Comment

The problems of being a non-smoker in Lebanon

by Jasmina Najjar
written by Jasmina Najjar

We were enjoying the ambiance at a resto-bar until it hit, or rather puffed our way. Breathing suddenly became an unpleasant task and there was mist everywhere. I looked around to determine the cause. Lo and behold, practically everyone was smoking, in an enclosed indoor space. Surely, the waiters or management would kindly ask the smokers to refrain? Thirty minutes went by and nothing happened. The mist was now a heavy fog. One of the young ladies in our group looked anxious. She was pregnant and was naturally concerned about the wellbeing of the life growing inside her. “I thought smoking was banned indoors,” she said with a confused look. “There is a law but the management must be paying the authorities to turn a blind eye, or have a special license, or maybe they simply don’t care if people report them,” responded another friend.

I’m not sure what was going on, but I can say that my restaurant experience went up in smoke. No such “special license” exists in Lebanon. I will not be going back to that restaurant, out of a matter of principle. What could have been an enjoyable night turned into a hellish experience. I reeked of smoke when I got home and my throat was sore. And this is not the first time this has happened since Law 174, banning smoking indoors, was enacted. Recently we decided to go clubbing. The second we stepped into the indoor space, we were greeted by a cloud of smoke. Its intense welcome was a bit too much for us and once again on principle we opted to leave. If the management felt it was fine for them to go against the law, then we felt it was fine for us to go against the etiquette of having reserved a table.
The number of places violating the anti-smoking law is now so large that finding a place that enforces it is a real challenge. The culinary delights at restaurants that ignore Law 174 are second to none, because the smoke adds a special garnish to all dishes: chicken à la smoke and ash salad. It enriches the flavours, especially since food is tasted by your sense of smell and not just your tastebuds.

Whether or not Law 174 is perfect is not the issue here. No law is 100 percent perfect after all. Whether or not the majority of people are smokers is not the issue either. The issue is that we live in a strange realm that’s a cross between the Wild West of the days of yore and the insane world of Mad Max. A place of lawlessness. Here, respecting the law seems optional rather than obligatory. Traffic lights are often nothing more than entertaining disco lights and pedestrian crossings are postmodern decor on the asphalt. When Law 174 was looming on the horizon, the food and beverage industry was in an uproar. A dubious study threatened that 2,600 jobs would be lost because of the ban. In truth, the F&B sector has seen job losses, closures, lower profits, and harder times. The blame should fall on the political instability, lack of tourists, random bombings, and high cost of living vs. low salaries, not the anti-smoking law.

Law abiding citizens can call the number 1735 when they see a smoking violation, but with rumors flying around of ridiculously reduced fines and some callers receiving threats from the owners of the places they reported, most are not exactly encouraged to take action. The news about the verbal symphony of insults a woman received in February 2013 when she approached a manager because of smoking violations went viral. Many establishments don’t react well if someone voices their concerns about indoor smoking.

On the bright side we live in a culture that is very considerate of others. Most smokers never ask if they can smoke, they simply do, and non-smokers and pregnant women are so considerate, they say nothing most of the time.

The benefits that many countries with anti-smoking legislation have witnessed, such as lower percentages of smokers, better overall health, cleaner indoor air, fewer smoking related diseases, lower expenditure on ventilation at F&B venues and longer life spans, are simply not worth it. The only thing that speaks is a quick dollar. Why wait for smokers to adapt to the law? Non-smokers, children and pregnant women can just go up in smoke, just like Law 174 has. Disrespect of the law is a microcosm of the macrocosm. It’s one of the reasons why it will take Lebanon forever to become a state that protects its citizens. And in this case it’s mostly the citizens who are to blame.

 

Jasmina Najjar is a conceptual copywriter, journalist, and communication skills instructor at the American University of Beirut

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The Buzz

Three scandals Faisal Karami should investigate before a topless skier

by Livia Murray
written by Livia Murray

On Monday, a video and photos surfaced on the internet of Lebanese Alpine Skier Jackie Chamoun posing topless in the Faraya ski resort went viral.

Distressed that footage taken three years ago which was never meant to be made public is detracting from her forthcoming competition in the 2014 Winter Olympics, Chamoun apologized and hoped to bring an end to the issue.

But Caretaker Youth and Sports Minster Faisal Karami was quick to get involved, calling for action over the content. Karami (pictured below) has demanded the Lebanese Olympic Committee investigate the incident, reportedly in order to protect Lebanon’s reputation.

Yet Karami’s decision to jump on the bandwagon by demanding an investigation has inevitably shifted the focus from his own track record. Since being appointed in 2011, the minister has overseen a chaotic period for both Lebanon and particularly sports.

Here are three actual scandals that Karami should deal with before he criticizes Chamoun’s photographs.

 

1. The country’s basketball crisis

Lebanon’s basketball leagues are in complete disarray, so much so that last year the International Basketball Federation (FIBA) suspended the Lebanese Basketball Federation from international competition. As such, the domestic season ended without a winner while the country’s stars faced the embarrassment of flying all the way to the Philippines to play in the FIBA Asian Championships, only to turn around having not thrown a single basket.  The primary causes for the chaos were political infighting and sectarianism, something Karami admitted but has done little to tackle.

(For the full story, see Executive’s coverage here.)

 

2. Ongoing corruption in sport

Basketball isn’t the only sport that has seen its fair share of chaos since Karami took charge. Lebanon ranks in 127th place in the Global Corruption Index but perhaps should be lower for football.

In 2012, Lebanon had perhaps its best ever chance of qualifying for the FIFA World Cup. The country had made it through the first group stages for the first time and was due to play Qatar at home. Mid-way through the second half, defender Ramez Dayoub inexplicably passed the ball to Qatar’s striker to score.

It later turned out he was one of dozens of Lebanese footballers receiving money for deliberately throwing games (he was eventually fined just $15,000 and banned for life). But the initial revelations came not from work from Karami and his ministry, but an investigation from the Asian Football Confederation.

And it is not just the players whose reputations have been tarnished. In January this year three Lebanese officials were banned for at least a decade each for trying to fix a match.  In fact, referee Ali Sabbagh’s bribe was not in fact monetary, but in sexual favors from a woman tied to a gambling syndicate.

Experts believe that corruption remains rife in Lebanese football.

 

3. Crippling youth unemployment

 

As Minister for Youth, Karami appears to have done little to counter the joblessness for young people. Lebanon’s youth unemployment was at 24 percent in 2013, representing 66 percent of all unemployed people in Lebanon in 2012.

Karami could re-direct his efforts away from reproaching nudity and towards promoting policies that make the market more favorable for young job-seekers. A 2013 report by the World Bank has called for coordinating investment, labour, skill development and social insurance policies in Lebanon to create a more opportune environment for employment.

Lebanon needs to create 23,000 new jobs per year over the next decade to absorb the growing amount of job seekers. Many of the jobs it is currently creating are in low productivity sectors that employ unskilled workers. Moreover, many skilled Lebanese jobseekers have left the country to find social security and better wages. According to a report from the American University of Beirut, a quarter of Lebanese youth want to emigrate, while another fifth are thinking about it.

The public sector could play a hand in improving the job market, providing more incentives for youth to stay in Lebanon. If Karami is to be taken seriously as caretaker minister of youth, there are a few issues that should rank higher on his agenda than a skier in Sochi.

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Leaders

Risky business

by Executive Editors
written by Executive Editors

No matter what some might say, the Beirut Stock Exchange is economically insignificant. Few companies are listed, with real estate giant Solidere and a handful of banks taking up the largest share of the market, and there has not been a new listing since the turn of the century.

This sad state of affairs is begging for change, and many investment bankers are hoping to see more companies going public in the coming years (see story). It could certainly bring about many positives. A new flow of companies opening up their capital to outside investors would lead to an increase in investment banking services revolving around financial advisory, restructurings, mergers and acquisitions, and initial public offerings (IPOs).  This could help change economic norms in a country where the dominant corporate structure is still the family one, whose organizational structures are often opaque at best. Opening up such businesses to outside investors could promote open finance, transparent governance and even feed into wider economic growth.

Yet investment banking is certainly not a panacea to Lebanon’s woes, and could in fact exacerbate them. The global financial crash, caused in large part by the rapid and uncontrolled growth of investment banking, shows that the sector is certainly a double-edged sword.

As such, it is vital that if the sector is to grow then so must the regulations. The agency in charge of regulating the markets, the Capital Markets Authority, entered into the game late and has been slow on the uptake. Established in 2011, it is progressively issuing and implementing new regulations for the stock exchange.

But the slow pace of activity begets concerns that the market regulations will fail to keep up with further developments in the financial sector. Regulations need to be installed quickly and efficiently to prepare for the potential of a brighter future while simultaneously safeguarding against a runaway financial sector undertaking increasingly complex transactions.  In the coming decades, as family businesses are passed down to a younger generation with new ideas, or split and sold off among several shareholders, Lebanon may see more IPOs and more need for investment banking. Going public could have many benefits for the companies, but these must be met with strict and timely regulations.

For Lebanon’s investment banking sector to have a positive impact on the economy, it is vital that an increase in capital market activity is paired with a serious improvement in regulation.

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Society

Green without envy

by Nathalie Rosa Bucher
written by Nathalie Rosa Bucher

Organic shelves and refrigerators filled with (fresh) organic products can be found in most Lebanese supermarkets these days. A few years ago, these products would have been hard, if not impossible, to source. Nour Farra-Haddad lists 23 companies and food stores under “bio and organic products” in “Eco-Lebanon Nature & Rural Tourism: A Guide to Unveil Lebanon” published in 2013 — clearly organic products are no longer leading a shadow existence and the sector, though small, is growing in Lebanon.

In the United States and Europe (notably France, Italy, the Netherlands and Germany), the organic sector reached two-figure growth rates in 2012. According to a press release issued by BIOFACH, the world’s largest trade fair for organic food, organic sales in Germany that year attained a record high of 7 billion euro ($9.6 billion), up by 6 percent, with demand exceeding supply.

Organic products tend to be considered a privilege of the moneyed with price tags usually exceeding non-organic products. Asked why consumers should fork out LL5,000 ($3.30) for a simple but beautifully designed, recyclable and informative carton containing six Biomass eggs (“certified organic according to the European regulation”) instead of spending half on non-organic or baladi eggs, Mario Massoud, executive manager of Biomass, explains that indeed the price gap in Lebanon is bigger.

“We have to buy French chicken feed, which costs quite a bit. You won’t find organic feed in Lebanon. Biomass does not use GMOs [genetically modified organisms], or any growth-enhancers. Our chickens are free range and when a chicken is sick the animal is put into quarantine. Our organic eggs are free from antibiotics and pesticides,” Massoud says.
It took two years for a substantial amount of Lebanese customers to opt for the costlier egg box. “In 2007, when we started with eggs, we used to sell one out of nine boxes. We had the most expensive eggs,” Massoud recalls. Due to growing demand, Biomass established a commercial project in early 2010 and has grown from three to 40 employees. Biomass has 2,000 chickens at their Batroun farm and another 8,000 on nine other farms. Their organic eggs, initially rejected, have advanced to a bestselling product.

Straight from the source
Massoud’s family decided to convert their land in Batroun after the Mediterranean Institute of Certification (IMC) came to Lebanon in 2004 to promote the organic sector. They began the conversion process in 2007 with IMC help and were certified in 2010.

IMC certification is an intensive process which, depending on the size of the land farmed and variety of activities for use, can cost between $300 and $6,000. It comes with support from the IMC and controls and guidelines requiring organic farmers to use organic seeds, while forbidding the use of synthetic chemicals and GMOs. Given the limited availability of local organic seeds, Biomass has to import them from Europe and the US (adding a significant carbon footprint to their products).

“We do companion planting, crop rotations and work according to seasonality,” Massoud explains. “To maximise diversity, we work with different altitudes and 30 to 40 farmers [across Lebanon] to ensure a maximum variety of products. These farmers all needed to be certified with IMC.” The collaboration with farmers has created employment for an additional 150 to 200 people.

Biomass presently has 150 to 200 points of sale. Their range of fresh fruit and vegetables totals 180, with 10 types of lettuce alone, four to five kinds of salad, 50 types of vegetables and around the same amount of fruit.

Grocery products include olives, grains and pulses, pickles and mouneh and olive oil pressed by Willani, a local IMC certified olive oil producer. Furthermore jams, spices and dried herbs, and three types of chicken meat bear the Biomass label.

Henri Bou Obeid set up Bioland back in 2009, an organic producer and store with considerable investment, under the banner “from farm to fork”. For the land he’s purchased including landscaping, Bou Obeid, who has a background in environmental engineering and is managing director at Connex, invested $3 million for the Bioland shop, another $2 million for the vehicles and he employs 40 full time staff, mostly farmers.

Owning three farms, spreading over 200,000 square meters, Bou Obeid makes honey, grows 40 kinds of fruits and seasonal vegetables, and raises goats, pigeons, geese, ducks, rabbits and chicken.

The Bioland shop in Beirut, open since December 2013, was preceded by a fleet of refrigerated vans selling fresh organic produce door-to-door, and aims to dispel the myth that organic products lack in variety. Besides dairy, meat, fruit and vegetable counters, customers can find preserves, snacks and cereals, Lebanese and French organic wines, olive oils, syrups, honey, pasta, pulses and grains, all produced by a variety of international and local organic producers, including Biomass and Bioland. The shop also has a salad bar and customers can sit down for a sandwich for LL6,000 ($4) or one of the three “plats du jours” for LL16,000 ($11). Alternatively meals or products can be delivered.

Chef Joe Barza came on board and developed the organic menu to prove that organic can be simple, tasty and affordable. “But even with these big efforts some still find the prices too high,” Bou Obeid says. “As we noticed that there is a lack of communication, we explain in a concise way to customers the obvious principles of organic chicken, dairy, eggs, meat,” Bou Obeid explains, mainly through info tables placed on counter tops.

Obstacles to overcome
“Organic agriculture holds 0.48 percent of the market. It’s a shame to have such a small percentage, so it needs to be sold at accessible prices,” Bou Obeid says. “Meat is selling well at the shop. The same goes for poultry. This reflects the Lebanese shopping basket, of which 70 percent is meat, chicken and dairy.”

Bioland has secured 12 business-to-business clients including restaurants, schools, specialised shops, nutrition centers and kindergartens. “Having organic shops and B2B orders is important for our financial equilibrium,” Bou Obeid says.

The company uses e-marketing and places ads on Connex buses, organizes in-shop tastings and relies heavily on social media, managing a busy Facebook page. On the other hand, Biomass has focused on branding exercises but communicates very little.

A lack of awareness from consumers around artisanal baladi products — which are not necessarily certified organic — and the cost of production are some of the key challenges Biomass and Bioland face. “Ensuring freshness of their goods and the availability of products are further challenges,” Massoud says. Being forced to fall back on foreign raw materials such as seeds and animal feed draws production costs up and this is reflected in the price.
Both Massoud and Bou Obeid are hopeful that positive change is imminent. “There is now at the Ministry of Agriculture a national committee for organic agriculture. Based on the committee recommendations, the ministry has already issued several decrees,” Massoud says. Bou Obeid regrets that there is still no Lebanese logo such as the French ‘AB’ (agriculture bio). “The only visual identity is the IMC logo and that’s Italian.”

Bou Obeid deplores the fact that bureaucratic hurdles prevent him from importing French auxiliary insects — for example ladybirds that fight pests, a substitute for pesticides. “There also is a lack of help from the Lebanese government to export organic produce. We could export olive oil to China!”

Since 2013 Biomass has been exporting to Gulf countries, notably Kuwait, Qatar, and Oman and is completing a large new warehouse in Batroun to absorb more quantities for export and the local market.

“The government should provide more support for organic agriculture and encourage new farmers to go in this direction. There are more shops opening, more restaurants want organic ingredients and more people want organic food,” Massoud says. “We’re working on widening our product range and reach in Lebanon and are constantly looking for local farmers to join, and working with farmers to see how prices can be reduced.” To eventually facilitate a more direct contact with the consumer Massoud hopes to soon open a Biomass outlet.

Massoud concedes that due to the high overheads the company has been losing money the past seven years. “Biomass is not profitable yet, but will be within the next year or two.” In 2012, French investors Unibel came on board, taking a 35 percent share.

Bioland expects returns in the realm of $700,000 to $800,000 for 2014, which Bou Obeid considers little, when looking at his investments. Among his plans for 2014 is the launch of a restaurant in Batroun as well as an organic wine. He will also be acquiring another farm and launching quality certificates.

While he has already received requests for franchises, Bou Obeid prefers to put a quality manual together this year. “Something like our bible, if one day we give a franchise. Right now that is not our target.”

 
Riding the macro wave

After years of hosting and consulting customers, supplying them with imported organic products and feeding them macrobiotic meals, Odette Aghajanian bought a shop space at the Saint Joseph Medical Centre in Achrafieh in 1995 and named it MacrOdette.

“It was a boom,” her daughter Tania Aghajanian Kayrouz says. “I remember, taxis from Jordan and Syria, wealthy people, sending a car once a month in the mid-90s to be filled up with organic goods. Mariam Nour was promoting the macrobiotic diet; Kuwaitis came to eat at her place. A great amount of our turnover was due to demand from outside Lebanon, about 40 percent.”

Aghajanian started her quest for a better diet when her husband had to lower his cholesterol and discovered and embraced macrobiotics while in France in the 70s. “Macrobiotics is a diet based on eating wholewheat rice, miso, tamari [fermented soya sauce], organic cereals such as barley, oats, millet, pulses [legumes], seaweed and fresh, seasonal fruit and vegetables and no dairy,” Kayrouz says. “I have four children. All four are ski and athletics champions. They never had milk, besides being breast fed for one year. There is not a single drug in our house.”

Back from France, Odette started sourcing organic products, notably French and Belgian brands Tama, Lima, Celnat and Jean Hervé through people coming from abroad, eventually deciding to request organic products directly from the manufacturers, and became their (sole) agent for the Middle East.

Besides still selling some of the original imported organic brands her mother introduced here, Kayrouz stocks few Lebanese products, except for Adonis Valley, local fresh produce, and darfyie (a goat’s cheese).

“I have no faith in Lebanese producers, there’s no way to check,” Kayrouz says. “If I am dealing with someone who has cancer, I need to know that this apple has not been sprayed!”

Despite the challenges, including transport costs, bureaucratic hurdles of paperwork and the Beirut port, MacrOdette imports most organic products. “Our goods are stuck at the harbor, they’re running tests…I paid the order in October.”

“Some people tell me that they’ve seen a product sold for 1 euro in Europe and question why I sell it for more. I have to pay for internal transport from the manufacturer/producer to the port, then maritime transport, pay for the container, the lab, and given the expiry dates and delays, there may be some waste, so we may go up to 6 euros.”

Kayrouz says things have improved since her mother began; people, in part due to various food scandals, are better informed today. “As a result, red and white quinoa, linseed, chia, goji berries and coconut oil [linked to an improvement in Alzheimer’s patients] have become very popular.”

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Finance

Private equity 2014: Room for optimism?

by Imad Ghandour
written by Imad Ghandour

Nouriel Roubini, the famous economist nicknamed Dr. Doom, was predicting the collapse of the world economy in 2013 as he foresaw a perfect “economic storm” for the year. Fortunately, the 2013 storm is turning to an economic spring throughout the globe — the private equity (PE) industry included.  

The Gulf Cooperation Council (GCC) and many other countries in the region have maintained positive economic growth since 2009, although such economic track records have received very little credit so far. This economic growth, coupled with political stability, is starting to receive greater recognition from international institutional investors, who are now trickling back to the Middle East and North Africa.

Most PE fundraisers have mentioned significant interest from a selected group of avant garde international institutional investors — up from almost zero a couple of years ago.  In light of the Brazilian economic winter and the Indian rupee yoyo, the GCC in particular has sharpened its image as an economically stable region. Even American institutional investors are starting to see the virtue of investing in the faraway lands of Arabia, where petro reserves ensure economic stability and local currencies have been eternally pegged to the all mighty United States dollar.

ON THE UP AND UP
Fortunately for the survivors of these grim years, it seems that the investment cycle is on an upturn. Most of the experienced managers blazing on the fundraising trail have reported good traction.  The first to publicly break the good news was NBK Capital, which announced a first closing of $217 million for its second PE fund. Privately, no less than four other funds have disclosed good traction in fundraising and some first-closing of their funds.
The recent string of investments and divestments by the regional PE players have also emphasized to both regional and international investors that the surviving players are the best in class and worthy of their trust. Abraaj Capital, NBK Capital, Gulf Capital, Amwal Khaleej and others do not cease to amaze the investment community by almost monthly exit announcements. The fallacy that there are no exits in the region has been put to rest. The MENA region is a region where you can make money in private equity investments — if you bet on the right manager of course.

Going back to Roubini, his consistent gloomy predictions could not resist the tide of good news. In an interview on CNBC on January 2, Dr Doom was more optimistic: “The advanced economies, benefiting from a half-decade of painful private-sector de-leveraging, a smaller fiscal drag, and maintenance of accommodative monetary policies, will grow.”
Furthermore, should recent political events begin to relieve the accumulated tension in the region, and the war cries be replaced with more peaceful tunes, the good trends will continue. Hopefully, the war in Syria can be contained and move toward a resolution. Whatever the form of the Iranian grand deal or a potential Syrian peace deal, peace with Iran and an end to the in war in Syria are good for business and investment. Stability will bring more prosperity, and more prosperity will bring even further stability.

Happy deal-making in 2014.

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Business

A wellspring of form and function

by Nathalie Rosa Bucher
written by Nathalie Rosa Bucher

I believed it would be the Soho of Beirut. I was the third or fourth business to open next to the mechanics,” Lina el-Khoury says of the time she scouted around Mar Mkhayel looking for a convenient space to open a design concept store. “I had a vision that this area was going to grow and it did. I took a space, which is not too small, nor too big: I have 135 square meters. I fell in love with the open space,” says Khoury, who personally chose every single element of the store and oversaw its layout and transformation.

After years of living in Paris where she obtained a Masters in marketing and sales, Khoury decided to open a concept store for furniture and home design objects in Beirut named Blak & Co. It opened its doors in December 2010, with the aim of transforming Middle Eastern homes with modern design.

“Our mission is to introduce functional and reachable design furniture with beautiful and useful home objects and accessories from the United States and Europe to the Middle Eastern market,” she explains.

“I wanted my store to feel like home and [having] books, a library, feels like home,” Khoury says.  “It’s a concept store for interior decoration. Libraries here have a small section for interior and art, I wanted to have a large selection with many coffee table books,” she says of the bookshelf, which is filled with inspiring and practical books on interior design, home décor, and all the major architects and styles. “Lots of architects come here, who might be on a project to build a school, need a book on club design, event design, or malls. It works very well to have these books.”

Blak & Co’s criteria are funky, fresh, simple and functional objects. “We have all modern materials, including stainless steel, leather, copper, walnut wood, white oak, and metal, and home objects by British designer Nick Munro, whose small tea pot and elegant stainless steel French press stand out both by their functionality and form.” Blak & Co also stocks the American brand Blu Dot, Nuance designs from Denmark and Jule Pansu from France.

Retro revisited
“I [first] discovered Blu Dot in the States about 10 years ago,” Khoury says. “I was attending the International Contemporary Furniture Fair in New York two years ago and looking for new brands at the time and there they were again and it took one email and it was love at first sight.” Khoury is now Blu Dot’s exclusive distributor in the Middle East and Gulf.

The Minneapolis-based company was launched by three young designers in 1997 with the aim to create design products that would be within reach. Their style, retro revisited with an industrial touch, has become a global brand.

Their designs are a crossbreed of modern materials, using copper, wood, brass, stainless steel and other materials to combine elegant abstraction with functionality at reachable prices.

“I didn’t need to have an event — social media and word of mouth did it,” Khoury says in reference to last year’s reception of Blu Dot in Beirut.

Design sensitivity

“The customer feedback to Blu Dot’s collection has been extremely positive. We had a great Christmas and New Year season and I am looking forward to having equally strong seasons during the summer, and Eid el Fitr and Adha,” she continues.

“Our client base ranges from individuals to architects — looking to do something different for the customers’ homes — and to corporate office clients as well as the hospitality industry; lounges, specialty hotels and restaurants,” Khoury says.

“Recently people in Lebanon are starting to get sensitive to the influence of design furniture. Our aim is to have reachable items. We’re in an era where people want design but it can’t be super expensive. Our motto is great design, functionality, and within reach. Our price tag ranges from $50 [for e.g., home objects] to $5,000 for a piece of furniture.”
Khoury has to pay for shipping, customs and transport of all her stock. To deal with the store and logistics, including delivering orders and managing the warehouse in Dbayeh, she currently employs 8 to 10 people.

As of 2014, Khoury is expanding in the Middle East region, targeting the Gulf in particular, where she will be participating in several fairs and exhibitions this year, as well as working with distributors, architects and showrooms.

“My aim is to expand Blak & Co and Blu Dot and also to keep an eye out for rising brands to offer our customers. Our target [in the Gulf] is to double the volume of what we turn over here in Beirut, as they have security there and are financially strong and stable, compared to Lebanon.” In addition to launching a website soon, she will be exhibiting in Dubai for the first time in September.

Looking back, Khoury acknowledges that after a certain time, you adjust to the style demands of the Lebanese clients. “There are some products that I thought would rock but they were not moving. I think my biggest success was Blu Dot. It was the right product at the right time!”

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Business

Think like a startup

by Joe Ayoub
written by Joe Ayoub

There was a time when the bigger and more established a company was, the more assured it felt in terms of staying power in the market. These days what matters more to a company’s relevance and future is to what extent they embrace innovation. What this means for businesses is that, no matter how big they are, if they want to survive they need to think like a startup.

A startup by nature is constantly on its toes, harboring a hunger to wake up each day and perform better than the day before. There’s a flexibility to their way of thinking that means every aspect of the organization’s strategy is open to question and can be easily superseded if a better idea is brought to the table.  

Established businesses may still ask themselves why they would need to change things, but the answer is very clear: today’s business landscape is a far cry from that of 50 years ago. Back then, the average age of a company on the Fortune 500 was somewhere around 75 years; today the lifespan is closer to a mere decade before a company goes out of business or gets bought out. What has changed is the pace of consumerism: we are living in an age where consumers are always hungry for more — everything from content to apps to games — and are looking to consume them simultaneously. Technology, the driver of this rampant consumerism, has also brought with it the ability for any innovation, whether patented or not, to be replicated within a short space of time, even months. Ultimately this is what is pushing companies to be innovators — they cannot stop in a world that does not stand still.

But there’s an additional impetus that businesses should be feeling in this call to think like a startup. In the wake of the financial crisis, the world entered an era of zero growth. Companies have to face the reality of this era, of pressures on margins, and of pressure from consumers demanding constant new ideas in the market. Their only way to survive is to stay relevant, and innovation is the engine that will not only do that but keep them ahead of the curve and in front of their competition.

Step back to leap ahead
Once the need to think like a startup has been acknowledged, a business also needs to know how to implement it. This is not about appointing one person in charge of innovation, but rather instilling a holistic culture throughout the organization. This requires commitment from top management who should be heavily engaged and act to unite all employees in this push for creativity. To get there, businesses need to take a comprehensive look at the business, the brand value proposition and the employees — and formulate a clear vision and central strategy. Questions that need to be answered include which products/services to retain and which to divest, and which processes to review to meet objectives quickly.

We are all aware that Lebanon is going through yet another crisis period. But at times like this the situation can be viewed as either a problem or an opportunity. At Brandcell we are advising our clients to look at it as an opportunity to take a small step back and redefine their business for growth. It’s not enough to think that as sales are down the solution is promotions and discounts; these will only send one signal to consumers — that you are in panic mode. Instead, now is the time to benefit from the lull to rethink every element of your business proposition and to discover how many new ideas you can create, and how many new resources you can make available to jumpstart your business when this crisis is over. Having the ability to continuously unlearn and learn again is the thus trademark of successful companies.
 

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Business

In values we trust

by Thomas Schellen
written by Thomas Schellen

Even though it was founded 90 years ago in Egypt, is owned by a United Arab Emirates-based investment fund, and is being run by a Brit, much if not most of the DNA in regional retailer Spinneys is entwined with Lebanon. The chain was reborn in Beirut in 1998; of its four countries with direct operations, Lebanon leads in number of stores and sales revenue; it suffered some of its most unwelcome challenges in the local scene; and notably, it puts all its new ideas in front of the Lebanese consumer first, before taking them to the Egyptian, Jordanian and Qatari markets.

According to CEO Michael Wright, Spinneys is a niche player in Qatar and Jordan, while Lebanon and Egypt are the current centers for revenues and profits. The brand’s largest presence is in the UAE, where almost 50 supermarkets and convenience stores carry the Spinneys logo and identity, far more than in the four other countries together. However, the group has no direct stake in the UAE market since the operation there is owned by Emirati businessman Ali Albwardy and run independently from the group under a basic franchise agreement.

Group-wide sales revenues, which do not include the UAE, were in the vicinity of $500 million in the group’s 2012/13 financial year, which ended last June, Wright told Executive in a far-ranging interview. He said Lebanon accounted for 45 to 50 percent of that, which suggests a turnover of somewhere between $200 and $275 million for the operation here, depending on whether the corner values cited by Wright were on the high or low side.
He competes in Lebanon against several domestically owned supermarket chains along with the Kuwaiti-owned Sultan Group and Carrefour, the French chain whose regional partner is the Majid Al Futtaim Group. For market share, Lebanon is Spinney’s main focus but these growth potentials are curtailed by the overall structure of the retail trade.

Evolution of ownership
In the first years after players like Spinneys rolled out super- and hypermarkets, there were strong expectations that these big stores would wipe out local stores but this has not happened in Lebanon. Large retailers with centralized buying and modern management control only around 30 percent of the Lebanese market and this number has been rather stable, Wright said. The retailer plans to increase the total number of stores from the current eight to 13 and also venture into the convenience store business in a repeat attempt at the local diversification plans that Wright first disclosed to Executive almost ten years ago.
Part of the retail brand’s story is a complicated ownership evolution whose recent chapters center on one of the region’s leading private equity players, Arif Naqvi, who is best known today as chairman of Abraaj Group. His older company, Cupola Investment acquired Spinneys in 1999 along with other assets for $116 million, in Naqvi’s first major deal from the United Kingdom-based automotive distributor and retailer Inchcape. It spun off the minority interest it held in the UAE operation of Spinneys — presumably the group’s filet piece in operational terms at the time — by selling it to the local majority partner Albwardy Group and embarked on expanding the brand’s presence in Lebanon and from there into Egypt, Qatar and Jordan.

Describing the company as a regional pace setter and innovator in major retail, Wright — who has been with the company for 26 years, beginning in Dubai after a training scheme with a British retailer —said that competitors copied the retail environment and work and training structures of Spinneys since the current operational mold was implemented in Lebanon in 1998. Retail managers with experience at Spinneys are sought after in the market and can often achieve a career leap when hiring on with other retail chains.

In 2004, Spinneys was acquired by the first Abraaj Buyout Fund (ABOF) based on diligence from which Naqvi excused himself to avert conflict of interest issues, according to Wright who was for two years a direct employee of Abraaj. According to a Middle East Economic Digest research document reproduced on the Abraaj website, Cupola retained 35 percent ownership of Spinneys Group while 46 percent was taken on by ABOF for a cash consideration of $27.1 million. Ten years on, the group is still owned by the Abraaj Fund as controlling shareholder and is actually the oldest participation among 146 portfolio companies shown on the Abraaj Group website.

The future ownership of Spinneys has been rife with expectations that Abraaj would seek an exit from the investment. This is in no way surprising given the nature of the private equity business but the current indications are that an optimum exit opportunity will come after the group realizes further expansions and when its main asset bases in Egypt and Lebanon allow for better valuations on virtue of improved macroeconomic and political realities.

Spinneys’ expansion plans over the past 15 years are a story in themselves, reflecting the vagaries of an environment where many international retailers have paid with high losses for ventures that got trapped in culture conflicts or misunderstandings of different commercial languages. Over the years, the management has been liberally trumpeting plans to penetrate a bewildering number of markets from Kazakhstan to Morocco and sub-Saharan Africa. Plans for several countries, such as Morocco, could not be realized at the times that they were envisioned for but current projects for various equity and franchising formulas are in place for Libya, Kuwait, Nigeria, and under negotiations for Pakistan, Iran, Tunisia, Algeria and elsewhere.

According to Wright, Spinneys would be valued in the ballpark of a quarter billion dollars if the investors sought to exit today but could represent a much higher value if an exit comes at an optimal time. The current restraints are the higher risk perception of the Lebanese and Egyptian markets while the future potential would be due to its brand and management experience with creating and operating modern retail stores in multiple markets that are not easy to tackle from the outside.

On the operational side, the group banks on a wildly successful loyalty program as a core marketing engine. The points-based scheme offers rewards to loyal spenders and stores are visibly busier on “double point days” when the company entices customers with the prospect of extra progress in earning these rewards, which in the base loyalty program range from household items to small consumer electronics. These rewards are moreover so popular and customer preferences for them so unpredictable that stores often run out of them near the end of a rewards campaign, to the effect of Wright acknowledging that “the loyalty scheme’s success has created its own problems.”

Rewarding loyalty
“We are very happy with the way the program is going. Almost everybody [among large retail groups] has a loyalty scheme but very few loyalty schemes will deliver to consumers the gratification where multiple products are very much in reach,” Wright said. Not at all bashful about the need for retailers to be aggressive, he conceded that Spinneys uses the program to incentivize customers to buy products where the group can achieve higher margins than the razor-thin ones that generally characterize the retail trade in fast moving consumer goods.
Spinneys has transported the concept to Egypt and Jordan and will soon launch it in Qatar. However, the loyalty program here remains the most advanced and the retailer is currently working to develop it further to tailor its suggestive power to customer behaviors on specific product types, by for example offering extra points to wine lovers to make them do more of their shopping for this margin-rich palate pleaser at      the chain.

In other customer-facing matters, Spinneys has a policy to charge customers only the lower price if a product’s shelf price differs from the price shown at the cash register, a problem that is all too frequent in their stores. However, this policy is often not adhered to by store personnel, Wright admitted, saying that the company would do more to engrain policy-compliant behavior in staff members’ actual retail practices.

Courting controversy
But while notes from customers on flawed pricing or quality of products, along with service complaints, are parts of Wright’s daily diet delivered to him from all customer communication logged at the chain’s call center, these were nothing compared to the accusations leveled against the Lebanese operation and Wright personally in 2012 of paying below the minimum wage, of bullying dissenting employees and disrespecting employee rights.

In his interview with Executive, Wright refuted the accusations as baseless and originating from a handful of activists and political players with partisan support from one or two media outlets. Wright claimed that the company was complying with all its tax and social obligations and was audited regularly by the authorities.  “We may have been the only company that absolutely paid everything although it has a big workforce. We pay all the minimum wages, all the social security contributions, we pay additional medical care. We have always been and always wanted to be the preferred employer,” he said.

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Business

Stowing the rich

by Thomas Schellen
written by Thomas Schellen

The formula is intriguing from a commercial perspective and it has pizzaz: the Beirut Yacht Club, scheduled to operate for the next two months under a soft-opening formula and celebrate commencement of business with a formal launch in April, targets the upper crust of the resident business community with a concrete space for reveling, relaxing, and rubbing shoulders — the 14,000 square meter (sqm) Yacht Club building at the end of Zaitunay Bay development in the St. Georges Bay.

The property includes areas for members and their guests in the form of bars, restaurants, terraces, a library, pool, meeting and recreational rooms, plus 53 residential units, of which nine will be operated by the club as exclusive lodging facilities. Of the remaining 44 units, 11 have been sold and the others are for sale as serviced apartments at a range previously not found in the Lebanese market — prices per square meter range from $15,000 to $25,000, according to Farouk Kamal, chairman and general manager of Beirut Waterfront Development S.A.L., the company which owns and operates the project.
The market that a developer can address with such a product is clearly the high net-worth and ultra high net-worth community, or individuals and families in the top 10 percent — those who, globally, own 86 percent of the world’s wealth according to the 2013 Global Wealth Report by Credit Suisse. The segregation of this addressable market from the averagely heeled population is reflected in the access threshold of the Beirut Yacht Club. Enrollment in the club, which will be limited to 500 members and carries an initiation fee of $15,000 for an individual and $20,000 for a couple, is precondition for buying one of the club’s residences.

Kamal is positive about the prospects of finding buyers who will happily part from their cash in exchange for a flat which will cost around $3 million based on average unit size of 150 sqm and median sqm prices of $20,000. People have already shown “a lot of interest,” he says with ostentatious confidence that his target market will jump on the opportunity to procure an apartment which is priced off the local charts but comes “fully furnished” and with the entitlement to use the “4,000 square meters of club area attached to it.”

He admits, however, that the company cannot be sure about the Yacht Club’s performance in the coming summer and is basically keeping its fingers crossed in hopes for improvements in Beirut’s tourism and general security conditions so that the inaugural season will go well in terms of the venue’s usage for events, leisure and food and beverage offerings. A good market response in these areas will also be important for the attractiveness of the real estate. “We are selling club residences and people will appreciate the residence when the club is buzzing and active,” Kamal says.

Reaching the social stratosphere
Besides the knowledge that Beirut real estate prices tend to be extremely resilient against downward pressures, other incentives for investing in a Yacht Club residence include the option to have the management short-let a unit on behalf of the owner. And of course, owners can circulate through the club basking in the feeling that they actually own a piece of the place, in contrast to the 90 percent of their fellow club members who will at least have to cross the street to get home — if they reside in one of the nearby residential structures of the Beirut downtown. Kamal sees a natural reservoir for Yacht Club membership in the district’s population of bankers, high-powered consultants and other business leaders to whom he wants to offer a community environment whose members “want to enjoy a certain level of exclusivity and at the same time rub shoulders with the right people.”

Adding a further dash of reputation, the Beirut Yacht Club might offer honorary one-year membership to select ambassadors countries whose embassies are the most active in Lebanon. Beyond the paying members, diplomatic elites and their guests, however, the club will not welcome the public to revel on its premises. This restriction to a wealthy and minuscule part of the population is perceived by critics of the project as flying in the face of the land reclamation that created the land on which the Beirut Yacht Club and the adjacent Zaitunay Bay hospitality area have been constructed.

The controversy over the transfer of these reclaimed parcels to the private sector — meaning Solidere, the company mandated with the reconstruction and development of the Beirut downtown — has roots in the 1990s that relate to the case of the St. Georges Hotel and the reclamation of land for the New Beirut Waterfront of which Zaitunay Bay is but a tiny part. A reverberation of the old confrontation recently rung through the media by way of a very public altercation between caretaker finance minister Mohammed Safadi and caretaker public works and transport minister Ghazi Aridi. In an exchange of accusations, Aridi asked Safadi if he was a “thief” and also claimed that the construction of an elevated walkway in Zaitunay Bay was illegal.

The Zaitunay Bay project and its managing company are a 50-50 joint venture of Solidere and Stow Group. As Kamal confirms, Safadi is the main shareholder in Stow Group, a real estate and investment holding with interests in the United Kingdom, Lebanon, and Oman. Besides heading Beirut Waterfront Development, Kamal is also the executive chairman and a shareholder of the group’s Stow Capital Partners.

Big fuss over a small construction

On the face of it, the argument over a building violation in Zaitunay Bay is focused on a technicality. The absence of a required decree does not put into question the legitimacy of the land’s allocation for private ownership and the construction is not a recent alteration of building plans or anything such. The 10-year-old original design for the project shows the disputed walkway leading up to the roof of the Yacht Club as terminating point (with exceptional sea view) of a promenade for broad public access.

From the perspective of its use value, the private ownership of Zaitunay Bay’s existing marina-side boardwalk and its upper promenade has caused some restrictions on activities such as skateboarding. From the area’s design point of view, on the other hand, the extension of the promenade has a consistent appeal and from the perspective of balancing the recreational interests of restaurant goers, skateboarders and so on, finding a solution appears to be a matter typical for community arbitration rather than cabinet-level action.
Much more interesting, albeit in hindsight, is the question of how the public interest was represented at the time when Solidere and Stow first forged their partnership. Solidere’s 2012 Annual Report contains an elaborate narration and an impressive pictorial on the downtown’s development that far outshines the report’s financial pages. This narration states as a fact that the two companies formed a joint venture to whose capital Solidere contributed 22,350 sqm of land with permission for 20,000 sqm of built-up area while Stow contributed $31.6 million in cash.

The report’s financial pages specify further that the joint venture was formed in February 2004 with an initial capital of $19,900 and that the partners increased this capital in 2006 by $12.8 million and that Solidere sold “properties with an aggregate cost of $10.1 million… to the joint venture for a total consideration of $31.6 million” against which Stow contributed the equivalent cash amount.

Not explained is how the partnership was agreed upon and if there were competitors for entering a deal with Solidere to develop what are today Zaitunay Bay and the Beirut Yacht Club.

What can be said is that Stow Group, whose founders in 1985 included both Safadi and Kamal, has a visible propensity to collaborate with leading companies. The company says on its website that it is engaged in three “principal industry relationships.” Solidere is identified as a principal partner and so are TAG Aviation, with whom Stow has shared interests in the UK’s Farnborough Airport and Grosvenor.

The latter partnership means that Stow enjoys a strong business link with a company that is not only one of the longest-standing property owners in the posh Mayfair and Belgravia districts of the UK capital but also represents the business interests of the richest man in the country, Gerald Grosvenor, Duke of Westminster.

Stow’s projects in London in several ways give a very different impression from its more adventurous projects in Beirut. For example, an office project in Mayfair was not only blended marvelously into its street’s architectural context but its recent delivery was “on programme” and in line with what the company had said in a 2010 press release. In Lebanon, the congruence between targeted project completion dates and actual deliveries was nil.
If they say anything beyond highlighting that Beirut is not your usual market for projects and developments, the implications of Stow’s UK partnerships and track record may be that the company is  both keen on rubbing shoulders with the most potent partners it can find, eager to abide by its contractual obligations, and very much at home in the peculiar segment of the property market where a square meter price of $25,000 is not absolute record material (in 2012, Stow UK put a 870 sqm London townhouse up for sale with an asking price of GBP 17.5 million — about $27 million at the time and in excess of $31,000 per sqm).

A Bay on course?
In Lebanon’s feeble relationship between public and private spaces, the corner that Zaitunay Bay represents in a long shoreline of atrocious vistas interspersed with a few bearable developments is definitely more accessible, more appreciable, and better developed than some of its equivalents.

The hospitality project has lost some of its initial — and quite overbearing — snobbishness during the 2012/13 downturn of tourism and in a somewhat surprising statement, Kamal today emphasizes that “we know that for a project to be successful in Lebanon, whether it is a yacht club or a strip of restaurants, you need to depend on the local people, the middle class professional people. This is because if you are successful with them, tourists will come to that place. But if it is only tourists that come here, the locals will probably not come.”

The hospitality mix in Zaitunay Bay in January 2014 evidences a stronger orientation toward the locals and their tastes and pocket books when compared with the area’s initial tone. According to Kamal, the project owners steered the development partially away from the concept’s very first ambition of creating quality public space. He says they did so out of fears that this space could be abused.

It remains to be seen which course the Yacht Club will steer in the coming years, noting that nothing much in Lebanon ever comes out as planned or expected. But in a sense, the hyper-luxury orientation of the area is not actually new. Some 50 years back, in a period which older nostalgic socialites still like to call Lebanon’s golden era, the hospitality properties in this very neighborhood were the places where the elite sipped teas and aperitifs or smoked cigars in presumed splendid isolation from the squalor of the masses.

The question to be answered in the coming years in Zaitunay Bay, the whole New Waterfront and indeed the entire downtown is whether the necessary profit orientation of a private sector stakeholder is able to put enough emphasis on the social profits of well-managed public space, serving both public and private interests in reasonable balance.

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Business

A blossoming business

by Nabila Rahhal
written by Nabila Rahhal

It started out as a fun opportunity but became a real business,” says Mazen Maroun of Lotus Management Group, the hospitality development company which he and his brother Samer founded in 2003 with the launch of a sushi delivery service from La Gondole, their family owned pastry shop in Mar Elias.

Ten years later, it has indeed become a solid business with 300 employees and two successful restaurant chains, Japanese restaurant Soto and Olio pizzeria, with six branches of each spread across Lebanon. Toward the end of 2013 — despite the instability in the country — the brothers launched a new restaurant, Prune, in one of the side streets of Mar Mkhayel, Beirut, which they perceive as a new challenge for their skills in the business.
Their operations began with the concept of high quality, fresh, yet affordable sushi. “At that time, there were only a few and very expensive sushi venues in Lebanon and so we wanted to make it more accessible for everyone,” says Samer Maroun. For eight months, they tested the market through a delivery service launched from La Gondole. Mazen recalls how much attention they paid to the details — clean and neat packaging was as vital as having fresh and safe sushi at an affordable price — all of which created a trustworthy image for Soto — whose average delivery bill is now approximately $32 — when they opened their first venue in Gemmayze at the end of 2003. Two years later, they launched the first Olio right next door, and the company has been expanding and adding branches at an average pace of two venues every two years ever since.

The concept of good quality food at affordable rates resonated with the Lebanese consumer who cannot always afford high-end dining yet appreciates a good meal. It is also a concept that allowed the brothers to keep expanding — reinvesting revenues generated from the preceding venues into their next projects — with no partners to their company save for their venues in Dbayeh and Kaslik.

Although home delivery remains a viable aspect of their operations — accounting for 30 percent of orders — the business has shifted toward the onsite service, with Soto witnessing a yearly footfall of 220,000 and Olio 290,000. At its best performance, Soto serves more than 2.5 tons of fresh fish per month and Olio serves 1.4 tons of mozzarella, both indicators the company uses to illustrate its success.

Lotus Management Group had one misguided venture into Chinese cuisine in 2006, opening a Chinese restaurant in Gemmayze one day before the outbreak of the July 2006 war. The restaurant remained in operation for a year but was later sacrificed to maintain Soto and Olio, according to Samer. “For Chinese food to be [viable], as all our venues are, the average bill has to be between $40 and $50 and the Lebanese are not used to paying this much for Chinese,” rationalizes Mazen.

But despite their successes, the company was not immune to the same challenges faced across the economy in 2013 — making it the worst year in its 10 years of operation, according to Mazen, with a 65 percent drop in sales compared to 2012.

Even though the year started out well — and even outperformed 2012 in the first four months — it ended badly, with only the Gemmayze venues reporting a growth from the previous year. “Economically the year was a disaster but we are not thinking of closing anything: we were living abroad but came back because we believe in the country. Having said that, if [the situation] stays like this for four, five years down the line then who knows? We are still developing and expanding, but cautiously, instead of opening aggressively and creating even more business opportunities,” says Mazen.

Beyond lebanon
Expansion is still on the group’s mind, both domestically and globally. In line with the recent trend in the Lebanese hospitality business, Lotus Management Group is looking to franchise Olio and Soto abroad but is determined to find the right partner with which to do so. “There is a lot of interest but it is not as easy as it sounds because we are not looking just for the money. It is very easy to get capital but the right partner with the right background in the business and good PR is hard to find,” says Mazen. The brothers don’t have a specific region in mind and say they will go with whichever country provides them with the right opportunity.
Domestically, the Marouns have developed a new $300,000 investment in French bistro Prune, born out of Samer’s love for French cuisine and their need for a fresh challenge. While Soto and Olio have a recognizable ‘chain-restaurant’ feel, Prune is meant to be cozier and is where the brothers say they find themselves.

“Olio and Soto are more for the public than for us and there is very little contact with the customer on our part. Prune is us and every detail, from the plate to the kitchen to the customer, is taken care of by us,” says Mazen.

One can immediately sense the warm urban spirit that differentiates Prune from Soto and Olio from the French chic décor — including the mechanic’s rack transformed into a wine display that greets you at the entrance, the sepia class photographs adorning the walls and the black bistro-like wooden chairs and leather couches — and the fact that one of the two brothers is always present to greet patrons as if they were old friends and to ensure they have a pleasant experience.

According to Mazen, the customer profile for Prune is “those who are between the ages of 25 and 65 and are well-travelled, cosmopolitan and appreciate a real and affordable bistro.” Though this describes the typical clientele in the area, Mazen believes they are lucky to be away from the bars on the main street. “It is a plus to be off Mar Mkhayel because usually in Lebanon, streets that blossom quickly attract those looking for easy money and they ruin it for the more established,” elaborates Mazen.

The menu, which includes French staples such as mussels, cassouleh and steaks, is signature Lotus Management Group in that it serves quality food at competitive prices, with the average bill at $50 per person including wine, reasonable relative to prices for French cuisine in the market.

A family affair
The venue has a seating capacity of 45 people and with a turnover of 2.5 tables per shift, the Marouns say they are satisfied with Prune’s performance taking in consideration the situation in the country.

When asked whether Prune will be up for local expansion or franchising, the brothers agreed that they don’t see that happening in the upcoming four years. “It’s not only the décor, it’s the spirit that will be hard to duplicate. Prune is here and only here for now,” says Samer.
Lotus Management Group is not resting on its laurels and is already finishing up construction of a gourmet sandwich shop with a small terrace appropriately called À Côté, as it is adjacent to Prune.

Meanwhile, due to a sentimental value, La Gondole — where it all started with their sushi home delivery operation — remains a base for their businesses and is where their main office and all the accounting, management and purchasing needs of the business are located. “We did not give it a push because my mom and dad consider it their raison d’etre; if we give it new management they will not have a role and we do not want that. We could have developed it to meet the area’s needs but we are enjoying our parents’ pleasure managing it,” says Mazen.

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