With the recent energy price increases, Egyptians’ worries have increased over whether or not food prices will witness a notable surge. The Daily News Egypt sat down with the Chairman and CEO of Nestlé in the North East African (NEAR) region, Suresh Narayanan, to discuss the company’s pricing plans. Also under discussion were the latest confectionary the company inaugurates and the company’s investments plans, alongside Seoudi Supermarket’s shutdown ordeal.
You recently inaugurated a new chocolate confectionary , which cost EGP65m can you tell us more about that?
This is Nestlé’s first confectionary factory in Egypt [and employs technology] relatively new to Egypt. There is a new snack, called Crunch, which is produced in only two other countries in the world, Pakistan and Indonesia. It’s basically a product that is made of cereal and has a filling of vanilla and chocolate.
The new factory [exclusively] produces this snack. It’s one of the factories I am really proud of because it has been conceived, constructed, commissioned, trialled and had the product launched in less than one year.
What encouraged you to establish this factory?
We constantly look at expanding our portfolio and this was part of that expansion within the snacks segment. We also wanted to come up with an offering that is relatively light and that youth can consume; this was the best offering we could have.
What about your plans to export this product?
At the moment, the intention is very clear to serve the Egyptian consumer. But in the future this could be a product that we export.
What about exporting other Nestlé products?
We export around 10% or 15% of the products produced in Egypt to the Middle East. They go to countries like Jordan, Lebanon, Saudi Arabia and the United Arab Emirates. It has been a steadily growing business for us, but we still would like to increase it [volume of exports]. Our philosophy is to serve the home market which is Egypt, Libya and Sudan. Any opportunities that are seen, that have a strategic nature, we would take. Our arc would largely be in Middle East and North Africa.
When exactly would the exporting for the new product start?
Currently, we are excited by the launch and by the reception. We believe that there is a potential for the product in Egypt itself and as time goes on and as we expand our capacities, we will look at the exporting potential.
How did the Egyptian market receive the new product?
The initial retail has been increasing but it is still too early to say. But I think that the initial signs have been good and also the product is offered at a very attractive price point, around EGP1 and EGP 1.5. It is restively within the budget of a young person.
Was the investment put in the confectionery part of the EGP 1bn investments announced in 2011?
Yes, that was part of the EGP 1bn investment in Egypt.
How far along is Nestlé from completing the EGP 1bn investment?
That number has already been slightly exceeded because, as you know, last year we had a new ice cream facility that we inaugurated, and it has marked a significant technological shift. We also expanded our facilities for Nescafé, Nido, Cerelac and Nesquik. We also improved and significantly changed our distribution across Egypt. All of that was funded from the EGP 1bn which was committed to Egypt in 2011.
How much did the figure exceed the EGP 1bn?
Not very substantially; it will probably be by about 5% or 10%.
What about the number of employees the new facility has?
Since 2011, our work force in Egypt has doubled, and today we have over 6,000 employees. The investments we made led to jobs in manufacturing, supply chains, distribution etc. This latest investment has created about 100 jobs in manufacturing, and inducing the spin off of it we estimate about 400 jobs.
Your facilities are created in the6th of October City. Do you have any plans to expand in other Egyptian governorates?
We have two factories. One manufactures ice cream and the other is for dry goods. This confectionary is included in the dry goods’ facility. At the moment, after our investments, we are still digesting [the consequences of these investments]. We are trying to maximise the output we can get from these investments. But the fact that we have invested in Egypt and doubled our workforce, the fact that we have invested in the last three years more that we have done before, tells you about Nestlé’s dedication and commitment to the country. Going forward, if things turn out to be even better, there will be nothing stopping the company from looking at facilities outside of the current 6th of October City parameter.
So is it safe to say that for the coming period Nestlé wouldn’t invest?
We will continue to selectively invest. Each year there is a certain capacity of increase and that will continue. But let me put it this way: I think we will look at consolidating and actualising on the investments that we made and using that as a platform for future investments.
When you say selectively invest, what would be the opportunities you are referring to?
We have around 10 business segments in Egypt. We have products like coffee, milks, confectionary, ice-cream, cereals, nutrition and water. We firmly believe that there are enough opportunities in the segments that we have today to help us take the business forward and serve the consumers. Our objective is to be the nutritious health and wellness company of choice in this region, using consumer insight. What we achieve is significant but there still is potential.
Is there a targeted market share that Nestlé is aiming for?
Our growth levels have been increasing and the Egyptian consumer has been evolving. In the last three years, we have had a double digit growth. With all the increase in fuel prices and other prices, the budget is going to be stretched even more. So obviously, price points and affordability are going to become key [and one of the main focuses]. There is no target market share but we would like to be a respectful, responsible player in all of our segments. I think in Egypt, we are blessed by the consumer.
Has the growth been steady throughout the past year?
Yes, the [economic] crisis has been evolving. Each year has been more difficult than the previous year and things are building up. So our growth pattern is not exactly the same but it still in the double digit growth figures.
Following the fuel price increases, do you think it will be a challenge for Nestlé to maintain its prices?
I think at the moment we are still adjusting to the full impact of the price increase because it’s not just fuel, it’s also electricity and taxes etc. We are still crunching the numbers to see how it impacts the overall company. Our core philosophy is to try and absorb as much as we can to take as much as we can and improving the value to the consumer. If it is totally inevitable, we would look at increasing prices. We would like to be a company that makes as few changes as possible.
Do you see price increases in the coming period?
It is too early to say but at the end of this exercise, if we believe that we can’t absorb all of it along with the cost increases that can come along the road, we will evaluate and see how much we can absorb.
When would it be possible for Nestlé, or other companies, to know if there will be price increases?
Providing that there are no other big news [regulations and laws], it would be around the next couple of weeks for most companies.
Has Nestlé’s profit been affected by the economic challenges faced?
Yes, the overall top line and bottom line are not exactly the same. Things go up and down but Nestlé is here for the long run, so one or two years are not going to sway us from what we are as a company. Yes, we have variation but in the long term we say that this is still a market will potential and promise.
Seoudi and Zad supermarkets have been recently shutdown but Seoudi reopened shortly after – has that affected Nestlé’s distribution and sales?
Our performance is critically linked to retail performance. So obviously during that period, there were tense days because we do business with Seoudi, but [it passed] and we have been able to come out of it. It was more concern than [actual] impact. If the shutdown had lasted for a longer period [then maybe there would have been an issue], but two or three days were not significant.
Can you disclose the number of products that you supply to Seoudi per month?
I can’t disclose that value, but I would say that Seoudi is one of the most important local chains that we deal with.
With the Egyptian Company for Wholesale taking charge of the supermarket, how was Nestlé’s distribution affected?
To the best of my knowledge, I think the business with Seoudi has been carrying out as normal.