The days of smooth sailing for Tony the Tiger, Toucan Sam
and Snap, Crackle, Pop may be coming to an end. For the
first time, cereal giant Kellogg’s is facing local competition.
boxes of Poppin’s. the first Lebanese brand of breakfast cereal,
appeared on supermarket shelves this past June in six different flavors.
The new cereal is the latest creation of Delta Trading, better
known for being the manufacturer of Master Chips. In just two
months, sales of Poppin’s have reached $500,000 and already
Delta is exporting its cereal to Syria, Jordan, Egypt and the Gulf.
The firm expects revenues from Poppin’s to reach $2 million by the
end of the year.
Delta’s venture into the cereal business is part of a strategy of
diversification. Revenues from potato chips have recently tapered
off. Sales of Master Chips jumped from $3.6 million in 1995 to
$ 13.5 million in 1999, with net profits of $1.35 million last year.
During that time the company was expanding its network of factories
and distribution offices as well as exporting to Jordan and the
Gulf. But in 2000, with the recession in full swing, the company’s
midyear sales reached just $6 million, well short of the $8 million
projected. Sales for the end of the year are expected to be $12 million,
bellow the break-even point for the company.
At the same time, competition has been intensifying. Master Chips
claims to control roughly 38% of the market, a share nearly equal
to its number one competitor Fantasia. But the market shares of both
companies have come under assault recently from the imported
Pringles, which was introduced to the market by Transmed at the
end of last year. Through a splashy advertising campaign, the
new brand quickly grabbed an 18% market share, although,
according to Michel Daher, chairman of Delta Trading, that figure
has since dropped to 6%. Transmed could not be reached for
comment, but the company recently dropped the price of Pringles from
LL2, 750 per container to LL 1,250 in what Daher sees as a bid to
recapture lost ground.
With Master Chips no longer providing solid ground for earnings
growth, Delta began searching for new products it could introduce to
the market. The company considered branching into the juice business.
“But we realized that there was a lot of competition,” says Emile
Saydi, Delta’s sales manager. The breakfast cereal business, however,
was a $10 million per year market that no local firm had yet tapped.
Delta faces a tough battle if it wants to make its Choco Bumps as
familiar a household name as Kellogg’s Coco Puffs. Competition
in the cereal business is already intense. The US-based Kellogg’s, with
worldwide revenues of $6.9 billion last year, controls a 70% slice of
the local market, followed by Nestle with a 20% market share. Delta
will gain little advantage by producing Poppin’s locally. Customs on
imported breakfast cereal is 15% while the company will be paying
tariffs of between 15% and 20% on its raw materials.
But Daher is determined to undercut the prices of his competitors
by at least 35%. “I only take a 10% profit margin,” he says. “That way
I will sell bigger volume.” Daher also believes that the quality of
Poppin’s is superior to that of imports. Unlike cereals produced
abroad that spend a substantial amount of time in transit, Poppin’s goes
straight from the production line to the supermarket shelf. “The advantage
of locally manufactured cereal is that it is fresh and does not have
a long shelf life like well-known brands,” says Wilf Jones, a consultant
hired to train Delta’s employees in cereal making. Delta
invested over $11 million in
state-of-the-art equipment
that, Daher
claims, is superior to
the machinery
Kellogg’s uses. Jones
says that when
Poppin’s is left in a
bowl of milk, it lasts up
to three minutes without
becoming soggy.
Kellogg’s cereal, on
the other hand,
becomes soggy after
just one minute.
Poppin’s is also specially suited to the local palate. For example,
the chocolate-based cereals, such as Choco Flakes and Bobo Choe,
are sweeter than their foreign counterparts. “Most Lebanese like
sweeter chocolate, not the bitter types like the Europeans,” says Jones.
Daher believes that Poppin’s will be a big hit in Lebanon but he is
under no illusions. “It will take us 24 to 30 months to break even,” he
says. Even that may be ambitious. It took Nestle three years to make
profits on its imported cereal brands. For Delta, a company already operating
in the red, that is a long time to wait. What’s more, in a market
dominated by import-obsessed consumers, who is going to trade in their
Com Flakes for a local brand with the name Flick Flakes?
