Spinneys CEO Michael Wright first spoke to Executive over a decade ago. We sat down with him to discuss criticism of the company, future growth and his long-term plans.
E There have been attacks against Spinneys. What were the biggest challenges of this sort?
The attacks that we don’t mind are the competitive attacks. Supermarkets are about market share and you gain market share from each other and those kinds of attacks and counter-attacks are all part of the game. But unfortunately, almost two years ago, we were targeted by somebody as a way to create a political opportunity for themselves and ended up being dragged in to defend ourselves. That was fairly unpleasant; I have never been involved in anything like that in the past and as an organization we have never experienced a one-way diatribe of accusations without foundation, to which when you try and answer, you are ridiculed.
E What does that tell you about reputation risk?
Fortunately, I have to say that these attacks were a potential business risk but had no effect at all, zero bottom line impact. We secured that there were no foundations in the facts and we had no concerns about the facts behind accusations that we don’t pay the minimum wage [and] that we don’t do this or that — it was all rubbish.
E So tell me the truth about your salary scheme. Are you paying everyone what they are worth, are you paying to optimize employee retention, or are you paying to crunch the margins as much as you can?
I’d like it to be the first two. If possible, I would pay above the market in every single position and I think that for most positions, especially taking the full package that we provide, that is what we do in comparable situations. A shelf-filler who is joining us today, yes, he will get minimum wage. But he will get full medical cover and get social security, full vacation and will work the standard hours.
E With all the intricacies and competitive pressures in the type of retail you are doing, economies of scale must play a major role for you. Are you already near your optimum economy in Lebanon?
We passed a tipping point whereby all new stores don’t add to our central cost. Opening new stores thus is a lot easier to make profitable and a working business proposition.
E One of the projects you were talking about eight or nine years ago were little corner stores and convenience shops. Other players have beaten you to those.
Yes but we have our own [convenience store concept], that we are preparing while we working on the pipeline as well. We have three confirmed big shops to open and two more medium shops in the range of about 2,000 square meters, which are about to be confirmed.
E Your largest store in Lebanon is in Hazmieh where you are located practically across the road from the country’s first Carrefour store. Are you looking at Carrefour as your main competitor today?
As one of our competitors. I wouldn’t say our main competitor. We face them in several markets and we are very happy with our performance against all competitors, including Carrefour.
E How many markets do you expect to be in three or four years from today?
My business plan will probably say ten; realistically it is probably going to be seven or eight.
E Did the Arab Spring in Egypt have an impact on you?
In the first iterance of the Arab Spring, lawlessness broke out and we had to close our main branches for a period of time. That obviously had a direct effect. The good thing was that in the second when it was safe to open our doors, business returned as it was on the day when we shut. But we felt that there would probably be a delayed reaction and that has proven to be the case. The economy has been heavily damaged, consumer confidence has been damaged, the exchange rate has been damaged and that had an effect. We had a retrenchment at all of our stores.
E How much does Lebanon contribute to the group revenues?
Between 45 and 50 percent of sales revenue. In profitability, Egypt was number one in net profit in our financial year that ended in June 2013. Our two profitable countries are Lebanon [and Egypt].
E When you were acquired in 1997, the whole group sold for $116 million. If you were looking to sell today, how much is Spinneys worth in your best estimate?
I would say a quarter of a billion [dollars].
E But Spinneys would be for sale, as being owned by an investment fund normally implies an exit strategy?
Yes, absolutely. The company would be willing to do the right thing at the right time in any of these directions, whether it would be via a private sale, a sale to a trade group, investor or going public. But an exit would be timed to also match the markets we are in. You couldn’t easily market Lebanon and Egypt at the moment, with the political problems and the war in neighboring Syria. Uncertainty may be disappearing from the Egyptian market politically but economically it hasn’t disappeared yet.
E It was surprising for me to hear that you would only allocate a quarter of billion dollars in market value to the company at this time.
I put quarter of a billion for a particular reason and that is factoring in the instability in the region and the weighting that we have on Lebanon and Egypt. My opinion is that the optimum time to exit Spinneys is in the future and that this value can be many multiples of where it is today.
E Do you disclose revenues?
I don’t mind disclosing them. Our revenue is around half a billion [dollars].
E In the 2013 financial year that ended last June?
E What is in store security wise for your Lebanon operation in 2014?
I am assuming that there will be more of the same that we face today, not a dramatic worsening of the situation. We are in the middle of spending an extra $100,000 on capex to upgrade certain aspects of our hard-wired security and we reckon about $15,000 in extra expense per month on top of what we are currently doing. Our aim is to create a safe shopping environment for our customers; how to achieve that means in the first to put reasonable measures in place to physically prevent somebody from targeting us. The only thing we can do is to make ourselves a hard target.
E Will the customers have to pay for added security via price hikes?
No, because everything that we do is driven by market competitiveness. We are not able to hike prices because we are driven by the continuous daily slog against all our competitors for market share.
E You have spent 26 years with Spinneys, much of it in senior positions. What does it take out of a person to run a regional retailer for such a period?
(Chuckles) Everything. [But I am] not as stressed out as I used to be. Calmness has come with age.
E Would you do it again?
Let’s put it this way: I wouldn’t allow my children to do it. I think there are easier ways to succeed in life. But it is the route I chose so I don’t want to regret my own life.