Zafer Chaoui was appointed Chairman of the board of Château Ksara in 1991. During his tenure, the country’s oldest winery has gone from lame duck to Lebanon’s market leader both at home and abroad. Although wine is not Chaoui’s only business interest (he is a managing partner of the Chaoui Group of companies, which began life selling paper, board and pulp from Finland in the 30s and which is now a market leader in this field. The group’s other activities include the sales of raw materials to the pharmaceutical, food, feed and detergent industries. Zafer Chaoui is a board member of Banque Libano-Francaise and the honorary consul for Finland), he calls it, “the most beautiful part of my business life.” A businessman who normally prefers to let his results do the talking, he kindly spoke to EXECUTIVE.
E The company is embarking upon a significant expansion over the next four years. Can you outline the changes you envisage for the company and why you felt it was necessary now?
Since 1991, we have gone from a production level of 1 million bottles to a production level of 2 million bottles. This is the optimum we can do today with our current facilities. For the last three years we have sold out of our wines and have had to delay shipments. Our customers have not been happy about this. But before embarking upon any expansion program, we had to make sure that our grape partners, Mrs. Rizk, Mr. Itani and the Jesuits at Tanail, would agree to enlarge the vineyards. All this has been approved and in the coming years production will increase to 2.7 million bottles. I want to stress however, that we are not expanding to sell more but to improve quality and to sell it better locally and abroad.
E Will this gradual move to better quality see a change in pricing strategy and the streamlining of your range?
We have a good range. We will not streamline. On the contrary, we might move into niches like we did with the single varietals, the Chardonnay and Cabernet Sauvignon. We will certainly emphasize on noble grape varieties as much as we can.
E Will the increased production be used to plug gaps where demand currently exceeds demand, like with the Reserve du Couvent?
The reserve is our best seller and I don’t believe you can find a more competitive price to quality ratio anywhere in the world. The château range of wines is our flagship and I would like to see a greater concentration on premium wines. We are quality conscious but we are a company that likes to make money. We make higher margins on the premium wines.
E Lebanon is a very small producer in global terms yet its quality is not in doubt. What should be done among the producers to harness its potential?
The other [Lebanese wine] producers are our competition and healthy competition is key to success. They share our principals of professionalism and honesty and their aggressive ad policy has created greater awareness among the Lebanese population and increased local consumption from 2.5 million ten years ago to 5 million today. That said, consumption is still low by global standards and there is room for improvement. We exhibit together at international fairs because the biggest market for us is the world and as Lebanon’s production is small we can develop a niche market. Our wine sector is now used by the government as an example of a healthy local export, one that can be an ambassador for Lebanon.
E It could be argued that wine is Lebanon’s most high profile export. What are your personal feelings about the promotion of wine by the public sector?
The public sector anywhere in the world is always slower to react than the private sector. In Lebanon, it is probably slower. There is much goodwill when we speak to all the ministries individually but as our interests are spread between three ministries – those of Economy and Trade, Industry and Agriculture – this can sometimes make life difficult. But there is progress. We are working to create the National Wine Institute to make sure our wine meets the required standard and to help export our wine. Furthermore, since export levels have increased, I have noticed a bigger increase in interest from the public sector. You know it is always easy to blame the government but it has helped where it can, especially in facilitating soft loans for Lebanese industry.
E Château Ksara’s biggest export market is Syria. In light of the recent political tensions, how would you describe the commercial relationship between the two countries?
I don’t want to avoid this question. Syria is one of our main export countries. It is a huge country with untapped potential and we can see this just by looking at the many banks that have entered and are still entering the Syrian market. There is little or no wine production in Syria and we have always sold our wine there. Our sales are increasing year after year and have not been affected by any political tension.
E 2007 is the 150th anniversary of the company. How will Château Ksara be celebrating?
First of all, I want to say that I feel I am very lucky to be chairman at this time. We are making a documentary film and producing a book to commemorate the event. We are also hosting a three-day event for our foreign contacts, distributors, the press and private individuals who are close to Ksara. It will entail one full day at Ksara and other events in Lebanon. Then we will hold another event for our local customers, focusing on the tradition and modernity of Ksara.
E The company has come a long way since the early 90s. What would you say has been the main factor in the resurrection of the company’s fortunes?
The main factor has certainly been the investments that have been made in this company in a regular basis, year after year following a strategic plan that that has been fully respected.
E Can you tell us the level of investment?
Let us say that we have invested on average $500,000 every year since 1991.
E When the company decided to embark upon its expansion policy in the early 90s, the local sector was very different than it is today; Ksara was, in a way venturing into the unknown, especially in planting untested vines and buying new equipment in anticipation of greater production. What was your biggest fear during that period?
We were optimistic. You must remember that the war had just ended. We had been let down during the war by a lack of security and had lost out on many opportunities. When the war ended, we looked forward. We had great terroir, we had a strong brand and we had willingness of the board to make Château Ksara exceptional. So our fears were not professional fears. As long as the country was stable, we always knew we would succeed.
E So there were no doubts as to your strategy?
I was confident and everyday since that day my confidence increases.
E What would you say are the company’s strengths?
The name of Château Ksara, one that dates back to 1857, and one that is associated with tradition and quality. Again, I cannot overemphasize the backing of the board that is determined to invest and do the best for the company.
E Château Ksara is one Lebanon’s oldest, possibly the oldest, companies.
It is the second oldest according to the records at the chamber of industry.
E How important is this tradition in your corporate philosophy and how has the company been able to build in this tradition in terms of brand equity and market positioning?
If you want to succeed, you play on all the elements that help you achieve success. We have played on our history and we have exploited our assets, especially the fantastic [ancient Roman] caves. We have emphasized on tradition through our name and the lineage, nobility through our quality and modernity which reflects what we have done since 1991, when we transformed Ksara from an old company to one with the best equipment, best human resources, and aggressive local and international marketing.
E Has your age and your links to the Jesuit brothers ever been a negative factor in your brand positioning?
You have to transform liabilities into assets and the inherent equity in our name and heritage far outweighs any negative connotations. Today we are seen as an old company with a young spirit and this has been, especially borne out in our packaging, our labeling and in our innovative ad campaigns.
E Many of your senior managers have been with the company for many years? What is done to foster human resources development within the company and how has this been translated into performance?
Alot. Really I mean it. We have fantastic middle management with a high level of education. This is a huge asset. Furthermore, we delegate clearly specified business responsibilities as well as regularly send them, lower management, on courses, as often as three times a year, to improve their core performance and expose them to changes, developments and new techniques in the world. This is something I am very proud of. We also operate a bonus system. This makes the staff feel they are partners in the company that they have a stake. The managing director Charles Ghostine and I work hard to create the right atmosphere. People spend a lot of time at work, much more than we do at home and so the key to success is a good environment in all areas of the company. Whoever wants to work and is positive will stay with us for a long time and those who don’t want to work will leave us very quickly. I would like to add that, despite everything in 2005, we achieved better sales than 2004 and this is a huge indicator of our corporate determination.
E Your export manager started in accounting and studied wine making in France before taking up his present role. He is now a respected member of the wine community. This delegation of responsibility is rare in an Arab company, where decision making is still a very much centralized entity.
Yes, he had the chance to study Ksara in all its aspects. He discovered a love for wine and wine making during the war when our French enologist had to leave. He then went to study France and get his diploma. This is very important for an export manager. He knows the product inside out and speaks with authority and, as you say, he is a respected member in the world of wine. However, this is the exception. It is not how we do things. We can’t ask every one of our employees to go and study wine for three years. Ideally, when I look for a sales manger, I would want an aggressive businessman with a strong business degree.
E You have many business interests. You are a pharmaceutical industrialist, a paper manufacturer and a banker. What does Château Ksara mean to you?
Yes I am fortunate to have many biz interests as you say. However, Ksara is the most beautiful part of my business life. It has a touch that does not exist in other businesses and sentimentally speaking it has a special part in my heart
E Where would you like to see Château Ksara ten years from now?
As I mentioned earlier, I hope we will have reached our target for increased production. I don’t believe we can go further than [2.7 million bottles]. We will have reached a satisfactory limit whereby we will have improved quality and strengthened our position in the local and international market.