Arab Dairy targets 30-35% sales growth

Arab Dairy targets 30-35% sales growth

Arab Dairy, the Egyptian dairy firm owned by Pioneers Holding, has an ambitious growth target. The company intends to expand its sales by “at least” 30-35% per year for the next five years, export director Wael Morsy tells just-food. This will be achieved by reinvigorating its cheese business in Egypt and expanding its international sales. Katy Askew finds out more. 

Arab Dairy recently hit the headlines as the target of a hotly contested takeover battle. The company caught the eye of global dairy heavy hitters including Lactalis and Arla. But it was ultimately Egyptian private equity group Pioneers Holdings that won through to take ownership of Arab Dairy.

Pioneers has ushered in a number of changes at Arab Dairy, including the appointment of a new and well-seasoned executive team. The Egyptian dairy processor has now set its sights on rapid growth, export director Wael Morsy tells just-food. 

“We anticipate a minimum of 30-35% growth every year over the next five years. We have the ability to do it because the main reason why Pioneers bought [Arab Dairy] is the factory was under utilised. It is a very modern, very state of the art factory and the utilisation rate is not strong. With Pioneers' backing, we have the ability to expand whichever lines we need. And that is the plan: we will grow by at least 30-35% per year,” Morsy says. 

Speaking last month at the Anuga trade show in Cologne, Morsy suggests that this ambitious target will be met by reinvigorating the company's domestic business and breathing fresh life into brands such as Panda. 

Previously, he says that driving brand awareness was “never done” and improving the brand profile in Egypt will be a significant challenge – but one that it is crucial to get right. “The brand has to be very strong locally. We must re-establish it there. Panda was the number one cheese brand in 2006, 2007, 2008. Unfortunately, whatever managerial decisions that were made, they were made in the wrong direction at that time.”

Between 2008 and today, Panda has fallen from being Egypt's largest cheese brand to occupying the number four position. “It allowed two small companies to really step in and now be the major players. I don't see a problem getting back to number two number [spot]. One is a possibility but it will take a few years. People know the brand. The brand is easy on the lips – Panda – it is literally a cartoon character.” 

Morsy appears confident that Panda can regain its top position in Egypt's cheese market, even at a time when international players are increasingly eyeing the sector. Shortly after abandoning its attempt to acquire Arab Dairy, European dairy cooperative Arla inked a joint venture agreement with Egyptian dairy Juhayna Food Industries. But Morsy is sanguine on Arab Dairy's ability to handle the competition. 

He comments: “We have heard about this venture for quite a while we haven't seen it come to fruition yet. When it does come, I think the range is quite different that Arla is going to go for. Distribution points are crucial. They are joining up with a very large company, a company that I used to manage on the export side. Of course, this will bring more challenges on the local side. But I also think that the speed of cooperation is going to be interesting. They haven't moved yet. They signed the deal a couple of months ago. I don't think we will see anything from them for another six months.”

While returning Panda to its former glory in Egypt will take some time, Morsy says that shorter term growth will be quickly driven by the group's expansion into new markets internationally. “Initially a lot of the growth will come from export. I believe that the realignment on the local side will take a little bit of time to do. The local investment that is being made now is substantial and we will see a turnaround in the local performance probably starting in the third quarter of next year,” he predicts. 

Exports will grow “very aggressively” because the company will leverage its existing customer relationships, including contract manufacturing for international brands and private label production for “major hypermarkets” in the Middle East. 

The company is initially focused on growing exports to Saudi Arabia, Lebanon and Jordan. But it also plans to open up new markets. “The most potential for growth will be a very rapid expansion to the GCC and a capitalisation on our lower cost base to get into North Africa and West Africa,” Morsy says. “The focus next year is geographic presence in Africa. It is actually geographic presence across Africa, the Middle East and CIS [Commonwealth of Independent States]. We anticipate the current accounts to grow 5, 6, 7%. Because it is already a large volume base that is quite a number. But the real growth will come from more countries.”

Arab Dairy targets different consumer groups in different markets, selecting its products and pricing accordingly, Morsy says. “If I take a look at Jordan for example, which is one of our largest markets: Panda is the number one cheese in Jordan because we have a phenomenal portion of the market. It targets B-class segmentation, some A-class some C-class. What you see in other markets, we are more up-scale in Lebanon where we do private label and the formulation is different. In West Africa, we are going to be going after the B and C groups.”

Morsy describes West Africa as a “very strong dairy market” but one that is lacking in product options. Arab Dairy aims to capitalise on this opportunity by increasing distribution of its cheese triangles. 

“The triangle portions we can do in numerous sizes and are therefore tailor them to what the consumer needs. We have the ability to do seven different sizes of portions. That requires a lot of machinery and most companies cannot do that.... Triangles are consumed literally by everyone because of its size and how small it is and the fact that one triangle in a sense is basically in the hands of everyone. Today we are focusing on smaller sizes to be able to get into the consumer household. 

“We will customise everything to be French because we are going into West Africa. So we are looking at a combination of French and the local language.”

Elsewhere, Arab Dairy is expanding in CIS countries. “We just secured a contract in Azerbaijan. CIS countries are prolific eaters of white cheese. They are going to be our next target: Azerbaijan, Kazakhstan, Turkmenistan. We are headed there.” In the longer-term, Arab Dairy also intends to expand in other African markets where demand for cheese remains in its infancy. 

Establishing a presence in new markets can be a time consuming and costly process and each market requires a distinct strategy. “We will be entering quite a few new markets. We own several brands so we may have more than one distributor in a country. In the smaller countries we tend to go one brand, one distributor. It is a partnership between us and the distributor. We visit the country, assess the market, what price point we should be at, what kind of support, what kind of marketing support we will need. Are we talking shelf toppers, outdoors, radio commercials. You can't market a brand you haven't distributed yet. We distribute first, build a strong market link over a four month period and then we begin launching the in market activities,” the export executive explains. 

Arab Dairy will typically enter a country with an established distributor that requires a significant volume of product, Morsy continues. “A strong distributor of cheese when you enter a West African, Middle Eastern or GCC country knows what their base is. They are already selling triangles etc - they are just replacing a brand for a brand. We do not work with someone who just wants to try.”

How do you convince distributors to replace an existing brand with something supplied by Arab Dairy? “It is a combination of price, scale of product, our flexibility to produce, our turnaround time. Typically an order takes less than a week in the factory, within two weeks we are shipping. It is also our longevity, we have been around for 25 years. They see the scale of growth. We have caught a lot of press. People are curious about as. That is also a factor that we are seeing this year – who is this company that everybody wanted to buy?”

Through a combination of domestic and international expansion, Morsy is upbeat on the prospects of Arab Dairy hitting its growth targets over the next five years. Beyond that, the company is likely to look to grow its base further. “Definitely I would see an investment in production. I would see an investment in the infrastructure of the company in general.... We are going to be doing things very differently than has been in the past whether it be locally or internationally. We will be taking it to the next step.”