Pain d’Or, the Lebanese bread, pastry, and confectionery manufacturers are investing $20 million into a new Saudi Arabian operation, which the company hopes will eventually lead to a multinational status. The new company, which will open in a year, will incorporate Pain d’Or’s full production, sales points and delivery network concept as Pain d’Or’s whole Lebanon range of products will be on offer in the Kingdom. “Saudi Arabia is the biggest economy in the Middle East. That is why we started our expansion there,” said manager Hachem el Koussa. “We will probably open in [the Saudi capital] Riyadh,” said Koussa. “It is central. The government is based there and the buying power is strongest there. But we plan to gradually cover the whole of the Kingdom.” In parallel to the international ventures, Pain d’Or is continuing to expand nationally, in particular into regions of the country in which it does not yet have a presence.
Pain D’Or’s story began almost 20 years ago, when in war-ravaged Beirut of 1986, bread deliverymen braved Beirut’s Green Line on a daily basis to ensure that customers got their bread.
“Today, Pain d’Or is a household name,” said Koussa, whose family company, the Malco Group (previously the Malco Trading Co) was founded by Hachem’s father and his three brothers four years earlier in 1982. Originally, the company specialized in restaurants, but the war-related instability prompted Malco Trading to branch out. Enter Pain d’Or with bread and pastries in 1986 (as well as Fantasia, the snack food company, in 1992).Today, the Malco Group manages three companies: the Malco Manufacturing and Distribution Company (MMD), HMDR – which is responsible for Pain d’Or production and sales – and the original Malco Trading Co. – which deals with the Malco Group’s restaurant interests, Horseshoe and Abu Nuwass. Pain d’Or was born, explained Koussa, out of his father’s empathy with the plight of a people suffering because of the war. In 1986, as inflation skyrocketed, vast swaths of the Lebanese population found themselves impoverished. The situation was particularly grim for children, Koussa recalled. “It was a new kind of war – economic war,” he said. “Our aim, in launching Pain d’Or, was to help ourselves, and the Lebanese people. We thought: if children can’t buy chocolate, let’s create something they can buy instead. And we invented the Pain au Lait.”
The war had also rendered movement around Beirut, and Lebanon in general, hazardous, so Pain d’Or created a unique distribution network. “Customers couldn’t come to us. We said: Ok, if they can’t come to us, why don’t we go to them? In this way, they were able to make hamburgers at home, with buns, without venturing out into the streets.”
The fledgling enterprise didn’t allow the East-West division of Beirut to stand in its way. “We refused to divide the country ourselves,” declared Koussa. “We went everywhere. It was dangerous for our workers, of course. But Pain d’Or was for everyone. We made this our slogan. It was our duty.”
Initially, Pain d’Or only produced and distributed. It had no outlets. The first shop opened on Corniche al-Mazraa in 1988, when its range was restricted to eight items, compared to the 300 it offers today.
Other companies were already producing many of the products offered by Pain d’Or, but Pain d’Or pegged its distinctiveness on the unification of a whole range of diverse, not necessarily unique, items under one brand name. “There has always been competition with respect to individual items,” Koussa acknowledged. “However, Pain d’Or combined many lines of production under one umbrella. Maybe there is a lot of competition with regard to bread, sweets, or donuts, but we unified everything in one establishment. Our strategy was: be different.”
Thanks to Pain d’Or, people no longer had to queue in bread lines, or purchase from what Koussa called, “unhygienic shops.” Most different of all, though, was the fact that Pain d’Or did not immediately produce Arabic bread. At the time, the Arabic bread flour available did not, Koussa claimed, meet Pain d’Or’s hygiene and overall quality specifications. In 1992, Pain d’Or developed a strategy, which it hoped would allow it to compete with emerging investor blocs. It began to open outlets across the country, to bring its products closer to the consumer. Today, there are 18 Pain d’Or shops throughout Lebanon, of which six are in Beirut. The company intensified its diversification efforts, while simultaneously attempting to raise consumer awareness. “Previously,” Koussa explained, “if a customer wanted any type of French bread, they would say: give me French bread. Now they specify what they want, but this has taken us more than 10 years.”
The path to customer enlightenment was painstakingly slow but meticulously planned. “We didn’t introduce real French bread right away,” confessed Koussa. “European people like to chew. They like to eat hard bread. Americans don’t. They like to eat soft bread. Lebanese people like to eat soft bread. If we had given them hard bread straightaway, we would have had a problem. We slowly made some of the bread harder. Now, the Lebanese eat hard bread as well as soft bread,” he said. It was hard going at times, but Pain d’Or effectively pioneered the introduction of European-style bread to Lebanon, thus creating a whole new market, which eventually became saturated in the 1990s. “It was useless to compete,” said Koussa. “It was better to create a new market and that was why we expanded our range.” Today, though, neither Pain d’Or’s ‘broad variety under one umbrella’ trademark nor its array of European-style breads is unique, Pain d’Or remains the market leader, with an annual turnover of between $10 million and $15 million a year, and employs over 500 staff. The business has been dealt a tremendous blow by Lebanon’s economic and financial crisis, in particular by the introduction of Value Added Tax (VAT) in 2002. “Especially with our kind of products, which are not cheap, we could not introduce VAT without having a conflict with our customers,” Koussa recalled. “2002 was a disaster for us. Many of our customers refused to pay the VAT. They didn’t understand it.” In the interest of preserving its client base, Pain d’Or often paid VAT out of its own pocket. In so doing, it lost $2-3 million and saw its profit for 2002 wiped out.
In 2003, the company puts its shoulder to the yoke, armed with a strategy designed to help it recoup its losses. Essentially, it distributed its overheads across a broader, more diversified base by introducing a host of new products and establishing more outlets, and by increasing distribution. It also spent 6% to 10 % of its budget on advertising, especially with brochures and flyers, and on marketing its ‘healthy bread’ concept. These measures ensured that Pain d’Or revenues, helped by extra tourists, grew by 15% to 20% in 2003.
