‘Over N9bn investment in backward integration has made us attain market leadership’

‘Over N9bn investment in backward integration has made us attain market leadership’

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De United Food Industries Limited, Dufil , part of Tolaram Group came into noodles business in 1996 and today it controls over 50 percent of the market with about other 12 players. In this interview, Pawan Sharma, the CEO – Consumer Goods business, Tolaram – West Africa,  tells Daniel Obi the success factors of the group. He also spoke on the group’s acquisition of land in Edo State for palm oil plantation, acquisition of  Dangote and May and Baker noodles and other issues. Excerpts

Could you tell us about the journey towards your company’ backward integration?

We started this business in 1996 from first factory in Otta, Ogun State. Since then we have been in a lot of backward integration. As today we have 15 manufacturing plants in Nigeria. Out of these 15 factories, only three produce noodles and others are involved in backward integration activities producing packaging materials, refining crude palm oil, and flour. Earlier we used to buy these materials from third party. The recent step in this backward integration is going into palm plantation. Government is giving a lot of push in going into agriculture to reduce importation.

Today, some of us in Nigeria including other players  are importing the crude and refining it here and using it. Government is giving us a lot of support to put up plantation in the country to have our own crude oil rather than importing it. We have taken a large piece of land in Edo State to plant palm oil trees and government is helping in that direction in providing low interest loans from Bank of Industry for this purpose. Nigeria can go back to the old glory days of being the largest palm oil producer with the help of government if all industries will come together and work as a team.

Presently, what percentage is your company’s raw material sourcing and what other raw materials are you importing?

As today, the raw material we are importing is wheat. This is because Nigeria does not produce wheat. Nigeria consumes 4 million tons per year in terms of biscuits, bread, noodles but Nigeria produces only 100,000 tons per year. You can imagine the gap. Plantation of palm oil is comparatively easy to do in the country but wheat needs temperature.  Even with good intention to produce wheat in Nigeria, it will come with its weather challenges. The percentage of raw material sourcing is 70 percent foreign when flour is factored in and the  rest is 30 local.

What other challenges are you encountering in your journey to backward integration?

As today, we are not facing many challenges because we have started it. All the backward integration assisted us to become cost leader in Nigeria’s market. Our products are the least that have taken price increases compared with even garri and other consumer goods.

Could you kindly share the investment profile of your backward integration so far?

Different subsidiaries in our group have theirs. For instance the ton of palm oil refinery  has been expanded from 500 to 1,500 and we have invested more than $40 million (about N5 billion). Flour mill has taken another N2.5 billion investment. Our packaging plant where we produce wrappers is another N2 billion investment.

How are you managing your transportation logistics in the country?

It is really difficult to transport goods from one part to another considering the poor road network.  The kind of volumes we move, we cannot depend on third party alone and we did backward integration in that sector also by creating our own haulage company, Blackwood House Limited. We have more than 1,200 trucks in that logistics company that transport our goods from factory to our distributors.

We hear that Olam is making moves to acquire Dangote Flour mill, what will that portend in the market considering competition?

I think it will not make much change as  it is a consolidation exercise. There are other players in the flour business and I don’t think the move will be a game changer. Olam and Flour Mill are two big players but none of them is utilising full capacity.

What are the potential opportunities of your land acquisition in Edo State to the country?

We have done a lot in manufacturing but we don’t have the raw material in the country. This forces us to go into agriculture and this is why we are going into palm oil plantation because we are heavy user of palm oil for different production but in the country we don’t have enough palm oil. Many people are not going into the palm oil plantation investment because of its long gestation period. In terms of economic impact, palm oil consumption in Nigeria is to the tune of 2 million tons and  the country can only produce 600,000 tons and there is short fall of 1.4 million tons. If therefore, different companies can come up with their plantation exercise, then Nigeria will not import it and government will save forex  and it will become huge raw material for different industries which is locally available.

How many tons will your farm  add to the industry?

We have taken 18,000 hectares of land and we will be doing plantation in phases. Firstly, we will cultivate 5,000 hectares, then other hectares.

This government will be doing another 4 years, what are your expectations of the government?

Government has been supportive as it is giving tax free import allowance for those in Lekki Trade free zone. Second support is providing loan from Bank of Industry on low interest rate. Another area government can support on agriculture is for example in palm oil plantation. This is in banned list as government does not provide forex for its importation. We should push for the plantation and once the plantation is going, then slowly the product can be banned as the country presently does not have the plantation size yet. But if the banned continues, how will the requirement be fulfilled. The ban can be done in phases.

Dufil is known for its innovativeness, what do consumers expect in 2019?

Recently we launched Indomie Relish based on consumer demand who want ingredients already in the Indomie. All flavours have their special ingredients and this gives the complete taste and consumers don’t feel like adding something else.

You have successfully held Indomie Heroes Award for 13 years, what impact has this created in the society?

We choose children of certain age who have done something bravery which is a selfless act and we reward them. This will inspire other children and create a community of selfless people.  Our objective in this award was to make big impact on children because Indomie is a brand which is all about children. The impact is that as children grow up, they need to think selflessly and understand that it is their duty to contribute to the society. Further in CSR, we play major part in education, health and community development projects.

You acquired Dangote Noodles and May and Baker Noodles, what is your intention on these acquisitions and what did you do with them?

We did not buy Dangote brand, what we bought was Dangote machinery. The arrangement was that the company had machinery for production of its noodles and they want to get out of the business. They also gave us permission to use their brand name for 2 years. For couple of months, we were using the brand name and based on the agreement, we have to get out. Our intention was not to kill the brand. In case of May and Baker, we acquired the brand.

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