Kenafric chews into the market with a sweet Sh1 billion confectionary plant

It was a Tuesday morning and the workers of confectionery and footwear firm Kenafric Industries Limited were at hand to welcome government officials and international guests to their plant for the commissioning of a new Sh1 billion production line.

In the gathering — and almost unnoticed was 79-year-old Velji Punja Shah — the man who started this multi-million enterprise in 1968 and hardly willing to get any recognition.

Looking dapper in his suit and a wide grin was the company vice-chairman Bharatkumar (whom they simply call Bharat) Shah, 55, leading the workforce of about 1,500 and family members to mark this milestone at the Baba Ndogo plant in Nairobi.

What started as a small manufacturing firm of footwear was commissioning a major production line that is expected to help it increase its output of chewing gum and exports. There were dancers on stage — and some carnival at the launch.

What is not known is that Kenafric Industries, one of the leading manufacturers in the country, has grown from a retail company to being a major player in confectionary, footwear, foodstuff and stationery business.

“When one door closed another opened. We believe in investing in technology and being innovative in the market,” said Mr Shah told the Business Daily at the Kenafric offices in Baba Ndogo.

As the dignitaries toured the confectionary factory, Mr Shah could not hide his glee as the Sh1 billion chiclet machine was commissioned.

He expects the new investment to increase the company’s productivity and exports in the market and strengthen Kenafric’s chewing gum business.

Chiclet production, which was established last year, is one of the newest products in the company’s business. The company is also looking at injecting Sh3.4 billion ($40 million) into all its three major divisions — footwear, stationery and confectionary.

Since its inception the business owned by the Chedda family has been diversifying and expanding.

What began as retail and wholesale business in 1968, by Velji has established itself as a major manufacturing company in footwear, confectionary, foods and stationery.

Diversification and expansion to new markets have seen the company, which relies on volumes, record growth reaching 30 per cent in the recent years driving the turnover to Sh8.5 billion ($100 million) last year, according to Mr Shah.

Ever the optimist, the entrepreneur, who represented Kenya in table tennis championships in the seventies, is at the forefront of running the company, with his father, Velji, as the chairman.

His brothers — Nilesh, Kirtan and Mayurkumar — are also shareholders in the company and oversee different divisions within the group. The third Chedda generation have also started joining the family business.

“Decisions are sometimes made over the lunch table,” said Mr Shah, with a soft chuckle.

Attempted coup

Before the 1982 attempted coup, the family business concentrated on the retail and wholesale of fast moving consumer goods. However, the coup attempt saw the family look at alternatives after the business was looted.

The family decided to venture into manufacturing although Mr Shah had already launched a local furniture production firm. In 1987, the company acquired a PVC shoe manufacturing company.

Since the production of the first shoe in 1988, the company has continued to invest in new technology and diversified into new products that has seen it move away from its core business.

Its venture into footwear business was soon facing major threats from the oil price spike, following the Gulf War, in 1990, due to the escalating cost of PVC, a petrochemical by-product. As a result, the family had to look for new ventures to spread its risks.

“The footwear business was looking less viable during this period, we decided to diversify,” said Mr Shah.

With some experience in confectionary, as a wholesaler, the company opted to try its hand in manufacturing sweets. The first step was to change its name from Kenafric Shoe Industries to its current title Kenafric Industries, encompassing its new venture.

With technology from Taiwan, the company started manufacturing bubble-gum in 1993 before moving to hard boiled candies two years later.

The confectionary and footwear production run parallel, though in different premises, both in Baba Ndogo, a kilometre apart.

Today, confectionary manufacturing represents 70 per cent of its business with footwear accounting for 20 per cent. The company produces about 100 tonnes of hard boiled sweets, toffees, bubble and chewing gum, among others daily.

In 2010, Kenafric started manufacturing stationery, which now accounts for 10 per cent of the business. The idea first came in 1997, said Mr Shah, but the company was not ready.

The driving force behind expanding to stationery is the realisation that their confectionary customers were also buying stationery, mainly students, he said.

The stationery arm was set up within the confectionary premises, with the exercise books, mainly, being exported to the same markets as the sweets.

Despite diversification the company has continued to increase its footwear production adopting new trends in the market including using Ethylene Vinyl Acetate, a softer product than PVC.

Kenafric data shows that it produces about 80,000 pairs of flip-flops and about 25,000 footwear, such as clogs, daily. In addition to 10,000 pairs of canvas shoes and 1,200 pairs of gum-boots. Of these shoes, at least 70 per cent are exported to regional markets.

From the first bubble-gum, 19 years ago, Kenafric has increased its sweet production over the year and introduced new products ranging from bubble-gum to hard-boiled sweets.

Over the years it has introduced toffees, icing sugar and powdered juice in its confectionary line.

Lollipops — from the ‘Magic Lollipops’ that change colour, to those with bubble-gum or citric flavour — are the company’s star selling product.

To add its product range and volumes the company did away with the original Taiwanese technology and has invested heavily in European technology, especially Bosch of Germany.

Last year, the company invested in a new chiclet chewing gum line, which Mr Shah said became an instant hit. The new Sh1 billion investment, unveiled this week, is to strengthen this product line by increasing production and quality, for the Fresh brand.

Production is expected to increase from 1,500 tonnes to 8,500 tonnes annually, with six different flavours. “We saw a gap in the market for a chiclet line. Something to help grow our presence in the region so we invested,” said Mr Shah.

Popular brands

The Wrigley Company (East Africa), a local subsidiary of Wrigley Company, and a leader in the global confectionery industry, is the other main player in the chewing gum market.

The local office also serves Tanzania, Uganda, Rwanda and Ethiopia producing PK, Juicy Fruit and Big G. It imports Orbit, Airwaves, Doublemint and Wrigley Spearmint, some of its popular brands.

Of all its product range, Kenyans prefer PK chewing gum, the company’s fastest moving product, according to Wrigley East Africa marketing manager Moses Waiharo.

“The market is opening up and the competition is healthy,” said Mr Waiharo, adding that each product is consumed by different consumers.

Other players in the sweets market are Mombasa-based Mzuri Sweets, Patco and Kenya Sweets Limited, among other small industries.

The local industries have been facing major competition from cheap imports.

The industry has been affected by increasing production cost, especially of industrial sugar whose import bonds are high and have to be paid up front. The cost of inputs, especially energy has also hit the sector hard.

According to data from the Kenya National Bureau of Statistics, the sector recorded three per cent growth in the second quarter of the year compared to 2.5 per cent in same period last year.

Food and beverage sub-sectors, which grew by 7.7 per cent, were the main drivers of this growth.

With a competitive local market, for confectionary and footwear, Kenafric opted to look beyond the Kenyan borders. Currently, 60 per cent of its products are exported while 40 per cent is consumed locally.

Mr Shah said to hedge foreign exchange risk the company opted to start exporting to other markets, from less than one per cent exports in 2000.

The company now has a presence in 14 African countries including Zambia, Malawi, Ethiopia, Sudan, Uganda, Madagascar, Cote d’Ivoire, Senegal, Democratic Republic of Congo and Angola.

Footwear is mainly exported in the East Africa region and the Democratic Republic of Congo, while confectionary products are exported to as far as the United Arab Emirates.

Kenafric is eyeing southern Africa and more of the Middle East markets in a bid to be in 30 countries by 2030.

As part of its diversification strategy, the company, in July 2009, acquired the Oyo brand, from CGB Foods Ltd, a Spanish food processing firm. This saw it open its food production arm, competing with the multinational Unilever, which produces Royco and Knorr.

Oyo is positioned at the low end of the market with its Mchuzi Mix and cubes. “We see a big scope for this venture, we have invested in new technology for this company and are embarking upon an aggressive marketing drive for the product,” said Mr Shah.

Kenafric is looking to further expand this new arm of the company to seasoning and curry powder.

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