National News
Stella in bed with army's Safi
By Rafy Kourouian
Jun 2, 2003, 03:15

Al Ahram Beverages Company (ABC), Egypt's monopoly brewer, is forging a strategic alliance with an Egyptian Army-owned mineral water bottler.

In a press release, chairman Ahmed Zayat announced that ABC had entered into an exclusive nationwide distribution agreement with premium bottled mineral water company, Safi. The deal allows ABC to distribute Safi through its nationwide network of 29 warehouses and its fleet of over 400 trucks, while the Egyptian Army, the owner of Safi, will continue its control over production.

ABC's foray into the mineral water market is part of its product diversification and excess capacity utilization strategy.

"We want to be a full-fledged beverage company which means water, wine, alcohol, non-alcohol, soft drinks. We have all this. We are the only company in Egypt that can offer this gamut of different products," Zayat told Reuters< in an interview.

"Water, we think, is a very under-utilized market in Egypt... The coup in the whole thing is being in bed with the army."

ABC has set up Reach, a dedicated distribution firm, to market the water which is bottled at source in the Siwa oasis southwest of Cairo.

Zayat said that Reach's contract with the army would raise ABC's profile and ease distribution of the parent company's most famous product, Stella beer, frowned upon by some in Egypt's overwhelmingly Muslim population.

Alcohol consumption is high in the south, Zayat said. Muslim militant groups seeking to transform Egypt into a purist Islamist state through violence are active in the area.

Zayat said it was the police, not the militants, who made it virtually impossible to sell beer in the south, where thousands of policemen are deployed in the struggle against the Islamists.

"This distribution firm will help us to break into Upper Egypt. When you are carrying our products and other products, and some of these products belong to the army, the local police will think twice about bothering you," he said.

"Upper Egypt is locked. If I can break into it, then all the beer that can be produced in Egypt won't be enough because the biggest drinkers are the Upper Egyptians," he said.

Under the agreement, Safi bottles will carry ABC's logo. Zayat picked Safi, which has a 15 percent share of Egypt's market of seven to eight million cases a year, because it is recommended by the US Health Department and the US Army.

"We believe we can double Safi's market share within the year. Tiny is an underestimation when we talk about Egypt's water market... By international standards it should be 45 to 60 million cases a year," Zayat said.

"In Safi distribution, we're making a minimum profit margin of 30 percent. It has very lucrative earnings."

Zayat has been revamping and reshaping ABC since his US-based Luxor Group bought a controlling stake last year.

Brokers say the privatization was one of the most successful for the government, which had owned the brewery since 1963.

In May, ABC signed an agreement with Irish brewer Guinness, part of Diageo Plc., to make and market its famous black beer in the Middle East. ABC already has a deal with Denmark's Carlsberg to build a $43 million brewery which will start production of the Green Label beer by mid-1999.

In addition to alcoholic and non-alcoholic beers, ABC produces soft drinks under license from US firm Royal Crown Cola, a part of Triarc. It holds 90 percent of Egypt's beer market and 95 percent of its non-alcoholic beer market.

Zayat said ABC was negotiating distribution deals with a snacks firm to make up for revenue lost during winter, when beer sales normally slip.

He has signed an agreement with the local unit of PepsiCo Inc. to can the cola at ABC's Sharkiya factory.

"The most important thing for us is to be a whole diversified firm," Zayat said.

ABC's main local competition is business tycoon Samih Sawiris of Orascom, who has teamed up with Germany's Lowenbrau to set up a $30 million brewery in a Red Sea resort. Another local businessman is setting up a separate brewery.


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