Al-Ahram Beverages no longer holds a monopoly on alcohol -- the ghost of wine specialist El Gouna Beverages has been resurrected in the Egyptian International Beverage Company
We can already hear the Muslim Brotherhood screaming: For the last three years, Al-Ahram Beverages Company (ABC) has enjoyed a monopoly on the alcoholic beverage market, but now they're going to have to respond to new competition on tap from the Egyptian International Beverage Company (EIBCO).
"Nobody likes a monopoly," says Andr Hadji-Thomas, EIBCO's managing director. "There is always ground for new players and we consider -- at least in the next two to three years -- that we should have a minimum 30% market share, if not more. We like the challenge."
Al-Ahram Beverages refused repeated requests to comment for this story.
EIBCO's predecessor of sorts was El Gouna Beverages, ABC's last competitor after an M&A spree of massive proportions in the late 1990s. In 2002, ABC bought out the company for a handsome LE 255 million, and with it won the remaining 15% of the beer market and 35% of the wine market.
ABC's Chairman Ahmed Zayat then sold the entire monopoly to Heineken International for a handsome $280 million. The rest is history - until now.
Included in the transaction between ABC and El Gouna is a non-competition agreement signed by El Gouna's owner Naguib Sawiris and a few other shareholders before the company was absorbed. In short, the only way for them to get paid was to renounce their rights to start another alcohol company in the future.
But El Gouna employees were not bound by this agreement. Some of them continued working for ABC, some went off and did other things, but the remainder -- roughly 50% according to Thomas -- got together and started EIBCO. It's no coincidence that Thomas was El Gouna's managing director.
"People were in a sense frustrated when [El Gouna was] sold," says Thomas. "We were only three years old [at the time], so people didn't have the feeling of achievement. But there was a real spirit to build up a new alcohol beverage company. People called us when they learned about EIBCO. Some have even left Al-Ahram to come work with us," he alleges.
So far, EIBCO has recruited 150 employees; 75% of the company belongs to business tycoon Sherif Fanous, 10% is owned by Wadi Foods and the rest belongs to wholesalers that currently distribute 70% of EIBCO's products (hotels and restaurants sell the rest).
A thousand bottles of
Although EIBCO only started operating at the end of October 2005, they have already launched an extensive line of wine and beer. Their wine, which comes in ros, red and white, is called Shahrazade, named after the seductive storyteller in A Thousand and One Nights. EIBCO is also the producer of Luxor brand beer, varieties of which include the classic 5% in a returnable bottle, the silver and gold label cans, the Safari can and XXX (Triple X), their 10% beer. Thomas has intentionally priced his products similarly to ABC products.
"We launched something totally new that Al-Ahram could never launch because I don't think they found a way to produce it," says Thomas of XXX. "It's a crazy thing, but this is why we launched it. People talk about crazy things and Luxor beer is known everywhere because of this 10%."
Although the company is officially only two months old, plans have been in the works for the last two years. They have built a vineyard on the road to Alexandria, a winery and brewery in El Gouna, and Thomas says there will be a third step with a distillery to produce locally made spirits. Presently, EIBCO's wine is made from Wadi vineyards and produced on their land. As soon as the grapes in EIBCO's new vineyard are mature enough for use, they hope to produce wine from both crops.
"If we are in the Red Sea, it's because the Red Sea and Upper Egypt represents 30% of Egyptian alcohol consumption, so it makes sense to have a brewery there," says Thomas. "So for me, I have a competitive edge on Al-Ahram because they have to bring their products in from Cairo. They have 1,000 km to Luxor, whereas I have 300 km to Luxor."
It is no secret that Egypt has become more religiously conservative in the last few decades and drinking is not part of the prevailing culture. Tourists account for an estimated 75% of wine drinkers nationwide. But Thomas is confident that this remaining 25% of Egyptian wine drinkers is growing in number as the market expands. In his opinion, one of the main reasons that Egyptians have never been big wine drinkers is because the quality of wine in Egypt has never been good (an argument familiar to anyone who has read this magazine's ongoing coverage of ABC).
"Before Obelisk was created [by El Gouna Beverages] in 1999, the quality of the wine in Egypt was very much below the standards," Thomas says. "It didn't smell good, the taste was not there, so at that time, Egyptians abandoned wine because why should they drink bad quality wine? With Obelisk there was a new trend; Egyptians started drinking wine again. We promoted wines and wine glasses in hotels and restaurants. Al-Ahram has also improved the quality of their wine. If you go to any trendy restaurant in town now, you will see a lot of bottles of wine open on the tables. Today, the younger generations (under 30) are very much interested in drinking wine because it's a worldwide trend. You can even see it in Northern Europe: wine consumption is going sky up and beer consumption is going down. It's a classier drink."
EIBCO's products are currently on sale in hotels, restaurants and licensed retail stores in Egypt. Thomas says that the company plans to open their own retail locations, like ABC's Drinkie's, in the next few months. The goal is to have 30 shops (roughly 25 in Cairo and 5 in Alexandria) by the end of next year.
"We intend to do this because it's very difficult to get directly to the consumer when he's at home, so something like Drinkie's was a great idea," Thomas says. "But in Egypt there is a long way between the decision and the implementation because you have to find a shop with a license which is very costly and not very easy to find. But we are looking and negotiating with shops that will sell our products."
Although Drinkie's is ABC-exclusive, Thomas is planning to offer ABC products at his shops. "If a customer is asking for a wine from Al-Ahram and I say no, that doesn't make any sense. I welcome Al-Ahram products," he quips.
Additional future plans include expanding their product line to breezers, coolers, non-alcoholic malt beverages and hard liquor. Different types of beers and the launch of a premium wine called Jardin du Nil are also in the works.
As far as Thomas is concerned, ABC is going to have to change its strategy to compete with his products. "They are a big industrial company and they have the advantages and the weaknesses of a big industrial company," he says. "Their advantages are volume, the power of negotiating, the power of getting into the market and the power of cost. Their cost is probably lower than mine because they have more volume."
ABC's weakness, in Thomas' opinion, is that they haven't yet felt the pressure to innovate. "I have not seen a new product from Al-Ahram in years," Thomas says. "Sakkara beer and Meister beer were launched by El Gouna so they made the market for the new things that did not exist in Egypt, not Al-Ahram. Companies that are too big don't have the capacity for launching new things in the way a small player does. Our response is very quick. Look what we were able to do in one month's time."
© Business Today Egypt 2006
