ADMIC, operator of the Monoprix and BHV stores in Lebanon, are adding to their retail stable. The company has begun its PR and marketing campaign for the 200,000 square meter City Mall, due to open at the northern gateway to metropolitan Beirut in three stages between December 2005 and the end of 2006.
ADMIC chairman and CEO, Michel Abchee, told EXECUTIVE the mall will open on the ground floor with specialty shops and one new ADMIC-operated anchor store, the 11,000 square meter hypermarket Casino Geant. In the second phase, the food court and shops on the upper level will open in early spring; followed by a 18,000 square meter BHV outlet as a second anchor and a nine-cinema multiplex at an unspecified date in 2005. The company is in negotiations with a sporting goods store that would function as the mall’s third anchor. The $70 million project is running slightly above budget, due to euro-related increases in construction costs and because of adding areas onto the initial blueprint. The financing of City Mall is based on retained earnings from ADMIC operations, capitalized at $50 million, and bank loans under leadership of the retail company’s house bank, Banque Méditerranée. “We were able to get an investor base that was interested in what we are doing and in our market. Our shareholders have pushed for the development of ADMIC by reinvesting profits instead of paying out dividends,” Abchee said. “This really helped in our development of growing from 50 employees [in 1998] to over 1,000 employees today and 1,500 by the end of the year 2004.” That the retailer stepped outside of its core business competencies by taking on a real estate developer function, was explained by a desire to meet international standards and customer demand. He admitted that the country has an oversupply retail space in real terms, but when it came to quality and specifications required for a project of an international standard, most locations and developments did not measure up. Thus, when ADMIC investigated the possibilities for establishing a hypermarket they opted to build an entire mall from scratch on their preferred site. The site, on the north side of the Dora Highway, satisfied the company’s preferences for easy accessibility, significant traffic flows and a good catchment area in Beirut and the Metn region. With new tenants coming onboard daily, Abchee is confident that the City Mall will stand out in Lebanon’s convoluted retail landscape and attract sufficient consumer spending despite the nation’s reduced purchasing power. “We have received positive reactions from the representatives of international brands,” he said. “We really built a mall suited for Lebanon and suited to international clients. The mall will be the first of its kind.”
While all this may contain a degree of hyperbole, the ADMIC project appears to indeed fit well into the evolutionary pattern of mall developments in Lebanon over the past decade. The profound changes in the nation’s shopping patterns began as malls made their entry onto the local retail scene when the resurging post-war economy saw developers carve shopping centers like the Concorde Galleria in Verdun out of existing real estate as well as purpose-build a number of projects from the Freeway Mall in Sin El Fil to the Sodeco Square in Ashrafieh. But although a good number of these retail sites came to the market in the mid 90s bearing labels of malls, they represented more of an intermediary link in the advance of shopping from traditional high street and small store environments to new retail destinations. A few of the early projects initially flourished as urban shopping centers offering specialized retail (mostly fashion), entertainment facilities (cinemas and unsophisticated arcades) and small food courts, but many soon struggled, floundering in the recession. In this evolution, in which Lebanon today pursues modern retail concentration trends ahead of Syria and Jordan but substantially behind the Gulf economies, the current period marks a further stage of retail refinement through construction of larger, efficient malls. What makes ADMIC’s entry into the mall operating business interesting is that the company is consolidating an already entrenched position in the re-shaping of Lebanon’s shopping culture. The company’s new position in mall management converges with its role as multi-brand retail store operator and leading supplier serving Lebanese consumers in less than six years.
The larger businesses in Lebanon’s fast moving consumer goods (FMCG) retail sector can be broadly divided into traditional and entrepreneurial retailers. While the former constitute a host of family-centric companies with decades of entrenchment in relations with local manufacturers, traders and old-style exclusive agents, the entrepreneurial side of FMCG retail is really made up of two firms: ADMIC and Spinneys. Entering and immediately shaking up the highly contested market in the late 90s, both companies struggled with the sector’s entrenched business patterns, consumers’ shrinking purchasing power and the political and legislative environment.
Nonetheless, the two companies have risen to preeminent positions in the local market, expressed in combined 2003 turnover figures of roughly 1% of GDP – tendency pointing strongly upwards. According to Abchee, from already achieving slightly over $100 million in annual turnover, ADMIC looks to reaching $150 million by the end of 2004 and, including the new stores, aims to double 2003 turnover by the end of 2005.
In addition to the growth in volume, the company targets a wider customer spectrum through rolling out the Geant hypermarket brand, which aims to attract all income segments. Understanding itself as a firm that promotes the Lebanese middle class, ADMIC hitherto tended towards an image of addressing middle to upper income audiences with the BHV non-food product segmentation of clothing, perfume, electronics, household, sporting goods and do-it-yourself items. The Monoprix stores initially catered to medium to high earners, but now expanded their approach to appeal to cost-conscious shoppers with Monoprix-branded food items and their own-brand clothing labels. Last year, ADMIC began to strengthen Monoprix by adding three new stores to their portfolio. Another area where Abchee presents the company as having a different approach is in financing. “What we tried to do is separate the expansion from the day-to-day business,” he said. Under dependable participation by board members and banking partners, ADMIC made their investment calculations without thinking to involve operational resources. This resulted in keeping relations with suppliers free from financial hiccups, he claimed. “We are paying our suppliers on time and intend to continue to do so. We can take credit for respecting our engagements with suppliers.” As for concerns on possible internal cannibalization of revenue streams between stores, he said that the addition of stores did not produce significant cuts in turnover at the company’s stores in Jnah and Ashrafieh, calling a 6% to 7% contraction in turnover in Jnah “a big success for us” in light of the increased competition from the largest Spinneys outlet, which opened late last year two blocks down the street from the BHV/Monoprix complex. As a clear bonus on the operational side, ADMIC anticipates the expansion of retail floor space, first through opening the three new stores and then through the Geant and BHV stores in City Mall. As this reduces costs, the retailer’s improved bargaining position in sourcing products from local suppliers could mean some welcome reductions in retail prices.
Also outside of price benefits to Lebanese consumers, which were helped visibly by the competition between the Monoprix stores, the Spinneys chain and the traditional supermarkets over the past five years, ADMIC operations changed the retail sector in several other aspects. This impact extended from opening a small do-it-yourself niche in the Lebanese market and introducing new concepts on perfume sales – when launching the BHV cosmetics department, the company encountered “huge resistance against our presentation” from suppliers – to leading the sector in marketing and advertising campaigns, which were later followed by competitors and resulted in sector wide increased advertising spending, the manager claimed. The company also contributed in two ways to greater transparency, one by centering billboard advertising campaigns on aggressively priced sales items and two by declaring their policies and charges in allocating shelf space to suppliers. In the push and shove negotiations with manufacturers and brand representatives desperate to secure optimal positioning and maximum space for their products, supermarkets had commonly placed certain demands on suppliers – which smaller importers often found excessive – but these positioning conditions were usually not transparent. Industry insiders maintained that these arrangements were open to corruption. By laying open their policies on this matter and telling suppliers that their shelf space depended on their market share and their practices with ADMIC, Abchee said his firm could take credit for bringing much needed clarity to the process. In Abchee’s view, all these moves have successfully challenged conventional practices by established retailers and the major companies acting as FMCG suppliers. “All the big groups were traditional in their thinking. It took us a long time to change the way how these people are thinking,” he said. “We are helping in the evolution of consumer behavior and in the evolution of relationships between customers and suppliers.” On charting and analyzing consumer behavior, the company claimed to have no figures on the number of tourists frequenting the stores in the summer season and the contribution of their purchases to the turnover at BHV and Monoprix. Abchee explained the absence of detailed figures with ADMIC’s reluctance to undertake polls and surveys that customers might perceive as hurting their sensitivities. However, he confirmed that VAT reimbursement claims and credit card-related data were indicators for the high significance of purchases by tourists and summer guests for the company’s revenue stream, and the company made it a point to advertise at Beirut Airport. In fact, tourism was also an important consideration in ADMIC’s corporate strategy behind developing the City Mall project – and one where the manager became vocal on the absence of government support. If one looks at the reality of Lebanon as a tourism destination, retail shopping is one major way in which the country attracts visitors but the government has not given priority to supporting retail projects as tourism magnets, ignoring the issue “for all the wrong reasons,” Abchee said. “It is a major strategy in our marketing plan that we place special budgets to attract tourists. The only problem is that we are doing it alone. The government is counting a lot on the private sector for tourism development but not giving breaks in return. We would recommend closer communication between the government and the private sector.”
A second matter where public-private sector interactions are relevant to ADMIC’s devlopement concern the company’s plan to bring a store of French fashion retailer Galeries Lafayette to the SOUQS of Beirut. The plan, hatched several years ago between the Groupe Galeries Lafayette (which is also the parent company of the BHV and Monoprix chains) and ADMIC, has not been abandoned but has been deeply packed in ice by the quarrels and delays surrounding the downtown SOUQS project. Considering ADMIC’s evolution has involved a degree of learning by adapting the BHV and Monoprix formulas to local customer preferences, success has not been as easy as the smooth growth figures and available financial results of the privately held company suggest. “We listen to our customers. From five years ago until now, our stores have evolved and adaptation to the local market is our main issue,” he mused. “Some people say we like too much to take risks. We are taking more risks than others but calculated risks can be good.”