Executive Magazine

The silent evolution

by Yasser Akkaoui August 12, 2016

written by Yasser Akkaoui

If you want to know the time, you can easily go out and pick up a cheap plastic watch for your wrist. With the advent of smartphones that we all carry around, you could also check there. Both perform the function of telling the time perfectly. But a watch can be so much more than just an instrument for making sure that you don’t miss your 3 pm spin class with Alphonso. Whatever watch you choose to buy it is going to send a message to whoever sees you wearing it. And that’s actually what always made me look the other way when I saw one.

In the 1980s, I would never have been spotted wearing a flashy watch. At the time, the company was making its watches for the highest social class. Gold, silver or platinum — bedazzled with jewels. They were status symbols, especially here in the Middle East. People wore Rolexes so others could see them wearing Rolexes. Unlike other “luxury” watch brands, everyone knew Rolex and understood immediately that the person wearing it had parted with a considerable pile of cash for the privilege of doing so. Or they just came back from a meeting – or a shopping trip – with a Gulf prince.
As time passed and perception changed, so too did the Rolex branding strategy. By the 1990s, Rolex responded to the changing times by beginning to expand production of its stainless steel watches, focusing less on the gaudy gold ones synonymous with the opulent luxury of the Gulf countries. Rolex also began marketing itself as the watch of adventurers and sporting events. Their watches are sophisticated, high quality and can survive even the most hostile conditions. Rolex is now the official timekeeper for top sporting events in tennis, golf and Formula 1 racing. When filmmaker James Cameron voyaged into the Mariana Trench in 2012, the robotic arm on his submarine wore a Rolex Oyster Perpetual Sea-Dweller Deep Sea Challenge watch. These notions of exploration and extraordinary achievement are not a new concept for the brand. Tenzing Norgay, who accompanied Sir Edmund Hillary to the top of Mount Everest, wore a Rolex. Such feats are a world away from the drug fueled, institutional greed of Wall Street in the 1980s.

The brand has also managed to stay independent through its 100-year-plus history, rebuffing the advances of major conglomerates like LVMH that had already swallowed up other luxury brands like Tag Heur, Zenith and Dior Watches. What made this possible is Rolex founder Hans Wilsdorf’s well-executed succession planning. When Wilsdorf’s wife died in 1944, he established the Hans Wilsdorf Foundation, and shortly before his death in 1960 he transferred all of his shares to the foundation, ensuring that the company’s income would go to charitable causes.
After learning this, and seeing all those dazzling steel watches on hands clapping ever so elegantly in the stands at Wimbledon, I do believe I’ve changed my mind about a brand with an unchanging face that has born witness to changing times for over 100 years.

August 12, 2016 0 comments

Hospitality & Tourism

When nostalgia meets luxury

by Nabila Rahhal August 11, 2016

written by Nabila Rahhal

Ask almost any Beirut resident about Summerland Hotel & Resort and they will get a misty eyed look before recounting a childhood memory involving the waterfall “cascades”, clubbing at the hotel’s legendary nightclub or celebrating a wedding on the private sandy beach. The list of memories of this historic resort goes on and on.

Opened in 1978 (in an area that now neighbors Ouzai) by Raja Saab, a prominent businessman, and his family, Summerland quickly became a place where people could stem the tide of worry brought on by the grim reality of the country’s long and bloody Civil War.

Summerland closed in the early 1990s, supposedly for necessary maintenance and upkeep. Today it is finally being reopened – with a totally renovated, modern and luxurious look – under the operation of Kempinski, Europe’s oldest luxury hotel group, which was established in 1897.

The project’s resort section has been in operation since early July and the hotel’s grand opening is set for September 2016.

Summerland Hotel & Resort Kempinski marks the first opening of an international luxury hotel chain in the country since the Four Seasons opened seven years ago, and is especially noteworthy given the country’s tough economic situation and the struggles Lebanon’s hospitality sector is currently facing.

Summerland by numbers

Société Générale d’Entreprises Touristiques (SGET), a Saudi-Lebanese corporation, owns Summerland Hotel & Summerland Village, a three-building residential development (73 apartments in total) on the same land as the hotel and resort project itself.

SGET pays Kempinski an annual fee to operate the hotel and has invested a total of $500 million into the construction and development of the 75,000sqm project, which includes the 153-room hotel property with its private pool, a 1,500sqm spa, seven restaurants, a private marina and finally the resort section.

The investment also includes the residential Summerland Village and the 583 cabins through which you are granted access to the resort. Cabins are currently owned by their original owners who can choose to resale through SGET if they wish to do so. Sales of the apartments and the cabins (if the original owners choose to sell) are the domain of SGET; the 100 to 400sqm apartments are being sold at $18,000 to $22,000 per square meter.

[pullquote]“Kempinski has been entrusted to manage the Summerland Hotel, using the brand’s expertise, reputation and consistency in quality service delivery.”[/pullquote]

Dagmar Symes, the General Manager of Summerland Hotel & Resort Kempinski, describes the relationship between Kempinski and SGET as a positive one. “Kempinski has been entrusted to manage the Summerland Hotel, using the brand’s expertise, reputation and consistency in quality service delivery. There is very close collaboration between us and the ownership company to assure the success of the entire project. Every decision we make must be taken with the best interest of the ownership company and the profitability of the hotel in mind,” says Symes.

The old and the new

Visitors to Summerland Hotel & Resort will recognize some elements of the original resort from their childhood, such as the waterfall at the edge of the main pool or the private sandy beach, although those two features are smaller than the original ones. Otherwise, the resort has been completely modernized with Kempinski’s touch of luxury and is almost unrecognizable from the original model.

As soon as the resort was reopened, many cabin owners flocked to Summerland to rekindle happy memories and make new ones with their families. While some customers nostalgically told Executive they prefer the look of the old Summerland, most felt that the resort’s glamourous vibe was still there, albeit with a new, more modern look.

kemp1

Symes says she sees Summerland’s history and nostalgic value as an asset to the project, explaining that capitalizing on the tradition and heritage of a location while giving it a European luxury flair is a trademark of Kempinski projects. “Kempinski always manages properties which are landmark destinations and the Summerland hotel in Lebanon was exactly that. The project is a perfect marriage between European-style luxury and Lebanese history. Luxury is in the details, and we have made sure to reflect this in everything there is throughout the hotel, be it service or product,” Symes explains.

Those culturally significant luxury details are indeed seen across the hotel, in elements such as the figurines which hang from the ceilings and inside the lobby’s color-changing crystal chandelier (exclusively designed for the hotel), which represents the Lebanese diaspora; the Oriental star motif on the carpets and walls; and the 100-piece art collection by Lebanese and Arab artists displayed throughout the hotel.

Hiring local staff

An emphasis on supporting and highlighting Lebanese assets is also seen in terms of hiring practices, where Symes wanted to have as many Lebanese on her team as possible, in all positions.

Indeed, only three non-Lebanese staff – Symes herself, the French executive chef and an engineer from the Kempinski head office – are among the 170 employees at Kempinski Summerland, with that number expected to reach 235 once the hotel is fully operational in September.

[pullquote]“Luxury is in the details, and we have made sure to reflect this in everything there is throughout the hotel, be it service or product.”[/pullquote]

Symes explains that the recruitment process was not easy, as is the case across the world, in that it is difficult to find the person with just the right attitude for a career in the hospitality sector. She claims she interviewed over 1,000 candidates to find “the needles in the haystack”.

Symes was, however, impressed with the level of education among those she interviewed and their ability to speak more than one language fluently. She also says that many employees had previously left Lebanon to work abroad and are returning to work with Kempinski. “Most hotel professionals have left the country in favor of the GCC, but now we are giving them the opportunity to return home and many are coming back and working with us because they want to be home with their families,” explains Symes.

What’s in a location

Summerland Kempinski is adjacent to the working-class Beirut suburb of Ouzai, which some see as a mismatch with the opulent property. Symes, however, focuses on the Jnah area – also near the property – pointing to the embassies and businesses in the area as elements of an affluent neighbourhood, as well as the fact that ABC will be opening a new mall in Verdun, just a three minute drive from Summerland. Symes also mentions the hotel’s proximity to the airport as another advantage to the location.

kemp2

Navigating the bumpy road

Summerland marks Kempinski’s first venture into Lebanon – a country it sees as a “hub in its mixture of Middle Eastern and European culture” – and is part of its strategy of expansion in the Middle East, although Symes admits that this entry was decided before Lebanon started facing a tourism crisis.

Indeed, Symes considers the lack of tourists as a main challenge they will face, as do most hotels in the country.

Again, just like many in the hospitality sector in Lebanon, Kempinski plans to compensate for this challenge by targeting Lebanese expats and local clientele through the hosting of events such as business conferences or weddings, and by marketing the resort as a pampered escape away from the hassles of city life.

[pullquote]Summerland marks Kempinski’s first venture into Lebanon – a country it sees as a “hub in its mixture of Middle Eastern and European culture”.[/pullquote]

Although the competition in this target market is high – with other five star luxury hotels competing for the same limited number of clientele who can afford such luxurious surroundings – Symes believes Summerland has several advantages over others.

Catering to the locals

Aside from the nostalgic factor, Summerland Kempinski also has the advantage of the novelty factor in attracting local clientele.

Summerland Kempinski hopes to offer the locals who can afford a five star experience an alternative to traveling for their vacations and Symes says they are developing a campaign called the Summerland Splash to specifically target the Lebanese market.

Symes also aims for Summerland to be a wedding venue destination offering a 300 person capacity ballroom (which opens up to an outdoor area which seats another 100 people) or the resort’s pool area and private beach for outdoor weddings. The hotel has seven weddings scheduled for this year although their marketing campaign hadn’t been officially launched at the time of publication.

Targeting locals will also be done through the local corporate accounts which Symes believes is the bread and butter of the hotel industry. The hotel has four meeting rooms, suites (which can be turned into meeting rooms) and the ballroom, which can host up to 600 people.

[pullquote]Summerland Kempinski hopes to offer the locals who can afford a five star experience an alternative to traveling for their vacations[/pullquote]

Foreign Affair

Although Symes admits that the focus will be on the local community for now, the GCC countries and Europe will also be targeted, especially when it comes to business travel. “The countries who make up our target international clientele are predominantly those in the GCC but we also aim to target a European clientele. European business people look for a place where they can do business and simultaneously enjoy resort facilities like ours,” explains Symes, adding that options such as “the spouse program”, where spouses of those attending conferences can benefit from a full day at the spa while their spouses use the facilities for team building activities, are additional potential assets for the international business community.

Only time will tell if the Kempinski Summerland Hotel & Resort will be able to live up to or exceed its original namesake, or whether it will be able to compete with other similar properties in the country that seek to attract the same target clientele. In the meantime, people can simply enjoy being in Summerland once again.

August 11, 2016 0 comments

Anti-corruption law needed for oil and gas

by Jeremy Arbid August 9, 2016

written by Jeremy Arbid

Almost a year has passed since Executive first reported on a new draft law aiming to stamp out corruption at various points along the life cycle of an oil and gas project. It is an understandable delay given that parliament has only ratified emergency laws and, after an over three year wait, cabinet has yet to pass two decrees needed to move Lebanon’s first offshore licensing round forward.

An early July meeting between the country’s Speaker of Parliament Nabih Berri and leader of the Free Patriotic Movement Gebran Bassil, whose party has dominated the early stages of developing the oil and gas file, raised concerns over a possible ‘back-room deal’ [see cover story] over the sector’s future and, possibly, the fate of potential contracts and hoped-for revenues. If the need for strong anti-corruption rules for this sector was not apparent before, it is now.

That there is suspicion over the so-called deal between Berri and Bassil hardly comes as a surprise. This is an industry that has proven mostly opaque in much of the world and Lebanon is a country that, according to a ranking by global watchdog Transparency International, is deemed mostly corrupt. The anti-corruption law, proposed by MP Joseph Maalouf in 2015, promises an injection of transparency on the awarding of bids and subcontracting, as well as revenues flowing to the government’s coffers.

In an interview discussing updates to the draft law, Maalouf tells Executive he will have a formal draft prepared by the end of July to present to the Parliamentary Committee on Public Works, Energy and Water for review and, he hopes, approval. Upon committee approval the proposed legislation would be sent to other committees and joint committees for discussion. Speaker Berri, Maalouf told Executive last year and again now, is very supportive of the anti-corruption law. He hopes that high priority status might be enough to champion the bill as emergency legislation.

E In the past, the indication was that Speaker Berri wanted the offshore blocks to be smaller and that he wanted to offer all of them at once for bidding. Prior to this interview, we were told that the Speaker has changed his mind and agreed to the blocks as the size that they currently are and agreed to what they call gradual licensing. What’s the distinction?

There’s a difference between gradual licensing and offering the blocks. You can offer all ten blocks and then you license them gradually based on what prequalified companies come back with and based on the terms around each block, and on the various 3D scans that were done. So you would determine based on which company is interested in which block to develop certain prioritization criteria and you would license the blocks accordingly.

E On the excitement where everyone thought the decrees would be passed by the end of July – our impression has been that it may not be a deal per se but merely to present a positive outlook. Would it be unfair, from an outsider’s perspective, to suspect that there was some sort of under the table handshake?

You’re talking about splitting the pie. Regardless, there are some issues that need to be tightly monitored, there have been some rumors that were circulating around some companies that were squeezed in after the pre-qualification round. Our role as parliament is to monitor that and track it properly to make sure that all the laws that are being enacted are respected.

[pullquote]Hopefully the law we’re proposing will be as foolproof as possible to minimize and eliminate any possibility of corruption through total transparency in the whole system[/pullquote]

E Last year we discussed an anti-corruption draft bill for the sector. Has any progress been made to formalize this legislation?

It is a proposal of a law that I’m working on with the Lebanese Petroleum Administration whose members have been extremely collaborative. I’m working with a subcommittee now on refining the proposal and what we did was a full-fledged process analysis from the time the blocks will be offered all the way through exploration, production and dismantlement – the full life cycle. We took each step in each of the phases and analyzed how they could be jeopardized and how corruption could seep in. We’re creating transparency measures at each step of the process to make sure that we can control it. Anybody with dubious intentions trying to take advantage of the system is at an advantage because they will always look for loopholes somewhere, somehow. Hopefully the law we’re proposing will be as foolproof as possible to minimize and eliminate any possibility of corruption through total transparency in the whole system.

E We’ve seen Member of Parliament Samy Gemayal advocating for transparency measures such as the Extractive Industries Transparency Initiative (EITI). Is that enough and does your draft law stipulate reporting requirements?

With all due respect the EITI is not enough for us. Many of the components that EITI suggests, from our perspective, should be mandatory. Divulging information and ensuring transparency will be mandatory in the law that we’re proposing – what we’re doing goes beyond any existing law globally. It’s in a similar direction, but we’re going beyond on a process monitoring level. The intent was there [last time Executive spoke with Maalouf about the proposed law in September 2015] and the actualization of it has become much clearer.

E How deep does the proposed law go – to service providers and subcontractors?

Subcontracting is the game. That’s where the EITI proposes some things that are useful, but they’re not enough. In terms of going down to the second tier or third tier, that’s where we need to track contractors and subcontractors. [We need specific transparency measures] mandated by law. We’ve done the full fledged process analysis for the whole project life cycle – from granting exploration licenses all the way through dismantlement of facilities. Each step is now much clearer and the points are very well defined.

August 9, 2016 0 comments

Economics & Policy Oil and gas

Legislation in progress

by Jeremy Arbid August 5, 2016

written by Jeremy Arbid

Recent news that rival political parties agreed on a vision for Lebanon’s oil and gas sector was met with worried optimism – an over three year wait for pending decrees to move the first offshore licensing round forward may be nearing an end. Until early July it seemed that oil and gas would continue to languish at the lowest rungs of the government’s priority ladder.

The politically-induced freeze on oil and gas might not be ending anytime soon (see cover story). But if the sector is to move forward the government will need to resolve a number of legislative details. Executive wondered what stage the Lebanese Petroleum Administration (LPA), the sector’s regulator, has reached in preparing necessary decrees and laws, and of its take on the added value of newly available seismic data. It had, after all, been nearly a year since the last time Executive reached out to the LPA for a formal interview. “Are we moving forward?” Executive asks. With technical preparations, yes, says Walid Nasr, head of strategic planning.

E Up to this point interpretations of the seismic data suggested high prospectivity for offshore Lebanon, but recently new data has emerged. What do interpretations suggest and why is this new data making headlines?

In 2002 TGS [a geoscience data acquisition company] came to Lebanon and did a survey offshore with 2D seismic lines covering most of the Exclusive Economic Zone. Recently the LPA managed to retrieve this data from the company – at that time [TGS] did not have an official contract with the Ministry of Energy. In 2011 Minister Bassil brought a lawsuit against the company to get the data and settle the issue between the company and the Lebanese government. So we retrieved the data from TGS and did our own interpretation. The added value of the TGS data is that it had lines in areas where we did not have any data before, specifically on the border areas. When we interpreted this data we came to the conclusion that we may have common reservoirs with neighboring countries.

E That data suggests that there could be, but does not establish, reservoirs that stretch into neighboring countries’ waters?

Final confirmation is by drilling, of course. But what it suggests is that we may have reservoirs across borders that have good prospectivity.

E Is there any update on a pending petroleum tax law?

The petroleum tax law has been prepared by the Ministry of Finance in collaboration with the LPA. Now it’s in the Ministry of Finance and the minister should be able to submit it to the council of ministers and then it should go to parliament for approval.

[pullquote]If the sector is to move forward, the government will need to resolve a number of legislative details[/pullquote]

E The argument we often hear when you don’t have fiscal and legal legislation set before a licensing round is that companies may be hesitant to bid because the rules of the game are not clear. Are you pushing for the law to be passed before the licensing round moves forward?

That is what we are working on. This tax law is prepared in line with best practices to have a good fiscal system in Lebanon. We are working with the Ministry of Finance and they are eager to have this law passed before the bidding process ends. What is important is to have this law passed by parliament before the actual date of the submission of the bid so companies can design their offer accordingly. However, the two decrees pending can be issued in parallel or before this [petroleum tax legislation].

Worst case scenario – which we wouldn’t like – the current tax law applies [a 15 percent corporate tax rate]. So companies would design their bids based on the current tax law. Even if they bid [based on the current tax law], we have stability clauses within the Exploration and Production Agreement that could address [future changes to the tax law]. Our preference, and we’re working with the Ministry of Finance on this, is to have [the new tax law] issued so that we have a complete fiscal system with a petroleum tax law in place.

E There’s also the onshore oil and gas exploration law that is still pending. Is that bill under preparation or ready for referral?

The Ministry of Energy and Water is preparing that; the minister has formed a committee comprised of the LPA and the ministry. We are close to a final draft that will be submitted to the minister and he will, in turn, submit it to the cabinet after which it will go to the parliament. It calls for the LPA to manage both onshore and offshore. It’s technically easier to drill onshore, less costly, less risky and faster in terms of development. The main issue onshore is environmental, it’s more critical and we have some concerns, protecting groundwater for example. The draft law aims to address these concerns.

[pullquote]Our preference, and we’re working with the Ministry of Finance on this, is to have [the new tax law] issued so that we have a complete fiscal system with a petroleum tax law in place[/pullquote]

E We understand the LPA is drafting implementation decrees and is preparing the groundwork for a law to organize a sovereign wealth fund. Are there any updates?

There are some application decrees that we are preparing that would complement the Petroleum Activities Regulations. One of them is the Petroleum Register, very important, where you have all the companies and the details of the awards, and the production later on, registered in the Register with all the licensees, including beneficial ownership. This is being prepared now and will be ready before the bidding process.

For the sovereign wealth fund we have a lot of time to establish it because actual revenues will not be flowing in the short term. It’s very important to set it up, so now the LPA is doing some assessments but we are not drafting the law ourselves because this is a national topic that needs to be discussed. The law should be based on [commercially extractable] resources and our vision of how these will be managed – we’ll provide the technical support and advice needed to design this law.

August 5, 2016 0 comments

Editorial Opinion

A disappointing win

by Yasser Akkaoui August 2, 2016

written by Yasser Akkaoui

Three years ago, we asked then Minister of Energy Gebran Bassil about how millions of dollars made from the sale of oil and gas data were being managed as part of our coverage of the governance of the nascent industry. He told us it wasn’t important. When we ran an article suggesting such secrecy is a bad thing, he sued us for defamation. This month, we won. What kills me, however, is that our in-depth coverage that exposes with irrefutable truth suspicions of cronyism got overlooked by the general public, civil society and those responsible for investigating such doubts. I welcome the judgment, but the most important questions remain unanswered: where’s the money and what checks and balances are in place to safeguard our interests? The purpose of sticking out our necks quite prominently is not to get shares and likes or even warm handshakes. We demand an investigation.

There is an accountability problem in this country, and it’s about time someone did something about it. Around this time last year, we watched the political class manipulate a popular movement. “The mafias” who we were marching to depose won – let’s not kid ourselves. They used and manipulated street protests as an excuse to cancel waste management deals with the private sector that would have solved the trash crisis across the whole country. We would have had infrastructure and modern solutions. Instead we’re going to throw much of our trash in the sea. The rest will continue to be burned and dumped around the rest of the country. And no one cares.

It’s demoralizing. Our economy is all but dead. We’re sinking. Instead of throwing us a lifeline, our politicians are pushing us under with their dirty deals and gross mismanagement. At Executive, we’re doing our part. Our investigative journalists work tirelessly month after month to explain the most complex of issues in an easy to understand way, pointing out what is being done right and how to improve what is not. We’re doing the hard work and it’s time for civil society to pull its weight as well. Without strong and continuous action, we will never be able to save this country.

August 2, 2016 3 comments

Leaders Oil & Gas Opinion

Another red flag

by Executive Editors August 1, 2016

written by Executive Editors

On Friday, July 1, two men walked toward a microphone to speak as representatives of their respective political parties, but not in their official capacity as ministers. Following a closed-door meeting, they declared the end to a three-year feud. A bilateral deal had been reached concerning the nation’s potential hydrocarbon resources. Lebanon was set to finally close its first offshore oil and gas licensing round which is a decision cabinet was supposed to make. After reading a statement that any thinking person will tell you means absolutely nothing (unless it’s laced with coded language only true insiders can decipher), a reporter’s request for details was rebuffed with a promise that consultations with the prime minister would be held. With that, the two men left. A fait acompli, in local political parlance. In all fairness, it was probably a stunt and the deal looks dead (see cover story), but either way, the whole thing stinks.

First and foremost, the deal shouldn’t have been discussed in private by two political parties. By law, it is cabinet’s job to set the country’s oil and gas policy. While the “oil deal” meeting is far more egregious, it is sadly the rule for how this sector has been officially discussed in the past two years. Prime Minister Tammam Salam created a ministerial committee to debate oil and gas back in early 2014. The committee met only a few times. Instead of using the official venue on offer, each individual minister had the Lebanese Petroleum Administration (LPA) come for a one-on-one visit to explain the sector and the LPA’s vision for an oil and gas strategy. Oil and gas is a complicated and technical topic. Imagine if the LPA gave the ministerial committee 15 or 20 workshops on the subject, first bringing everyone up to speed on the basics of how the industry works and then outlining different options for a Lebanese oil and gas strategy while weighing the pros and cons of various choices. We would have more informed ministers. The “classroom” environment would help those from rival camps see how the other side thinks, which could help avoid future years-long delays at important junctures as cabinet decides on every step forward in this sector. If these workshops were televised (and made permanently available on YouTube), interested citizens and civil society groups would today be more equipped to oversee this sector as it is born and hopefully grows. Moving forward, this must be our model. There is no legitimate reason for talk on this subject to be secret. All oil and gas discussions must be public.

Equally offensive was the reaction to the deal. Where was civil society? The silence is shameful. Civil society must protest questionable proceedings like these. The method of protest is irrelevant. At least do something – a statement, anything. Except tire burning. Please.

Weeding corruption out of the system is a long-term goal that will take time and effort. It has been growing for decades, and its roots have a strangle hold on nearly every state institution. The nascent oil and gas sector, however, is an opportunity. Three years ago Executive asked how millions of dollars in survey data revenue are being managed. We were answered with a defamation lawsuit (which we won this month, for the record). Two years ago, we noted a flaw in the pre-qualification process that allowed Mohamad Chouqair, head of the Beirut chamber of commerce, and Mahmoud Sidani, chairman of Unigaz, to participate in the first licensing round. Their company is registered in Hong Kong and they pay a yearly fee to obscure their ownership of it (Panama Papers, anyone?). Perhaps not surprisingly, the disclosure changed nothing. It is time we all wake up. This sector is being built from scratch and we have the chance to get something right. We must not squander it.

August 1, 2016 1 comment

Economics & Policy Oil & Gas

Decoding the oil deal

by Matt Nash August 1, 2016

written by Matt Nash

Parliament Speaker Nabih Berri is having trouble making up his mind. Or so it seems. On July 1, Berri and Foreign Minister Gebran Bassil struck an unexpected deal. The agreement was touted as a bulldozer clearing the final barrier that, for over three years, has blocked the conclusion of Lebanon’s first offshore oil and gas licensing round. The parties, however, have chosen a very odd strategy for building national consensus around their deal. By all accounts, they haven’t shared the details widely, and the terms of the deal coming from the speaker’s side vary depending on what you read. At the time of writing, this looks more like a media stunt than a news development.

Coming to terms

The search for oil and gas under Lebanese territory began before the territory was technically Lebanese. Some five years prior to Lebanon’s 1943 declaration of independence, the Iraq Petroleum Company drilled an onshore well. The company did not make any discoveries, but the search continued (both via drilling and surveying) until the early 1970s. In 1993, the government again began looking for hydrocarbons, commissioning a two-dimensional (2-D) seismic survey off the coast of Tripoli, in the north. Since then, oil stayed on politicians’ brains, but movement has typically been slow, with one exception: Najib Miqati’s 2011-2013 cabinet. With a newly minted offshore hydrocarbon law on the books, then-Energy Minister Bassil clearly made the creation of a Lebanese oil and gas sector a top priority, and the cabinet largely backed him.

[pullquote]Since 2013, it has been quite clear that one of the biggest barriers to getting the decrees passed lies in a disagreement involving Berri[/pullquote]

In December 2012, after securing the cabinet’s approval, Bassil announced the appointment of six board members for the Lebanese Petroleum Administration (LPA), a regulator for the sector, which the 2010 offshore law called for. [By way of contrast, an electricity sector regulator called for in a 2002 law remains ink on paper to this day.] In February 2013 – only 80 days after its board was appointed – the LPA opened a pre-qualification round to select which international oil and gas companies would be allowed to bid in the first licensing round. The pre-qualification process went as planned, and in April 2013, 46 companies were given the green light to participate in the round, scheduled to open the following month. There was only one problem. Miqati had resigned at the end of March before much-needed work on oil and gas was finished. Most pressing were two decrees needed for the licensing round (one delineates Lebanon’s offshore blocks and the other includes a model contract to be signed between the state and companies keen to drill as well as details on how the bidding will happen and how offers will be evaluated). Shortly after Prime Minister Tammam Salam formed a government in February 2014, he tasked a ministerial committee with studying the decrees. They have yet to be approved.

Since 2013, it has been quite clear that one of the biggest barriers to getting the decrees passed lies in a disagreement involving Berri. The speaker wanted to open all ten blocks for bidding. The LPA, meanwhile, recommended opening only five, a position Bassil supported. In either scenario, fewer contracts would be signed than blocks put on offer. Announcing the Berri-Bassil deal, neither Bassil nor Berri’s confidant, Finance Minister Ali Hassan Khalil, mentioned anything about which blocks to open for bids. Speaking to Executive two weeks after the deal was done, Cesar Abi Khalil, a former Bassil advisor (currently counseling Energy Minister Arthur Nazarian), at first reads an amended version of the statement issued after the Berri-Bassil meeting.

“There has been an agreement on [an offshore oil and gas] licensing strategy,” Abi Khalil says. “The licensing strategy should ensure Lebanon’s rights to resources in our subsea, first [vis-à-vis] Israel, second Cyprus and Syria. It should ensure that the Lebanese government will maximize its profit from petroleum activities, and it will ensure the right environment for the licensing round to succeed.” Neither foreign nor finance ministers mentioned “licensing strategy” in their July 1 announcement. Even with that added detail, however, the deal still sounds vague. (Which party would agree to ceding Lebanon’s rights, minimizing the state’s take from potential resources and having an unsuccessful licensing round?) Indeed, Executive’s first question to Abi Khalil was: “So what does that all mean?”

“I think this is clear. This is the extent of the statement,” Abi Khalil replies, before elaborating diplomatically that Berri agreed to abandon an idea he had been promoting for about three years. The actual deal, Abi Khalil says, calls for opening fewer than ten blocks to bidding in the first licensing round.

Reading the tea leaves

Executive was unable to reach Speaker Berri or anyone who could answer questions on his behalf. On July 9, The Daily Star reported Berri had convinced Bassil to accept opening all ten blocks, the opposite of what Abi Khalil says the deal entails. On July 22, economist Marwan Iskandar wrote in An Nahar that the Speaker told him personally that the deal meant going with the LPA’s strategy of opening fewer than ten blocks, seemingly confirming what Abi Khalil says. Yet that same day, Al Arabiya English ran a piece again claiming the Speaker’s vision of offering all ten blocks had won the day.

Future Movement MP Mohammad Kabbani, who heads the parliamentary committee which deals with oil and gas, explains that his party has not been explicitly briefed on the deal since it was struck, but says his party is on board. “We have agreed to submitting ten blocks for licensing and signing only a few contracts. If this is the real agreement,” he says. According to Abi Khalil, that is not the deal, which seems to throw into question whether or not Future will accept it. Abi Khalil has not responded to follow up questions on why confusion and misinformation seems to be how the parties are communicating their deal.

Why now?

Putting aside the details of the deal for a second, Kabbani and Lebanese Forces MP Joseph Maalouf offered some insight as to why the deal came when it did. For three years now, Berri has been claiming that Israel is stealing Lebanon’s gas. He has never offered proof and the concept always seemed suspect on technical grounds. Lebanon’s neighbor has discovered gas in its offshore acreage. None of those discoveries stretch into Lebanese waters. Therefore, if Israel were truly stealing, the private company doing the actual drilling would have to employ expensive technology to drill past the Israeli fields on a blind, subsea search for Lebanese fields to the north. Not only is this costly and risky (i.e., no guarantee a Lebanese field would be found), if the private company were caught doing so, its reputation would be in the toilet at the very least. The only other way for Israel to steal Lebanon’s gas would be if the two countries shared a reserve and Israel began exploiting it first without agreeing how to split profits with Lebanon. Shared reserves are not uncommon (Iran and Qatar share the world’s largest gas field). None have yet been discovered between Israel and Lebanon. However, new data suggest the two countries may have a shared reservoir. This new data, coupled with fears that an Israel-Turkey reconciliation announced in late June means Israeli gas may soon reach a hungry European market via a pipeline to Turkey, prompted the oil deal, Maalouf and Kabbani say.

Walid Nasr, head of strategic planning at the LPA, refuses to comment on the political deal, but sheds light on the new data. Echoing Kabbani and Maalouf, he explains that in 2002, an American company called TGS conducted seismic surveys of Lebanon’s offshore. The company refused to give the Lebanese government the data back then, Nasr says, because the two did not have a written contract, only an oral agreement between the company and the then-minister of energy. Bassil sued in 2011, and TGS handed the data over recently, Nasr explains. TGS refuses to comment in an email exchange with Executive, but a paper on the company’s website confirms it shot over 2,000 kilometers of 2-D seismic in Lebanon’s offshore in 2002. Interestingly, the map published along with the paper seems to show that Lebanon’s seismic surveys stretch south into Israel’s offshore. Nasr says the interpreted data suggests Lebanon and Israel may have a shared hydrocarbon reservoir (2-D seismic cannot distinguish between oil and gas). Seismic surveys, however, are not perfect tools. They give indications of where oil and/or gas might be. Only drilling confirms what lies below, meaning what today looks like shared resources could prove to be nothing.

Unfinished business

Immediately after the deal, press reports claiming the decrees would be passed imminently were rife. Yet a number of decisions still need to be made. While Abi Khalil insists Berri pivoted from wanting to open all ten blocks for bidding, he admits the exact number was not decided on. Indeed, he repeatedly says “we have no religion” in the matter when asked if the LPA’s strategy of offering five will be the final strategy. Ditto the number of contracts to be signed. Fewer than the number of blocks offered, but how many? “We have no religion in this matter,” Abi Khalil repeats. Finally, given that the pre-qualification round happened three years ago, might another be necessary if some pre-qualified companies have lost interest in bidding or if new companies are eager to invest? Khalil says a second pre-qualification round could be a good idea, but insists his side has “no religion in the matter.” Where and how these remaining points open to negotiation will be discussed is unclear. Prime Minister Tammam Salam has not called for a meeting of the oil and gas ministerial committee to discuss recent developments. Nor has he put the oil and gas decrees on the cabinet’s agenda. In fact, he’s done little more than offer veiled criticism of how the deal was announced. During the July 1 press conference, when a reporter asked Bassil for details, he said that was not important at this stage as the two sides would now begin briefing others to build consensus. If such a roadshow is happening, it is one of the best kept secrets in Lebanon.

August 1, 2016 0 comments

Entrepreneurship

The rocky road from inventor to businessman

by Matt Nash July 27, 2016

written by Matt Nash

Antoine Sayah is learning how to actually build a business. Two years ago, he was an undergraduate studying architecture and working on an assignment for a design class. Students were tasked with building a product that was “useful in your everyday life,” he recalls. A Jounieh native, Sayah loves the beach. He made a foldable beach mattress with a triangular headpiece for comfortable lounging which offers far more than just support. With an embedded 7-watt solar panel, it has USB ports for charging electronics (tablets, mobile phones, etc.) and a small refrigeration system to keep beverages cold (with 2-liter storage on the standard-sized model). For a year after he passed the class, he used his crude prototype to tan in his garden at home, he says. Friends kept encouraging him to make more and sell. By July 2015, he was convinced and started marketing the product – dubbed Beachill – on social media (mainly Facebook and Instagram).

He was overwhelmed by the response and soon drew the attention of local and international media. He received interest from around the world, he says. Indeed, Beachill’s second Facebook post garnered the comment: “Please inbox the price… and is there shipping to Egypt”. Speaking to Executive in mid-May 2016, Sayah explains with a “not-sure-if-you-know-this” tone that shipping individual units with a commercial delivery service is expensive. From a cost standpoint, he would need to ship an entire container, a scale of production he had not yet reached. He did, however, manage to export dozens of units to Australia and the U.S.A., though he concedes that “the shipping cost more than the mattress itself.” Between July 2015 and June 2016, he says production expanded from 21 units per week to 200 per week under a contract with a manufacturer with whom he is friends. Six of the manufacturer’s 50 employees are now working exclusively on Beachill units, Sayah says, noting that raw materials are imported with each unit being hand made in Lebanon.

The exposure helped him learn, he says. Sayah claims that early on, a client in Dubai wanted two cargo containers of Beachills. While he wasn’t able to fill the order, he got a lesson in fabrics. “I learned a lot more about how to develop the product,” he says. With a desire now to focus first on building his brand in Lebanon, his thinking on local distribution has also evolved. In May, he chafed at the idea of distributing through retailers. “They’d have to take their cut,” he said, explaining that the $150 price tag on a Beachill was already a bit high, he felt, and he had aimed to sell it for more, not less. He spoke of personally manning kiosks at beach resorts or malls, maybe even renting space for his own dedicated outlet. When Executive checked back in with Sayah in late June, he was days away from meeting with a major local retailer in the outdoor goods segment. Explaining that renting involves a long-term commitment (three to five years) and more overhead than the business can afford (especially considering he expects sales to be strictly seasonal), Sayah concludes, “I can give away $10” for the retailer’s margin, “It doesn’t matter if I’m selling more units.”

He’s sold around 500 units to date and is working on building up stock and working out local distribution kinks. He also still eyes expansion to Dubai by September but hasn’t made any concrete moves in that direction yet. Indeed, Sayah says there still isn’t a corporate entity behind Beachill, something that should change soon as he prepares to incorporate with the six-person team of friends he has assembled. To date, Beachill’s sole investor is Sayah’s dad. He’s had plenty of offers from potential investors, he says, but everyone wanted to buy him out, taking more than 50 percent of his company in exchange for a capital infusion. He says he’s keen to pursue debt finance to fuel growth unless he can find a strategic investor with more to offer than cash. “[Potential investors] are only offering money,” he says. “I can take a loan from a bank.”

July 27, 2016 0 comments

Hospitality & Tourism 2016 Special Report

As old as Byblos

by Thomas Schellen July 26, 2016

written by Thomas Schellen

Many essential parts of life that we perceive as “can’t do without” are quite recent. Inventions such as the elevator, motor car, air conditioning units, frozen food and of course the dreaded smartphone are between 150 and 15 years of age, at least in their modern mechanized/electronic versions, even as the ideas behind them date back 10 or 20 centuries.

Wellness is an essential living concept that has been around for even longer; Indian and Chinese recipes for making the body and mind unite in a healthy and mutually enriching relationship have a history of up to five millennia. According to the Global Wellness Institute (GWI), Ayurveda and traditional Chinese medicinal treatments have been around since 3,000 years before our Common Era or before Christ (BC), and ancient Greek and Roman therapists began practicing wellness in the fifth and first centuries BC, respectively. That sounds almost as old as Byblos, the pre-Phoenician port that we celebrate as Lebanon’s (and one of the world’s) oldest continuously inhabited city.

[pullquote]“You have trendy words in Lebanon, like detox, which is very fashionable, you have gluten-free, which is trendy, and wellness is now becoming trendy as well”[/pullquote]

Wellness as a consolidated, marketing-savvy international industry by contrast is a new trend – young in global terms and just emerging in these parts of the world. It is even young compared with the first smartphones such as the Communicator by Nokia, the BlackBerry, Japan’s DoCoMo and the first iPhone generation, which were all born in the 1990s or later. A Global Wellness Summit as the precursor of GWI was incorporated ten years ago and its International Wellness Day was celebrated for the first time in 2012 in some countries and last month at the Edde Sands Resort in Lebanon.

“We decided to focus on this global wellness day because it is celebrated throughout the world on the second Saturday in June. You have trendy words in Lebanon, like detox, which is very fashionable, you have gluten-free, which is trendy, and wellness is now becoming trendy as well,” says Alice Edde, co-founder of the resort with her husband Roger.

Edde has organized wellness weeks at Edde Sands since 2009. During the past few years her resort has morphed from a top address for summer partying and weddings to a place that is in equal proportions oriented towards weekend relaxation seekers and revelers between May and October and to wellness in the rest of the year. “We started off as a party destination and now we have become a wellness destination and a place for children,” Edde says. This is reflected in the brand, which has expanded its name to Edde Sands Hotel and Wellness Resort.

For this year’s wellness day the resort invited advisors on issues such as nutrition or pediatrics, and even an optometrist and a life coach to set up booths where they explained to visitors why wellness is important. The exposure was so convincing that a member of the Executive editorial team decided on the spot to make another try at kicking his cigarette habit.

According to Edde, the occasion was also able to attract two relevant ministries. “We got the minister of health interested in this and the minister of tourism, so we had both their logos on our flyers because they are backing us. This is important for Lebanon. It is a form of diversification of tourism; you have religious tourism, wine tourism, rural tourism and now wellness tourism,” Edde says.

Unsurprisingly, international wellness advocates and operators are full of cheer for the potential of all things wellness with market assessments that speak of trillions of dollars, not just billions. The numbers come from research conducted in 2014 by GWI and it is a reasonable expectation that they are self-serving and possibly exaggerated. They nonetheless leave little doubt that wellness is a sizeable business realm. In GWI’s view, the three largest elements of the wellness market are beauty and anti-aging, worth $1.03 trillion worldwide, followed by healthy eating and weight loss ($574 billion) and wellness tourism, worth a supposed $496 billion. In total, comprising hundreds of billions of additional dollars in sectors ranging from fitness, alternative medicine and lifestyle to wellness real estate and workplace wellness, the sector’s advocates see a global market of $3.4 trillion.

A high-potential destination concept

As a wellness destination, Edde Sands on this Saturday in June mobilizes all the offerings – except crowds, that is. Attractions like Zumba, dance and aerobics exercises performed to energetic music, runs at noon in fitness studios, at 2 pm water gymnastics are held in the pool and at 6 pm there is yoga.

[pullquote]All evidence suggests that the visitor moreover doesn’t have to worry about looking the part of either the proverbial Aphrodite or Adonis to fit in and be accepted[/pullquote]

At the large lunch table for invited guests and celebrities, a three-course wellness meal with greens, fruits, fish filet or veggie burgers and healthy sweets is served in a relaxed and tasty fashion. This is framed by the resort’s calm and easygoing atmosphere where one can sit back and let the soul wander, taking a break from thinking about waste management or other political issues of the day. All evidence suggests that the visitor moreover doesn’t have to worry about looking the part of either the proverbial Aphrodite or Adonis to fit in and be accepted (Adonis and Aphrodite are present, though, but as monikers to denote the facilities.) Although it has strong ties to physical attractiveness, or the longing for it, a wellness seeker here does not have to obsess over fitness and body-shape stereotypes, or particular practices that have come up during the last 100 years of the wellness movement – such as radical vegans, preachers of various abstinences, and prophets of New Age and alternative medicine – that have the tendency to turn into quasi-religions.

The look taken by the Edde Sands team is undogmatic. The week-long program is adjusted to local habits, where discipline is not a prominent pattern and food proscriptions aren’t extreme. “Wellness food is not just about dieting. There are so many body types and we prepare our meals to be in line with people’s real needs,” explains Yara Younes, who oversees the wellness operation at Edde Sands.

The number of people who attend this first wellness day celebration at the resort is not large (Ramadan always makes a dent here) but also not impossibly small. The event, according to Edde, aims to give people a taste for wellness whereas wellness week is a serious endeavor during which “you spend nights and you come with a goal like relaxing, or doing detox or losing weight.”

The costs

Such self-improvement goals have a cost. A full stay during wellness week will set a participant’s purse back over $1,600, according to Younes. Attendance of a wellness week depends on the season but participation ranges anywhere between 15 and 40 regulars. “What we have seen over the past few years is that there is a greater awareness of the health benefits of retreats, and those that try our wellness week once tend to become regular clients. This has created a large wellness database,” Younes enthuses, adding, “Our maximum capacity is 25 full-week clients. We prefer providing customized attention and personalized service for a better client experience.”

As Alice Edde acknowledges, a stay in a European wellness hotel will be less pricy than at the resort. She argues that this is because of specializations in Europe where an entire branch of the hospitality industry has already focused on this theme for a long time in countries like Austria, Czech Republic (where the famous Karlovy Vary spa town was established in the 14th century and named after Emperor Charles IV) or Germany. Booking a wellness week at Edde Sands on the other hand is not expensive when compared with a conventional stay at a five-star hotel in Lebanon. “It is not cheap but relatively speaking, it is very reasonable,” Eddie claims.

According to Edde Sands marketing manager Nathalie Maljian, the property has two hotels with a current capacity of over 50 rooms and suites, which was developed between 2006 and 2016. The average room rate is $376 and $92 in the high and low seasons respectively, with an occupancy rate at the hotels of 60 percent.

Younes says it is difficult to compare the package cost of a stay during wellness week with an average week during the low season. Including stay, meals, resort entry and various activities, the cost will be $1,627, which can grow higher by purchasing other options. This is juxtaposed with a $825 fee for six days of accommodations alone, in addition to which guests would have to buy meals ($35 for each meal) and treatments for between $15 and $145 each. A single-day complete participation in the wellness program sells for $195, she adds. It is unmistakable, however: a bargain proposition for backpackers, wellness week is not.

[pullquote]For the next wellness week in October 2016 Younes expects to boost revenue by 30 percent from the previous year[/pullquote]

For the next wellness week in October 2016 Younes expects to boost revenue by 30 percent from the previous year. In measures to support economic performance, her targets include attracting a younger clientele and benefiting from new partnerships, such as “a collaborative relationship with the AUB Wellness Center and the AUB Nature Conservation Center”, details of which are to be determined in the latter part of the year.

Alice Edde’s strategy is to develop Edde Sands as a wellness destination in equal parts for domestic and foreign clienteles. She sees wellness tourism as a growth trend with increasing numbers of institutions and operators, like small hotels in the countryside and bed & breakfasts, joining the ranks. “This will be the tourism of the next ten years,” she says confidently.

For this upscale resort that has been standing its ground in the challenging Lebanese hospitality landscape for more than ten years now, wellness is a promise to reinvent and upgrade itself in a maturing market. However, while wellness tourism has the potential of contributing to the diversification of tourism in Lebanon and could tie in with other specialties such as medical tourism, this potential will be lessened if known deficiencies in areas such as political stability, infrastructure and security are not addressed. “In their absence, the growth rate will be impeded, but we won’t stop. We believe in what we are doing and we think it is the future,” Edde says. For her, wellness is more than business, she professes with a smile: “It is a lifestyle.”

July 26, 2016 0 comments

Hospitality & Tourism 2016 Special Report

The franchisor and the direct operators

by Nabila Rahhal July 25, 2016

written by Nabila Rahhal

It is part of human nature to be dissatisfied with what we have, always wanting and working to gain more. At the corporate level, this can manifest itself in the growth of one’s enterprise, be it in size, services provided or expansion into new markets.

Businesses in Lebanon are no strangers to growth into new markets, whether locally or abroad, through the opening of new branches of existing operations. A quick glance at the Lebanese Franchise Association (LFA)’s list of franchisors reveals that businesses of listed members range from retail stores to a children’s daycare center to service providers (such as copy and design services) and even to a gas station.

Who franchises and where

Malik’s, a copy center and services retailer, boasts five franchises in Lebanon since the inception of the concept two years ago and actively promotes becoming a franchise owner through banners displayed at their stores’ entrances.

However, despite examples such as Malik’s, the majority of franchisors and franchisees listed on the LFA website are in the hospitality business, be it eateries or retailers that sell food and beverage (F&B) products. Indeed, Lebanese F&B investors have become increasingly seasoned in developing solid brands whose value increases by opening multiple outlets locally, and often abroad as well.

The first choice to be made when opening a new branch is location, according to Donald Batal, founder of the restaurant management company Ministry of Food which operates Classic Burger Joint (CBJ) and Tomatomatic, in terms of making sure it’s a high traffic area which would have a good revenue stream.

What works best?

Once the location is set, F&B operators have to decide whether they want to directly operate the outlet or sell it as a franchise. If directly operated, the company invests in constructing the branch and manages it itself, keeping all future profits within the company. As a franchise, the company sells the branch’s license to a franchisee who invests in constructing the venue and managing the outlet. The franchisee then keeps future profits minus the annual royalty fees paid to the brand owner or franchisor.

Within Lebanon, most F&B outlets are company owned and operated, as it is a more profitable model for the owners, according to Marwan Ayoub, copartner in Venture Group. “If your outlet is profitable, and most local chains in Lebanon are, it’s better for the owners to open branches than to sell them to someone else, especially since there are always ways, such a kafalat loan, to support the opening investment,” says Ayoub, adding that such companies tend to grow the value of their brand locally by opening several branches and later consider selling the brand abroad as franchise.

Show me the money

When it comes to profitability, Battal, who is starting to locally franchise CBJ and plans to have Tomatomatic be a purely franchise model locally, believes the two models end up being equally lucrative. “Both models are profitable, [but return] depends on the investment size. When you have a company owned store, you invest money into its construction but you have a higher return. When you sell a franchise you don’t invest but you get royalty fees which are less of a return,” explains Battal.

[pullquote]When expanding abroad, having an operator from the country in question becomes even more important[/pullquote]

Christine Sfeir, CEO of Treats Holding and Meeting Point, which holds the Dunkin Donuts franchise in Lebanon and operates Lebanese eatery Semsom locally, in the region and, most recently in New York, explains that while it takes a lot of time for franchising to be financially lucrative, when a branch becomes successful, the profits roll in. Sfeir says that franchisers put in a lot of effort at the beginning to get their franchisee stores to work.

Bring in the locals

For Kababji, direct operation makes more sense since their main catchment area is Beirut and Mount Lebanon, which is an area they know well and is well positioned for their brand, explains its general manager Eddy Massad. “Beyond these markets, within Lebanon, we don’t see Kababji as being well positioned. While it is possible to do so, it’s tricky and has price sensitivities,” says Massad, adding that in this case, since they are unfamiliar with operating in regions outside of Beirut and Mount Lebanon, franchising the concept to an operator from the local area would be an option.

Having an operator from the region that would know how to promote the brand among the community is exactly why Battal franchised CBJ to an operator in the north who opened the first branch in Ehden in the summer of 2015 and will be opening branches in Zgharta and Batroun this summer. “We decided to give the north to someone from there who, with a brand like Classic Burger Joint, will attract all the north – and this is what happened. So the match of a good operator from the area and a good brand is a success by itself,” explains Battal.

When expanding abroad, having an operator from the country in question becomes even more important. “I want a local partner in every city because I want an expert in the city; we cannot personally become experts in every city in the United States,” explains Sfeir in describing Semsom’s franchising plans going forward in the US, where the company so far has two directly operated branches in New York through the head office based there.

What’s in a name?

All franchising F&B operators interviewed for this article stressed the importance of having the franchisee be very experienced in the hospitality business and already operating several eateries. “The experience of franchisor is excellent when you have the right operator as franchisee, meaning one with a background, experience and skills in F&B. Otherwise, it is the worst experience ever. Therefore, the skill lies in finding the right operator,” says Kababji’s Massad.

Indeed, fear of having a franchisee unintentionally harm the reputation of an F&B brand, through bad management or lack of experience, is a reason cited by some of those interviewed by Executive for delaying franchising plans until their company is more structured.

[pullquote]Operators who are franchising their brand have circumvented [possible] risk by investing a lot of time and money into developing their franchise manuals and into following up with their franchisees[/pullquote]

“At this point in Boubess Group we are not franchising for one simple reason: it’s true that we are a big company in hospitality but we are still building and developing our portfolio so when we franchise our brands, our infrastructure as a company will be ready in terms of the system, the brand and manuals,” says Boubess Group’s corporate marketing manager Hady Fadel. Fadel explains that, if the right control does not exist, a franchisee might introduce elements which are not in harmony with the brand, potentially jeopardizing the brand’s name in that country, which in turn would reflect negatively on its overall performance.

The power of control

Operators who are franchising their brand have circumvented [possible] risk by investing a lot of time and money into developing their franchise manuals and into following up with their franchisees. “What we did before franchising is establish a very solid structure: we enrolled in the biggest associations for franchising such as the International Franchise Association and we invested in our operation manuals. We are not worried about losing control of our brand because we have this very solid structure and on top of that we control the quality from A to Z,” says Batal.

According to Sfeir, having experience as a franchisee with Dunkin Donuts has made her a better franchisor. “We are very hands on. For example, we have two mystery shoppers who go twice a month to all venues. We know what is important in order to support franchisees since we are franchisees ourselves,” she enthuses.

Skills needed

In terms of soft and management skills needed, some see that being a franchisor requires a different mindset than being a manager of several outlets. “When operating you need to go into detail and be more customer service oriented, while as franchisors you are working as consultants more or less so you need to adapt and be more flexible,” says Sfeir, drawing on her experience both as a franchisor and a direct operator.

Others see that the two models require similar management skills: “Maintaining consistency and quality of the brand is a common challenge between franchisors and direct operators, and requires the same management skills for having the proper systems in the food supply chain and the operational standards,” says Kababji manager Massad, adding that another common challenge is finding qualified employees in Lebanon. Kababji has addressed this by having an in-house professional development system through which both direct staff and franchisee employees must pass in order to advance into key positions.

It is up to the F&B operators to decide whether they want to franchise their brand or develop it themselves, but what is certain is that they will always continue to strive for more growth. It’s only human.

July 25, 2016 0 comments