CAIRO: It is not market rivalry that is making some of the world’s largest fast-food chains operating in Egypt jittery; it is fear of more bleak inflationary pressures amid escalating food prices that have already soared urban consumer inflation to its highest rate in over three years.
“One of the biggest problems we face these days is inflation. Costs of food – in terms of costs of oil and oil substitutes that are mainly used in our products – are going up, said Mohamed Mansour, general manger of Manfoods Company, which operates McDonald’s chains in Egypt.
“Naturally, if you have inflation of around 35 percent on food in the country, you can’t absorb all that inflation as a company. You have to pass some of it to consumers, which everybody is doing, some more than others.
Global food prices, which have soared around 40 percent since mid-2007 worldwide, have hit Egypt, where the United Nations says about one-fifth of the population of roughly 75 million lives on less than $1 per day.
Based on CAPMAS recent statistics, food prices rose 20.5 percent in urban areas in the year to March. Food prices are the most sensitive part of the basket of goods.
Egypt’s government statistics agency said mid-April that bread and grain prices skyrocketed 48.1 percent, fruit and vegetable prices soared by over 20 percent, and edible oils were 45.2 percent more expensive than a year ago.
Consequently, urban consumer inflation soared to its highest rate in over three years in March. The urban consumer price index rose 14.4 percent in the year to March after a 12.1 percent increase in February. This rate could be a blow to the government’s attempts to hold prices down and reduce social tensions which have arisen from increasing food prices.
With average Egyptians struggling to purchase bread and other cheap food staples such as fava beans (fuul), fast-food chains are also feeling the pinch.
“No doubt, ongoing food price upsurges are a major concern for us. They present a challenge for us to avoid any drop in sales, said an official source at Americana, owner of chains including KFC and Pizza Hut in Egypt.
The source, who spoke on condition of anonymity, said that Americana’s management has now mulled over new policies that would offer special price promotions in its outlets in a bid to attract more consumers amid soaring prices.
In the heat of inflationary pressures, meat prices have recently surged some 15 percent and fish to 12.2 percent. Fresh fruit and vegetables have also rose 16.6 percent, while sugar increased around 9 percent.
“We can’t afford to sustain these cost increases and keep our products at the same price levels, when everybody else is increasing prices by 20-25 percent, Mansour pointed out. “Compare a waffle to a Big Mac: We’re talking double price.
“But at the end of the day, we have certain food items that we are not going to raise; what we call the five-pound menu here in Egypt. It [the menu] has our core products like Big Mac and McChicken, and I think it’s going to be our edge going forward.
Egypt’s biggest hamburger chain have recently benefited by selling lower-priced offerings to cash-strapped consumers trying to save money.
Mansour added that in order to ace in Egypt’s highly competitive fast-food industry, food chains have to keep prices as stable as possible, while offering high quality products.
Despite high inflation, Mansour is bullish on the Egyptian market, which he describes as lucrative and attractive to several international food chains. The newest player on the market is rival Burger King, which has opened at least three stores in Egypt in recent months.
Indeed, Egypt’s consumer spending has fared well despite a global credit crisis that has raised recession fears. The rise in consumer spending spells record profits and rapid expansion for several regional and international companies that are keen on entering the most populous Arab nation.
