Fresh approach for Al Safi Danone

The company, which is headquartered in France, also has a strong presence in the bottled water, beverages and cereals sectors. Since establishing a joint venture called Al Safi Danone with Saudi Arabian holding company, Al Faisaliah Group, in 2001, the Danone brand has also been gaining ground in the Middle East.

Retail News Middle East spoke to George Najem, country manager for Al Safi Danone in the UAE.

RNME: How did the Al Safi Danone operation start in the Middle East?

Najem: Al Safi had been here in the region for the last 30 years and Danone came on board with a joint venture in late 2001. The role of Al Safi Danone is to cover the Middle East area. Danone products are available around the world and the joint venture role is to cover the Middle East, which includes the GCC countries as well as Iraq, Yemen, Jordan, Lebanon and Syria.

Our head office is in Saudi Arabia. The joint venture took place in late 2001, and the phase of expansion was made in stages. The first stage was to establish the business in Saudi Arabia. Al Safi was already available, but since the joint venture our mission was to be number one in Saudi Arabia. When we came to a good position in Saudi Arabia we started moving to other countries; Kuwait, Qatar, UAE, and to Bahrain. The next step will be Oman.

Al Safi belongs to Al Faisaliah Group, which is the holding company in Saudi Arabia. It has the agencies for brands such as Phillips, Sony and HP. They own Al Safi’s farm, which supplies Al Safi Danone.

RNME: How extensive are Al Safi Danone’s operations in the region?

Najem: We have one factory and one plant which is in an area called Al Kharej in Saudi Arabia, and from there we cover eight countries. It’s one of the biggest factories of Danone in the world and we have the latest technology available, which is provided by Danone.

In Saudi we have around 25 branches with a fleet of 450 trucks. In the other countries we have something like 70 trucks. In each of these countries we have our own operations, either through a distributor or directly. We have about 4,500 employees in the Middle East.

In the UAE and Saudi Arabia, where we have our own set-up. All of the sales and logistics, everything is done by Al Safi Danone in Saudi Arabia and the UAE. In Qatar, Bahrain and Kuwait we have distributors. In each country we also have a country manager who will be reporting to Al Safi Danone. We also cover Jordan, Yemen and Iraq through export.

We have around 90,000 employees worldwide, either working for joint ventures or directly for Danone. The split of employees is 26% in Europe, France around 12%, America 18% and Asia Pacific 44%.

RNME: What products is the business involved with in the region?

Najem: We are global leaders in dairy products and bottled water. The dairy business represents 48% of the company. In the water sector we own Evian, Volvic and Wahaha, which together represent about 26% of our business. We also have Dilous biscuit, which represents something like 23% of our business.

We have more than 1,500 SKUs globally. The products available depend on what is required for each country or business unit. Sometimes you find SKUs available in Europe that are not available in the Middle East.

RNME: What kind of turnover does the company have?
Najem: Turnover for the Middle East is about SR1billion (US $266 million). Beside the core business of Laban, we have Activia Laban, Danan, which is the juice and milk, and yoghurt.

We are also very strong in the desert section such as Danette, Danao. Our new juice and milk product, Danao, is very successful. In Saudi, we have 18% market share from the juice section, which we launched three years ago. Laban constitutes around 10 to 12% from the total KSA.

RNME: What is your biggest brand in the Middle East?

Najem: In terms of volume Al Safi laban is our biggest selling brand. In Saudi Arabia, the market for Laban, which is drinking yogurt, is very big. People can drink it instead of eating it. We also produce pasteurised milk.

RNME: Does the UAE differ from other markets, and if so, why?

Najem: The UAE is different from other markets because in the UAE you have a large number of expats, so the milk represents about 54% of the market, between fresh and long life. Fresh milk is around 40% of the market. For other countries it is not the same. For example, in Saudi Arabia, the laban market is bigger than milk. Historically, the laban market is bigger than milk. The Arab population generally uses more laban, although consumption of milk is also rising.

RNME: Has there been an overall rise in sales of dairy products?

Najem: There is growth every year but it varies from country to country. Milk and yogurt are very fast growing markets and I’m talking about the milk and yoghurt because the size is big. If you take the desert section, that is the fastest growing but it’s still smaller overall than the others.

RNME: Which is the fastest growing country for your products in the Middle East?

Najem: The UAE. We launched there almost three years back. The market is also growing rapidly in Qatar, where the market is being driven mainly by an increase in the population.

RNME: What challenges do you face in the Middle East?

Najem: The challenges are often because of prices. Traditionally there was a battle between the dairy companies, especially in Saudi Arabia. Now it has become more settled, but it took a long time. Each country has a different structure. In the UAE, there is the dairy association, which fixes the prices, but in the other countries, you don’t have this.

In Saudi, traditionally there were big prices reductions because of the competition but now I believe it has settled down. For other countries, there is a big focus on promotions. The challenges are because of the promotions, which are definitely squeezing the margins tightly. This is the general situation in the Gulf. The margins are not very high, but it is a big industry, so the turnover is big.

RNME: How do organisations such as the dairy council in the UAE affect business?

Najem: Basically, the share of the modern trade is growing, year on year because the number of retailers from the key accounts is growing. We can see big groups such as Carrefour, LuLu and the Coops expanding rapidly. The modern trade is taking, year-on-year, additional share at the expense mainly of the small groceries.

Also the medium-size plus supermarkets are growing. In the UAE, the grocery and laban market represents a big chunk of the business. As you know the dairy is more of a convenience item so people would like to buy the milk close to their house. They don’t want to go to the supermarket because it’s a daily consumption. Overall business is going toward the modern trade.

RNME: Do the supermarkets try to dictate prices?

Najem: Sometimes, but not all of them. In the UAE you have good professional supermarkets and there are some traditional retailers that are still operating in the old fashion, but the multinational retailers and the regional retailers are performing in a good way. There used to be supermarkets that were not looking to increase volume growth or how to grow categories.

RNME: Where do you see the category going in the future?

Najem: I think the rate of growth will be about 4% to 5%. Danone has a large portfolio. Worldwide we are trying to see what will fit the market, even if we have to tailor-make it for the Middle East. The Laban Activia was specifically made for the Middle East because laban exists only in this part of the world. In other parts of the world we have it in the yogurt form. Here we have it as yogurt and laban. Here, the market is more geared towards drinkable yogurt.

RNME: Are there any plans to extend the company geographically?

Najem: We should be moving into Oman because it’s the only country except for Syria and Lebanon where our products are not available. Syria and Lebanon will be the next stage because the market size there is still not great, in terms of purchasing power and per capita consumption.

RNME: Are there plans to build another factory to cope with extra demand?

Najem: Maybe in the long term, but not at the moment because the capacity we have at the new factory. We only opened it a few months ago and we upgraded all our machines and capacity to allow us to expand in the Middle East. Al Safi was present here for the past 30 years so the plant was there but since the joint venture we started with new lines. The joint venture company took the decision to expand the factory and use the latest technologies available.

Since we are growing fast we have to expand our capacity and this is what we’ve done. We opened in the same area because we have a farm. We have around 7,500 hectares, and the factory is inside the farm.

RNME:What are the most recent products you have launched?

Najem: We recently launched the Activia yogurt. It’s doing very well. Launched three months ago, and the Danet cookies which are available in various flavours; chocolate, toffee, vanilla, caramel.

RNME: Is competition tough?

Najem: There is a large number of producers in the Gulf. Some of them are small, and some of them are good. The quality that we offer is a bit different from the others. There is a point of difference between us and the other competitors, because our products are adding value to the category. We have the core business such as the milk, yogurt and laban, but we also have a new range of value-added products. So the competition exists but basically for us, we try to add value to our new launches.

RNME: What is the key to success in the Middle East dairy sector?

Najem: One of the keys to success is to have a point of difference from your rivals. We have this point-of-difference because we have added value products. Experience is also important, and to be consistent with your strategy and message.

We represent around 70% of the total marketing spent in the dairy business. Our mission in the Middle East is to have products that are adding value to the healthy products. ||**||