European dairy co-op Arla Foods will spend $850 million this year to expand its business.
Juhayna Food Industries is Egypt’s leading processor of UHT-milk, yoghurt and juice. But it has limited production of butter, cheese and cream, in which Arla has specialised in the Middle East and Africa.
“It is a good match for both parties,” says Arla’s senior vice president of the Middle East & Africa, Rasmus Malmbak Kjeldsen.
“Juhayna has a nationwide distribution network, and we are not competing within the same product categories. Together we now get a broader product portfolio, which strengthens the business of both parties.”
Juhayna owns 51% of the new company; Arla owns 49% and will manage the business. The aim is to start local production in Egypt.
“We have built our entire business in the Middle East through cooperation with local partners,” says Kjeldsen. “Arla excels at making joint ventures succeed, and that is a business model we will use to establish ourselves in other African markets as well.”
The new company is expected to start with 40-50 employees and to have about 100 within the next year or two.
Egypt (pop. 90m) has a growing economy and the purchasing power of consumers is increasing. Consumption of homemade dairy products is falling as people prefer commercially processed and packaged retail products.
Egypt has a limited number of supermarket chains, but countless small one-person shops whose stock must be delivered to the door. Juhayna has developed a distribution net covering the entire country.
“Our products will now be able to reach all corners of Egypt. Today our business is merely scraping the surface, but [soon] we will be able to drastically expand our distribution to reach millions of new consumers,” says Kjeldsen.
The new company, to be named ArJu Food Industries, will start sales in October 2015. Arla expects its revenue in Egypt to exceed $144 million in 2020.