Al Ahram Beverages Company “2”
900 00 1809
ABC was a public company originally found in 1897, that has been nationalized in 1963, until it had been privatized in 1997 and acquired by the Luxor Investment group represented by Ahmed el Zayat as a CEO and board chairman. Luxor group is an American investment group focusing on investment more than the business itself.
Zayat’s vision and objectives: Marinating local market dominance and transforming the company from a domestic brewer to a leading edge multinational beverages company.
-General Environment Analysis
350 million Muslim in the MENA region
Platform for easy access to many countries
Population size: 60.2 million in 1994
Age structure: 60% under 25 years
Ethnic mix/religion: 94% Muslims and 6% Coptic Christians oEconomic Trends
GDP increasing steadily (6.11%)
•Average per capita is USD 50/ month
•Inflation decreased from 21.10% in 1992 to 8.3% in 1996
•Different government trend: deregulation of the economy
Privatization of publicly owned enterprises
Liberalization of financial markets and trade
Trade liberalization efforts
Removing the ceiling on nominal interest rates
Depreciation of the EGP against the dollar
oPolitical Legal Trends
Tax holidays for newly manufactured or upgraded plants
•6 years tax holiday for Sharkia plant
•10 years tax holiday for Nile Brewery
High Tax on imported beer and spirits
•1200% for non-touristic areas and 300% for touristic.
High duties on wines were to take place for the coming 4 years. Stable political environment: peaceful relations with neighboring countries & no military disputes Sale of alcohol is legal.
The Egyptian labor law governs the termination of permanent or temporary employees; consequently a company cannot easily fire an employee.
Religious and conservative society
Alcoholic drinks were not culturally accepted as it was banned by Islam Anti-secular movements
III-Industry Analysis (Porter’s model)
a.Threat of new entrants
i.Government promise no more entrants for 2 more years
ii.High initial costs for new competitors:
1.Building distribution network (moreover, it was almost impossible to open new outlets, so acquisition of already available alcoholic outlet was the practical solution) 2.Building new plants
b.Rivalry among company
i.Monopoly, no local competitors
ii.Protection from imported products by taxation barriers 300% for touristic locations and 1200% for other outlets. c.Threat of substitute product
i.Alcoholic market: no competing substitutes were available ii.Non-Alcoholic Malt Based: many products were available, but ABC products were differentiated because they are malt based which were perceived as healthier and as more natural than soda sugary drinks. iii.Non-Alcoholic soda drinks: many substitutes were available. Were performing poorly. d.Bargaining power of buyers
i.Buyers are limited in choice between the ABC affordable drinks or extremely expensive imported drinks. e.Bargaining power of suppliers
i.Dina Modern Agricultural company 41% which represents a big percentage of ABC’s supplies. Any conflict will pause a threat on ABC such as shortage in supplies and interruption of production.
IV-ABC Market analysis:
i.ABC has market dominance since its inception.
i.Offered as proprietary local brands, brands produced under license and imported labels. ii.ABC has 99.2% market share
i.Estimated market demand of 2 million cases (current is only 1 million case) ii.188% increase in consumption from 1999 to 2000 (after enhancing quality and packaging) iii.Imports declined by 15%
i.Good financial indicators
1.Doubled earnings per share
2.350% increase of the book value per share