Liban Lait had established itself as a leading competitor in the Lebanese dairy industry by the time bombs began to rain down in 2006. Considering it had only been formed in 1997, and built its own factory in 1999, the company was brimming with confidence.
But on July 17, 2006, two Israeli missiles demolished their processing plant in the Bekaa valley, throwing Liban Lait’s very existence into doubt. Five years later, the business has finally returned to capacity, and it is intent on fighting its way back onto the winners’ podium.
Production Manager Houssam Zein-Eddine has been working at the Bekaa plant since day one. “I saw our dream underground. For all of us here, Liban Lait was like our baby. We had grown little by little and, once we were stable in the market and we had developed everything, it was bombed,” he said.
Along with many of the other staff, Houssam did not believe they would be able to rebuild the plant. Fatima Ghosn Dirany, head of human resources, said: “We were convinced that we would no longer be working for Liban Lait.” According to her, ex-general manager Michel Waked –— who passed away in August 2009 — helped the staff believe there was a future for the company. “He was a very strong man with a strong personality. A special one,” she said.
While touring the factory with staff four days after it was bombed he told them he intended to rebuild. “At first, we said ‘how can he be serious?’ It was a hard idea for us all to accept,” Dirany said. “He wanted to get started while the war was still going.”
Waked, and the rest of the board, did follow through on their decision to rebuild, but it eventually took them seven months to get back to a reduced level of production.
Zein-Eddine said all hands were on deck during this difficult period; “Managers, operators, everyone was working like a [laborer].We sorted through all the debris and got rid of everything that was completely destroyed and fixed what we could and when necessary imported from outside.”
The shareholders made an initial investment in the range of $1 million to $2 million to get the plant to a level where it could produce fresh milk, Laban and Labneh, though at less than half its previous capacity. A plethora of product ranges, including flavored yoghurts, cheeses and deserts had to be dropped altogether.
Ultra Heat Treated (UHT) milk was a core product that could no longer be produced in the eviscerated factory. To maintain a presence in this market, Liban Lait imported its UHT from its franchise partner company in France, Candia. “It was important to keep a market share here but it was difficult to compete with high transport costs and high customs duties compared to imports from Arab countries,” said General Manager Youssef Massoud.
Time to rebuild
From early 2007 to January 2011, Liban Lait was operating on this reduced framework to keep a foothold in the market while working in parallel to build its new factory. “This allowed [us] to completely review the financial and technical aspects to make sure the job was done right. We did not stop completely and wait. That would have been a complete disaster,” said Massoud.
Around $25 million was invested to rebuild the whole factory, furnishing it with new and improved production lines. Having invested around $20 million in the original factory more than seven years earlier, there was initial uncertainty as to whether or not there would be the funds available to recapitalize the business. However, having proved that it could not return to production after the bombardment, nor could it service its existing debts, Liban Lait was eligible for a subsidized loan arrangement from Banque du Liban (BDL), Lebanon’s central bank, created specifically through a circular in 2007to assist businesses directly affected by the war.
Under the agreement, the BDL effectively provided 60 percent of the replacement costs through the company’s commercial bank, which Liban Lait was exempt from having to repay. The way this worked was the bank was given soft loans from the BDL, which it then invested in treasury bonds, on which the interest accrued would cover their costs.
In a roundabout way it amounted to free money for Liban Lait. The remaining 40 percent was covered by their own sources, half by increased capital input from the shareholders and half from standard bank loans.
The new plant manager, Abed Khoder, has overseen the transition to the new production lines, which has been underway since January2011. “We have improved productivity and quality with the new technologies… I can say operation costs will be around 40 percent less than what they were before.”
On the filling side, the plant has roughly the same capacity as it did before the war but as Khoder explained, the processing capacity has been considerably increased.
“Now our processing capacity is five times our production capacity. It is much easier to increase production capacity so this gives us room for expansion,” he said.
Liban Lait boasts of being the only large dairy processing plant in Lebanon that has its own milk source on tap. “Top quality milk as the first step is the most important thing and I am very confident in this,” said Massoud. On site next to the processing plant, the company has around 1,000 milking cows who tirelessly rotate on and off the milking machines three times a day, seven days a week. The farm, which was not struck in 2006, provides the plant with 25,000 liters of milk every day.
Back in form
With the move to the new facilities, Liban Lait is finally re-entering the market for a whole range of dairy products, some of which it was producing before 2006 while others are completely new to the company. Earlier in the year a new milk range was launched including UHT and flavored milks and the first batches of new flavored yoghurts were leaving the factory as Executive went to press. Test runs on feta cheese have also been sampled and a new desert range will be launched in the coming months.
For each product there has been an extensive research and development process, which Khoder said costs on average around $200,000. “We do tests, retests and retest it again to be satisfied before we accept its launch into the market,” he added.
After four years, Liban Lait is now back in a position where it can compete in scale and range with the other major Lebanese dairy firms. “Many competitors have taken our place in the market. It is now our strategy to kick them out and get our place back again,” said Khoder.
But Massoud conceded that clawing back their market share, which he estimates to have declined by around 50 percent, will not be an easy task. Earlier in the year they ran a large advertising campaign for the new milk range and he said they will be “aggressively” marketing all the new products. But sparkling new facility aside, damage from the war continues to exact a toll. “It will be difficult to recapture the market share. This is the challenge. Of course nothing is a given.”
