Hédi Baccour is far from being an unknown in the field of mass distribution. He is even president of the employers’ union chamber of supermarkets in Tunisia. He has also been for several years head of the MG company, acquired in 2007 by the Bayahi group which is one of the largest retail chains in Tunisia.
In 2017, the company achieved more than 894 MD in turnover and 22.1 MD in profit.
With MG’s CEO, AfricanManager mainly talked about the group’s pricing policy, the effort it makes to curb the rise for its customers, but also about Batam, Auchan which could be his next partner for a hypermarket and even Mall.
Interview:
AfricanManager: MG makes more profit each year, in an economic climate that is always more difficult from one year to the next. How does it get there?
Hédi Baccour: Even if the sales turnover does not move much, MG works a lot on the margin and the expenses. These were managed at a central level. Now, all of our sales outlets are Business Units (BU) that individually process their products and expenses for improvement.
These BUs have access to their individual operating accounts, to study their products and expenses line by line and will work on improving the margin and all the indicators to improve the overall cash flow of the company.
All, by the Benchmark with the rest of the BU models, with an accompanying support directions in the seat.
How could margins increase in a difficult general economic environment?
Margins come from many things. First, the difference between buying and selling. But also the demarcation, the transport of goods by the logistics service.
The margin on a product does not increase, but we work on the customer orientation towards the items that give us better margins and work on the sales mix that gives the best margins.
We read in the balance sheet that sales turnover was up 17 MTD, while the cost of goods purchased increased by only 9.7 MTD.
This is normal because the Mix is not the same and we direct the customer to the items with better margins.
How much has the income from financial investments been on the balance sheet?
To the tune of 9 MD. But we also have financial burdens.
Note in the 2017 balance sheet that the heading “Customers and related accounts” has increased significantly. Why ?
This is the effect of lunch vouchers. Our customers have the opportunity at MG to pay their shopping by these vouchers. These take time for the money to be recovered. It is therefore recorded as customer credit.
There is also the heading “suppliers and related accounts” whose evolution had somewhat worried your auditors. Does this mean that you have payment difficulties?
No. But we are working on inventory reduction to reduce supplier outstandings.
What explains the increase in financial charges?
We continue to invest, we buy goodwill and we restore existing outlets. We currently have 71 MG points. We opened seven in 2017 and five to open in 2018. Other investments are made in support activities to reduce operating expenses.
Where is your old online sales experience? Has the experience been abandoned?
Indeed, we stopped this experiment, because we felt that the support used was not the good one and the most adequate in terms of information system. Digital sales are being prepared in a new global concept for the coming years.
We will test this new concept of digital sales to measure profitability or introduce the necessary corrections to get there. The management of commercial content will be done internally and the technical part will be outsourced to specialized sites. For payment, the customer will have the choice of payment method.
At what level is MG in terms of competitive capacity by price?
To ask this question to ten operators, everyone will tell you that it is the cheapest. The ultimate judge is the client. We have, of course, internal indicators that allow us to know where we are. What I can say is that everyone is in the same boat, but everyone has cheaper items than the other. For MG, we meet a customer need with affordable prices and a value for money that meets his expectations.
We specify the question. One of your commercials claims that MG is committed to keeping the price of 300 items, always cheaper than the competition. Did you really do it?
It is our commitment to the customer to lower and freeze the price of 300 items for 12 months, and there are organizations that make sure that it is not misleading advertising. For the rest and like all operators, we pass on taxes, which we are not responsible for, such as the 1% VAT.
Has this commitment impacted your sales, or is it the Mix that helped keep it up?
We announced a 4.5% increase in sales for the first quarter of 2018, compared to an average growth of 2.2% over 2017 compared to 2016. We therefore remain on a bullish trend and on the right curve.
What effect did this commitment have on MG sales?
The customer is looking for this type of transaction, which is also combined with another launched in November 2017 by the Ministry of Commerce jointly with the country’s various banners on 60 items and which lasts until the end of June 2018.
The trade union chamber of supermarkets, of which I am also president, signed this agreement on these 60 items, mainly food.
In this collective action, MG launched its own action called “Makina” that has been running since July 2017 on a set of 300 articles. To all this, will be added promotional actions, individual to each brand, for the month of Ramadan 2018.
It is all of these actions that will change the turnover of MG. The continuity in time of the attractive price that MG offers will make the customer finds himself and always comes home.
How much was the price drop on the basket of 300 products at MG?
On average, the decrease was between 6 and 7% for the benefit of the consumer.
Do your prices, in general, vary from one point of sale to another, like other known brands in Tunisia?
We may have prices that vary from one store to another, especially if the impact of transporting goods, through our suppliers, is important. With the exception of items administered by the state, we are generally on a free pricing. To take the example of an imported product, one is forced to sell and sell it more expensive because it does not have the same rotation. It is taught in all business schools. The more it rotates, the less expensive it is to sell. For the rest, we work with a margin of about 20% and the game of competition brings all signs to plus or minus 20%.
Do you feel, by setting the margin, to really take into account the purchasing power of the citizen?
We have to do it. To be able to sell, our price policy must take into account the customer’s expectations.
Your profits increase each year more, while the purchasing power of the citizen decreases!
You will not blame us for working well. At MG, it’s not the margins that increase, but the loads that improve. And besides, I can assure you that the increases in margins do not even cover staff costs. Added to this are the very significant changes in salary costs. We are also facing new increases in financial burdens and additional taxes and cyclical contributions.
Are all these taxes reflected in prices?
No, apart from VAT (+ 1%) and consumption tax (10%). But for that, we cannot do anything. We are collectors of these taxes for the benefit of the State. When the supplier increases its prices, the signboard has no choice but to pass on this increase to the final consumer.
The Batam brand was bought in 2010 by MG, was it a good deal?
It’s not a bad deal. Nor is it an excellent deal. Its share in the MG group turnover in the retail trade was 2.5%, or 23 MTD individual and still remains profitable. It’s very difficult to do better, because Batam practices in a sector where there is a lot of unfair competition.
However, its results are improving year by year and the openings of this brand also. Before, the credits were not limited.
Today they are at 18 months and 3,000 DT and we now want to detach the image of Batam credit to that of a retail brand specializing in home appliances and we succeed.
Since then, Batam has been able to open new points of sale, as in Jendouba, Gafsa, Gabes, Kef, soon to Sid Bouzid, all places where the brand did not exist. Batam is expanding.
How much progress has been made in the opening of the hypermarket of MG group?
We have received, for 3 years, a prior agreement. We work on it and especially on other locations.
Is the French brand Auchan, which has been MG Group’s partner for six years, the new hyper brand of the group?
It’s likely, but it’s not recorded.
You could invest in a Mall, which Auchan would be one of the brands?
Yes like everybody!
