A sweet deal
Kraft Egypt is taking a larger bite out of the local biscuits and cake market, Sherine Abdel-Razek
With multinational companies expanding their reach in different parts of the world, the effect of an agreement concluded on one side of the globe spills over to the farthest point on the other side. Just like when Kraft Foods, the global leader in branded foods and beverages, acquired the global biscuit business of the French Groupe Danone's in a $7 billion deal.
Egyptian consumers are already familiar with both brand names since Kraft produces the triangular shaped chocolate Toblerone and the powdered juice drink Tang, and Danone manufactures Prince and Luc biscuits. What is yet to be seen is how the deal will affect the local market, especially that both multinationals have subsidiaries in Egypt.
Kraft has been operating in Egypt for almost four years after it wholly acquired Family Nutrition for $100 million in 2003. Family Nutrition was a leading company in Egypt's confectionery production with its Borio cookies (the local equivalent of Kraft's Oreo biscuits), and popular Nity cakes. Its 2002 revenues amounted to $40 million, and after the sale Kraft was able to strengthen its hold on the industry by grasping more than 20 per cent of the biscuit and cake market. Kraft Egypt also exports up to 25 per cent of its annual production.
On the other hand, Danone Mashreq for Fine Biscuits was established as a joint venture between Groupe Danone of France and the Rachid Group in Alexandria. It currently produces biscuits and wafers for the Egyptian market under two brands, Tiger and Prince. The range of products includes plain biscuits, sandwich biscuits and wafer products. It has total annual sales of $2.5-5 million and exports to countries in the Middle East, regional markets as well as the US.
According to the new deal, Kraft Egypt will acquire Danone Mashreq at $5 million. Although only a fraction of the multi-billion dollar sale, it will strengthen Kraft's presence and enable it to take a bigger bite out of the market. Through the acquisition Danone Mashreq's plant at Borg Al-Arab will be added to Kraft Egypt's production facilities which already include a factory at 10th of Ramadan City.
Kraft Vice-President and Area Director of Middle East and Africa Patrick Satamian told a recent news conference that Egypt presents a gateway to Africa for his company and is among the most important emerging markets. With 1,500 employees, LE1 billion in investments, two factories and 25 per cent of production going to exports, "Egypt plays an ever growing part of Kraft's international story," Satamian told reporters in Cairo.
While such multinationals tapping the market increases competiton, major players do not seem threathened. Hani Berzi, chairman of Edita, producer of Molto chocolate- stuffed croissants , Twinkies biscuits and Hostess cakes believes that the presence of multinationals adds to the market, and does not threaten the local confectioneries . "On the contrary, they are very fair competitors, abide by the rules and ethics, as well as add value in terms of quality and branding," stated Berzy. "Their presence will develop the market, improve product quality and the consumer will be the number one winner.
Berzi's company is a market leader with a 60 per cent market share of cake products and 80 per cent of the croissants sold on the market. Exports represent 16 per cent of Edita's annual turnover.
In the past four years, Kraft Egypt upgraded Family Nutrition's manufacturing facilities, adding new production capacities and focussing on improving quality through HACCP and ISO certification. New products include Rasco Harakat biscuits, big sized Rasco and Borio Family pack, Choco Borio and Borio Cakes.
In one year, Kraft will begin producing its original products at the same plant. "It depends on the needs of the market," explained Satamian. "We will focus on products within the price range of LE0.25-0.5 since these cater for more customers." He added that Borio production will continue although it competes with the original Oreo cookies since the local product will be more affordable to Egyptian consumers.
Maintaining competetive prices is not that easy. According to Berzi the main problem facing the food sector in Egypt is the continuous fight to maintain low prices in the face of rising costs of raw materials.
Since both Kraft Egypt and Danone Mashreq are exporters of confectionery, foreign markets will also be a top priority in the coming period. "We want to increase exports to reach 30-35 per cent of overall production," stated Satamian.
According to him, the bilateral trade agreements to which Egypt is a signatory will help achieve this goal since it will open the door to Kraft exports to the African and Arab region.
Figures from the Food Industries Export Council show that the number of confectionery exporting companies in Egypt reached 30, with overall exports amounting to LE500 million in 2006. Some LE14 million out of this sum was exported by Kraft Egypt.