Sbarro has reached CityStars mall. News Focus Freeing Taxpayers The ruling NDP cut personal income and corporate taxes in half, but the emergency law is here to stay High Times Bankers expect higher interest rates to heat up the investment climate and cool inflation Mastering Law A new law program at the American University in Cairo seeks to get students serious about law Until the Cows Come Home Consumers are still waiting for Sudanese beef to hit the market AloAchoo! The next generation of viruses has hit mobile phones Star Power The 2004 Olympics created some unlikely national icons and a powerful lineup of marketing potential Below Par The World Bank says Egypt is handicapped by the high costs to start a business and the difficulty of firing people, to name a few Corporate Bonding Orascom Telecom and Telecom Egypt have made a splash in the bond market, but rising interest rates may damper enthusiasm Unmaking Monopolies Opposition MPs say changes to a proposed anti-trust law defy the purpose of the law by protecting monopolies On Topic The Euromoney conference put an exclamation point on the liberalization efforts of the government Investment Matchmakers Egypt Invest 2004 seeks to convince foreign investors that the country has finally turned a corner ’Dish’ing it Out Satellite TV stations are set to give the state-run channels a run for their advertising revenues during Ramadan Cargo Crunch As exporters complain about skyrocketing airfreight prices, the government seems to be turning an unsympathetic ear Star Power The 2004 Olympics created some unlikely national icons and a powerful lineup of marketing potential By Omar Mohsen A veteran of burgers and fries, EMRM chief Ahmed El Aawar now thinks the market is ready for Mexican food. By Mohamed Allouba. El Aawar wants Sbarro to be known for far more than just its pizza. By Mohamed Allouba. High turnover at EMRM’s Wessaya makes possible economies of scale for the entire group.

By Andrew Bossone

Stop someone on the street and ask him to name a fast-food chain in Egypt and odds are he’ll come up with an eatery owned by one of two companies: Americana (master franchiser for KFC and Pizza Hut, among others) or Mansour Foods (McDonald’s), which dominate the restaurant industry in Egypt.

But a new group, the Egyptian Company for Modern Restaurant Management (EMRM), headed by industry veteran Ahmed El Aawar, is getting ready to turn the heat up in the market after executing a rare management buyout.

A veteran of McDonald’s Egypt, El Aawar was about to become the chain’s operations manager when he left to take the post of director of operations at KFC. In early 2002, he made the leap from KFC to El-Sewedy foods, where he became CEO and helped build the upstart chain of Wessaya restaurants. El Aawar could have sat back and watched the profits pour in as quickly as his restaurants’ kitchens drop French fries into hot oil. Instead, he’s now sitting in his office overlooking the pitch of Nasr City’s Al-Ahly Club, doing his best to mask a certain anxiousness as he comes face-to-face with what it means to be an entrepreneur, not a salaried employee.

At the beginning of June, El Aawar, along with brothers Alaa and Wael Borhan, bought out most of El-Sewedy Foods’ restaurant interests for an undisclosed sum.

EMRM now owns the Egyptian rights to Wessaya, Sbarro and Cantina Laredo, all divisions El Aawar helped build while running Sewedy’s foods division. The popular chain of Cilantro cafés, which El-Sewedy bought last year, will remain under the holding company Delicious, Inc., which is wholly owned by El-Sewedy and remains separate from EMRM.

El-Sewedy also holds the rights to two new endeavors, Rainforest Cafe and Joe’s Crab Shack, although El Aawar is negotiating to manage both on El-Sewedy’s behalf (more on that in a moment).

According to Sami El-Meligy, vice president of El-Sewedy Industries Group (the parent company of El-Sewedy Foods), the group sold part of its restaurant unit to El Aawar and the brothers Borhan to allow it to focus on its core business: cable manufacturing. El-Sewedy Cables, the largest producer of power cables in the country and one of the biggest in the Middle East, has a 56% market share in Egypt and plans to build four new factories in the coming year.

The company divesture caps a series of moves El-Sewedy has made as it expands in the regional cable and wire industry. In April 2006, El-Sewedy Cables executed a private placement sale that decreased El-Sewedy family’s share from 97.7% to 73.3%, with 25% now in free float on the Cairo and Alexandria Stock Exchange (CASE) and the remaining held by company management, according to a report by brokerage EFG-Hermes (bt100 number 26).

On May 21, El-Sewedy Cables listed on the CASE and shares began trading one week later; the group raised LE 1.29 billion by selling some 30 million shares. Of that sum, LE 600 million was put back into the company to fund a rights issue prior to the offering. El-Sewedy plans to use the balance of the windfall to fund its regional expansion projects.

The buyer for much of El-Sewedy’s food operations was obvious, insiders say: El Aawar didn’t just have years of industry experience, but had proved his business acumen on the inside as CEO of the foods division.

El-Meligy says the group knew El Aawar would keep Wessaya, an original brand, going strong. El Aawar remembers chariman Hesham El-Sewedy telling him: “Tell me if you have your friends [on board]. You are better than anyone else and I would prefer to sell to you.”

The restaurant business is a new venture for the Borhan brothers. Wael, a board member of the Egyptian Junior Business Association, manages a real estate company and a pharmaceutical sales agency, while Alaa heads Stadco, which grows grapes and citrus for export to European countries, including Holland, Denmark and the United Kingdom.

The Borhans and El Aawar have been planning to go into business together for three years.

El Aawar met the Borhans in 2003 at a USAID-funded training course run by the Management Development Initiative. As part of the program, Alaa says they did a case study of El Aawar’s work and found he was “doing very well.” They became fast friends and waited for the right moment to team up.

When El-Sewedy told El Aawar he was looking to reduce his food holdings, El Aawar pitched the idea of a management buyout to the Borhans, who quickly jumped on board. While the partners will use EMRM as the company’s legal name, they’re still kneading out their trade name. At the moment, they’re leaning toward BB&A Food House, for Borhan, Borhan and El Aawar.

Alaa Borhan says the partners have “big expectations” for the market’s reaction, noting that, “in the next two to three years, you will find [many] more restaurants. Our staff is very well trained and loyal, and of course the top management is well qualified.”

Sbarro just opened a new branch on the cinema level of Heliopolis’ CityStars mall, a large branch by the Pyramids and another at the Maadi Club. By the end of the year, El Aawar hopes to have 13 outlets of the Italian chain, two of which will be in Hurghada — one on the central Sheraton Road and the other in the Zabargad Mall, near the airport. By next year, El Aawar figures to have almost 20 Sbarro locations; ideally, Alaa would like 10 new restaurants per year.

El Aawar has similarly extra-large plans for the rest of EMRM. “When I say Sbarro, what comes to your mind — pizza? No, I don’t want this. I’m going to change this in your mind. I want it more generic: Italian! Pasta! I want you to think of stromboli. I want you to think of salads,” he says with the passion of a hot-peppered Italian.

His basic premise is that the pizza market is approaching saturation. Pizza Hut, Domino’s and Little Caesar’s are already established as the major brands, and Papa John’s is coming to the table under Helawa, which owns the rights to President cheese and is also rumored to be opening a branch of Planet Hollywood.

“When you position me as pizza, I’m finished. I don’t want this. If you want to eat Italian food in general, go to Sbarro. Part of the meal is pizza. But we’re not Pizza Sbarro. We’re not a pizzeria,” El Aawar insists.

The EMRM chief is looking to corner the market on Italian food which, in terms of chain restaurants, is nearly wide open. There’s Johnny Carino’s, but it is not really considered part of the fast-food industry. There are local spots, but they tend to be either Egyptian fetir and pizza or traditional Italian trattorie (small, family-owned restaurants).

“We want to own ‘Italian’,” El Aawar says. “When you say ‘Italian’ — it’s Sbarro. I want it more generic: a whole Italian kitchen.”

EMRM now has the master franchising rights to Sbarro in Egypt, with the exception of outlets inside airports. Louis Catering, which El Aawar says will become a part of Compass Group, the world’s largest foodservice company according to the company website, has the rights to Sbarro in airports around the world. This is the case locally, excluding Cairo International Airport. When Louis’ seven-year contract is up here, which El Aawar should be in 2011, the airport-catering group will have to pay subcontractor fees, should EMRM allow it to operate Sbarro at all.

So far, Sbarro has grown exactly according to El Aawar’s plans — except for the branch in Tahrir Square, that is. There, the façade has been sitting for more than a year because El Aawar could not get the building permits he needs to dig in the ground.

“Downtown has low electricity capacity,” he says. “I have to add electricity capacity, and in order to do that I have to dig 26 meters around the corner. Most of the ministers, governors and other very important people go through Tahrir, so it’s very shaky for the government to grant permits.”

Regardless, El Aawar is hopeful Sbarro will carve out a niche, and he’s excited about a new partnership that EMRM is negotiating. A well-established Qatari businessman, Abdullah Jafari, is interested in partnering with EMRM. Jafari owns a number of restaurant chains, including the rights to Sbarro everywhere in the Middle East except Egypt and Saudi Arabia.

If it works out as El Aawar envisions, Jafari will take a small stake in El-Sewedy’s Rainforest Cafe and Joe’s Crab Shack, probably around 10%, which will in turn allow EMRM to manage the restaurants. El Aawar wants not only to dominate the market with Sbarro, but also with a number of other ventures.

That’s where El Aawar’s four-ingredient recipe for success in the fast-food industry comes in. El Aawar says there are four types of fast-food restaurants a group needs in its stable if it’s going to be a runaway success: the reacher, the bully, the star and the black horse.

“They complement each other,” he says. “Usually, one brand will never be good at everything.”

In essence, it means EMRM will have a full portfolio of brands that accomplish different goals, but work to sustain each other and the overall group.

The reacher — Sbarro, in this case — has high profits and sales while ‘reaching’ growth at a very low cost. El Aawar hopes Sbarro will eventually have somewhere around 40 to 50 outlets nationwide. The reacher is the dream of every restaurant mogul: Margins are high and costs are low. And in Sbarro’s case, there’s a winning formula that is flexible enough to allow each branch to operate independently. El Aawar believes Joe’s Crab Shack has the potential to be another reacher.

The ‘bully,’ which for EMRM will be Wessaya, is the anchor of the group. It has low profits, but huge turnover, generating unique economies of scale. For example, Wessaya could consume 30 tons of chicken per month, while Sbarro might use just one ton. Being part of the same group means that Sbarro gets its chicken for the same price as Wessaya, making for an even healthier margin. The bully depends on high volumes; it will not be the breadwinner of the group, but it opens the door for growth.

Wessaya, however, is doing pretty well on its own. The name, which is local slang for “extra care” or “taking care of everything,” is a sandwich chain in the style of Mo’men or Cook Door, operating an efficient kitchen like any multinational fast-food chain. EMRM currently has 10 Wessaya outlets open and will open four more fully owned stores later this year. It is also considering dishing out four franchises at the same time. Additionally, the chain is expanding to Algeria and Sudan.

That said, it will have to compete locally with Egyptian comfort-food chains including Mo’men, which has 35 branches nationwide, Gad with 22 branches, Cook Door with 21, and El-Tabei El-Domiati with seven.

“It started with the idea that we wanted to get in the sandwich business,” El Aawar says. “We looked at what people wanted at that time. In 2002, it was sandwiches. I can say now people are changing habits. The top consumers, the Heliopolis youth, are moving towards light food and away from those big sandwiches and subs. People are looking more towards the plated foods, the cafés and the light food. That’s why we are complementing several brands.”

Although it has low profits, the ‘star’ exists to give the entire group extra prestige. El Aawar says Cantina Laredo, an upscale Mexican restaurant, will be EMRM’s star, as would Rainforest Cafe if the group succeeds in negotiating a management contract.

“It will be the talk of the town, but it won’t bring you that money,” he says.

El Aawar calls Cantina Laredo a high-end version of Chili’s, but with an authentic Mexican menu, as opposed to the Americanized Tex-Mex offered at the more well-known brand. It will be interesting to see how Cantina Laredo performs, particularly the branch on the cinema level of CityStars, where it will be located directly across from its competitor, Chili’s. El Aawar is very optimistic.

When he first visited Cantina Laredo in Texas, he was blown away by the food. Although the chain only had eight restaurants at the time, he believed it would eventually become a big hit. He also thinks the spicy cuisine will get high marks from Egyptian consumers and could even help make local tastes more complex.

“I think it could break some roofs,” El Aawar says. “Very sophisticated menu, very special,” he says.

The target is six or seven locations throughout the country: Cairo, Sharm El-Sheikh, Hurghada, Alexandria and Giza. El Aawar hopes to open the first one in CityStars by November, just in time for the Eid.

Finally, there’s the ‘black horse,’ which gives the group high profit margins on low consumption levels. EMRM doesn’t have a black horse — not yet, at least, but El Aawar has experience with one such operation: Cilantro. Cafés consume very little food, but makes huge margins on their coffee. The beans are relatively inexpensive, the coffee costs little to brew, and the mark-up is significant. A cup of coffee that sells for LE 10 is made at a small fraction of the price.