Growth amid the thorns

Executive talks to LG about their growth and coping strategies in the difficult Lebanese market

Tae Hun Ryu, LG Levant general manager | Greg Demarque

Retailers in Lebanon have been faced with challenging circumstances for the past four years. Regional turmoil that began with the war in Syria has been pushing tourist numbers down, and the remaining clientele – those residing in Lebanon – have decreased purchasing power compared to the visitors who were so common a few years ago.

The Fransabank-Beirut Traders Association retail index shows that although the Consumer Price Index is on a continuous decrease (for the fourth quarter in row), some sectors of the retail market did not pick up as one would expect in a deflationary environment. In fact, the Lebanese retail market generally remained stagnant in 2015. 

Given such a scenario, it is no wonder that many retailers were reluctant to share their woes with the media. Not so LG, the Korean consumer goods and electronics manufacturer. Executive sat down with Tae Hun Ryu, the general manager of LG Electronics in the Levant, to discuss the company’s performance in Lebanon and the challenges it faces in this market.

E   Are you specifically segmenting your target markets in the Middle East for the household and electronics products that LG manufactures?

Yes. There are so many suppliers and brands and each supplier and brand has their own target audience. The market now is seeing many Chinese low-cost products. The names of their manufacturers are not known, and they are targeting the low- to middle-income demand segments. We have passed through such stages a long time ago as we are in this market for more than 30 years, first under the Goldstar brand and then as LG. We have continuously upgraded our position, and today we no longer position our brands as affordable for earners of middle- or low-incomes. People who want low-cost products have to look for other brands. We are targeting the upper 35 percent of customers to be our loyal customers.

E   In your home market of Korea, LG is number 2 in brand value after Samsung. Have you measured your brand awareness in Lebanon and how much it has grown in the past four years?

I can say that the LG presence in the Middle East is much higher than it is on average in global markets. Lebanon and Jordan are among the few markets where LG enjoys extremely high brand awareness as top consumer choice. Above 82 percent of consumers in Jordan and Lebanon name LG as number one or number two when asked for their favorite brands in televisions and washing machines.

E   What markets do you cover from your Amman regional head office?

My coverage area is Iraq, Syria, Lebanon, Jordan of course, and Palestine. It is the most conflict-prone area.

E   Is it correct that you maintain no LG-owned sales organization in Lebanon?

We have a legally established branch office in Beirut but did not acquire a license to sell directly in Lebanon. We have three distributors in the country.

E   When you buy international brand products in Lebanon, you often find stores that sell them, perhaps at discounted prices, but then do not continue to offer these products or any after-market service. On the other hand the local market for major household consumer goods appears to be dominated by a handful of large importers and competition in this segment seems very limited. How are you handling these challenges?

This is a very complicated issue. The consumer has the right to get the lowest possible price for the same products and the market is protecting consumers from monopolies. [But] if you have multiple distributors, they sometimes enter wild competition and blindly cut their price so that at the end of the day everyone in the market is losing.

We have to be very well balanced on how to protect the consumers’ interests but also the distributors’ interests at the same time. We have to satisfy both, and it is one of our hallmarks that we try to support our distributors with better advertisement or better showrooms like the one we are meeting in.

E   Do you finance their showrooms?

No, we don’t finance them but we support the distributors with decorations or trainings for their staff on the selling of premium goods. One of our refrigerators here retails for $3,500. This is no small money for anybody and so we have to give the distributors training to sell not by price but by product.

Service requires a lot of systems because you need more than half a million different [spare] parts, and it requires a very well organized system to manage these components. We have a big service depot in Jebel Ali, Dubai, and from there we supply each distributor.

E   Lebanese traders are perhaps craftier than others in sourcing products informally from abroad. When it comes to pricing strategies for mobile phones for example, do you face problems from grey imports because your official brand dealers are not as competitive? Do you price mobile products to be competitive against the street market or based on your customer assessment?

What you are describing is a big current headache and very important issue that we face in the mobile [handset] market. This is what happens in Lebanon and in the whole Levant, even worse in Syria and Iraq, and also in Jordan. It is difficult to solve. Even if LG provides the products at the same price to the over 200 markets that exist around the world, these products do not necessarily sell for the same price because of differing margins that are added. We are businessmen and have to make our business flow despite such situations where two factors are conflicting. We cannot dictate to anyone what price they put but we can say that anyone who adds the official premium will have support from us and can provide a differentiated service offer to their customers.

E   Where do mobile handsets rank within your different products, in terms of unit sales and in terms of value added to the LG company in the Levant?

LG is number two for television both in value and quantity [of sales]. For refrigerators and air conditioning units we are number one. In mobile we are number three in some markets and number four in others. We want to be number one or two someday but to be frank with you, this will not be easy to achieve in the coming two to three years.

E   Did you then allocate a particularly healthy marketing budget to expand you position in Lebanon and what are your market share targets for 2016?

I discussed this the other day with our Lebanon manager, Mr. Lee. [In 2015], we expect to have about 10 percent market share in Lebanon and we are hoping to increase our market share to 15 percent [in 2016]. To achieve 15 percent means [that we need to have] 50 percent growth; this is a very aggressive target. Hence, to grow from 10 to 15 [percent market share] you have to calculate what this means in terms of input needs in terms of your investments, your channels, your in-store [promotions and activities] or your communications. All these must be changed accordingly, including your logistics.

E   Was there any specific difficulty or special opportunity that you encountered in Lebanon in 2015?

As you already mentioned, the difficulties for the mobile business in Lebanon are very specific and the parallel market was the biggest difficulty for us. If there had not been the parallel importers, we could have gained even more market share.

E   Did the economic difficulties that we saw in 2015 have a negative impact on your sales?

Absolutely. Our region is very heavily impacted by two factors. One are the regional conflicts; these wars affect not only the whole region but also Lebanon. The other factor is the fall by half in the petroleum price which reduced the budget of every government and every individual in all surrounding markets and this indirectly affected Lebanon; according to the statistics, this market suffered more than 10 or even 15 percent of minus growth in demand cumulative for 2015 until end of September. We made a very slight positive growth in this period and I am very pleased with this, because it is no small achievement under the circumstances.

E   Is it then correct to say that an amount of positive growth that was in the single digits in absolute terms, allowed you to increase your market share to 10 percent, because competitors did not grow?

That is what happened.

E   What is your strategy for this year from this angle?

Overall I do not expect any meaningful growth in prosperity in both the Levant area and Lebanon for [2016]. How I predict it, [2016] will be another year like 2015. However, that does not necessarily mean that your business will shrink. We have a strategy how to deal with this kind of situation and we are ready to take on those challenges. The market, if it is good, may suffer a decrease of about five percent or in the worst case even see minus growth of about 10 percent, but for the LG operations in Lebanon we are expecting growth of something like five percent also in 2016.   

E   Are you advising your distributors to increase their workforce or strengthen their networks this year?

Our distributors’ channel power is one of the most important factors for us to spend on, and we have already started doing so. We will expand our channels, and I already talked to most of our distributors and they are ready to do so. Each crisis, recession or difficult time brings an opportunity for us to expand our influence. That is how we view it.

E   How much does Syria usually contribute to demand for LG products in the Levant region?

Syria traditionally gave us 30 percent of our business; this has now decreased to less than 15 percent. That is still a good pie for us, given the situation in the country.

E   Is Jordan number one for you in terms of the contribution to LG’s regional sales?

Iraq is number one. It accounts for over 50 percent of my business; Jordan and Lebanon combined contribute about 30 percent to our business, at almost equal proportions. We sell less quantity here than in Jordan but we sometimes have more value generated than in Jordan. This means Lebanon is a premium market and it is very much worth it for us to maintain a good market share here.

E   But you do not intend to move into direct sales in Lebanon?

We do not have such a plan because in order to establish a direct sales presence, the business volume must be quite huge, something like $200 million in annual sales. This is not predictable for Lebanon.

E   Out of LG’s total product portfolio, how much is available in the Lebanese market?

As I said, this is a test bed for us, and we carry in Lebanon almost every product which we offer in other markets. I would like to add that I have come to realize that Lebanon is very important for us in terms of our premium marketing. Lebanese customers have given us a very good opportunity [to test] how we can interact with all consumers in the Middle East. I very much appreciate the continuous support and affection that Lebanese customers have given us.

Nabila Rahhal

Nabila is Executive's hospitality, tourism and retail editor. She also covers other topics she's interested in such as education and mental health. Prior to joining Executive, she worked as a teacher for eight years in Beirut. Nabila holds a Masters in Educational Psychology from the American University of Beirut.

Thomas Schellen

Thomas Schellen is Executive's editor-at-large. He has been reporting on Middle Eastern business and economy for over 20 years.

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