Business Close-up: Americana Group

Nasser Al-Kharafi, one of the world's 50 richest people (Photo: The M Code)

MEED | 02 April 2009

Karen Thomas

The Kuwait-based firm aims to build on its base as the leading food company in the Middle East.

Structure

Headquartered in Kuwait City, the Americana Group is owned by the Al-Kharafi family, which has a global portfolio of interests spanning oil and gas, finance, telecoms, real estate and food. The group made global headlines earlier this year when it was linked first with talks to buy Liverpool Football Club, and then to a possible bid for French football club Paris Saint-Germain.

Americana chairman Marzouk al-Kharafi is the son of Nasser al-Kharafi, president of Mohammed Abdulmohsin al-Kharafi & Sons Group. Last year, Forbes magazine ranked Nasser al-Kharafi and his family 46th on its annual rich list, with a net worth of $14bn. Marzouk's two brothers, Badr and Faisal, hold senior positions in companies within the Kharafi empire, while Marzouk is deputy president of the Al-Kharafi group of companies.

Company snapshot

Date established: 1964

Main business sectors: Food retail, marketing and manufacturing

Main business regions: Kuwait, Egypt and worldwide

Chief executive officer: Marzouk al-Kharafi

Americana Group is listed on the Kuwait Stock Exchange, with a market capitalisation of KD406.8m ($1.4bn). Al-Khair National for Stocks & Real Estate Company, which is owned by the Al-Kharafi family, is the majority shareholder in Americana, with a 64.79 per cent stake.

Americana Group has two main operating divisions: restaurants and consumer foods. The main company in the restaurants division, which has 1,000 outlets, is Kuwait Food Company, the franchise giant that operates in Kuwait and the UAE. Other food interests include Al-Ahlia Restaurants in Saudi Arabia, Qatar Food Company in Qatar, Bahrain & Kuwait Restaurant Company in Manama, and Caspian International Restaurants in Kazakhstan.

Americana is the regional franchise partner for global food brands such as Pizza Hut, Kentucky Fried Chicken (KFC), Taco Bell, Costa Coffee, Hardee's, Baskin-Robbins, TGI Friday's and Krispy Kreme doughnuts. It became the first company in the region to offer home-delivery meals in partnership with KFC. Other brands in the division include Samadi, Fish Market, Chicken Tikka and Grand Cafe.

The consumer foods division comprises 13 food-processing companies based in Kuwait, Saudi Arabia and Egypt. These include Americana Meat, which opened its first meat-processing plant in Kuwait in 1972 and is now the largest meat-processing business in the Middle East, claiming a 45 per cent market share and producing 45,000 tonnes a year of meat products for Saudi Arabia and Kuwait.

The division's other manufacturing businesses are Americana Cake, Cairo Poultry Processing Company (Koki), which makes processed chicken nuggets, and Egyptian Canning Company. The International Agricultural Development Company farms 6,000 acres in Egypt to produce potatoes that are processed into frozen chips. Americana also has a joint venture in Egypt with Heinz, launched in 1992, to produce ketchup and Americana branded products for the Middle East market.

Other brands within the consumer foods division include California Garden tinned goods, Americana Olives, Green Land dairy goods, Gulfa bottled water, Beefy burgers and sausages, and Senyorita biscuits and crisps. Americana has 18 factories in five countries, and sells its processed foods to more than 50 countries around the world.

Operations

The Americana Group's roots lie in a small trading company launched in 1962 that opened the Middle East's first branch of the Wimpy fast-food chain in 1970. Today, a two-pronged strategy, based on franchise partnerships with global food and beverage brand owners on the one hand and investment in food-processing operations on the other, has turned Americana into one of the Middle East's largest food companies.

The GCC imports 80 per cent of its food, valued at $20bn in 2007, according to the Arab Organisation for Agricultural Development. Positioning itself in Egypt, a low-cost labour market with arable land along the Nile, Americana's dairy, livestock and arable farms have enabled the company to source raw material for processing and dominate regional demand for convenience and fast foods.

Meanwhile, Americana's partnerships with global fast-food companies pre-empted the surge in regional demand for fast food as Western eating habits have taken hold across the Arabian Gulf.

Ambitions

The company aims to maintain and build on its market position. In February this year, the group's Kuwait Food Company subsidiary signed a franchise deal with the UK's San Carlo Group to launch its Signor Sassi restaurant chain across the region. The deal will involve Americana opening 22 regional outlets of the London-based Italian restaurant chain, starting in Kuwait City, Cairo, Riyadh and Dubai.

Internationally, Americana and its franchise partner, CKE Restaurants, parent company of the Hardee's sandwich chain, announced in December that it will build 12 Carl's Jr restaurants in Kazakhstan by 2013.

The global downturn could present new opportunities for the Al-Kharafi empire. The company continues to diversify and target new markets in East Africa and Central Asia. Hints of future target markets come from the wider Al-Kharafi company, which is expanding aggressively into Africa.

MEED assessment

Just as Kuwait's economy has boomed since 2003, with five years of soaring oil prices, the Americana group has flourished, moving from franchise partnerships and manufacturing into food services and distribution. However, there are signs that retrenchment may be on the way. In February, Americana Group announced a 36 per cent drop in net profits for 2008 to KD35.2m ($119.3m), from KD55m in 2007.

Announcing the latest results in March, Marzouk al-Kharafi spoke of a shift in consumer demand to value-for-money brands in response to the downturn, a change to which the company is well placed to react as the franchise partner for a wide range of food brands.

Americana Group prospects for growth

The Middle East countries richest in oil and gas are among the poorest in terms of access to the arable land they need to produce food supplies. Securing access to crop-growing land to feed growing populations will become a priority for GCC governments in the coming decades.

In this way, Americana Group showed remarkable prescience ramping up its investment in agribusinesses in Egypt in the 1980s, a decision that gives it a significant head-start over many potential competitors now looking to secure access to farmland in Africa, Asia and further afield.

The governments of Abu Dhabi and Qatar have, in the past two years, both joined in the race to secure access to farmland in sub-Saharan Africa and Pakistan.

That ownership of food supply will be a priority in future has become even clearer with the commodity price increases of recent years. Last year, the price of basic foodstuffs such as flour, sugar, milk and edible oils rose sharply, increasing food manufacturers' costs. Basic food prices in the UAE rose by 36 per cent in the first three months of 2008.

Americana Group's businesses have struggled to balance the need to maximise profits by raising the prices of its fast food and processed foodstuffs against the need to see off competition from rival brands and maintain a loyal customer base.

The issue came to a head two years ago, when Americana defied warnings from the UAE's Supreme Committee for Consumer Protection not to raise its fast-food prices and was fined following customer complaints about the rises.

However, Americana could face new pressure from the Gulf's growing health lobby. Regional eating habits have been transformed beyond recognition since the 1970s.

Health concerns

Health campaigners are worried about the GCC's spiralling rates of diabetes, obesity, heart disease and other illnesses that stem from bad diet and a lack of exercise. Kuwait is ranked eighth in the World Health Organisation league table of countries with overweight populations, and is among the top five countries for diabetes, along with the UAE, Saudi Arabia and Bahrain.

While regional governments have yet to effectively tackle this issue or take steps to enforce healthy eating, if and when this happens the company could come under pressure to change its product mix.

More positively for the group, however, demand for food in Kuwait, the GCC and the wider Middle East is expected to grow. Regional populations and the retail sector are expanding, while regional eating habits have moved away from unrefined foodstuffs towards processed convenience foods.

GCC food sales are estimated to be growing at 5-10 per cent a year.

Regional shopping centres and supermarkets are set to increase from 3.8 square kilometres of space in 2008 to more than 9 sq km by the end of 2009, according to the Middle East Food Market Handbook 2009 produced by the Australian government.

Already, supermarkets and hypermarkets account for 45 per cent of GCC sales of fast-moving consumer goods.

Although analysts predict the global downturn could depress GCC shoppers' spending by 30-50 per cent, products seen as luxuries are most likely to be affected, rather than foodstuffs.

While families may shop in a more cost-conscious way, they will also choose convenience foods over expensive restaurants, benefiting Americana's mix of brands.
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Source: MEED 
http://www.meed.com/feature/business_close_up/2009/04/business_closeup_americana_group.html

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