items, but store
\nlocation determined what was stocked. Continuous modifications were made in response
\nto sales reports and the sales figures for different items. For example, contrary to initial
\nassumptions, it was discovered that higher-quality meats with their higher prices were
\nactually more appealing in lower-income areas. Beverages in cans had unexpected high
\nturnover because teenagers in some lower-income neighborhoods would buy them
\nalthough they cost more than bottled beverages. These purchases were seen as a sort of
\nsocial differentiation among friends. Initially, Sainsbury\u2019s expected to import a wide range
\nof its products from the UK. However, high customs duties jeopardized this strategy.
\nFurther, problems with customs officials often meant only non-perishable items could be
\nimported.
\nSainsbury\u2019s made use of its brand name in the Egyptian market, where it branded its own
\nfresh bread and fresh juices and distributed other Sainsbury\u2019s branded products. In Egypt,
\npeople started going to Sainsbury\u2019s supermarkets to obtain Sainsbury\u2019s products, and,
\nwhile in the stores, they started shopping longer and bought more. Sainsbury\u2019s branded
\nproducts were promoted in Egypt just as they were in the UK. Sainsbury\u2019s brands proved
\nto be very popular in Egypt, especially the freshly squeezed fruit juices.
\nSainsbury\u2019s main distribution channels were through large stores located in key areas; it
\nfocused on big stores located in highly populated areas where potential customers had
\nmedium purchasing power. Sainsbury\u2019s tried to appeal to a wide-based market. The initial
\nstores were in areas where price was the main driver (C-class areas). Areas with more
\naffluent consumers (A-class stores) were exploited later. The performance of A-class stores
\ndid not meet forecasts because Sainsbury\u2019s was not well received by sophisticated
\nconsumers, who perceived Sainsbury\u2019s stores as cheap and not offering quality products.
\nThe A-class stores\u2019 images were adversely affected by inconsistent marketing messages
\ngenerated by this dual marketing approach. Although all A-class stores replaced older,
\nexisting stores located at key locations with high traffic, these stores failed to attract the
\naffluent customer and, consequently, reported poor performance. The wider-based target
\nmarket, which was usually served by local stores, also caused some of the resentment by
\nthe public and opposition by competitors.
\nSainsbury\u2019s offered the best prices in the market. A number of techniques were used to
\nreduce costs and improve margins. Sainsbury\u2019s attracted consumers by identifying 130
\nKey Value Items (KVIs). Sainsbury\u2019s KVIs generally had profit margins that were quite low,
\nand Sainsbury\u2019s used the KVIs to project ( help with nursing paper writing from experts with MSN & DNP degrees) its image as a low priced vendor. The KVIs were
\nproducts that generated traffic when competitively priced. The KVIs were usually the items
\nthat gave consumers a feeling about the whole store, i.e. whether the store was inexpensive
\nand prices were reasonable. Based on the KVIs, many consumers decided that
\nSainsbury\u2019s was the best store for their needs. The KVIs were very competitively priced,
\noften being cheaper than other stores. This technique targeted the entire purchase made
\nPAGE 8 EMERALD EMERGING MARKETS CASE STUDIES VOL. 4 NO. 8 2014
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\nby the consumer, both KVIs and other regularly priced items. The KVI strategy succeeded
\nin attracting many customers and the average expenditure reached \u00a3E.50, considerably
\nhigher than other competitors\u2019 averages of \u00a3E.28. The success of the strategy was more
\nobvious in specific stores, especially those located in C-class areas, where sales records
\nwere achieved for a limited time. One of the most successful stores had daily sales of over
\n\u00a3E.500,000, unprecedented in the Egyptian market.
\nExclusive supply arrangements with producers were a strategy used for groceries, poultry
\nand meats. The procurement department would buy all of the production of reliable
\nsuppliers, which enabled Sainsbury\u2019s to secure lower costs. In addition, after its first quarter
\nof operation Sainsbury\u2019s began to offer private label products produced for it by Egyptian
\nmanufacturers. Similarly, Sainsbury\u2019s contracted to buy a complete production run for a
\nspecific time period and have it packaged with its brand name. This approach was used
\nsuccessfully for products such as detergents, soap, and macaroni.
\nSainsbury\u2019s promotion techniques did not include television advertising, only newsprint.
\nThis allowed the company to control promotional costs and to match product offerings to
\ntarget customers. Sainsbury\u2019s was a market leader in making promotional product offers.
\nSainsbury\u2019s made special offers by bundling products, with supplier support and
\ncooperation. Less appealing products were often bundled with key selling items in special
\npromotions. This bundling enhanced Sainsbury\u2019s buying power with its suppliers.
\nSainsbury\u2019s marketing techniques depended greatly on speed of service, timely
\nreplenishment, and comprehensive sales analysis. Speed of service was achieved through
\noffering items in a convenient visual display, using shelf height and product locations. Meat
\nproducts were offered in pre-cut packages in weights usually ordered by the consumers,
\nthus matching the customer\u2019s expectation while providing quick service. Given the high
\nsales turnover, the challenge was to keep items in stock and displayed. This required
\nstringent controls on the reordering process, including inventory control systems and point
\nof purchase registers. A basic requirement of these systems was the bar coding of all items
\nsold throughout the stores. However, in the Egyptian market, bar coding was not required
\nof suppliers. Sainsbury\u2019s was able to impose bar-coding requirements on some suppliers.
\nUntil a bar-coding requirement was fully implemented, each store had to use bar-coded
\nstickers. The stickers were placed on items by hand, which was quite costly in terms of both
\nmaterials and labor. Moreover, the cashiers often found items with missing bar codes, yet
\nthey sold the items by using the bar code of any other item that had the same price, which
\nled to inventory control problems. Marketing analysis reports were developed from the
\nautomated sales systems, and these reports were used to make marketing decisions about
\nwhich items should be bundled, the pricing of products to maximize profit, and the
\nreordering of profitable products. However, the inaccuracies of the inventory control
\nsystems jeopardized the effective use of these reports.
\nOther issues
\nWhen Sainsbury\u2019s moved into Egypt, it had hopes of earning huge profits as the first
\ncompany to introduce wide-scale Western supermarket techniques into Egypt\u2019s
\n40-year-old socialist retail scene. However, the competitive tactics adopted by Sainsbury\u2019s
\ncreated problems. Sainsbury\u2019s strategy of discounts, mass marketing and weekly sales
\nhad not endeared itself to Egyptians whose shopping habits were formed under the Nasser
\nera and had not changed much. Sainsbury\u2019s low price strategy had very negative effects
\non price stability in the Egyptian market. The pricing of some KVIs under cost led to
\naccusations of dumping and attempts to monopolize. This created yet another challenge
\nfor Sainsbury\u2019s, the formation of \u201cMisriyitna\u201d (\u201cOur Egypt\u201d), a cartel of large Egyptian
\nmerchandisers. The cartel was able to purchase products at prices comparable to
\nSainsbury\u2019s and consequently matched many of Sainsbury\u2019s retail prices. There were also
\nmedia denunciations of Sainsbury\u2019s competitive pricing policies. As a result, Sainsbury\u2019s
\nwas forced to abandon its loss leader policy.
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\nPolitically, the Palestinian Intifada in September 2000 led to a boycott of products made by
\nAmerican and English suppliers. (Procter & Gamble had similarly been the subject of
\nboycotts, when its flagship Ariel laundry soap, produced in Egypt, came under fire by
\nanti-Israeli protesters. Ariel laundry soap was targeted because of a perceived connection
\nwith Ariel Sharon, the Israeli Prime Minister). Angry local competitors persuaded Egyptians
\nto boycott Sainsbury\u2019s. M Ali Ibrahim, editor of the Egyptian Mail, reported that:
\n[. . .] beleaguered shopkeepers who ran businesses near Sainsbury\u2019s [. . .] asked local
\npreachers to help them. The imams obliged. Worshippers were told that if they bought from the
\nstore they would \u201csuffer on the day of judgment.\u201d
\nSome Muslim clerics issued edicts (fatwas) against shopping at Sainsbury\u2019s. Many
\nEgyptian students took to the streets to vent their anger at Sainsbury\u2019s, spurred by the
\nwidespread belief that Sainsbury\u2019s was a Jewish-owned supporter of Israel. Chief executive
\nPeter Davis was quoted as saying:
\n[. . .] a few trouble makers in the region said all the profits from our stores were going straight
\nto Israel \u2013 depite the fact that the stores were not even profitable.
\nStone-throwing protests were waged outside stores. These students damaged Sainsbury\u2019s
\nstores and wounded some of Sainsbury\u2019s 3,000 Egyptian employees. A large segment of
\nEgyptian consumers decided to purchase their groceries from their traditional stores even
\nat higher prices.
\nWhen many people were speaking out on the boycott of Sainsbury\u2019s, Egyptian President
\nHosni Mubarak tried to persuade citizens to still shop there. President Mubarak expressed
\nthat he understood why Egyptians were boycotting Jewish products and assured them that
\nSainsbury\u2019s was not a Jewish supporter (Smucker, 2000). As a dimension of its marketing
\nefforts, Sainsbury\u2019s had anticipated that the Egyptian Government would support its
\nbeneficial economic activities. From the outset, however, the Egyptian Government was not
\nproactive in helping Sainsbury\u2019s to deal with chronic bureaucratic problems such as
\nclearing goods through customs and licensing its products, or in stamping out the
\ncampaign against Sainsbury\u2019s orchestrated by local competitors. The Egyptian
\ngovernment, worried about losing foreign investment, took some action by putting out a
\nmessage in government newspapers that the boycotts were actually hurting the Egyptians
\nwho own franchises and work there.
\nSainsbury\u2019s future in Egypt
\nSo, it is against a background of great market potential, rising competition and operational
\nadjustments in Egypt and shrinking market share in his home market that Sir Peter Davis
\nmust chose among the three strategic options he outlined for Sainsbury\u2019s in Egypt:
\n1. scale down its operation;
\n2. find new local partners; or
\n3. sell the business entirely.
\nPressure was significant to sell the Egyptian holdings. But, he wondered, would this be the
\nbest decision for the company
\n* The annual reports for J Sainsbury\u2019s Plc can be found on the company\u2019s website under
\nreports by year or in the report archives.
\nReferences
\nAbdel-Razek, S. (1999), \u201cSainsbury\u2019s shopping spree\u201d, Al-Ahram Weekly On-line, 11-17 November,
\np. 455.
\nKeywords:
\nInternational strategy,
\nGlobal expansion
\nPAGE 10 EMERALD EMERGING MARKETS CASE STUDIES VOL. 4 NO. 8 2014
\nDownloaded by UNIVERSITY OF GREENWICH At 10:23 02 June 2015 (PT)
\nJ Sainsbury\u2019s Plc Annual Report (1999), available at: www.j-Sainsbury\u2019s.co.uk\/files\/reports\/ar1999\/
\narep99.pdf *
\nSegal-Horn, S. (2002), \u201cGlobal firms \u2013 heroes or villains How and why companies globalise\u201d,
\nEuropean Business Journal, Vol. 14 No. 1, pp. 8-19.
\nSmucker, P. (2000), \u201cBoycott \u2018forcing Sainsbury\u2019s to sell up in Egypt\u201d, Telegraph Newspaper, 27
\nDecember, available at: www.telegraph.co.uk\/news\/main.jhtmlxml \/news\/2000\/12\/27\/wsain27.xml
\n(accessed 22 November 2006).
\nFurther reading
\nAbdi, A. and El Masry, M. (2000), \u201cEgypt retail food sector report 2000\u201d, GAIN Report No. EG0034,
\navailable at: www.fas.usda.gov\/scriptsw\/AttacheRep\/attache_lout.asp
\nAnonymous (2001), \u201cDebacle on the Nile\u201d, Country Monitor, Vol. 9 No. 4, p. 5.
\nBowers, S. (2001), \u201cProtests for Sainsbury our of Egypt with \u00a3125m loss\u201d, The Guardian, 10 April.
\nBusiness Middle East (2000), \u201cEgyptian retailing: gaining an edge\u201d, Business Middle East, 16 January.
\nBusiness Today Egypt (2001), \u201cLearning to love FDI\u201d, Business Today Egypt, 1 April.
\nBusiness Today Egypt (2001a), \u201cPlaying the Sainsbury\u2019s blame game\u201d, Business Today Egypt,
\n1 May.
\nBusiness Today Egypt (2001b), \u201cThe long kiss goodbye\u201d, Business Today Egypt, 1 May.
\nEconomist (2000), \u201cCairene shoppers\u2019 intifada\u201d, Economist, Vol. 357 No. 8195, p. 50.
\nEltahawy, M. (2000), \u201cPyramid selling\u201d, The Guardian, 12 April.
\nEurofood (2000), \u201cChain of helm at Sainsbury\u2019s \u2013 J Sainsbury\u2019s PLC\u201d, Eurofood, 20 January, available
\nat: http:\/\/findarticles.com\/p\/articles\/mi_m0DQA\/is_2000_Jan_20
\nExecutive Briefing: Egypt (2005), \u201cEconomist intelligence unit\u201d, available at: http:\/\/eb.eiu.com\/index.
\nasplayout oneclick&country_id 1640000164
\nGiant British Supermarket forced out of Egypt (2001), available at: www.islamonline.net\/english\/news\/
\n2001-04\/10\/article5.shtml#top (accessed 24 November 2006).
\nJ Sainsbury\u2019s Plc Annual Report (2000), available at: www.j-Sainsbury\u2019s.co.uk\/files\/reports\/ar2000\/ar
\n2000report.pdf *.
\nJ Sainsbury\u2019s Plc Annual Report (2001), available at: www.j-Sainsbury\u2019s.co.uk\/files\/reports\/ar2001\/
\nreport_2001.pdf *
\nJ Sainsbury\u2019s Plc company website, available at: www.j-Sainsbury\u2019s.co.uk
\nKapner, S. (2001), \u201cGrocer ends Egypt expansion to rebuild its British market\u201d, New York Times,
\n10 April.
\nM M Planet Retail (2002), \u201cThe top 30 grocery retailers 2002\u201d, available at: www.planetretail.net
\nOrme, W.A. Jr (2001), \u201cA grocer amid mideast outrage: Sainsbury\u2019s becomes target of rumors and
\nIsrael boycott\u201d, New York Times, 25 January.
\nOwen, T. (2001), \u201cRegional retail: supermarkets vs the souq\u201d, Middle East, Vol. 311, pp. 38-39.
\nPostlewaite, S. (2001a), \u201cHow a fatwa altered Sainsbury\u2019s strategy\u201d, Ad Age Global, Vol. 7 No. 1.
\nPostlewaite, S. (2001b), \u201cSainsbury\u2019s nixes return to Egypt\u201d, Business Monthly Week, April, available at:
\nwww.amcham.org.eg\/Publications\/BisinessMonthly\/Dec01\/Follow%20up%20(SainsY)
\nProfits down at Sainsbury\u2019s (2001), \u201cBBB news web site\u201d, available at: http:\/\/news.bbc.co.uk\/2\/hi\/
\nbusiness\/1358884.stm (accessed 25 November 2006).
\nSainsbury\u2019s pulls out of Egypt (2001), \u201cBBC News web site\u201d, available at: http:\/\/news.bbc.co.uk\/1\/hi\/
\nbusiness\/1268099.stm (accessed 6 December 2006).
\nVOL. 4 NO. 8 2014 EMERALD EMERGING MARKETS CASE STUDIES PAGE 11
\nDownloaded by UNIVERSITY OF GREENWICH At 10:23 02 June 2015 (PT)
\nSami, A. (2001), \u201cSupermarket in hysterics\u201d, \u201cAl-Ahram weekly web site\u201d, available at: http:\/\/weekly.
\nahram.org.eg\/2001\/530\/ec1.htm (accessed 23 November 2006).
\nSchemm, P. (2001), \u201cSainsbury\u2019s Egypt retreats at a loss\u201d, Cairo Times, Vol. 5 No. 7, pp. 1-4.
\nWahish, N. (2000), \u201cClearing its shelves\u201d, Al-Ahram Weekly On-Line, 21-27 December, p. 513.
\nCorresponding author
\nTerrence C. Sebora can be contacted at: tsebora@unl.edu
\nPAGE 12 EMERALD EMERGING MARKETS CASE STUDIES VOL. 4 NO. 8 2014
\nDownloaded by UNIVERSITY OF GREENWICH At 10:23 02 June 2015 (PT)
\nAbstract
\nTitle \u2013 Sainsbury\u2019s in Egypt.
\nSubject area \u2013 International Strategy
\nStudy level\/applicability \u2013 Undergraduate or graduate capstone course in strategy or international
\nmanagement course.
\nCase overview \u2013 Faced with increased competition at home, Sainsbury\u2019s decided to expand its
\ninternational operations by entering Egypt. Sainsbury\u2019s initially created a joint venture with an Egyptian
\nfood retailer, but quickly increased its commitment by opening over 100 stores in Egypt. Sainsbury\u2019s
\ndream of capturing the Egyptian food market faded as quickly as it was started. Due to declining profits,
\nSainsbury\u2019s eliminated its exposure in Egypt by selling its interests to its Egyptian partner. Sainsbury\u2019s
\nfirst developing-country venture could be regarded as an object lesson in how not to operate. The
\ncompany failed to properly investigate its market and its partners, and showed insensitivity to local
\nconditions. Moreover, entering the Egyptian consumer business sector may have been ill-advised.
\nEgypt, with a low gross domestic product (GDP) per head of about $1,300 and a population of 65 million,
\nwhile having growth potential, is a daunting market. Why a poor and frequently disorganized country
\nwas perceived as having excellent growth potential was not addressed by Sainsbury\u2019s in its headlong
\nrush to invest. The case should be interesting for students because it highlights a situation where a firm\u2019s
\ninternational expansion efforts failed after the firm had success expanding internationally previously.
\nNumerous reasons are presented in the case for Sainsbury\u2019s failure. The case highlights the multiplicity
\nof issues which a company faces when it \u201cgoes global.\u201d While Sainsbury\u2019s withdrew from Egypt, the
\ncase affords students the opportunity to evaluate whether they would have made the same decision by
\nproviding a discussion of the alternatives suggested by Sainsbury\u2019s Chairman.
\nExpected learning outcomes \u2013 The Sainsbury\u2019s case is capable of addressing several important
\nteaching objectives: the case is an appropriate vehicle to demonstrate what can happen to a firm as it
\nexpands globally; students will gain more knowledge concerning why companies expand into foreign
\nmarkets and the impact of cross-country differences in market conditions; the case presents the
\nmultifaceted complexities involved in globalization efforts and issues faced by companies concerned
\nwith global competition and global strategy; students should apply the concepts and tools of industry
\nand competitive analysis; students should gain a better understand how to manage globally; students
\nshould gain an understanding of the challenges of globalization and global competition; students
\nshould gain a better understanding of the evolution of strategy as industry conditions change and new
\nopportunities arise. As with any case study, students should learn to translate good analysis into
\nappropriate recommendations for action.
\nSupplementary materials \u2013 Teaching Notes are available for educators only. Please contact your
\nlibrary to gain login details or email support@emeraldinsight.com to request teaching notes.
\nSubject code \u2013 CSS 5: International Business
\nVOL. 4 NO. 8 2014 EMERALD EMERGING MARKETS CASE STUDIES PAGE 27
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\nThis article has been cited by:
\n1. 2015. Sainsbury\u2019s Egyptian misadventure. Strategic Direction 31:3, 4-6. [Abstract] [Full Text] [PDF]
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