Why (Actually) Halal Certify?

Halal industry professionals often tout the size of the global halal market as the fundamental reason companies should pursue halal certification. While there is no doubt that the nearly 2 billion halal consumers and the growing $1.5 Trillion F&B market for halal consumers are significant, practically companies can find it challenging to have that translate to even $100,000 in a marginal increase in sales.

At the American Halal Foundation, we believe that for halal certification to make sense, companies can rationalize the investment from a microeconomic level as well as a macroeconomic level. This approach guides us when discussing with companies whether or not certification would make sense for their business. In that vein, this AHF Insight delves into three major benefits of AHF halal certification and how they can practically deliver value and growth for your business.

Potentially The Highest ROI Investment a Company can Make

When you think about the best allocation of capital and resources, you may think of equipment, real estate, or hiring more people. While those avenues of capital allocation may help a company achieve substantial returns on capital, say 10-50%, they are often resource intensive and require capital or resources a company may not have.

You may not even think of Halal certification in terms of high ROI. However, it is one of the most lucrative investments a company can underwrite due to its asymmetric payoffs.

To understand this, let’s simulate a scenario. You own a nutraceutical company manufacturing seven capsule supplement products. Assume obtaining halal certification for this costs $5,000 annually, inclusive of all aspects of the program. With an average purchase order value in the industry being in the $50-$100k range, a single PO from a distributor, wholesaler, or retailer with halal demand or a client with a halal certification program and can thus only source from certified halal vendors can 10-20x your investment. This calculation does not take into account the various intangible benefits that would fall under goodwill. AHF clients have consistently achieved 10-50x on their investment in halal certification.

Where else can you allocate capital and resources for over a 10x ROI?

AHF Halal Certification Builds Trust Globally

Halal compliance is the #1 influence on a halal consumer’s purchasing decision.
When two products are juxtaposed next to each other on a retail shelf, the one with halal certification will invariably outperform the other.

This may make sense for meat and poultry, but would it apply to something like cheese, sauce, or tortillas?

Absolutely. There are a myriad of ways seemingly “innocent” ingredient statements can be haram. From packaging to enzymes and everything in between, there are potential risks to the halal status of a product. Even if the ingredients are halal, they may have been produced in a facility with contamination or cross-contamination with haram ingredients.

Halal certification builds trust and delivers peace of mind to consumers.

AHF Certification Creates a Moat Around a Brand- “The Halal Brand”

Investment professionals, business owners, and executives often discuss building a moat around the business. The idea is to build, sustain, widen, and protect a business, allowing it to have differential returns from its competitors. While many strategies are laid out for moats in books such as 7 Powers by Hamilton Helmer, companies often wonder how to practically create a moat for their business.

AHF halal certification allows companies to create practically a moat in three major ways.

“The Halal Brand”

One way is, for example, if you operate in a space with low penetration of halal certification, for example, pharmaceuticals (less than 7% of generic or branded medicines are certified), obtaining and displaying halal certification will grant you “The Halal Brand” effect. Companies that are first movers in terms of halal certification of their products to a given niche can often reap the rewards for decades to come. The reason is once consumers identify your product as “The Halal Brand” for a given category, they will continue to use it and become habitually accustomed to it. There are numerous examples of this.

“The Halal Network Effect”

Another key way is through “The Halal Network Effect .”The “The Halal Network Effect” is a bit different than the network effect commonly thought of in the context of technology companies. The Halal Network Effect refers to when a given company, say Mike’s Cookie Company, becomes halal certified. Eventually, the company will look to work with halal-certified vendors exclusively. That means they would seek to source their flavors, flour, extracts, and additives exclusively from halal-certified vendors to maintain integrity in their supply chain. Thus if your company is not certified, you may be precluded from supplying to halal-certified manufacturers.

With halal certification growing rapidly and many large companies having some form of certification, the opportunity cost is significant.

By having certification and being plugged into a halal supply chain, you may have an initial edge that will eventually turn into a moat.

Counter Positioning

Counter-positioning has been discussed briefly above. When two products are juxtaposed next to each other on a retail shelf, invariably, the one with halal certification will outperform the other for a halal consumer. Why does this happen? For 2 billion consumers consuming halal and adhering to halal is religiously mandated, and consuming non-halal (haram) carries significant spiritual consequences.

Purchasing behavior between products is primarily driven by a consumer moving from a place of low trust and confidence to a place of high trust and confidence. Thus, when two products are on a shelf, and a consumer is certain that Product A meets his dietary requirements, while Product B may or may not, with all things equal, rationally, they will select Product A.

Counter positioning is extremely valuable for higher-risk products that Muslim consumers carry concerns about.

A handful of such product categories are:

1. Cheeses
2. Bakery Items
3. Ready to Eat Meals
4. Sauces
5. Health Supplements and Pharmaceuticals
6. Snacks
7. Cereals

Obtaining AHF halal certification for the above can create above-average returns for a company.

The Opportunity is Not Infinite

Despite the above, the opportunity to utilize Halal certification to create a moat will not last forever. The companies that used it to create a moat early on will enjoy sustained differentiated returns. However, in time, as adoption increases, similar to kosher and GMP, it will eventually become a right of passage for companies producing any kind of consumable product to operate effectively in the commercial markets.