Winning formula

Investing in the right brands and a focus on staff development has been key to Food Specialities development.

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By  Roger Field Published  February 7, 2006

|~||~||~|In just 20 years, Food Specialities, a branded food and ingredients supplier, has become one of the UAE’s biggest homegrown food suppliers and brand owners.

The company, which has bases in Dubai, Saudi Arabia, Jordan and Kuwait, supplies ingredients for products including juice and confectionery, and also owns brands such as Diamond.
Deepak Dhawan, Food Specialities’ founder, chairman and CEO, told RNME about the development of the company, challenges in the food sector, and plans for expansion.

RNME: How was the company formed back in 1986?

I used to work for a US food company, Beatrice Foods Co, which was bought out by another company. I bought a few brands that had belonged to Beatrice, and started operating in the UAE with those agency relationships.

The business started off in Jebel Ali in a rented office, back in 1986. In 1995 we built our own office and warehouse. We set up a base in Saudi Arabia in about 1989 and now have two sites in the country. We also have operations in Jordan and Kuwait, which are primarily sales offices.

We started off with our Diamond brand, which we started to launch country by country in the Middle East. That was our core activity and it remains one of our important objectives to eventually have Diamond as a household brand, in the top three position in every segment we compete in.

RNME: What are the main parts of the business?

Our core competences are brand marketing, such as our Diamond brand, and food ingredients, where we have tie-ups with world-class companies around the globe. For example, we have joint ventures with with companies such as Rolla Group, which is one of the largest global providers of beverage ingredients.

Ingredients is the largest part of the business. It accounts for about two thirds of the business in terms of turnover. Our consumer goods, such as the Diamond brand, are also a very important part of our business. Going forward, I see these two as the most important sides of the business.
We supply ingredients to factories, for juice, beverages, confectionery, bakery, meat and snack food. Some of our customers make private label products.

RNME: What companies buy your drink ingredients?

I don’t think there are any juice manufacturers in the region that are not our customers of ours, starting from top names like Lacnor, Al-Marai and Aujan.

We supply the complete raw material as a frozen concentrate. The customer just has to dilute it, fill it and distribute it. Most of our juice ingredients are tailor-made blends. For example, the fruit mix we supply to Lacnor is reserved for them and we would not supply that to any other customer.

RNME: Has growth of the business been consistent?

We started on a modest base. Perhaps our fastest growth was in the 1990’s when we had 40% to 50% each year. We’re still growing now. Between 2004 and 2005, our growth was close to 20%. The fastest growing division is ingredients.

RNME: So the regional market must have changed significantly since you established the business?

In 1986, the reliance on imported products was high. When I first came here, if you wanted Pepsi or a good biscuit, it was imported. Basic products such as juices and dairy products were all imported. There wasn’t a manufacturing industry in this region as you see today.

This has really evolved in the last 25 years with governments in the region trying to incentivise local businessmen to get into food manufacturing. That influenced me to go into the ingredient business and that has been very successful. We were the pioneers in that.

RNME: Has Food Specialities always tried to spot niches in the market?

We have been pioneers in various fields. One was the introduction of Thai canned tuna in this region. In the early years, going back to 1980, the canned tuna business was completely dominated by Japan, and so, I tied up with an Australian group that had set up the first tuna cannery in Thailand.

We tried to introduce Thai tuna to retailers but it was an uphill task. I remember being thrown out of every office I tried to go to. Thailand wasn’t accepted as a country for canned tuna. We eventually got our first breakthrough and the rest is history. Today if you look at the market, it’s 90% plus Thai tuna, of which we have a substantial share. We supply our Diamond brand and also private labels to a number of leading stores.

Another pioneering activity was on the juice and beverage side. We had an agency relationship at that time which is now a joint venture with Dohler Group of Germany. It’s called Dohler Middle East. With that partnership we introduced the concept of juice concentrates and tailor-made blends into the region in the 1980s. This market was none-existent at that time and the better juice products were all imported. But today if you see the market, we supply most of the juice producers in the UAE.

RNME: Where do most of your branded goods go?

Primarily to the supermarkets and hypermarkets. We have intensive distribution. We also have brand sales through which our products go into smaller groceries. If you look at the volume contributions for the large stores it would be a larger share.

RNME: Are you looking to expand your range of brands?

No. We want to focus on the brands we have. We also have to be realistic. We are not a multinational and we’ve identified what is our core competence, and we still see plenty of room for growth in it.

There are a lot of leading brands today where we supply the ingredients so we feel a lot of satisfaction in that. We’ve always believed in long-term partnerships, and that’s where we differentiate from a lot of our competitors, because we are not just looking at making a quick buck.

RNME: Where are your biggest markets?

Saudi Arabia is our largest market. It contributes 50% and we have a very strong sales team there. We have a strong presence in the country and a strong relationship with our customers there. In terms of our geographical coverage, our core markets are the GCC, the Levant and Yemen. We also do some business in Egypt, Sudan and a couple of other countries.

RNME: How are your brands faring against a proliferation of supermarket own-label brands?

We are seeing the introduction of store brands and that always puts pressure on brand marketing. We have been investing in our brand, we are committed to it and we believe that we are on the right track. Just last year we spent half a million dollars just on redesigning our packaging. The packaging looked tired and we wanted to reposition the brand, so we are prepared to invest. We’re in it for the long haul.

Perhaps what has also happened is that too many brands came into each category but now we are seeing that a lot of brands are dying; brands which just were there without any clear strategy and eventually. If you look at any shelf, whether it’s milk, juice, canned fruit, you see more than a dozen brands. But competition is the biggest challenge and the biggest opportunity. It will always be there and it keeps us on our toes.

RNME: Are supermarkets becoming too demanding in terms of pricing?

I think the retail trade has become unreasonably dictating in terms of listing fees, shelf space and rentals. I think eventually it will find a balance.

RNME: Following the recent dispute between the UAE co-ops and dairy producers, do you think the producers’ price increases were justified at all?

Personally I feel that there is room for a price increase. If we go back 25 years, a can of Pepsi cost AED1, and it is still AED1. If you look at a litre of milk or a litre of juice, in some cases the price is actually lower today than it was 20 years ago. Compare that with developed markets such as Europe, where prices have risen.

The buyer wants quality but doesn’t want to pay the full price, so the whole chain gets pressured. I think there is good reason for price increases on dairy and juice segments, which I am very familiar with. We know the costing structure and margins have been extremely squeezed. Packaging has gone up so much. Oil prices have gone up and eventually that affects everybody.

Our top line keeps going up every year, but if you look at our margin, definitely it’s been under pressure and has been dropping for about a ten-year span.

RNME: Are there plans to expand the business into other regions?

We are exploring and looking at geographical expansion. One region we have identified is central Asia; countries including Kazakhstan, Uzbekistan. My first trip there [central Asia] reminded me of Saudi Arabia 25
years ago.

These are countries that emerged out of the Soviet Union in 1991. A lot of these countries went through political upheavals, but that is more or less settled, particularly Kazakhstan. This region has huge oil, gas and mineral reserves, so we think the fundamentals are there.

It’s also underdeveloped compared to the rest of the world, specifically the food industry. Last year we made four visits. We met a cross-section of people and visited a juice factory and a confectionery factory to get a feeling of the products they make.

We also visited distribution companies to understand what opportunities there might be. We brought the data back and we think the region fits well with our core competences. We’re planning to open a rep office in Kazakhstan in 2006, and then gradually introduce ingredients and brands.

RNME: And are you also planning on moving into other sectors?

With the growth of foodservice industry, we have started a new business to service hotels, restaurants and catering companies in the UAE. The business has an office in Dubai, and is operating just in the UAE at the moment, but there are plans to roll it out across the region.

RNME: Food Specialities has grown from a small business to a company with a US $125 million turnover in 20 years. How do you explain that success?

We’re an organisation that believes in people. Our core strength is our people and we lay our emphasis on that. We’re proud to say that we have an excellent team and I think this is what distinguishes us from the competition and helps us keep one step ahead.

We like to hire and retain good people, which is why we launched an employee stock option last year. We gave stock options to 11 of our senior people. As of this year, I intend to roll that out to 30 people. There’s no better incentive than to have a feeling of ownership.

I’m the wrong side my of my fifties now, and I’d like to leave behind a strong organisation. I don’t need to worry too much about the operation side because the team takes care of it. In the next five years I’ll make sure the fundamentals are right, strategy and direction is right. The rest will take care of itself.
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