By Mohamed Allouba News Focus Achilles Heel The crisis in Greece, and the collapse of the euro, could scuttle Egypt’s plans for economic growth. River of Strife A new agreement among East African countries may spell the end of Egyptian control over the Nile . On the Block Foreign investors buy up African farmland, sparking fears of a new colonialism. Long-life milk goes through rigorous testing for quality and safety: a single germ can sour a whole box. Ahmed Al-Sakr made the first major transformative change to his family business 10 years ago, when he ventured into the cheese market. Al-Sakr’s new factory cost a hefty $25 million. Al-Sakr Plant Manager Michael O’Reilly hopes that when his factory is up to full speed, it will produce 120,000 liters of milk or 100,000 liters of juice per day. It took six months to perfect the formulas for Al-Sakr’s line of juices. Tetra Pak filling machines can fill 6,000 one-liter packages per hour.

By Andrew Bossone

THERE'S AN OLD ADAGE about battle plans that applies equally to those who engineer the launch of new products: Even the best-constructed plans never survive first contact with the enemy. It’s a topic about which Al-Sakr Food Industries, maker of Rotana El-Halouba butter, ghee and other agrifoods products, has developed significant expertise in recent weeks as it launched new milk offerings (Milkcow and Bashayer) and the Twist line of juices.

The drinks division, formed in 1998, expanded this year with a multi-million-dollar investment in a state-of-the-art factory in Borg El-Arab industrial zone.

“I saw a chance to make a brand in this business,” says Ahmed Al-Sakr, managing director of Al-Sakr Food Industries, Al-Sakr Food Products and Sakr International Investment. “For me, it’s good business. In the long term, you can increase your share each year.”

With slick new packaging in hand and products that had passed the taste-test, Al-Sakr was ready to start pumping milk into its factory when a strange disease —apparently from Ethiopian cattle imported to keep the artificially high price of local beef within range of the average consumer for Ramadan —infected some 30% of the nation’s cattle.

The disease spoiled the supply of milk, driving Al-Sakr’s wholesale price up by 36% to nearly LE 2 per liter. With profit margins in the industry already as thin as skim milk, Ahmed Al-Sakr isn’t making the money he expected. Still, he’s nearly sanguine about the problem, saying, “You cannot profit now from this business, but you can build your business, and maybe in a year, the price will decrease.” He figures it takes at least five years to build a brand and make it profitable. In the meantime, he explains, “our team for this product will be upgraded and will build our knowledge of the market.”

Still, Al-Sakr plunged ahead with an aggressive rollout, filling shelves everywhere from neighborhood kiosks to the biggest hypermarkets with milk and juice boxes. The company released the new products ahead of Ramadan to try to ride the wave of consumerism that is the hallmark of the Holy Month and backed it with a substantial advertising campaign that included spots on state-owned Channels One and Two in prime time: immediately after iftar.

Al-Sakr also filled the streets of Alexandria with outdoor ads. Although the company has nationwide distribution, 55% of its products move in Cairo and Alexandria.

“Our strategy is not to take any money from the bank” to launch the new lines, Al-Sakr says. “I saw many companies take from the bank, and then they become bankrupt.”

He is also spending carefully, out of respect for the size of his competitors: “If I spend one million, another can spend five million,” he says. “It’s not me alone in the market. We have many competitors. Anyone can come to the Egyptian market.”

Say Goodbye to the Milkman?

Al-Sakr launched its milk line on the expectation that the market for long-life milk in sealed packages — as opposed to traditional milk bottles — will expand considerably in the coming years. Many people say they remember the days when the milkman delivered the bottle to their door. The truth is, most people still have a milkman: According to studies by Al-Sakr, as well as by Tetra Pak, the biggest producer of long-life liquid packaging and machinery in the world, the vast majority of people in the country still get their milk the old-fashioned way.

“More than 80% has not been packed or pasteurized,” says Thomas Adner, managing director of Tetra Pak Egypt. “The trend is good, though, because about five or six years ago it was 90%.”

“From 1990, in the milk business, the consumption changed from the milk shops in the street to a packaged product in the carton,” Al-Sakr adds. “Every year, the people change 6-7% from the old way.”

Tetra Pak will be a key player in this change. The company operates in 165 countries, providing the packaging systems for 120 billion milk and juice cartons every year, one billion of which are produced here.“In the greater scheme of things, Egypt is not one of the bigger markets, but it is a growing market,” says Adner, who took his current position in January this year. “It is one of the fast-growing markets, and the Middle East is one of the fast-growing markets as well.”

Tetra Pak, which has been operating in Egypt since 1982, now provides packaging and machinery to 16 major clients here. You would be hard-pressed to find milk or juice in a box or pack in the market not made with the Swedish firm’s materials. Among the biggest exceptions to the Tetra Pak “rule”: industry giant Beyti, which uses plastic bottles instead of Tetra Pak materials. The primary advantage to bottling appears to be that it resembles the container of the milkman and is therefore perceived to be fresher.

Beyti also plays on this perception by putting its bottled milk in the refrigerated sections of markets despite their being long-life products that can safely be stored at warmer temperatures on open shelves.

Tetra Pak, of course, says its Tetra Brik boxes and the Tetra Fina pillow-shaped packages used by Al-Sakr are superior from both logistical and cost standpoints.

“One of the major advantages, if you’re not just looking at the production hall, you’re looking at the total plant, [is that] the packaging materials come in rolls that are basically flat,” says Adner. “One of these rolls has about 2,000 one-liter packages. Now, if you take 2,000 bottles, blown bottles on palettes, that’s a big space.”

The machinery used for Tetra Pak products is also smaller, and the filled boxes and pillows stack easier, saving space on shipping and display space. “The filling machines are quite small,” says Adner. “You look at this machine, which is five meters long, and through there you come out with 6,000 one-liter packages per hour, which is quite high-capacity. A plastic-bottle filling line is a big[ger] filling area. It usually needs to have a sterile area around it as well; a much, much bigger investment and lower output as well.”

Tetra Pak’s filling machines have sterile chambers of less than half a cubic meter in size, and the company claims it is easier to sterilize flat packaging material that it is to process those with curves or bumps inside.

“To sterilize something through a bottleneck down, you have shadows that you need to sterilize,” says Adner. “You spray with peroxide and have to shoot inside with hot air to make sure every drop is accounted for. With flat paper, you spray each side and dry and there’s nowhere for the microbes to hide.”

Sour Milk

The issue of sterility and bacteria is crucial when it comes to milk: Anyone who has ever left a carton of milk in the refrigerator for too long knows just how foul spoiled milk can become. There are the obvious signs of an awful smell and a rancid taste. But underlying these nasty features are microscopic bacteria multiplying inside the milk.

Tetra Pak has taken several measures to counter this so that every drop is free of dangerous bacteria.

The problem here, however, is that not everyone believes these claims. Some say they will not buy long-life milk because when it goes bad, it can kill you. Others claim long-life milk lacks the nutrition of fresh milk. Like most rumors, both are false. Spoiled milk is bad whether it has gone through a pasteurization process or comes straight from the cow’s teat.

Tetra Pak machines employ ultra-high temperature (UHT) technology to bring the milk to 137 or 138 degrees Celsius for an absolute minimum of two seconds. The rival high-temperature/short-time (HTST) technology involves holding it at a temperature of 72 Celsius for at least 15 seconds.

“It makes it what we call in the business ‘commercially sterile,’” says Michael O’Reilly, Al-Sakr’s plant manager. “Once it goes through this plant and goes onto filling, it is a completely closed, aseptic process. And aseptic means zero contamination, zero possibility of contamination. A completely sterilized, sealed system. From here to the carton.”

Of the top national milk brands, only organic milk from Isis is pasteurized using HTST processes; the vast majority of brands are pasteurized using UHT techniques. HTST is the most common method across the globe, the exception being Europe and the Mediterranean basin, which tend to use UHT.

From Cow to Carton

What makes long-life milk and juice last so long is that once all of the bacteria is removed and it goes into hermetically sealed containers, it essentially stays the same. Just one bacterium can ruin that, but Al-Sakr has many precautionary measures throughout the process to ensure it stays safe. Last month, Al-Sakr gave Business Today Egypt a tour of its new factory to explain the process.

It takes about an hour to get from Alexandria to the factory in Borg El-Arab. The most striking feature of the factory is how small it is, considering it will produce milk and juice for the whole country, in addition to exports.

This is more of a testament to the efficiencies of modern machinery than it is reflective of the size of investment: Al-Sakr pumped $25 million into the factory and its equipment. One filling machine alone costs about $2.5 million.

“By any standard it’s high-tech,” says O’Reilly, a dairy technologist originally from northwest Ireland.

At full output, the machines can produce 3,800 Tetra Fino pillow packs and 6,000 one-liter boxes per hour, but that’s only if the milk has first past initial sampling tests — and it will not be shipped for several days because it undergoes follow-up screenings after an incubation period. O’Reilly says there are specific times when the milk has to be tested, like when a roll of packaging material is changed or a machine stops. But the initial lab testing has proven the farmers Al-Sakr works with, all of whom come from inside the country, are generally doing a good job.

“We’re buying from farmers who have been in the business for a long time,” O’Reilly says. “The quality is mixed around the region, but with our screening process we don’t accept anything that doesn’t meet our standards. The farmers already know the standards that are required.”

Once it passes the first tests, the milk is filtered by machines, which can then be routed through a mixer (to add flavors, sugar and color to make strawberry, chocolate or banana milk) or through a separator to change the fat content.

Al-Sakr’s initial launch only produced full-cream milk, but flavors and skim milk will roll out in the coming months. After tests and filtering, the UHT process eliminates all of the bacteria. Al-Sakr has two types of heating equipment, designed for thin and thick liquids. The thinner ones, including milk, go through the Tetra Spiraflo, which uses concentric tubes, or one tube filled with the product inside another tube filled with hot water. Another system, designed for more viscous liquids such as mango juice, uses a plate-heat exchange, with the product and hot water separated by a metal barrier. After the pasteurization process, the milk is ready for filling.

Computers control the whole process, including the flow of the packaging and the self-cleaning cycle after a day of work. The computers monitor every detail and connect with technicians through modems, so when problems arise, such as excessive waste on a line or overuse of a certain type of spare part, a technician can resolve the issue even from another country.

But the factory is not completely automated. “Well, you still need people to operate the plant,” say O’Reilly. “I mean, it doesn’t work on its own. You have to input. You have to start it, you have to make the selections, you have to make the mixes. You have to clean the plant.

“You still need a lot of bodies.”

When all is said and done, this small factory will have targets of about 120,000 liters of milk or 100,000 liters of juice per day. Right now, mango accounts for the largest portion of juice production at about 35%, while apple, guava, cocktail and orange take around 15% each, with the remaining 5% for pineapple. Several other juices are on the way, but have to go through testing and package design. According to the factory scientists, it took about six months to get the formula just right for the first juices.

Only time will tell if consumers agree, but the company has realistic goals, even as the value of all packaged juice sold nationwide dipped by 8% last year to LE 495 million from LE 539 million, according to Al-Sakr’s research. Independent research from retail survey giant Euromonitor tells a slightly different story, suggesting juice sales last year rang in at LE 622 million, a rise in value due only to rising prices as volume sales inched down to 106 million liters. Euromonitor says Faragello has recently overtaken Juhayna as the nation’s number-one producer of juice drinks, despite Juhayna having bought Domty’s juice and milk factory in mid-2005.

But with per-capita consumption of packaged juice barely hitting 1.4 liters or so per year, analysts agree there’s plenty of room for Al-Sakr to carve out market share

Then there is the international market, which Al-Sakr also hopes to supply. The side of Al-Sakr’s juice boxes have ingredients listed in seven different languages. Orders have been taken from Libya, Jordan, Gaza and Tanzania in the first few months. It’s not just the packaging and taste of Al-Sakr’s products that has its chairman banking on foreign sales: The company has been selling its other products abroad for years.

Trading Places

Ahmed Al-Sakr has added to the manufacturing division’s core capabilities since he opened it in 1982. Much has changed since the company started in 1932, when the current chairman’s grandfather opened a small trading company in Alexandria. In those days, deals were made on a handshake, and he couldn’t advertise on the internet to attract foreign business. Today, you might see Ahmed Al-Sakr’s daughter roaming around the company after school with headphones connected to her shiny MP3 player, but some things don’t change: The Al-Sakr group is growing, but it is still a family operation.

Ahmed Al-Sakr brought what organizational behaviorists call the first “transformative” change to his business when he decided to dip into the cheese market nearly 10 years ago. He saw a number of companies taking advantage of deregulation in the dairy industry in the early 1990s, which allowed firms other than the state-owned Misr Milk to produce triangle cheese.

Soon, big names like Unilever and Juhayna were processing cheese, and Al-Sakr Group followed suit in 1998.

Al-Sakr now has several brands of cheese in its basket of products, including Rotana and Hero, and produces processed cheese blocks, processed cheese spreads and cheddar cheese. In total, Al-Sakr produces 8,000 tons of cheese per year.

Although national cheese consumption has peaked, free-trade agreements have spread Egyptian cheese across the region. Roughly 75,000 of the 85,000 tons of processed cheese made here is marked for export, and Ahmed Al-Sakr expects Egypt to become the number-one producer in the world in the next three years.

The focus on new lines of business could detract some executives’ attention from the bread and butter of their operations, but not Ahmed Al-Sakr. Sakr International Investment, the Al-Sakr group’s trading arm, has an exclusive contract with Fronterra, a cooperative of some 11,600 dairy farmers in New Zealand. Al-Sakr imports about 22,000 tons of the 45,000 tons of butter he estimates Egyptians consume every year. Through the rest of its trading activities, about 70% of the country’s butter goes through Al-Sakr companies at some point.

Al-Sakr is expanding its trading activities by importing chicken quarters, expecting an order of 2,000 tons to arrive at the end November. Not bad timing considering the recent outbreak of bird flu, and that’s in addition to the 43,000 tons of frozen fish imported in 2005 from Poland, Norway, Morocco, Mauritania and elsewhere, as well as canned tuna and mackerel from Thailand.

Ahmed Al-Sakr visits America every year, displaying a stand at a fancy foods fair New York, despite strict scrutiny at US airports since September 11, 2001 that forces him to wait for several hours at a time. The Al-Sakr group imports around 5,000 tons of beef liver from halal farms in the state of Nebraska.Today, it is the 70-year-old trading division that is opening things up for the Al-Sakr group. The company has relationships all over the world, particularly in Arab countries, and as manufacturing expands, Al-Sakr can take advantage of its family history of trading internationally. If Al-Sakr gets its products into the European and American markets, where the margins are higher, Ahmed Al-Sakr says he will reinvest his profits to continue to grow.

“As our products are known with their high quality and suitable prices; we have established many good relationships,” says Ahmed Al-Sakr. “We have plans to get more products in the juice business. People [are] getting to know our brand.”  bt