Kellogg’s, the world’s largest cereal maker, is expanding into West Africa through a joint venture with Singapore’s Tolaram Group, the largest independent distributor of food brands in the region. The maker of Rice Krispies and Frosted Flakes is also spending $450 million to buy a 50% stake in Multipro, a Nigeria-based food distribution company owned by Tolaram.
The joint venture will help Kellogg’s develop breakfast foods and snacks for the West African market and provide access to a network reach of up to half a million retailers, a key feature of the agreement that’s especially valuable in the fragmented markets of Africa.
The agreement also gives Kellogg’s the option to eventually buy a stake in Tolaram Africa Foods, which owns 49% of Dufil Prima, manufacturer of the successful Indomie noodles brands in Africa.
Kellogg’s said its purchase price of the Multipro stake represents an earnings multiple of 15 times—with expected total sales of $750 million in 2015. The final purchase price is dependent on actual 2015 results for earnings before interest, taxes, depreciation and amortization (EBITDA).
Africa’s rising middle class
The fast-growing middle class and its ‘on-the-go’ schedules means the demand and preference for packaged foods is increasing and given the convenience it presents, the rise of packaged foods in local markets has been visible with many of them enjoying success.
Indomie instant noodles is perhaps the best example. First introduced into the Nigerian market in 1996, the Indonesian brand has rapidly grown the instant noodle business into a $600 million sector. With Tolaram playing a key role in the marketing success of Indomie instant noodles in the region, Kellogg’s will hope to achieve similar success with the joint venture.
Africa, like the rest of the world, wants processed food and wants it now. According to a Michigan State University study, the demand for processed food in Africa is expected to increase seven-fold over the next 25 years. In Africa’s increasingly urban spaces, middle class consumers are eager for the convenience and flavor that processed food delivers; for the poor, it’s both aspirational and in some cases economical.
Kellogg’s sales in the United States have flattened as the demand for cereal and breakfast food slows. It means the cereal giant will be keen to expand into new markets. For Tolaram, the partnership with Kellogg’s is the second major joint venture it has confirmed this quarter as last month, it agreed a joint venture deal with Scandinavian food company, Arla.