Kings of the cluster

Venture Group talks sustainability, competition and regional expansion

Photo by: Greg Demarque/Executive

Rabih Saba and Marwan Ayoub, the co-founders of Venture Group, certainly have a lot to be proud of. Through leveraging their years of experience in hospitality consultation, the duo developed their first hospitality cluster on Uruguay Street in 2011.

Fast forward to 2016 and they have developed two more clusters in Lebanon: The Village Dbayeh in late 2015 and The Backyard Hazmieh in mid 2016. They are currently completing a cluster in Ashrafieh and have plans for two more clusters in Jounieh and Byblos.

At a regional level, Venture Group has signed a strategic partnership for cluster development and management in Egypt, and is finalizing a similar agreement with a leading hospitality group in Saudi Arabia.

They are also looking to develop Food and Beverage (F&B) private equity funds that would invest in new concepts in Lebanon, where new F&B ideas are road tested before they are taken regionally.

Meanwhile, the landscape for hospitality clusters has also changed, with several other F&B operators looking to develop such projects in Lebanon. While these operators cite motivations such as improving the positioning and footfall of their brand expansion by developing a destination around it, others are wary. They warn that the sector is in danger of becoming saturated. Ironically, the main purpose of such projects is to serve a community that previously had few F&B options.

Executive met with Ayoub and Saba at their offices at The Backyard Hazmieh to get their insight on this competition and the details of their growth into the region.

E   What would you say is one important skill you have gained from your experience with hospitality clusters development?

Ayoub: I think that besides perfecting our knowledge in F&B clusters, we’ve learned the dynamics of real estate development for commercial purposes and we intend to leverage that knowledge.

E   From your experience, how does one sustain a hospitality cluster and keep the momentum going at a stable level of footfall?

Saba: There are two aspects here. One is in always creating value for the consumer for coming in that cluster as footfall. That is usually done through proper positioning and a proper calendar of events to animate the experience of these visitors.

The second part is how to keep a healthy relationship with the tenants by providing them with full support to perform better along the way. Given the fact that we have several clusters, this allows us to have some economy of scale and of scope, so we can create a lot of value to specific tenants across these clusters if we are providing them with proper exposure and location across all clusters.

Most of our tenants go across our clusters. The value that we are bringing in really differentiates us from any other cluster developer in town, given the fact that there isn’t any company in Lebanon that operates the number of clusters that we have.

Ayoub: I would add that the brand mix we choose is dynamic and [they are] always reinventing and upgrading their brands. On one side, we as developers are upgrading our clusters, and on the other side the tenants themselves are upgrading their brands. Our major strength is that we choose the right mix and the right tenants.

E   But in each of your clusters, you have one or two operators who are relatively new to the market.

Ayoub: Yes, we always give one or two newcomers the chance to benefit from the footfall we generate and the market that we set up. It’s Venture’s way of doing things, because if they succeed, we succeed with them and it gives a sense of novelty to the hospitality scene.

E   Several hospitality clusters have been launched in 2016, and it seems there are more in the pipeline for 2017. How do you view this increased number of hospitality clusters in Lebanon?

Ayoub: The business model looks very attractive from the outside, but along the way there’s a lot of traps. It’s not as sexy as it looks from the outside.

The capacity in Lebanon is limited. Just like you see several restaurants opening right next to each other and few of them making money, we have a real concern that this might happen in the cluster industry.

The hospitality cluster model is based on 100 percent occupancy [of tenants] and performance. If this drops down to 60 or 70 percent, developers will no longer make money. Those companies that are developing clusters now are ignoring the fact that this might happen.

Our goal is to have one cluster per region, not one per city or town. We are trying to locate them as far away from each other as possible, so that cannibalization will not be dramatic and not affect profitability. And I say again, when considering a cluster, choose a virgin area with no competition, rather than trying to open one adjacent to another cluster.

We always preach that there should be more regulation in the sector, in that there should be a set number of licenses in each geographical area, taking into consideration the population in each area as well.

E   Tell us more about your expansion into Egypt. How did it happen? And which areas will you be in?

Saba: We chose to develop a presence in Egypt a year and a half ago. We are servicing some clients there in the line of cluster management as part of our management company, and it is progressing well.

We will be developing five clusters across Egypt, the first of which will have 50 outlets and will open its doors in June 2017.

E   Why did you choose to be in Egypt and Saudi Arabia?

Saba: We chose Egypt and Saudi Arabia because they are the two biggest markets in the Middle East in terms of consumption and population.

These two markets provide us with the opportunity to develop destinations where the masses will go, rather than going to Dubai and developing a nightlife venue that would only work for two to three years. It’s not that kind of business in Egypt and Saudi Arabia, but more of a solid model which can be sustained for years.

Surprisingly, the market of franchises in both Egypt and Saudi Arabia is mature enough that you can basically find all the international names. So the tenants are there and they want to expand domestically.

The business model looks very attractive from the outside, but along the way there’s a lot of traps

E   So you are not taking tenants from Lebanon with you?

Saba: We are, but to a lesser extent because a brand that goes from here will need a franchise and an operator. It’s a job they have to do by themselves.

In the same way that we counted on the local players here, we will count on the local players there, but the local players there are international brands.

E   What added value does Venture Group bring to the sector in these countries?

Saba: I think it’s the knowhow that comes in terms of conceptualization, architecture, flow of operations, positioning, tenant mix and management. While they do have this, there is an added value we have in bringing all these elements together. We are better coordinators and managers of this process, so that is where I think we bring value.

E   What is the main difference between the Lebanese and Egyptian market so far?

Saba: The scale! For the same effort, our company will be rewarded more, but it is also important that the value of our platform as a company will be increasing across several markets. The aim is to diversify our exposure to risk and balance that risk, so that if things happen in Lebanon, we will have another revenue source. Our company will always be solid when it comes to operating across the region.

E   What are your expectations for the Lebanese hospitality sector for 2017, specifically in cluster development?

Saba: When it comes to clusters, I think that we will face more challenges from other projects, particularly those targeting the same clientele without studying the proper trends of the market.

Ayoub: Restaurateurs and cluster developers need to really think as businesspeople and calculate the risk, profit and loss in each venture they undertake well. There is room for a lot of work, and we have proved that regional expansion is doing well, so let them think out of the box, assess where the gap is and fill it rather than compete with each other or even themselves.

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.

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