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two
brewers beat as one with the $66 million acquisition of el gouna beverages now complete, al ahram beverages co. (abc) has a full monopoly on the egyptian alcoholic drinks market. abc, though it no longer has a rival to spur it on, still needs double-digit growth to satisfy shareholders. along with el gouna’s beer and wine division, abc picked up the sole license to manufacture spirits in egypt. the company now has high hopes for starting a retail liquor market, assuming it can negotiate agreements with international distillers to produce name brands locally. abc is talking with two big international distillers about licenses. in the meantime, there’s the matter of management reorganization. fatenn mostafa, chief executive officer of gianaclis, the wine division of abc, said management has not yet decided how to organize the two companies to best maintain growth. the options are to keep them separate, integrate them fully, or merge bottling operations while keeping separate marketing forces. “this is the challenge,” mostafa said. “if you have a monopolistic mentality, nobody’s going to come up with creative ideas. we want to create a competitive mindset in the company.” egyptian beer and wine drinkers clearly benefited from the two-year rivalry between abc and el gouna. just four years ago, egypt had no private breweries or wineries, and the choice was either to buy imports, with a mark-up of as much as 300 percent on foreign wines, or buy the government’s beverages. after two years of competition between el gouna and abc, the formerly stagnant beer market is growing at about 15 percent a year. the wine market is growing even more rapidly, but it started from a much smaller base. both companies engaged in heavy marketing. abc’s luxor group ltd. bought up the license for stella beer operations in 1997 and soon after bought the state’s alexandria winery and a lease on the state-run vineyards. beer sales shot up, thanks to aggressive promotions, new brands and drastic quality improvements on the old brands. but when el gouna beverages entered the market in mid-1999, the newcomer immediately began outspending abc in a burst of effort to gain market share. according to marketing officials from both companies, while abc was spending 5 percent of its net sales on marketing and advertising (about $1.6 million for beer ads and $900,000 for wine ads last year), el gouna was spending a higher percentage and picking up customers faster. “abc always viewed us as a threat from day one, and they have always viewed us as a potential takeover,” said youssef hammad, marketing director for el gouna beverages. “we grew in 2000 versus 1999 by 250 percent in our volume of beer.” as for the competition, “stella only grew 0.9 percent in 2000,” hammad added. “all the growth in the market was coming from us.” among its marketing tactics, el gouna introduced gold-colored cans for its sakara gold brand and introduced sakara seven stars, with a higher alcohol content, and sakara premium, marketed as a classic german-style lager beer. abc representatives have contended that el gouna’s brands were priced at money-losing levels, too. “they’ll say we were undercutting them on price, but we never did,” hammad said. “we just had much stronger marketing.” mostafa, at abc, admitted that the takeoff of sakara surprised her company. the potential of the sakara brand is a good reason to keep the el gouna marketing team intact if possible, she said. el gouna’s advertising has been handled from the start by ama leo burnett in cairo. mostafa said she expects abc to keep leo burnett in place along with abc’s two advertising agencies – grey and tmi / j walter thompson. “i’d be definitely opposed to consolidating advertising. i don’t see major savings, and we want them competing,” she said. “we can get economies of scale from production and from purchasing.” tmi / j walter thompson handles abc’s stella and meister beer brands, plus carlsberg (which abc produces locally under license) and the fast-growing non-alcoholic birell. the agency also handles lipton iced tea in egypt for united beverage co., a venture between abc and unilever egypt. abc’s wines, meanwhile, are represented by grey, which opened an office in cairo in february, having previously handled the account from beirut. although the government has placed restrictions on advertising alcoholic beverages, the atmosphere appears to be loosening up. dahlia el kordy, marketing director for abc’s beer division, said she expected ad expenditures to increase in the coming year because the government is becoming more amenable to beer ads in government newspapers. getting ads into the big state-owned dailies al ahram and al akbar has always been delicate. el gouna tripped up in the launch of sakara when it bought inserts in al ahram for a friday. as readers opened their papers on the muslim communal-prayer day, the inserts slipped out, stirring up religious sensitivities about alcohol. subscribers complained, and alcohol ads were kept out of state papers for several months. but in recent months, el kordy said, al ahram has indicated it is interested in accepting alcohol ads again, and both beverage companies have been advertising regularly in other state papers, though abc doesn’t advertise on fridays. abc’s biggest avenue for growth could be exports. the company is looking at exporting beer, and in particular non-alcoholic beer, to other countries in the middle east as well as to major muslim markets in asia, such as indonesia, malaysia and pakistan. and what of those low local prices for sakara beer? the wholesale price of sakara gold cans went up by almost 15 percent at the beginning of april, a beer and wine retailer in cairo said. susan postlewaite egyptian wine market in 2000 egyptian beer market in 2000 mems
deal secured by egyptian incentives minister of telecommunications and information technology ahmed nazif met on april 11 with memscap president jean-michel karam as part of ongoing negotiations following the signing of a memorandum of understanding to build egypt’s first microchip factory in sixth of october city. nazif and karam unveiled further details about the $100 million project, which is expected to create over 2,000 engineering and technical jobs by 2006. nazif told reporters at a press conference that the government had sold over 40,000 square meters of land in sixth of october city at the low price of $1 per square meter, stressing that this was an exceptional offer. memscap plans to begin construction of the factory in june. operations are to start in mid-2002 and mass-production in january 2003. “we looked at india, the far east, taiwan, but eventually settled on egypt,” karam said. “in china a factory may be more cost effective, but it would be too far away.” memscap already has other ventures in california and minnesota, as well as in japan, germany and france. the american-french company hopes to save over 33 percent of its costs in manufacturing and 25 percent in design and development by operating in egypt. the egyptian operation will be mostly geared towards packaging
chips prepared in grenoble, france. bond legislation
approved after a protracted wave of silence, egypt’s consultative upper house, the shura council, on april 14 gave its preliminary approval to the draft law expected to pave the way for the issue of egypt’s first sovereign eurobond. the law, if approved by the people’s assembly, will give the minister of finance, medhat hassanein, authorization to issue sovereign bonds worth up to $2 billion with maturities of between five and 30 years. the law would not mean that egypt would necessarily be tapping the market for such a hefty sum. the debut bond is still expected to be worth $500 million. given manageable external debt-service obligations and healthy foreign reserves, egypt does not even need this level of financing, but, as dalia sultan, head of fixed-income sales at efg-hermes, put it, “anything less will be too illiquid.” the $2 billion mark would permit a series of eurobond issues, with the possibility of a second issue within six months of the first. no te offering this year last month brought yet another blow to the prospects for a telecom egypt sale. late last year, bookrunners were blaming the adverse global investment climate for the october postponement of telecom egypt’s initial public offering (ipo) and were instead preparing for the sale of a 20-percent stake to a strategic investor, who would prime the company for an ipo to the local and international markets during the latter part of 2001. the strategy remains unchanged, apart from the added sweetener of the company’s mobile operations. but the timescale is looking more dubious than ever, with the second half of 2002 now being tipped as an increasingly likely period for the sale of the state-owned fixed-line monopoly. while world conditions remain unfavorable, particularly where international listing is concerned, a number of other factors suggest that telecom egypt’s problems are far from exogenous. the ministry of communications & information technology is pushing for regulatory reforms, but the draft law intended to regulate the telecom sector in egypt is still stuck at the ministerial review stage, as other governmental portfolios are also affected. delays in setting up a suitable regulatory framework are inextricably
linked with valuation glitches. with questions lingering about how
the company is to be regulated, potential investors will find it
arduous, if not impossible, to assess the value of telecom egypt
as an investment opportunity. as an analyst based in london asked,
“how are investors supposed to assess the worth of a potential
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