Mohamed Hamed, chairperson of Obour Land for Food Industries, said that inflation will change Egyptians’ consumer behaviour during this current phase.
He added that the high levels of inflation will create a kind of compulsory saving that changes the avid consumer culture, which has left several challenges and largely increased Egyptian imports.
He explained that the sector of cheese and foods in general will not be affected greatly. The change of the consumption culture will eventually lead to a growth in the sales volume, but in a balanced way after absorbing the initial effects of inflation resulting from the pound flotation.
He said that the Egyptian market has more than 90 million consumers, which represents the largest opportunity for the sector to continue growth.
Hamed added that Obour Land seeks to increase its exports during the upcoming years in order to provide dollar income sources, where exporting provides 2-3% of the company’s dollar needs.
He explained that offering Obour Land in the Egyptian Exchange (EGX) will allow self-growth for the company in an institutional manner.
Hamed said that during the first half of this year (H1), the company will open two new factories on an area of 10,00sqm, where one of them will be for juices and milks, and another for cooked and Mozzarella cheeses.
He added that Obour Land’s land in Obour City is 27,000sqm, with only 7,000sqm of that being utilized by two cheese factories with 13 production lines.
He explained that two other factories will be added, while investment opportunities are being considered in the food sector to utilise the rest of the space which can accommodate three production areas.
Ashraf Hamed, managing director of Obour Land and owner of a 15% share in the company, said that establishing a dairy farm is possible; however, he is awaiting the company’s production of milk and juice which will start in May. The project will be studied afterwards on the level of the board of directors and will be presented to shareholders.
He added that the company seeks to add nine new production lines for white cheese, with a capacity of 65,300 tonnes annually to produce packages that weigh 1kg, 500gm, and 250gm.
Moreover, there will be three juice production lines with a capacity of 99m litres annually, and a milk production line with an annual capacity of 27m litres. These lines are being installed and are expected to begin production during the second quarter of this year. In addition, a mozzarella production line with an annual capacity of 3,600 tonnes will be installed, as well as another one for cooked cheese with a capacity of 3,600 tonnes annually.
He explained that the new production lines are located in the New Obour Land complex on an area of 10,800sqm, where the remaining 14,170sqm is allocated for future expansions.
He pointed out that the Egyptian market has lots of expansion opportunities in the food sector, especially industries that are similar to the company’s business.
He said that yogurt production may be one of the expansions, after reaching a large market share of dairy sales, where the company aims to take the sales to 200 tonnes per day within five years.
He added that the company’s expansions are carried out through self financing, where the lands are owned by the company, with the new production lines being bought through credit facilities from Tetra Pak, ranging from four to five years.
Hamed continued to explain that the company aims to make the sales of the new lines represent 30% of the company’s sales by 2020.
“The company continues to adopt the policy to build a stock to cover its needs for three to four months to face the fluctuations of prices and move with an average price that allows a gradual price increase without affecting sales,” Hamed said.
Hamed noted that the company has not increased its prices until now in a way that suits the increase of costs. However, current indicators about the decline of powder milk prices globally from $2350 per tonne at the start of this year to $2100 is a good sign.
He added that the dollar price has begun to decline, and expected it to fall to the level of EGP 16 throughout the next two weeks.
If the dollar price declines, prices will not be increased again, and if the dollar price reached the level of EGP 15, the company will reduce its prices by 15%, according to Hamed.
He pointed out that competition is strong on both the level of distributors and traders. Companies will try to get prices to decline again if costs decline.
He said that the stock policy adopted by the company in 2016—to change from one month to three months—has greatly consumed liquidity worth EGP 250m by September 2016.
He added that the company is trying to maintain a profit margin of 20-23% in 2017. By the end of 2016 the profit margin reached 23.7%, and the company aims to reach 22% this year.
The sales of Obour Land by the end of 2016 reached EGP 1.450bn, equivalent to 97,000 tonnes, with 73% of the total production capacity of the production lines.
Obour Land increased its prices by 50% in January 2016 until the end of the year in order to match the dollar price increase.
The company will distribute 50% of the profits of 2017 to shareholders, with a cash distribution being considered, as well as the issuance of free stocks based on the company’s needs for liquidity.
Ayman Sherif, head of the marketing and sales department at Obour Land, said that the company’s sponsorship of the Zamalek SC football team was a great investment for the company that influenced its sales positively by the end of 2016.
He added that the marketing policy for new products will be different and will mainly focus on a tasting campaign, with a return to sponsoring programs and TV series away from football, which has already achieved suitable sales for the company.
Sherif noted that the company has focused on Cairo and Alexandria over the past few years to increase its shares there. The company initially depended on other governorates and building a strong customer base there.
He said that there is strong competition over penetrating regional markets in some governorates, such as Alexandria and Damietta, because they mainly depend on local non-mechanized manufacturers.