Egypt's first ever multi-category giant food conglomerate was launched last week. Sherine Abdel-Razek reports Have you ever noticed that Kit Kat Chocolate, Nescafe, Coffee Mate, Nesquik, the powdered milk Nido and Maggie chicken stock cubes are all produced by one company -- Nestle of Switzerland? Such is the ongoing trend worldwide -- to build integrated conglomerates in one industry, enabling companies to produce in a cost effective way through joint sourcing in packaging, raw materials, know how and use of the same distribution networks and outlets. Egypt has been trying to catch up with the trend and, this week, what can be considered as Egypt's first-ever multi-category food conglomerate was launched under the name Gozour. Gozour, meaning roots in English, is the umbrella under which a number of private local food producers -- partly or wholly acquired by Citadel Capital (CC), an Egyptian private equity firm investing in cement, fertilisers, food and energy -- are managed. Affiliates of the new entity are: Dina for Agricultural Investments (Dina Farms), Confectioner Rashidi Al-Mizan (REM), cheese maker, Al-Misriyeen, and the National Company for Maize Products (NCMP), which produces intermediate products like corn, sugar, flour and maize. "A total of $250 million in funds has been allocated to build this platform. We have already secured the ownership of four strategic players and are in the market to grow these companies organically as well as through further acquisitions," said Hisham El-Khazindar, CC's co-founder and managing director. Gozour are currently in negotiations to buy the juice and milk producer, Enjoy. They are also laying out plans to expand regionally in the agriculture business to cultivate new crops like maize and sesame seeds. The first steps to build the company were taken barely four months ago when, in September 2007, CC bought Dina Farms, a private farm built on 9,235 feddans off the Cairo-Alexandria desert road. Dina Farms' lines of business include agriculture, dairy and meat production, making it an ideal supplier to other Gozour affiliates, such as Rashidi Al-Mizan and Al-Misriyeen. Soon after the acquisition, CC bought a neighbouring 226 feddans, which include, in addition to livestock of 300 cows, a milking station. Moreover, an agreement worth LE30 million was finalised in late December with Swedish Delaval to buy three new milking stations and upgrade five of Dina Farm's seven existing stations -- a move that is expected to double the company's milk production to 72,000 tons per year. Gozour plans to increase the farm's feed stock from the current 37,000 cows to 10,000 by 2010, in addition to renovating its powdered milk factory -- the only one of its kind in the Middle East -- to produce at its full capacity of 150 tons per year compared to the current 40 tons. The second buyout was the 120-year-old REM, Egypt's leading producer of sesame- based sweet (halawa) and sesame paste (tehina). The company has since 2000 undergone deep restructuring under the management of Best Foods and Unilever; two multinationals that had alternately held stakes in the company till 2003, when Unilever sold its stake to Actis, a UK-based private equity company. In a closed auction held in October 2007, CC outbid food industry giants and bought Actis' share in REM for LE335 million. According to Mohamed El-Rashidi, chairman of REM, the gains made by his company from venturing with heavy-weight players, whether in the food or the financial sectors, in the last eight years is equivalent to all of its profits since its inception in the last century -- an example that he said would sure be replicated with Gozour affiliates under the scrutinising management of CC. The relatively distressed cheese maker, Al-Misriyeen, was the third addition to the group. CC paid LE88 million for the company, which has a one per cent stake of the local cheese market. "It is a company with vast potential that is in need of further restructuring and capital injection. As a stand alone investment, it might be questionable, but its integration in Gozour makes perfect sense," said El-Khazindar. The latest addition to the group was CC's acquisition of a 31.5 per cent stake in NCMP from the National Bank for Development for a sum of LE162.5 million. The company produces intermediate food products, including fructose, maize and glucose, in addition to animal feed. According to Gozour officials, such vertical integration in lines of business will enable the company to confront one of the main problems facing the industry worldwide -- the sharp increase in global commodity prices. "Securing our own raw materials through the output of NCMP and Dina Farms, in addition to future plans to cultivate several crops and acquire more companies, will help us lower our production costs, which will definitely be reflected in prices," said El-Rashidi, who now heads Gozour's Fast Moving Consumer Goods (FMCG) line of business, which includes Al-Misriyeen and REM. The move towards using some crops -- such as wheat, sugar cane and even sesame seeds -- in producing energy has pushed the prices of these corps up worldwide. The price of sesame seeds, the main input in El-Rashidi Al-Mizan production has almost tripled to $9,500 per ton during the last three years, which led to a climb in prices of the company's products. "You can only blame me for raising prices when I have control over the cost of raw materials and that is what we will have in the future," El-Rashidi said. So the good news is that prices are expected to fall, but what about the bad news: fears that such conglomerates will end up monopolising the market?. Such fears are ungrounded, according to El-Rashidi. The Egyptian food market is too large to allow such monopolies and the nature of the market itself defies this possibility, with the majority stake in food production held in the hands of informal sector producers . "While Egyptians consume seven million tons of milk annually, packaged milk produced in formally working plants has a mere 14 percent stake of this total. It is very hard for one or two of these companies to dominate the market," he explained. Gozour is co-owned by CC and a number of Gulf investors and has far-reaching plans for expansion both locally and regionally in different fields of food production. "Our strategy is to spot opportunity and diversify our portfolio," El-Khazindar said. "Accordingly, regardless of the geographic loca
