It takes some effort to fathom the narrative of Beirut-based Johnny R. Saade (JRS) Holding. The family conglomerate, owned and managed by brothers Karim and Sandro Saade, entails four diverse ventures worthy of exploration and business analysis, while the geographic aspects of the “Syrian-Lebanese family with Greek Orthodox origins” and their history adds a further dimension of intrigue.
Taking one’s cue from the largest and oldest venture in the conglomerate, travel agency Wild Discovery, the natural assumption about the holding’s risk orientation and corporate philosophy might be a nomadic and adventure-seeking approach. That, however, is less than half of the story. The holding entails two other enterprises that incorporate the opposite of a nomadic spirit. Greenstone is a real estate developer of select properties that has so far been focused on metropolitan Beirut. Even more rooted to the soil is the holding’s third area of productivity which comprises two vineyards — Château Marsyas in the Bekaa and Domaine de Bargylus in the hills above the Syrian port city Latakia.
The other interests of JRS Holding are an investment arm that is focused on financial stakeholdings in international real estate and also participates in corporate equities, and JRS Foundation, the family’s non-profit organization dedicated to charity, cultural, environmental and educational sponsorship.
Commitment to quality
The string that ties all the activities into a coherent whole is emphasis on quality, Sandro says. “The common denominator in all our products and activities is quality. We are always choosing the quality path because we know it pays off.” Focus on quality makes the business more resilient to crises and is a family principle, he adds. “That is in a nutshell how we have constructed the businesses and how our father wants the businesses to be run.”
With $40 million in operational turnover in 2012 and business growth of eight percent in the current year to date, Wild Discovery accounts for a significant share — the brothers declined to state the net wealth or revenues of JRS Holding — in the Saade portfolio. When it was established in 1997, Wild Discovery set new accents in tourism retail by selling travel packages which the Lebanese market at the time was not accustomed to.
Over the years, the company’s approach of offering qualified advice in attractive retail showrooms set it apart from the under enticing office-with-desk ambiance that still predominates in the overcrowded travel agency landscape. With a network of eight retail agencies in Lebanon and presence in Syria and Dubai, the opening of Wild Discovery’s latest outlet in Achrafieh was imminent at the time of this writing. A further three outlets are on the domestic agenda for opening in 2014, plus entry into another new Arab market is planned for the end of next year.
JRS Holding is not in need of taking dividends from the operating units and under the holding’s strong growth orientation, returns achieved at Wild Discovery are poured into expansion, Sandro says. “We are reinvesting all profits year-on-year.”
Although the increase in turnover in 2013 is not fully up to the company’s expectations, Wild Discovery improved its profits by implementing cost savings and by utilizing economies of scale. A contributing factor to 2013 turnover growth was a shift in airline billings from Syria.
JRS Holding’s foray into property development around eight years ago was inspired by the holding’s investment activity in real estate, with the purchase of what has become the urban project L’Armonial in Achrafieh, which has garnered a lot of attention by integrating an existing 20th century apartment building into the high-end project, whose main bulk consists of a 20-story residential tower. Although not its first completed building — that was an upscale four-story in the Beirut suburb of Yarzeh delivered a few months ago — it is L’Armonial that has set the developer’s brand trajectory.
The hard cost of developing this property was $30 to $35 million, with the consolidation of the existing building contributing around $1 million in extra costs, and eight to ten months in extra time, according to Sandro. The project pioneered the market in terms of combining integration of heritage with a modern structure built to the highest specifications, he says. “We wanted our first project to be an immediate showcase of what we are willing to do and want to do in real estate.”
Wild Discovery is perhaps the most famous part of JRS' empire
Other projects that have taken a cue from the practice and municipal authorities appear to have adopted the concept of asking developers to retain components of heritage, adds Karim. “There are many ways to preserve heritage and this is one of them. We are happy to know that we have found a way to preserve heritage and people have this impulse to do it,” he says.
While he refuses to provide information on the turnover or profits of Greenstone he gives an indication by saying that the soon-finished L’Armonial project will represent a market value of close to $90 million upon completion. Greenstone is currently preparing two new projects which together represent around $10 million in equity investment but the company has larger plans to start developing on behalf of clients and substantially increase its range of activities in this way.
Passion for wine
Winemaking is the most passionate activity in the JRS portfolio. It grew from the desire to purchase a Bordeaux vineyard in 1996 into the decision to invest what amounted to $5 million in developing Syria’s first professional application of viticulture in the modern era. From the idea to the first bottle the Bargylus project involved a lengthy process of buying land, finding and training staff, building facilities and planting grapevines, importing all equipment, testing and developing the product and marketing it.
Domaine de Bargylus was created in 2003 and production started in 2006 but return on investment is not something to be talked of for a few more years. “It is a quality project and we are very proud of what we have achieved already, but with the situation now this investment will not be profitable before many years. Ultimately we have to make money but it is a lot about passion,” Sandro says.
The passion that went into the venture was crucial to conquer expected and unforeseen obstacles but anyone working on passion alone would have gotten out years ago, he adds. “It would not have been possible to continue the venture in the current situation if there weren’t a powerful holding backing it every day.”
The biggest issue they have faced since starting up has been the gap between the perception and the potential of Syrian wine. Although the eastern Mediterranean has ancient traditions of grape cultivation and the Mediterranean climate offers great conditions for winemaking, Syria is not perceived as part of the Old World oeno-sphere in which giant producers France, Italy and Spain stand alongside smaller but important wine makers from Portugal to Greece and Cyprus.
Managing through war
Syria’s civil war is of course part of the problem. It complicates operations and adds both uncertainty and cost factors. According to Sandro, a main driver of higher costs is the devaluation of the Syrian currency. It affects payroll expenses because the Saades, who invested years into training the Bargylus workforce from scratch, decided to increase the salaries of their workers paid in Syrian pounds to maintain equivalency to the dollar exchange rate as it stood before 2012.
Purchasing is not affected greatly because supplies are mainly imported from France at stable costs. And while weaknesses of the currency at the place of production are usually not without advantages to exporters, a second cost booster is external storage, because inventories had to be moved to warehouses outside the country.
A third factor concerning cost implications is the need for contingency planning for possible disruptions to supply and product flows. “We have enough bottles now for the next year’s production,” explains Karim, so that the wines could at least be bottled if next year sees new and wider disruptions of shipping. So far, Domaine de Bargylus has been able to rely on the port of Latakia with only one disruption during a rebel offensive in Alawite territory in August.
That period was also the one time when Karim and Sandro were most nervously milling about in their Beirut offices, because fighting encroached up to 200 meters from the vineyard. Sandro retells, “For two hours, the workers were not in the vineyard and we were afraid that anybody could get in and steal anything. But this was the optimistic scenario. The pessimistic one was that the rebels would get in and would destroy the wines, the equipment and most importantly, the vineyards.”
The destruction did not come to pass and the Syrian military secured the area soon after, but the uncertainty remains. “Thankfully we are not in the combat area, but you never know,” sighs Karim.
There is an upside to the situation, however, as the story of growing wine under the constraints of the Syrian civil war holds quite a potential to enthrall lifestyle writers and wine journalists from outside the region, who have showered Domaine de Bargylus with much increased attention since unrest has engulfed Syria — the extra publicity related to the conflict may enshrine Syrian wine on a higher level of perception with experts and connoisseurs.
The 2013 vintage holds great promise for the vineyard in terms of both quality and volume — likely to be above its normal output of 40,000 to 45,000 bottled reds and whites per year.
Growing wine in the Bekaa, where JRS acquired land for its Chateau de Marsyas around eight years ago at the doorsteps of the long-established Kefraya vineyard for an output of 50,000-plus bottles, is an exercise in economic stability, at least in comparison with the Syrian operation. However, the business’s progress is perhaps less than ideal because of one single factor that the Saade brothers experience as a common impairment in every one of their three Lebanese operations. The pain that drives the Saades to use the choicest expressions of outrage is Lebanon’s endemic lack of regulations. According to Sandro it affects and deeply threatens the travel agency sector as it does the property development sector and the wineries. He says that requirements for financial guarantees of travel agencies are way too low to protect consumers in case of an operator’s default. The fact travel agencies can deposit letters of guarantee for as low as LL5 million (roughly $3,300) and do business, is a “ridiculous legislation and should be changed immediately,” he argues, adding that the number of licensed travel agents is several times what it should be for the outbound tourism services market which he estimates at $900 million to $1 billion annually when adding the outbound hotel and services market of $300 million to the air travel market of $600+ million.
Insufficient bank guarantees are also a problem that the Saades see in the real estate sector, as trust in the sector is being eroded as customers are burnt by absconding developers. “There must be more criteria — every day, people take money for apartments and never deliver them. The government’s responsibility is to make all developers place important bank guarantees with the ministry to show that they are able to build for $50 or 100 million.”
In winemaking, the brothers’ ire is directed against the missing appellation d’origine controlee, a designation to certify wines by their region of origin. Together with regulations that give information on the origin of grapes that enter a bottle of wine the appellation controlee would help consumers in distinguishing quality wines from questionable tipples.
Regulations are paramount for keeping investors such as his family faithful to the country and bringing in new investors, says Karim. He does not accept the nation’s legislators postponing their work. “Something has to be done and it is unacceptable [if politicians] give a pretext that there are more important things to be done. These are the most important things: economy, economy, and economy.”