By David Ingham
Naser Ali Odeh, general manager at GulfCo, tells RNME about agency laws, the growth of private labels and the emergence of hypermarkets.
|~||~||~|Dubai-based GulfCo is one of the UAE’s largest distributors of food products and holds agency rights to major international brands. Naser Ali Odeh, general manager, discusses plans to scrap agency laws, the growth of private labels and the emergence of hypermarkets.
RNME: How did GulfCo start and what is the company’s philosophy?
GulfCo started in 1964 when Dubai was still a small town with its emphasis on the frozen sector. At one time, we were bringing chicken from China and because there was no cold storage in Dubai, the ship would come to Port Rashid and stay there until we’d distributed all the stock. Omanis would come with their ex-British army Bedford trucks, receive their four or five tonnes of chicken and transport it to Oman.
The company set out with an emphasis on quality and one of our objectives was to make a real contribution to the country’s development. GulfCo belongs to Juma Al Majid group of companies, which has contributed in all areas of the economy, and our chairman Mr Juma Al Majid heads the Economic Council of Dubai.
We have always been looking to acquire the best agencies and the best brands. That’s why you’ll find in GulfCo that 76% of our brands are from America or from Europe. We have been engaged in distributing products to the retail sector, catering companies, shipchandlers as well as the hotel industry.
RNME: Which brands do you represent?
Right from the beginning, we’ve been handling General Foods, which has now come under Kraft. Leading products are Tang, Dream Whip, Maxwell House Coffee and Jell-O. These are distributed everywhere, even to the duty free shops. We have Coroli corn oil, which comes from Holland and is the brand leader in that segment.
Then comes Wrigley’s, which is an absolutely huge business. We have brand leadership and direct distribution to 6700 outlets. This figure has been matched only by Pepsi Cola and Marlboro.
We take care of our product, right from supply until it is sold out. Freshness is the most important thing for chewing gum. That’s why we’ve reduced the shelf life from two years, which is allowed by the health department, to nine months. We are exchanging the goods three months before they expire on the shelf. That’s why we enjoy trust in the product — we are backing it up.
We also have Perrier water and now all the Nestle Waters — Perrier, Contrex and Vitel. This is a very big business for us; last year, we did 3.3 million bottles.
RNME: Are we talking UAE only?
The UAE, in particular. There are some products that go out to neighbouring countries. Monarch produces 230 SKUs and smaller distributors in Oman and Qatar will not be able to carry all those SKUs. We would send them a mixed container and charge them a special price because they are an official agent.
RNME: Do you do direct distribution?
We do direct distribution for everything. We also have wholesalers, no-one can deny their role, although their role has diminished with time. You cannot sit and wait for people to buy your product any more. The arrival of the chains is a big revolution. It has changed the formula of sales.
RNME: How has the emergence of large supermarket chains changed your existence as a distributor?
We don’t see this as a negative because they have added some quality work to the equation. We are working with professionals. Before, no-one talked about categories, visibility, market shares. It was impossible to see what was the best contributor to your business and what were the best performers. When Carrefour and others came in, people started improving their structures — you started seeing merchandisers, for example. They didn’t exist before.
RNME: But don’t large chains charge you money for listings, ask for lots of promotions, demand direct distribution and continually drive margins down?
This is not correct. We have what we call an annual meeting with them and to this meeting you bring your key account managers who look after a large portion of your business. You start talking about what are their objectives for next year and what are yours. Then we talk about the products that are currently selling, the successful categories and what we are planning to do with them.
We talk one year ahead, about incentive schemes and how we will support them. We ask for things and they ask in return. We discuss what will be done, how much they will support me and we come up with a plan to achieve our mutual goals. It’s a partnership, they do not dictate.
RNME: But you hear bad stories about how suppliers are treated: on payment terms, for example?
We discuss payment terms and I think they are adequate. We discuss margins, the positioning of a product, I look at my share and we arrive at the cost. There are people who say distributors and agencies are a monopoly. It’s not true because I do not set the price myself.
There is co-ordination to keep prices the same between GCC countries. We don’t just set a price. We look at the positioning, where it will be sold. The margin for the hypermarkets is not more than for anyone else. There are other outlets that don’t pay such close attention as they do to the margin.
RNME: So the experience of working with the hypermarkets is a good one?
It is a win-win situation. Now, for example, you don’t need a salesman. Instead, our key account manager will have a series of meetings and finalise the plans for a year ahead. You don’t have to ‘sell’ because you have a contract in place already. There is a ‘plannogram’ in place and you only need to keep on following up.
RNME: What if you have a new brand and you want to get it on the shelf of a hypermarket; isn’t that tricky?
When we have our key account discussions, we discuss how they can help us. We will ask for certain things, like a checkout stand for Wrigley’s or listing some products free of charge.
RNME: We hear the agency laws will be scrapped in the UAE; what do you think about that?
The agency law has been here for some time. In the last few years, however, it has not been applied so rigorously. Normally, when you have a problem with someone brining in parallel imports, you put your case to the ministry and they follow it up.
Sometimes, they may impose penalties and there are cases of this. However, in the last five years, they have stopped registering new agencies in foodstuffs. Now, they are more flexible. So now the agency law is scrapped and everyone is talking about it. In reality, the supplier will not allow an open market for his product.
RNME: But somebody can import from Taiwan or Singapore?
You cannot, because each country has its own regulations on labelling and shelf life. If you bring Tang from Thailand, for example, it is not the same. It tastes different.
RNME: So if they scrap the law, it doesn’t matter to you?
No problem. If the people who are complaining [about agency laws] go to the supplier, they will not get the product.
RNME: Then they would import from a distributor in the Czech Republic or Sweden, for example.
Food is a sensitive item. There are food colourings allowed in Europe and not allowed here, allowed in America but not allowed in Europe. There are ingredients that are not allowed here. Regulations here are very strict and enforced.
RNME: What if one of the supermarkets decided to import Contrex [designer mineral water] from France directly?
It would not be profitable for them. When we order from France, we get 25% off their pricing. If they go and buy from a wholesaler at an additional 25% with additional forwarding costs, it wouldn’t work.
RNME: Isn’t Carrefour building a big warehouse to import directly?
It will be their own items. The ministry says it will liberalise basic items and some retailers will bring these things in under their own label. But to be honest, what have we seen these private labels do?
RNME: Private labels are spreading here; how do you view them?
It does not scare me. They are big in Europe, but not here. There are certain products that cannot be copied by the private label.
RNME: You could easily do your own oil.
Retailers already are, but how much can they compete? You cannot call yourself competitive unless you are level on quality. It’s OK for tissue paper, but no-one will sacrifice quality on oil [and] who else could make chewing gum as well as Wrigley’s?
RNME: Private labels won’t affect you then?
I’m saying that these private labels could do damage, but they will not be profitable. Retailers can display them in a way that makes them look more than they are. Also, selling shelves is very profitable, so why would they occupy shelves with their own products that are not going to move?
RNME: Do you, as a supplier, feel any responsibility for public health?
For starters, we dropped cigarettes.
RNME: What about a product like Tang that is full of sugar?
We have sugar free products. If you look at chewing gum, 80% of our chewing gum is sugar free. Some consumers will not accept sugar free products, but the growth is in sugar free. Even in Tang, there is a sugar free range.
RNME: What is your plan for the company going forward?
We are a company with excellent resources and excellent distribution and are always looking to expand. We always aim to grow by two digits, and we do it by expanding the distribution base and adding more lines and products. When you talk about fast moving consumer goods, there are certain products that have a life cycle. You have to keep an eye on what is new; people are more food conscious, which is why you have to focus on reducing sugar content.
RNME: What will be the hot categories in years to come?
In my opinion, confectionery is a growing category because the younger population is growing here and they have their own demands. When we started doing dry food, the proportion of families here was low. It was largely bachelors. Now, more families are coming, people are staying here, the country is changing and you have to change with it. Other growth categories are dairy and juices, plus diet products.||**||