These days, references to regional “domino effects” have come into vogue—even in Egypt’s food and beverage sector, with local manufacturers being bought out by international players one by one.
 

In the latest acquisition, US-based Kraft Foods—the second largest food and beverage corporation in the world after Nestlé—bought 100 percent of domestic snack food manufacturer Family Nutrition on April 8 for $100.6 million. 

 

Kraft’s wide-ranging portfolio already included its line of processed cheeses, Maxwell House coffee, Nabisco cookies and crackers, Oscar Meyer meats and Post-brand cereals, among other well-known brand names. Prior to the acquisition, Kraft’s business in Egypt was confined mostly to selling the popular Tang-brand powdered juice drink and the triangular-shaped Toblerone chocolate bars. Now Kraft will sink its teeth into a 30-percent share of Egypt’s biscuit market and 40 percent of the local cake market. 

 

The barrage of acquisitions by multinationals can be traced back to February 2001, when the local Chipsy brand, known for its potato chips, was bought out by Tasty Foods, a subsidiary of the American PepsiCo. 

 

More recently, Dutch brewer Heineken—the world’s fourth largest beer company—took over 98 percent of Al Ahram Beverages in September 2002. Only weeks later, Swiss food-product company Hero bought a 65-percent stake in Egyptian jam company Vitrac. 

 

“The food and beverage sector has proven to be the most attractive sector for foreign direct investment in Egypt in the past couple of years,” explained Mohamed Radwan, head of institutional sales at Delta Securities. According to Radwan, multinationals are attracted to Egypt’s low labor costs, inexpensive production facilities and huge market potential, especially in the food and refreshment arena. “Population is a very attractive factor, and following the currency devaluation, Egyptian companies have become cheaper to multinationals,” he added. 

 

For Kraft, a subsidiary of American giant Altria Group (formerly Philip Morris Group), Family Nutrition had a lot to offer: a well-established factory replete with 1,800 workers in 10th of Ramadan City and a widespread distribution network. 

 

Known locally as the maker of Borio cookies (the local equivalent of the American favorite—and Kraft-manufactured—Oreo), Family Nutrition had been a family-owned business under the local Doss Group umbrella, which is also the local licensee of Avon cosmetics and beauty products. 

 

The company had done well, reeling in around $40 million in revenues from its biscuit and cake sales in 2002. It also managed to export several products in its biscuit line to foreign markets such as Libya, Saudi Arabia and Israel. Some of their cookies are even sold as far afield as the United States, Australia and Hungary. 

 

Kraft, for its part, is fully aware of the potential for further regional expansion. 

 

“The branded biscuit category is growing rapidly in the Middle East,” said Elizabeth Cho, corporate affairs manager at Kraft Foods International. “We believe there are significant opportunities for Kraft to grow both our biscuit business as well as build important scale” in the Middle East, she said. 

 

According to Cho, Saudi Arabia is the company’s largest market in the region. Family Nutrition fits cozily into the corporation’s growth strategy, being number one in the Egyptian biscuit market and number two in snacks and cakes, she said. 

 

Still, the recent currency devaluation also means higher costs for imported raw materials, including packaging. For 50-piastre snack items, there isn’t much room to raise prices. “But the focus is sales growth rather than profit margin until the economic recession ends,” according to Radwan. 

 

The string of international companies gnawing at the local food and beverage market, meanwhile, continues apace, with two tender offers currently on the table to acquire International Foods Company, the local licensee of Hostess snack cakes. 

 

Still, such massive acquisitions aren’t always one-way. Ownership of El Rashidi El Mizan, one of Egypt’s major halawa and tahina producers, for example, recently returned to Egyptian hands. 

 

US-based Bestfoods had bought a majority stake in the 113-year-old family business in April 2000, selling it subsequently to multinational Unilever a few months later. Then, in January of this year, the halawa manufacturer was partially re-acquired by the El Rashidi family, along with the emerging market financial investor CDC Capital Partners and the company’s senior management, making the deal Egypt’s first management buy-out, or MBO. 

 

Who knows? Maybe Family Nutrition too—given the right circumstances—will eventually return to the fold after its stint in foreign hands.