Entrepreneurship Zone: 07 December 2022 :: Investor bullish about snack food in Uganda

Tue Dec 6 23:00:33 CAT 2022

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Entrepreneurship Zone: 07 December 2022 ::  Investor bullish about snack food in Uganda

 <https://www.willdale.co.zw/> Pearl Capital Partners, a private equity firm operating in Uganda, recently invested in snack food manufacturer Newman Foods via its Yield Uganda Investment Fund. This is the fund’s 14th investment in the Ugandan agribusiness and food sector. Jeanette Clark speaks to Wanjohi Ndagu, co-managing partner at Pearl Capital Partners, about the motivation for the investment, the potential he sees in the snacks industry and opportunities to export food products to the wider East African region.

Opportunity in snacks

With the Yield Uganda Investment Fund’s latest investment of an undisclosed amount in Newman Foods, Pearl Capital Partners is hoping to capitalise on a growing snack food market.

Newman Foods was founded in 2013, originally to procure, package and export fruit and vegetables. In 2017, it pivoted to processing chillies and later added the manufacturing of items such as potato and cassava crisps, and flavoured seed and nut mixes.

“We have various players in the country producing snacks but they are all cottage businesses or home-based production units, which rely on manual skills and basic technology,” explains Wanjohi. “There are few snack producers that have appropriate processing plants that meet the required standards from consumers and regulators.”

The capital will be used towards the construction of a new processing facility with larger, more modern equipment. “We see a major opportunity for a bigger player in this space; one that has the requisite machinery and processes to serve a growing market.”

He highlights that the country has seen significant growth in formal, modern retail over the last 10 to 15 years, both in terms of supermarkets and smaller convenience chains located at petrol stations. “Urbanisation has brought an increase in these retail outlets. They are looking to stock snack food packaged in sizes suitable for their shelves and aligned with the quality standards the owners and local authorities require.

“From the consumer side, the per capita consumption of snacks in Uganda is still significantly lower than in other African countries such as Kenya, South Africa and Nigeria. This leaves room for growth for locally produced items able to compete with the imports populating the shelves in Uganda,” says Wanjohi.

Timely expansion

Newman Foods is already one of the top three snack manufacturers in the country in terms of production capacity and market share, Wanjohi says. It has been posting 20% year-on-year growth, even with its limited capacity.

“Once the new processing and packaging lines are commissioned over the next three years, we believe the business will be able to outsprint the other manufacturers. The market is ready and available and is driven by rapid urbanisation, changing lifestyles and consumer preferences that translate into higher demand for convenience foods,” Wanjohi reveals.

Newman Foods produces a range of snack food products.

Exporting from Uganda

Wanjohi believes companies involved in agriculture and agro-processing in Uganda stand to benefit from potential to export to the broader East African region.

“One of the main advantages Uganda has is its ability to produce agricultural produce twice a year thanks to the two rainfall seasons,” he adds. “The country has noteworthy natural climatic advantages, which allows it to produce cheaper, and at higher volumes, than most countries in this region. It also has the most arable land apart from Congo.”

Newman Foods already exports to the Democratic Republic of Congo, and with Pearl Capital’s investment, it is looking to expand its reach to Kenya, South Sudan and Rwanda.

Demand for healthy snacks

According to Wanjohi, Ugandans love to snack but traditionally on fresh farm produce. To capture the market, producers need to keep this in mind. “What successful companies are doing is to convert these preferred plant-based snacks into a more palatable and conveniently packaged version, without adding artificial or unhealthy additives.”

This also plays into an international consumer trend towards healthier, more natural snacks. Newman Foods uses potatoes, ground nuts, plantain and cassava and adds flavourings such as honey.

Manufacturing evolution

Wanjohi has seen the manufacturing sector in Uganda change over the last decade, in response to the growth in the market and increased enforcement of best practice processes and legislation from local regulatory bodies. “With production facilities expected to meet the required standards, there is a growing number of producers that can compete with imported products and are on the same level in terms of health, safety and quality.”

Securing raw material supply

In addition to upgrading the production lines, Newman Foods will use the investment from the Yield Fund to address concerns on the supply side by expanding its outgrower scheme. The company is adding new smallholder farmers to its network and training them in smart agriculture methods of production that include the efficient use of water.

“They are also supported and encouraged to use drought-resistant seed varieties and focus on organic farm production,” says Wanjohi. These interventions will enable them to increase their resilience in an environment where the climate is unpredictable and ensure Newman has an uninterrupted supply of raw materials to process into snacks.

“In Uganda, agro-processing enterprises are forced to become change agents as 75% to 85% of the supply base is smallholder farmers. You need to become involved with training and capacitation to secure supply.”

The impact of consecutive poor rainfall seasons has lifted the cost of wheat substitutes like cassava, plantain and potatoes. Changing climate patterns could potentially have a devastating effect on the agricultural output of Uganda, which necessitates the need to train smallholder farmers in new ways of farming.

“Over the last 24 months, we’ve had very disappointing rainfall levels, so climate change is a real factor impacting agriculture and agro-processing. However, we see this as a source of opportunity for players in the sector who adapt and adapt quickly,” says Wanjohi.

Wanjohi Ndagu, co-managing partner at Pearl Capital Partners

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DISCLAIMER: This report has been prepared by Bulls ‘n Bears, a division of Faith Capital (Pvt) Ltd for general information purposes only and does not constitute an offer to sell or the solicitation of an offer to buy or subscribe for any securities. The information contained in this report has been compiled from sources believed to be reliable, but no representation or warranty is made or guarantee given as to its accuracy or completeness. All opinions expressed and recommendations made are subject to change without notice. Securities or financial instruments mentioned herein may not be suitable for all investors. Securities of emerging and mid-size growth companies typically involve a higher degree of risk and more volatility than the securities of more established companies. Neither Faith Capital nor any other member of Bulls ‘n Bears nor any other person, accepts any liability whatsoever for any loss howsoever arising from any use of this report or its contents or otherwise arising in connection therewith. Recipients of this report shall be solely responsible for making their own independent investigation into the business, financial condition and future prospects of any companies referred to in this report. Other  Indices quoted herein are for guideline purposes only and sourced from third parties.

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