“We are not interested in what I call ‘French North Africa’, so in the west we won’t go beyond Libya. To the east we are looking at markets like Iran and Pakistan. India is too far away for us.” François de Montaudouin, chief executive of Majid Al Futtaim Group, roughly points out the geographical area in which the Dubai, UAE, based retailer intends to build a business.

Majid Al Futtaim Group is Carrefour’s prime franchise holder in the Middle East and the retailer intends to expand by building shopping malls anchored by Carrefour hypermarkets. “We intend to build one mall a year in our region of interest, which still is the size of Europe with some 315 million people. There are difficult markets with extreme differences in poverty and wealth in the region.”
Majid Al Futtaim Group is a cosmopolitan company, with 44 different nationalities among its 9,200 people workforce. This mirrors the international character of its home-base of the United Arab Emirates where nationals represent less than 20 per cent of the population. “Here in the UAE 95 per cent of our employees are expats, but in our Egyptian company it’s just the opposite. There, 95 per cent of the workforce is Egyptian and only five per cent is expat,” says De Montaudouin, himself a French national.

Your CV combines experience in financial management and retailing. How did your experience in Rallye/Casino benefit you in your current position as CEO of Majid Al Futtaim Group?

“Retail is an important part of our business. Our malls are home to retailers and 70 per cent of our workforce is concentrated in our 18 hypermarkets. Comparing my current job to what I did in the past with Rallye, you can say that the sound of music is the same, but the rhythm is essentially different. In my previous position I was also involved in financial management, shopping malls and hypermarket retailing but here at Majid Al Futtaim Group we are dealing with a high-growth business, venturing into fairly unsophisticated markets where there have never before been hypermarkets or shopping malls. That’s essentially a different rhythm than the one accompanying us in the low-growth business of mature markets when I was still working with Rallye. Here at MAF we encounter different options in each market of operation. The United Arab Emirates is a competitive market whereas in other countries we develop green field operations. We hire people and train them. It’s an entrepreneurial, creative business culture.”

Majid Al Futtaim Group holds the master franchise for Carrefour in the Middle East. How much leeway do you have? Can you use the Carrefour brand in the different markets in the Middle East as you see fit? And do you use synergies via services offered by Carrefour (for instance IT systems, purchasing, merchandising, promotions)?

“Sure, we share best practices and we are open to advise in order to improve our operations. But having said that, it’s important to know that we are an entity of our own. We have our own staff and our own policy. We intend to build our business in the Middle East region via hypermarkets and for this we franchise the Carrefour banner. We indeed collaborate with Carrefour with regard to IT. There we can benefit from best practices. Our link with Carrefour regards the very basic principles of the hypermarket concept: to keep it strong and appealing to customers. But something like a Carrefour global promotion doesn’t apply to us. Many suppliers in this region trade via agents, which complicates agreements with suppliers for such worldwide promotions. Furthermore, there is a different price structure as here in the UAE there is no VAT. We do buy via Carrefour but that’s only for less than three per cent of our assortment, mostly Carrefour brands such as items under the No.1 value label and more sophisticated products under the Carrefour label.”

What distinguishes Carrefour’s assortment in the Middle East?

“We have a higher proportion of sales in consumer electronics. As we have very competitive prices, many people – also tourists – buy these products here. Textiles also sets us apart due to the variety of people and the type of climate. We also sell a lot of agricultural products from the region, like fruit and vegetables from Iran and fish from Oman.”

Especially in Dubai but also elsewhere in the Gulf region, retail developments are booming. What impact does it have on real estate prices? And does Dubai not run the risk of being overly developed?

“Cost of land and real estate went up indeed. We proactively bought land in the past for future developments and we are now using this potential. We are also expanding to other countries for further growth opportunities, countries with different economic cycles where cost of real estate is still at lower levels. I don’t think Dubai has reached its ceiling when it comes to retail development. It has 1.5 million inhabitants and a potential for ten shopping centres. We own two leading shopping centres in Dubai. Our Deira Shopping Centre had a record number of 23 million visitors in 2005. Several of our tenants break world records in floor productivity. Our newly opened Mall of the Emirates will even beat these record numbers. There is enough market potential. Also, the market is not as regulated as it is in Europe. Theoretically a competitor could start a business across the road. That can happen and it keeps us alert. In practice, however, foreign retailers need to have a franchise agreement with a local company, so we don’t expect any surprises. We know the competition. There are seven local groups with various franchised brands in their portfolio. And besides that, we already have the best locations.”

Shopping malls are the main engine of retail development in the Middle East and therefore the means for hypermarket expansion throughout the region. Why do shopping malls appeal to customers in Middle East markets?

“Firstly, there are no downtown areas here. For this reason we called our malls ‘city centres’: high-traffic places for shopping and meeting people. A second reason is that malls are climate controlled and convenient with nearby parking facilities. And thirdly, most of the region has a young population which has been brought up with shopping centres. It’s a part of their life. They appreciate shopping for international brands and the entertainment facilities offered in the malls.”

Shopping malls at large seem to be innovating but their main anchors – hypermarkets – have not seen much innovation since the first hypermarkets were opened in the late 1960s. Should the hypermarket as a format not innovate?

“The hypermarket will remain a strong concept as shoppers appreciate a large selection of competitively priced products. It is not the concept as such, but the actual input of the concept that is important – via product ranges and services reducing the reasons for shoppers to go elsewhere. The hypermarket is a mall’s strongest anchor. It makes the mall a place to which shoppers return. Malls without a hypermarket anchor have demonstrably much lower traffic and sales densities. To us the hypermarket is a key driver when selecting the location of a mall and building it. Given the cost of real estate, a stand-alone hypermarket is no option. Returns in the low margin hypermarket business will never compensate for the cost of land and construction. Other stores are needed to outweigh the cost. Here in Dubai we have one stand-alone Carrefour in Shindagha. It is located in a former fish market. We converted the building into a hypermarket and took a long-term lease. All this would reduce cost but still we have some 50 shops surrounding the hypermarket for amortisation of the cost.”

The Middle East comprises different markets: from the affluent Gulf States to low income markets like Egypt which is in an early stage of retail development. How does Majid Al Futtaim Group combine such extremes within the Carrefour franchise?

“In each country we have a different merchandising mix. Over 60 per cent of the assortment differs per country. Carrefour has a culture of delegation and decentralisation and we can adapt to local market requirements. Our store in Ras al Khaimah caters to few foreigners as 70 per cent of the population is from the United Arab Emirates. This store has a different assortment and pricing than the Carrefour which anchors the Mall of the Emirates, which is much closer to a western European hypermarket. Egypt is a different situation. It’s a huge market with a population of 70 million, where we currently have three hypermarkets. It’s a difficult market and we are still waiting for a reduction of taxes and interest rates and import barriers to be lifted. Given its size and the fact that it’s still virgin retail territory, Egypt is surely a highly potential market now that disposable income is slowly beginning to rise. But here too market conditions are different from Iran or Lebanon.”

In your keynote speech last year during the retail real estate exhibition MAPIC, you wanted to change the perception of the Middle East from a region of political tension and trouble to a region full of retail potential. Has the recent upswing of political tension affected Majid Al Futtaim Group’s operations and plans?

“Political stability is needed for retail development. People must feel secure that they will have an income and that the family is taken care of. In Lebanon for instance retail is on the rise but we decided to postpone our investments. In the short term there are hiccups as this is unfortunately not a stable region. But over the long run, the Middle East region has been growing, with a young population that also wants to have access to products that are available in the rest of the world.”

How does MAF look at topics like food safety assessment and environmental issues? Is corporate social responsibility a key issue?

“It is not as developed as in Europe and the US but we did elaborate a policy to be a responsible company. It is an element of our training programme. We look at reducing the use of plastic bags in the stores and we sponsor programmes to protect marine life. Pearl diving belongs to the United Arab Emirates history and via the Emirates Diving Association kids are being educated about this and the protection of marine life. We also sponsor field trips for students in colleges and universities. In each country where we operate we try to be employer of choice and wherever possible we will work with local workforce.”