Dobrogea Grup S.A.

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Dobrogea Grup S.A.

Str Celulozei 1
Constanta, Romania
Telephone: (40) 0241 512 195
Fax: (40) 0241 639 944
Web site: http://www.dobrogea-ind.ro

Private Company
Incorporated: 1961 as Dobrogea Milling and Baking Plant
Employees: 2,100
Sales: EUR 75 million ($95 million) (2005)
NAIC: 311211 Flour Milling; 311330 Confectionery Manufacturing from Purchased Chocolate; 311423 Dried and Dehydrated Food Manufacturing; 311514 Dry, Condensed, and Evaporated Dairy Product Manufacturing; 311812 Commercial Bakeries

Dobrogea Grup S.A. is one of Romania's largest and fastest-growing bakery products group. The Constanta-based company produces a wide range of baked goods and bakery ingredients. Dobrogea Grup is Romania's leading miller and supplier of wheat flour, flour-based ingredients (including premixes), and gluten and other enzyme-based "improvers" to the baking industry. Among the latter category, the company has developed and patented its Dan-Do-Pan bread improver range, created to address specific characteristics of Romanian breads. The company also produces pasta, cereal breads, pastries, cookies, breakfast cereals, including the Captain Crantz brand launched in 2003, and other fresh, frozen, and prepared foods. In addition, Dobrogea operates its own chain of 32 retail shops, including 15 revamped Fresh stores, largely in the Constanta region. International expansion has played a role in the company's development in the 2000s, with initial efforts to export a limited range of finished products, including cookies, to markets including France, Italy, the United States, and Spain. In the mid-2000s, the company adopted a new strategy of contract production for multinational food groups. In July 2005, for example, the company signed a contract to produce cookies for Unilever. By the end of that year, contract manufacturing represented as much as 35 percent of Dobrogea's annual sales of more than EUR 47 million ($58 million). Formerly a state-owned enterprise under the Ceausescu regime, Dobrogea Grup has been privately held since the early 1990s. Fotini Teodorescu, who joined the company in 1968, is president of the company and chief architect of its transformation from a small, local company into a national leader.

MILLING AND BAKING IN 1961

Dobrogea Grup was established in 1961 in order to provide wheat flour and bread products to the Constanta area. Comprised of two wheat mills, as well as production facilities manufacturing bread and cookies and other pastries, the company was originally called Constanta Milling and Baking Plant. A state-owned company, the Constanta plant grew into the region's main supplier of breads and bread flour, with production facilities in five cities: Constanta, Navodari, Har-sova, Medgidia, and Eforie Nord. From the start, the Constanta factory also developed its own network of retail shops. By the end of the 1980s, the company also branched out into pastries, added a corn mill, and also launched production of pasta.

The Constanta group's bread production remained barely industrialized—baking remained a highly manual process dependent upon small bread ovens with only limited capacity. Because of this, the company's total bread production remained at just 20 tons per day into the mid-1980s. However, in 1987, the company was allowed to invest in new equipment, installing a number of new continuous baking ovens. In this way, the company was able to raise production to more than 50 tons of bread per day.

Yet the company's true development came especially after the toppling of the Ceausescu regime and the installation of a more democratic, liberalized market. Following the change of government, the Constanta operation was renamed as Dobrogea Milling, Baking and Pastes Enterprise. The change of name reflected the company's growth from a local operation to the Dobrogea (or Dobruja) region's top milling and baked products group.

In 1991, the company reincorporated as a limited liability company, called Dobrogea S.A., as a step towards its future privatization. Fotini Teodorescu, who had joined the company as an intern in 1968, and had risen to a management position by 1979, took charge of restructuring the company for the new economic realities of the post-Communist Romanian market. The management team under Teodorescu was noteworthy in that it was composed nearly entirely of women.

Teodorescu's first task was to change the company's corporate culture. As she told Bucharest Business Week : "Changing mentality was the hardest process I had to accomplish. People expected to receive but they gave little in return. It was like somebody else had to think for them. I changed mentalities by reorganizing the system, but in a smooth way. We put all the elements in balance, we settled mid and long-term strategies, but we also made them flexible, because at that time the Romanian market was changing and we had to adapt."

Dobrogea increasingly began investing in its production capacity. In the early 1990s, the company added new mixing technology, as well as spiral mixers in order to step up its dough preparation. The company also earmarked a large part of its investment program to expand its milling operations. As such, in 1994, the company turned to Buhler, based in Switzerland, to upgrade the company's milling equipment. Buhler also provided Dobrogea with invaluable technical assistance. The technical partnership and modernized equipment enabled the company to branch out into the production of new flour types. This in turn allowed the company to extend its own range of bread and pastry products.

Importantly, Dobrogea also invested in its own research and development capacity. This effort was quickly rewarded with success in 1992, with the development of its first "improving agent," a process for activating yeast. Dobrogea received a patent for the process. Encouraged, the company set up a dedicated research and development department the following year.

PRIVATIZED IN 1995

By 1994, the company had developed a new and more important improver, called Dan-Do-Pan. The new enzyme-based process was developed specifically for the professional Romanian bakery market, helping to overcome variations in flour quality and in baking conditions to produce a more consistent and higher quality of bread. The company was later awarded a new patent for the Dan-Do-Pan agent.

Dobrogea's research and development efforts led to the company's extension into new product categories as well. In 1995, the company became one of the first in Romania to enter the frozen, prepared foods market, with the launch of its "dose" or ready-to-eat pastries. Developed entirely in-house, the new pastry products were made available both through the retail consumer channel as well as through the professional sector, including in Dobrogea's own network of retail shops.

COMPANY PERSPECTIVES

Dobrogea is an integrated manufacturer that provides its clients and consumers with a complex range of brand products in the following fields: milling, bakery, pastry and confectionery, premixes and complex improvers for bakery and pastry, pasta and sugary products, prebaked and frozen foods, as well as a large range of services of highest quality. By its commitment to R&D, innovation, and raising consumer knowledge about healthy, natural and highly nutritive products, Dobrogea ranges among the world's biggest players in the bakery industry.

Dobrogea's emergence as a profit-driven and increasingly profitable, modern business was highlighted in 1995 when the company completed its privatization process. In that year, Teodorescu led the company's management, together with its employees, in a management-buyout of the company. Teodorescu then steered the company into a new phase of investment. The company stepped up its pasta operations with new equipment suppled by Italy's Fen Food Enterprise, stepping up the quality of its pasta production as well as increasing its range of pasta types. Previously, the company had been limited to short pasta shapes using Romanian wheat. The new equipment enabled the company to begin production of long shapes based on higher quality semolina in 1997. At the same time, Dobrogea launched an upgrade of its bread-making facilities, adding new packaging technologies, and extending its range of bread types.

Backed by an increasing line of patented improvers, Dobrogea became a full-service provider to the professional baking, catering, and restaurant industries in 1998, supplying its own range of basic ingredients, improvers, and other additives, as well as supplying technical and commercial services. Yet Dobrogea had also continued to develop its own retail operations. The following year, the company began converting a number of its stores to a new retail store format, called Fresh, featuring a modern interior design. By the mid-2000s, the company operated some 15 Fresh stores.

Dobrogea had also developed a new line of frozen foods and half-baked baked goods in the late 1990s. The company then added a new factory for this product segment, which launched production in 1999. By then, the company had made its first move to enter the Bucharest market. Already dominated by a number of bakery companies, the Bucharest market had long proven out of reach of the Constanta company. The privatization of another government-owned bakery group, Lujerul, in 1998, provided Dobrogea with its opportunity, and in 1999, the company acquired 43 percent stake in the Bucharest-based company.

While the purchase remained more or less on the investment level—that is, Dobrogea did not gain access to the Bucharest market for its own baked goods—the purchase provided the company with the possibility of expanding its milling operations. This was especially true after Lujerul shut down its own milling business in 2000. Dobrogea built a new, high-capacity flour mill that year, boosting its production to 800 tons per day. The company thus became the largest milling operation in Romania.

INVESTING FOR GROWTH IN THE NEW CENTURY

In 2001, Dobrogea formed a new partnership, this time with Denmark's Palsgaard Industri, creating the 50/50 joint venture Ro Credo Srl. The new company enabled Dobrogea to extend its product list with a range of cake and other premixes, as well as ingredients such as chocolate and vanilla creams and the like.

Dobrogea also continued to roll out its own product innovations. In 2001, the company began fortifying its bread products with vitamin and mineral additives. The company also launched Romania's first probiotic bread brand, Activa. Similarly, the company added to its range of functional foods with the Dieta line of pasta and flour mixes in 2003. By then, the company had also expanded its range of pastas with the new Pasta Magica brand, and had begun producing the Matina brand of breakfast cereals. The company boosted its cereal range in 2003 with the launch of the popular children's breakfast cereal Captain Crantz. This was joined in 2004 with the "Funky" brand of breakfast cereals.

KEY DATES

1961:: The Constanta Milling and Baking Plant is founded in Constanta in the Dobrogea region of Romania.
1991:: The company reincorporates as Dobrogea S.A. and becomes a limited liability company owned by the Romanian government.
1995:: Dobrogea is privatized in a management buyout led by company president Fotini Teodorescu.
1998:: The company launches its Fresh retail bakery chain and acquires 43 percent of Bucharest-based Lujerul S.A.
2000:: Dobrogea builds a new high-capacity wheat mill and becomes the largest milling group in Romania.
2004:: A new investment program is launched to expand capacity in milling, baking, frozen foods and other areas of operation.
2005:: The company begins contract manufacturing operations for Unilever and opens a new, large-scale biscuit manufacturing factory.

Into the mid-2000s, Dobrogea stepped up its investments efforts, taking advantage of the new opportunities in financial assistance and capital backing available in the run-up to Romania's joining the European Union later in the decade. The company spent some EUR 2.5 million to renovate and modernize its Constanta milling plant in 2004. This was followed in 2005 by the construction of a new EUR 3.8 million automated facility for the production of cookies and biscuits. Also that year, the company announced an additional spending effort of EUR 6 million, eyeing expansion in its bakery, frozen products, logistics, and milling operations.

Increasingly, Dobrogea had begun investigating the possibilities of international expansion. The company began test marketing a number of its products, primarily finished goods, in the early 2000s. As a result, the company developed limited exports to Spain, Italy, France, and the United States.

A more promising market for the company, however, was the contract manufacturing sector. The company began acquiring contracts to produce branded products for a number of international markets, including Spain and Austria. In July 2005, the company landed a still bigger contract, when it began producing biscuits for consumer products giant Unilever. By the end of that year, the company's contract manufacturing operations already accounted for nearly 35 percent of its total production. With its sales topping EUR 75 million, Dobrogea had emerged as one of Romania's leading and most international milling and bakery groups.

PRINCIPAL SUBSIDIARIES

Lujerul SA (43%); Rocredo Srl (50%).

PRINCIPAL COMPETITORS

Kamps Brot-und Backwaren GmbH and Company KG; General Organization for Food Industries; LU France S.A.; Geest Ltd.; Royal Cebeco Group Cooperative U.A.; Ferrari Ghezzi Ltda.; Liral Group; Jowa AG; Milch-Union Hocheifel eG; Harry-Brot GmbH; M-Preis Warenvertriebsges mbH; Glockenbrot Baeckerei GmbH and Company oHG; Businovskiy Meat Processing Plant Joint Stock Co.; Kharkov Biscuit Factory Joint Stock Co.; Conditorei Coppenrath and Wiese GmbH and Company KG; Roncadin S.p.A.