Potatoes are a staple of Lebanese cuisine. When boiled, they are often eaten as a remedy for stomach ache. When fried, they serve as a quick and cheap meal as the filling of a sandwich or as an accompaniment to the traditional Sunday barbeque lunch.
About 20 years ago, serious contenders in locally produced potato chips, known as crisps in the UK, first entered the market. Ever since, they’ve been working hard to habituate Lebanese consumers to this globally popular snack, with positive implications for the country’s agricultural sector.
Chips’ early history
Following the end of the Lebanese Civil War in the early 1990s, 85 percent of chips consumed in Lebanon were imported, according to Hachem El Koussa, president and general director of MALCO Holding, which owns Fantasia chips and Pain D’Or.
While there were 18 local chips producers back then, they were either small or medium sized productions and, according to Koussa, operated below the basic standards of hygiene, quality and after production care. “The local variety of chips back then were very badly produced, in that they were too oily and used poor quality potatoes. They were also treated carelessly in terms of packaging and shelf display,” he says.
It was understandable then that those consumers who could afford it preferred to pay extra for the better tasting, imported chips that also came in a wider variety of flavors.
Eye for opportunity
Koussa saw, in the dismal locally produced chips market, an opportunity to introduce quality chips that would be competitive against the imported variety. “We refused to believe that Lebanon could not produce something as easy as a tasty bag of chips,” he says.
In 1992, MALCO introduced Fantasia to the Lebanese market starting with the pellet and extruded varieties of chips. (Pellet chips are those produced with potato flour, potato starch or other grains, while extruded chips are similar to pellets but with hollow insides, such as cheese balls). Both were produced under license from General Mill, with imported potato flour and starch.
Being linked to an international company like General Mills, explains Koussa, helped garner initial trust in the locally produced item. MALCO also made sure to differentiate Fantasia from other locally produced chips through its packaging and display on supermarket shelves.
Another factor in Fantasia’s decision to enter the market with pellets and extruded chips, rather than with chips made from whole potatoes (commonly referred to as real or natural potato chips), was that it made it possible for them to break into the market with a quality product, while at the same time developing and researching techniques and potato varieties that allowed them to introduce new potato chips to their line in 1995.
The real deal
Michel Daher, Chairman of Daher Foods, which owns Poppins (breakfast cereal brand) and Master snack foods, says he launched Master chips in the early 1990s as a means of revitalizing potato farming in the Bekaa Valley and creating employment in his hometown Ferzol.
“I left Lebanon when I was 18 to work abroad but it had always been my dream to come back to my hometown Ferzol and start a business there, because I love it. I thought of doing something related to agriculture and that’s how the idea of chips came along. At first, I wanted to create something small that I could enjoy and that would create jobs,” explains Daher, adding that the company quickly grew into a major venture which currently employs 1,500 people (80 of which are farmers).
Made in Lebanon
While it took some time for Lebanese consumers to switch to locally produced chips, Daher and Koussa explain that both Master and Fantasia had two competitive advantages over imported chips. Affordability was the first, with the companies able to sell their chips at a lower price than the imported variety; they were produced in Lebanon and largely from potatoes grown in the country, meaning they saved on import costs.
Even today, locally produced chips are generally cheaper than imported brands of the same variety (compare for example Master Kettle Cooked chips, which are priced at $2 for a 170 gram bag, with the British Kettle Chips brand of the same size that is sold at $4.50).
However, regionally produced international brands, such as Frito-Lay’s Doritos and Lay’s Classic Potato Chips, are the exception, since they are produced by PepsiCo in Saudi Arabia and as part of a multinational company have the advantage of mass production over the Lebanese produced chips.
Not all about the money
The second advantage was quality. History has proven that price alone is not necessarily a decisive factor for Lebanese consumers. But the fact that both domestic companies’ products were arguably at least comparable to the imported variety in terms of quality made them a worthy option.
Both Daher and Koussa claim that locally produced chips have the advantage of freshness over the imported brands, explaining that local chips can be eaten within a week of production, while international brands take at least a few months before making it from their factory to Lebanese supermarket shelves.
Success by numbers
The local chips producers’ strategy looks like it might have paid off, with Koussa estimating that more than 75 percent of the chips (this includes corn, pellet and extruded chip varieties) consumed in Lebanon today are locally produced, while less than 25 percent are international imports.
[pullquote]International brands take at least a few months before making it from their factory to Lebanese supermarket shelves[/pullquote]
Placing a monetary value on the market, Daher says that sales from the Lebanese chips industry, including all types of savory snacks defined as chips, from the ones made with quinoa to those made with potatoes are close to $75 million, of which $60 million are generated by local snack producers.
Taking into consideration the percentages and dollar values above, it seems that the more expensive, internationally produced chips are finding it hard to remain competitive in the Lebanese chips market.
Room for growth
Despite this success, both Daher and Koussa say the local market can stand to grow even further.
Daher explains that when they first introduced potato chips, total national consumption was around 100 tons per year (approximately 4 grams per capita) but has now reached one kilogram per capita per year. Considering that the international consumption level is 2.2 kilograms per capita in Europe and 3.5 in the US, Lebanon has room to grow and Daher hopes consumption will reach 2 kilograms per capita.
Although Master produces a wide variety of snack foods, including pellet and tortilla chips, Daher believes growth opportunities lie in the natural or real potatoes line. “My company Stock Keeping Unit (SKU) shows me that, in the end, potato chips will be the most consumed [product], but I cannot sit around and wait for that. I need to work and have a variety of products, but my push is for the real potato chips,” says Daher.
Chips by market share
Today, Daher explains, potato chips constitute only 40 percent of local consumption while pellet chips make up 50 percent and tortilla chips (produced from maize) account for the remaining 10 percent.
Daher aims to grow the natural potato chips’ share to 70 percent by changing the habits of adult Lebanese consumers. Lebanese adults, explains Daher, are currently more likely to enjoy mixed nuts at a cocktail bar rather than open up a bag of chips. Although Master will be launching their own brand of mixed nuts by March 2017, Daher says he plans to eat slowly into that share.
Daher has already laid the groundwork for this change with the introduction of Kettle Cooked chips – following the spike in international demand for kettle chips, which are made to be less oily and more crunchy than those that are air popped. Both lines have been heavily promoted and been met with a positive consumer response.
Master has also made deals with several local fast food restaurants to serve their Kettle Cooked chips instead of French fries, in a bid to wean consumers off fries and onto chips.
The super potato
If Daher succeeds in growing the potato chips market, both his company and the agricultural sector in Lebanon will benefit. “Potato chips are our market and strength because we are in the Bekaa, the land of potatoes. Therefore we have a clear competitive edge over others in potato chips,” he explains.
Every kilogram of potato chips requires four kilograms of potatoes to produce. Master currently consumes 30,000 tons of potatoes per month to produce 6,250 tons of chips monthly, but Daher aims to eventually double those numbers.
Daher is already putting his money where his mouth is and has invested $40 million into a new 22,000 square meters factory; an assembly line that can produce 15 tons of potato chips per hour and has cold storage equipment (to store potatoes during the winter when they are not in season).
[pullquote]Both producers complain of the increasingly high cost of business, be it the increased cost of labor, electricity, water, land, importation or taxation[/pullquote]
Daher claims Lebanon produces 200,000 tons of potatoes per year and so if he reaches his production goals, the company would be significantly contributing to the betterment of the agricultural sector in the Bekaa Valley, which was his original aim when launching Master.
Woes in potato heaven
However, as in almost every other industry in Lebanon, chip producers have been finding it increasingly hard to operate in light of the regional and local instabilities that have plagued Lebanon for almost five years now.
Both producers complain of the increasingly high cost of business, be it the increased cost of labor, electricity, water, land, importation or taxation.
Daher says they had a turnover of minus six percent last year and blames it on the flat local market. But despite this, Master has managed to break even profits wise – while Koussa says they are still managing to grow “but the expenses are growing as well and it is a race between them.”
For Master, the biggest challenge is the difficulties encountered in the exports market. “The difficulty is in the logistical challenge of continuing to export to these markets and the cost of shipping by sea,” says Daher, who used to export to Syria – a $20 million dollar annual market – before the war. Master continues to export to Iraq and Jordan.
Koussa views international, and sometimes even local, competitors’ flooding of the market – where an excess amount of chips for sale causes a drop in pricing – and under costing – where goods are sold at below production cost – as a major challenge and an unfair competitive practice that harms the entire sector.
Despite these challenges, Lebanon’s chips producers are to be commended for turning the potato into a profitable enterprise that has benefited the many families working within it and given Lebanese consumers something tasty to snack on.
