We built a world-class food facility in Ethiopia
Vasari Global and its partners have entered the Ethiopian biscuit business and have their eyes on the wider East African market as consumer spending rises.
The United Kingdom-based investment firm Vasari Global has invested $36m into Ahadukes, a food manufacturer in Ethiopia that aims initially to sell on the local market.
Vasari is working with local businessman Solomon Wondimneh, and together they set up their first factory through a joint venture in May.
The partners ultimately seek to supply the East African market and provide much-needed foreign exchange for Ethiopia.
The factory is located in Bishoftu, Oromia Region, about 50km south-east of Addis Ababa.
Vasari Global plans to increase the investment to $120m as new lines like pasta are added to the biscuits currently coming out of the processing facility, which is housed in a 9,780m2 space.
The African Development Bank estimates that more than 20% of Ethiopia’s 94 million people are now middle-class consumers, and companies at home and abroad want a piece of the growing market.
In the production of pasta, biscuits and other fast-moving consumer goods, Ahadukes faces competition from East African Tiger Brands Industries, a joint venture founded in 2010 by South Africa’s Tiger Brands and local company East African Holding.
Vasari has invested in two other projects in Ethiopia – the Dashen Brewery and Rorank Business, a new spirits distillery – both of which are planning expansions.
The Africa Report: How has your project evolved?
Vivian Imerman : It’s a brown-field operation. Two years ago, it was just bare land. We built a world-class food facility that will comply with most international standards. The building itself is brand new and the equipment that we’re putting in, of course, is all brand new, state-of-the-art European equipment.
Can the market bear the pricing of your product?
We’ll be producing a range of high-quality biscuits. The whole idea of what we’re producing is giving a much better quality biscuit than what’s available on the local markets but only at a slightly higher price. So the value-for-money experience that we’re creating out of the facility is superior to anything on the market currently. The price is only marginally higher, but the quality is twice as good.
Where are your inputs coming from?
Ninety per cent of our raw material is locally sourced, and the balance is imported. What we import is mainly on the packaging side because we aren’t able to get the quality packaging that [local businesses] are offering.
How did you choose Solomon as a local partner?
How did we choose him? He was looking for an international partner, and it was brought to us by Deloitte. Our business is the fast-moving consumer goods business, and we’ve been in biscuits for many years. And in pasta – we used to have the Nabisco and Kraft brands in South Africa many years ago. We certainly understand this type of business.
How is the fast-moving consumer goods market changing in Ethiopia?
Well, we see the market evolving. As disposable income increases, we see a sizeable market evolving in the consumer space. Already, we’ve seen significant growth in the market in the past three or four years. We have other businesses there as well. And benchmarking against those, we certainly understand the upward trend of the market.
By when do you think you might be exporting to East Africa?
I would say within about 18 months. I mean, we first want to understand our local demand. Once we’ve got full distribution in the market and we’ve covered what’s already out there in a vast area – 90-odd million people in a geographical spread that is mostly rural in its consumption channel – we’ll be looking at exports.
I imagine the Ethiopian government is keen for you to export as well.
Yes, I think we all know that one of the drawbacks of Ethiopia is limited foreign currency whilst the country is developing. They’re putting all the big infrastructure projects in, so exports are essential for that.
What kind of incentives did they offer for this particular joint venture?
None. The only incentives were you get a two-year tax holiday, and that’s from the time you start up your factory. But as far as the government giving any further incentives goes, none. On a regional basis, you’ve got some benefits in terms of reduced cost of land and so forth, but really there are no direct benefits in terms of grants or anything like that. In any of our businesses anywhere in the world, we always look at our business without any grants or benefits or any non-sustainable short-term incentives.
How do you get the product out there?
We have a route-to-market system. We use key distributors in certain areas, and in certain areas we do our own distribution. So it all depends on the region and on the dynamic of the distributors and of the consumers. One of our key competencies is route to market and route to consumer. As you can imagine in this type of business, it’s got to be brand management, quality, and then, of course, getting the product to the consumer.
How do you know exactly how big the demand is in a particular town or village?
It really is on the market trends, consumption trends, as it goes up the income groups. So you will see the similarities if you look at the business cycles of any country. You know, you can almost plot, perhaps scientifically, the consumption patterns in terms of where and when they consume the product, what size they consume. Is it done on a seasonal basis? Is it refrigerated? Is it sold in small packs? Is it sold in multi-packs? Again, it all depends on the consumption pattern and the disposable income in any particular region, the channel of distribution and the market country.
So macro tools rather than granular surveys of far-flung regions?
No, granular surveys too, as it’s a bottom-up exercise. But, once you understand the benchmarking, that’s pretty much your macro experience, which for us has arrived over many years of operatin
in markets and understanding the consumer’s requirements.
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The Africa Report