From Thursday January 25 Eddition of the New York Times:
Sainsbury Becomes Target of Rumors and Israel Boycott
by WILLIAM A. ORME Jr.
CAIRO, Jan. 19 — Mohammed Allam was working his usual shift at the fish counter of Sainsbury's two months ago when the supermarket in the upscale Maadi district here was attacked by stone-throwing youths.
Inflamed by rumors that Sainsbury's, the British-based retailer, was a Jewish-owned backer of Israel, the angry youths broke windows and left customers frightened. But no one was hurt, Mr. Allam said. The police came quickly, and they stood guard outside the store every day for the next month.
"The Egyptian government protected us," he emphasized, shrugging off the incident, as he put the last artful touches on his display of grouper, snapper, squid and prawns.
But at corporate headquarters in London, the attack was taken quite seriously. It was not the first time that one of the newly opened Sainsbury's stores in Egypt had been attacked. A consumer boycott movement, also propelled by anger against Israel, had already singled out Sainsbury's, even though the company disavows any particular Jewish or Israel connections.
At stake in the attacks is not just the $150 million investment here by Sainsbury's corporate parent, J. Sainsbury P.L.C., which many analysts, considering it a distraction, would be happy to see the company shed. Even more at risk is Egypt's campaign to lure foreign investors into a growing but challenging domestic market.
Here, Sainsbury's troubles, which could lead the company to pull out of Egypt entirely, are seen as an object lesson in the regional economic reverberations of the Israeli-Palestinian conflict and a parable of globalization.
For the Egyptian government, and for Egyptian industrialists who are seeking deep-pocketed foreign partners, a withdrawal by Sainsbury's would be a deeply embarrassing setback for a country that is trying to change its image as one that is open in theory but hostile in practice to outside investors. With the great exception of the oil and gas business, the magnet for most foreign investment here, Egypt has failed to attract the billions in private capital it says it needs to build competitive export industries and efficient local service industries.
Shortly after the assault on the Maadi store in mid-November, Sir Peter Davis, the recently appointed chief executive of Sainsbury, said he was "reviewing all strategic options for reducing our financial exposure to this region."
And on Jan. 16, company executives told Egypt's prime minister that Sainsbury was considering selling its Egyptian chain, or, failing that, severely diluting its holdings and entering a restructured partnership with local investors, according to Sainsbury officials at the meeting.
It was just a year ago that the retailer — a venerable supermarket chain with more than 100,000 employees worldwide and annual revenue of £13.5 billion, or nearly $20 billion at current rates — began opening scores of stores throughout this sprawling city.
Some were new; others were acquired from Edge, a sleepy, state- owned retailer in which Sainsbury acquired an 80 percent interest in 1999. Sainsbury now has more than 100 outlets in middle-income Cairo neighborhoods, making it the nation's biggest supermarket chain, with 2,500 employees and sales exceeding $100 million the first year.
In contrast to the fancy import- oriented Egyptian supermarkets in upper-class districts, Sainsbury opened many stores in gritty neighborhoods, with a no-frills offering of fresh local goods at consistent discounts. But the Egyptian subsidiary posted a $15 million operating loss for the first half of 2000, in part because of problems with goods clearing customs and with obtaining building permits. The losses have continued, exacerbated by an organized campaign against the company by the anti-Israel protesters.
Business analysts here say one reason the government at first appeared reluctant to quell the protests was that the anti-Sainsbury sentiments were shared by influential midsize Egyptian retailers, who feared that the chain's entry was setting a precedent for further competition from big, cost-cutting foreign retailers.
"Getting out could be less costly than sticking with it for the next few years," said Sara Carter, who tracks Sainsbury's stock for Merrill Lynch in London. "The problem is not knowing the marketplace, and not being welcome there."
The company, which owns the Shaw's and Star regional chains in the New England states, was already suffering from its poor recent performance at home. Once the leading grocery chain in Britain, Sainsbury's is now second to Tesco and falling. Wal-Mart, which entered Britain in mid-1999, with the acquisition of the Asda stores, is threatening to surpass Sainsbury in an increasingly competitive British market.
"A lot of people wondered what on earth they were doing in Egypt to begin with," said David McCarthy, a London-based analyst for Schroder Salomon Smith Barney. "Why waste management time and money on Egypt when you are losing market share at home?"
But if Sainsbury decides to give up on its relatively small, troublesome subsidiary, it would be an unexpected triumph for the leaders of the consumer protest movement here, who have made Sainsbury an unlikely focus of an anti-Israel, anti-American campaign.
"If they withdraw, it would be a victory," said Ashraf el-Bayoumi, a founding member of an ad hoc group begun last fall to penalize foreign companies for what it regards as their indirect financial support of Israel.
With no Israeli goods with brand names available for political reprisals, the group — the General Committee for the Boycott of American and Zionist Goods and Companies — has identified what it acknowledges is a usual-suspects list of American corporate targets: Coca-Cola, McDonald's, Nike and Marlboro (even though the cigarettes sold here are made in Egypt by a state company). McDonald's and other American fast-food outlets here — KFC, Pizza Hut, Hardee's — have suffered a noticeable though not calamitous drop in business, American diplomats say.
The ad hoc group is also urging a boycott of Levi jeans, though not because Levi Strauss was started by an American Jew, supporters insist. Another American target is Procter & Gamble's Ariel detergent, though not, they say, because of the Israeli rightist leader Ariel Sharon, a branding coincidence that has apparently caused Ariel's sales to fall elsewhere in the Arab world.
The boycott targets were selected for their "visibility and symbolic value" as icons of American capitalism, said Dr. Bayoumi, an American-educated chemistry professor and dedicated opponent of the trend toward globalism. But Sainsbury's was different, said Soheir Morsy, an anthropologist and another founder of the boycott group. It was chosen, she contended, "spontaneously by the people."
Even before the fall's anti-Israeli protests, Sainsbury's had come under fire as an unwelcome example of the disruptive impact of free trade and foreign investment. Small Cairo retailers asserted that they were being driven to bankruptcy by Sainsbury's aggressive advertising and discount sales, and leftist intellectuals like Dr. Morsy echoed their complaints. "They have hurt thousands of Egyptian families," she said.
The boycott organizers say they oppose the use of violence and accept statements by Sainsbury that it is a large, publicly traded company with a long British history but no particular Jewish or Israel connections. Yet as one of the most visible examples of British investment here, Sainsbury's is a natural focus for protests against Prime Minister Tony Blair's support of Washington's negotiating initiatives in the Middle East, they said.
Dr. Morsy and Dr. Bayoumi, who studied and taught in Ann Arbor, Mich., and Cambridge, Mass., respectively, are longtime observers of American college-town politics. They cite as their models the California grape boycotts by Cesar Chavez's United Farm Workers and campaigns urging the divestiture of stock in companies associated with South Africa under apartheid rule.
And they see their movement as within a tradition of Western political protest. But they acknowledge that Sainsbury never became a target of popular wrath until this fall, when sentiment erupted against the Israeli military response to protest riots in the Palestinian territories, and stories spread about the company's supposed Israeli links.
Some Muslim clerics issued edicts against shopping at Sainsbury, a campaign the company tried to counteract by posting passages from the Koran on supermarket walls. But business analysts here and shoppers who still patronize Sainsbury's agree that it has been hit harder by the movement than any other foreign company here.
"They were slowly changing the face of Egyptian retailing," a European economic analyst here said. Then, alluding to clerical decrees, the analyst continued: "They knew they would have to deal with the bureaucratic inefficiencies that everyone else faces here. What they didn't anticipate were fatwas and boycotts and Jewish conspiracy theories."
In October, the Egyptian Federation of Chambers of Commerce endorsed the boycott, putting pressure on 25 affiliated local businesses to end their imports of Israeli merchandise. President Hosni Mubarak, who has worked to block new anti-Israel boycott initiatives at Arab diplomatic forums, even expressed public sympathy for the anti-Israel consumer movement — this despite the fact that Israeli energy companies are citing the boycott as a reason for Israel not to import Egyptian natural gas, a deal potentially worth billions of dollars.
But Mr. Mubarak warned against extending the boycott to American or European products.
"The decision to boycott foreign goods should be guided by the public interest and not romantic notions," he told the newspaper Al Ahram last month. And Prime Minister Atef Obeid expressed hope that Sainsbury would remain in the country.
Executives at Sainsbury's here and in London declined to be interviewed. But foreign experts familiar with the company say it believes that the government could have acted earlier and more forcefully against the boycott campaign.
"The Egyptians understand that there is a bad message there," a Western diplomat said. "What they don't understand is that you don't solve the problem by saying we love foreign investment. You have to do what it takes to attract and keep the investment."