In this Deal View, hear from Abraaj Partner Hector Martinez about the growth drivers for QBCo, a leading Colombian food manufacturer and the largest private label food producer in the country. From consumer retail trends to the market dynamics in the Pacific Alliance, he gives an inside look into what makes QBCo a compelling investment.
Q: What has fueled Abraaj’s investment in QBCo?
Hector Martinez: Certainly. The investment in QBCo represents the fourth made by Abraaj in Colombia, and marks our 19th investment in the Pacific Alliance. This was a proprietary deal sourced by the investment team based in Colombia. QBCo has been a solid brand for almost 50 years. In 2013, the company reinvented itself as a private label food manufacturing company. Led by an experienced management team, they have achieved double digit growth rates in recent years.
A key driver fueling growth is discount retailers, the sector in which QBCo supplies products to. During the past few years, new retail formats, mainly discount retailers have been growing significantly in Latin America. This has in turn changed the way people consume, who now look for low price and high quality private label products. By 2021, discount retailers such as D1, J&B and Ara are expected to triple their number of stores. Close to 50%-70% of discounters’ sales come from private label, creating a demand boost.
The other key consideration is the rise of quick service restaurants and bakeries in the region, such as Subway, Papa John’s, Starbucks, Dunkin’ Donuts, KFC, Domino’s Pizza, Buffalo Wings, Crepes & Waffles, OMA, and Juan Valdez. This creates demand for private label food manufacturing products. As the largest 100% private label focused food manufacturer in Colombia, we believe QBCo is in a strong position to take advantage of these trends and market dynamics.
Q: Why do you think Abraaj is an ideal partner for QBCo?
Hector Martinez: Partnership capital is a key pillar to how we invest, and this approach is core throughout our investment period. We are committed to helping companies grow. Beyond providing capital, we work hand-in-hand with our partner companies, and leverage on our global sector and market expertise to support the company’s growth.
From the beginning, we were aligned with QBCo’s management team on the value add we bring, and how we will partner with them to expand. We have a proud track record of successfully investing in 20 leading FMCG businesses in growth markets. In the Pacific Alliance, particularly, we have invested in 4 retail companies which has given us a great perspective on regional trends and needs.
In the private label space, we have experience in Libstar, one of the largest unlisted food and personal care manufacturers in South Africa. Similarly when we look at discounter trends in Colombia, we have worked on the retail side through our investment in D1, a leading discount retailer in Colombia which has given us useful insight about retailers’ preferences and needs when selecting a supplier.
Q: You talk about being aligned on the expansion plan for QBCo. Can you elaborate on that further?
Hector Martinez: Sure, together with QBCo, we have identified several strategic and operational improvements to the business, including diversifying QBCo’s portfolio through the development of new categories and expanding its footprint across Latin America such as Colombia, Peru, Chile, Ecuador, Panama and the Caribbean, and the United States. This includes strategically evaluating bolt-on acquisition opportunities and exports.
We also look at factors which could give QBCo the competitive edge. This includes strengthening retailer relationships, customer service levels and focusing on implementing operational improvements to support QBCo’s expansion.
Q: In your view, what are the key investment opportunities in Colombia and the Pacific Alliance?
Hector Martinez: We have been an active investor in the Pacific Alliance since 2008. We seek to invest in companies in the mid-market space, given the transformational growth the Pacific Alliance countries are experiencing. Sectors of interest include consumer goods and services, healthcare and education financial services, industrials, materials and logistics.
Buoyed by a young middle class, consumption in Colombia is growing, reflecting confidence in the Colombian economy. Moreover, strong household consumption and increasing public and private investment have created a positive environment for mid-market companies to grow sustainably.
Read the press announcement of the transaction here: https://www.abraaj.com/insights/news/press-releases/Abraaj-invests-leading-Colombian-food-manufacturer-QBCo