Israeli food conglomerate Strauss-Elite’s recent US$60m acquisition of a 50% stake in Brazil’s Cafe Santa Clara marks another milestone in its campaign to generate half its sales abroad by 2009. Aaron Priel reports.

The Santa Clara merger made Strauss-Elite Israel’s largest food company, and one of the largest in the world. By 2009, Strauss-Elite will have transferred over half of its business overseas, making it a truly international company, commented CEO Erez Vigodman, following the acquisition on 31 December 2005 of Cafe Santa Clara via Elite International’s Brazilian subsidiary Cafe Tres Coracoes. Tres Coracoes has a company value of $33m. The merged company reported proforma turnover of BRL515m ($220m) in 2005, of which $30m was generated from sales of green coffee, and expects to make $260.86m in 2006.

As a result of the merger, Strauss-Elite will control the second largest company in Brazil, the world’s second largest coffee market after the US. The Brazilian coffee market is worth US$2bn a year, and the newly merged company controlled 11% of Brazil’s roast coffee market at the end of 2005. It is projected to control 12% of the market and experience growth of 15% in quantitative terms in 2006.

Food analysts in Tel Aviv maintain that Strauss-Elite’s recent acquisition in Brazil was designed to support a massive overseas expansion of the company in order to reach its next target: for international activity to account for half of the company’s business, “and probably more,” as noted in Globes. Vigodman explained that Strauss-Elite’s international activity accounted for 29% of the company’s business inn 2005, prior to the Brazilian acquisition, “and at the end of 2006, these numbers will jump substantially, and could exceed 40%.”

Strauss-Elite’s business grew by over 10% in 2005. Sales reached ILS4.05bn (US$880.43m), including ILS1.2bn (US$260.86m) in international activity. By 2009, the company’s international business is expected to double from the 25% of the total business it accounted for in 2004. At the start of 2005 it set itself the goal of generating half its business from international operations as part of its new strategic policy to become a major player in the global food business. Strauss-Elite chairperson and chief executive Ms Ofra Lahat-Strauss said the company’s international expansion “will also come from mergers and acquisitions,” and “in addition to the numbers, this signifies the kind of company we want to be.”

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Coffee will probably account for 35-40% of Strauss-Elite’s international activity by 2009, while the rest will come from substantial growth from the acquisition of Sabra Salads in the US, which is expected to be reflected in two years, and substantial international growth by Max Brenner chocolates, expected over the next two to three years.

Strauss-Elite has chosen Latin America, the Middle East and Central and Eastern Europe as target markets for future expansion. These markets, according to food analysts, had the highest growth rates, they are decentralised in terms of competition, and are emerging markets where the company believes it has the potential to become a leading regional player.

Strauss-Elite’s international coffee business is growing and profitable, and the company’s is becoming a leading player in coffee markets. Vigodman predicted that the company’s international coffee business would total ILS1.7bn in 2005 (29% more than in 2004) and would reach ILS2bn in 2006.

Founded in 1990, Cafe Santa Clara has 1,700 employees and rapid growth, with sales currently reaching US$200m. Strauss-Elite’s shares on the Tel Aviv Stock Exchange went up 6.4% at the beginning of 2006, thus completing a 21% rise from mid-November 2005. These increases, according to analysts, were supported by estimates regarding its planned share issue at the London Stock Exchange based on a higher value of the company as expressed on the Tel Aviv Stock Exchange.

Last week Israeli portfolio management company Clal Finance Batucha raised its price target for Strauss-Elite ILS44 to ILS47.5, maintaining the company’s ‘outperform’ rating.