Egypt's consumer food industry remains strong

While the years since the 2011 Arab Spring have been difficult for many of Egypt’s industries, the fast-moving consumer goods (FMCG) segment has remained largely resilient. Although inflation has been a worry in terms of its effect on domestic sales, the majority of FMCG manufacturers have been experiencing robust growth.

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The long-term trends in the market look positive, with food and beverage processing is seen as a particularly promising. Food consumption has been increasing by more than 10% per year, and beverages have shown strong demand. In 2013, soft drink sales increased by 14.3%, while alcoholic beverages grew by 18.4%.

These figures reflect the sector’s general performance, where many products are deemed essential. Indeed, in the same year, mass grocery retail sales grew by 14.1%. Ahmed Hassan, CEO of Speed, a supply chain service provider, told OBG, “Supply chain businesses are growing. The Egyptian population is hungry for goods and products, which is evidenced by the fact that 18 years ago there was not a single distribution company. Now the entire sector is booming.”

Given a population of 88.5m, the vast majority of which is concentrated in a narrow strip of land close to the banks of the Nile, manufacturers and retailers have a ready, easily accessible market. The market, thus, looks well positioned for the long term, even if there are certain challenges to maintaining the current high growth rates.

“The reduction of subsidies has had a definite impact on purchasing power, which has been further exacerbated by price increases due to the depreciation of the Egyptian pound,” said Tarek Madkour, the CEO of the Egyptian division of Halwani Brothers, a Saudi food production company. “That said, food is usually the last industry that is affected by these sorts of issues.”

Revenues On The Rise

Most companies in the sector are recording strong financials on the back of high sales volumes. Edita Food Industries, the largest packaged cakes producer in the country, recorded net profits of LE59.5m ($8.1m) in the first quarter of 2015. This was achieved on the back of total revenues of LE528.9m ($72m), an 18.3% increase on the same period in 2014.

Nonetheless, many companies will likely need to update their facilities to keep up production. “Maintaining local food production with the old factories that are still running is certainly a major challenge,” Mahmoud Bazan, the managing director of baby food and jam producer Hero, told OBG. “The lack of upgrades and the energy subsidy reduction mean that the direct and indirect costs of production have increased.”

Inbound Investment

Given these results and general optimism surrounding the health of the sector, it is unsurprising that global players are looking to enter or to expand their presence. In January 2015 Kellogg Company, the biggest global cereal manufacturer, acquired a controlling stake in Bisco Misr, Egypt’s largest biscuit producer, with annual sales of $70m in 2013.

This follows on the plans of Swiss food producer Nestlé to expand into the Egyptian market. Over the three years following 2011, Nestlé invested approximately LE1bn ($136.3m) on widening its footprint in the country. In June 2014 the company announced an LE65m ($8.9m) expansion to its facilities in 6th of October City, in the western suburbs of Cairo. It is its first confectionery plant in the country. Even before this investment, Nestlé employed approximately 3000 people in Egypt at three plants and seven distribution centres. Such investment interest by major international companies constitutes a strong show of faith in the Egyptian market, and bodes well for the industry.