Executive Magazine

Letting go is never easy

by Livia Murray February 11, 2014

written by Livia Murray

We’ve been in business for 17 years, and this is the toughest year we’ve had so far,” says Christine Assouad Sfeir, CEO of Dunkin’ Donuts in Lebanon, which saw its first local closures — lowering its total franchises from 30 to 25. With a slew of landmark closures — both Krispy Kreme and Hard Rock Cafe exited the market last year — the situation is turning bleak for Lebanon’s food and beverage (F&B) industry. Entrepreneurs such as Sfeir have known successes. After bringing Dunkin’ Donuts to Lebanon in 1998 and expanding the franchise, she is still clinging to the Lebanese market. But for the past couple of years, with fierce competition, increasing fixed costs and a smoking ban all compounding a precarious political and security situation, Lebanon’s F&B industry is seeing a serious decline, prompting alarm bells in the upper echelons of management.

Hitting a new low

Lebanon’s economy has a reputation for keeping afloat despite political and security events. But this last year has been one of the roughest, and prospects for it to pick up are grim. “We are asking ourselves: is our economy as resilient as it used to be in this type of situation?” says Charles Arbid, president of the Lebanese Franchise Association. The string of security incidents that have rocked Lebanon over the past year and a half have left businesses in the F&B industry with little time to recuperate. They have taken a toll on consumption, with indexes for both F&B and tourism — an important source of revenue for the F&B industry — down by as much as 30 percent in 2013 according to Arbid.

While revenues dipping into the red prompted many businesses to close over the year, those still remaining are managing the crisis with pains. According to Sami Hochar, CEO of Catertainement, which acquired popular franchise Lina’s Cafe in 2001, the cafe barely broke even in 2013, even after cutting their losses by closing their Byblos and Faraya branches. “Normally we try to keep them and look for better days. But in such a situation we [had to] close them,” says Hochar. Dunkin’ Donuts’ five closures followed an overall decrease in sales of 20 percent. Family-run Cafe Younes, which is now managed by Amin Younes, the grandson of the founder, was able to keep all of their branches intact, but suffered a 15 percent overall decrease in its 2013 sales between its four coffee shops and two roasteries.

The decrease in economic activity has been exacerbated by soaring fixed costs. Rent has become so expensive that managers such as Hochar are actually in the process of lobbying landlords to lower their rent payments while they weather the storm. Particularly in premium locations such as ABC mall — in good times a prime location for business — in bad times the fixed costs can overwhelm a business’ accounts. Though Hochar is not yet ready to relinquish his place in the mall, coveted by a long waiting list of businesses, he says that he can envision a situation where he would have to withdraw out of necessity. High rents are not limited to malls, and impose a great burden particularly on newer branches that have not had time to turn profitable, forcing many closures among recently opened branches. Two of the branches that Dunkin’ Donuts closed within the last year were newer branches that did not yet have a chance to turn profitable. With skyrocketing rents, the fate of nonperforming branches is clear; “you don’t have the possibility to wait,” says Sfeir.

Crisis mode

Companies standing their ground in Lebanon have had to seriously re-think their strategies in order to manage the crisis. A ubiquitous survival tactic has been trimming the costs of operations: decreasing the number of staff working at one time or shrinking the number of items on the menu. But cutting costs needs to be done carefully in order to keep any change in quality minimal. “If you affect the customer experience, this is gonna kill the brand and kill the business,” says Sfeir. Businesses pursuing this tactic need to constantly check the impact of their cuts on their customers, otherwise they may lose what little business they still have.

Large-scale franchises have costs additional to their operational ones that are suffering from the shrinking margin of profits. “The income is not enough to stand a structure like ours,” says Hochar, referring to the behind-the-scenes management teams, with associated costs in marketing, advertising, accounting, and so on. “We tend to, unfortunately, lower the expenses on this management company so we can leave the shops running normally. And this is how we can keep on going,” says Hochar. Cafe Younes too, has cut what its CEO described as “luxurious” expenses such as lowering re-investment, a significant part of expenses vital to remaining competitive in Lebanon’s fast-moving F&B industry. “Hopefully things will get better, otherwise really you won’t do the things that you are doing now. You won’t keep on performing, you won’t keep on changing,” says Younes.

Following the market

On top of coping with waning profits, F&B management have had to devise tactics for keeping up with the tricky Lebanese market. Downtown Beirut is witnessing a significant decrease in customers, particularly in the evenings, as security fears prompt people to remain closer to their own neighborhoods. The tobacco ban further dissuades a clientele fond of smoking in cafes, prompting chains to bank on long-term investments in new locations that they hope will be more attractive to customers. “You have to make a strategy in the long run, and in this strategy you have to rent new shops, open new shops, and struggle,” says Hochar.

Re-positioning the location and design of branches is a tactic pursued by many companies in the Lebanese Franchise Association. “They are re-engineering their business in Lebanon,” says Arbid. To chase these finicky consumers, Lina’s Cafe invested in re-locating and re-designing their shops to be friendlier to those customers who enjoy cigarettes with their morning coffee, and close to those who prefer not to stray from their own neighborhoods. They closed two non-performing branches in Byblos and Faraya in 2013 to open one in Mtayleb, Rabieh and are planning to open two more in Gefinor Center and Badaro in Beirut within the next three months, leaving them, if all goes as planned, with 16 branches in Lebanon. The new branches are more open, making them smoker-friendly. Vigorous innovation is one of the few ways in which Lebanese companies can keep afloat, as they vie to create more incentives for customers amid shrinking budgets.

Positioning abroad

With F&B businesses hanging by a fine thread, it is no surprise that companies are looking to expand abroad. “Franchising abroad for the Lebanese brand and concept is definitely a possible solution,” says Arbid. While Lina’s Cafe’s move to acquire licenses for the United Arab Emirates in late 2013 was mainly prompted by the situation in Lebanon, Sfeir is growing her two other companies Semson and startup Green Falafel exclusively outside of Lebanon. Likewise, Cafe Younes is opening a franchise in Riyadh in 2014. Growth outside of Lebanon certainly comes with less risks than expanding within. While they are eyeing the outside, they are nonetheless determined to stand their ground in Lebanon, hoping that outside expansion is just a means to stay on their feet long enough to ride out the crisis.

February 11, 2014 0 comments

Comment

The problems of being a non-smoker in Lebanon

by Jasmina Najjar February 11, 2014

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

February 11, 2014 0 comments

The Buzz

Three scandals Faisal Karami should investigate before a topless skier

by Livia Murray February 11, 2014

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 127^th 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.

February 11, 2014 1 comment

Leaders

Risky business

by Executive Editors February 10, 2014

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.

February 10, 2014 0 comments

Society

Green without envy

by Nathalie Rosa Bucher February 10, 2014

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.”

February 10, 2014 0 comments

Business

A blossoming business

by Nabila Rahhal February 6, 2014

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.

February 6, 2014 2 comments

Society

Downtown, where everything waits

by Nabila Rahhal February 6, 2014

written by Nabila Rahhal

Walk into the Beirut Souks in downtown Beirut in the evening lately and there’s a noticeable buzz of activity that’s been long missed from the sometimes eerily quiet shopping area. The Beirut Souks Cinemacity is finally open and the Souks seem primed to receive the benefits.
The cinema is part of the second phase of Solidere’s original plan for the Souks area, explains Rami Ariss, land sales and real estate leasing division manager at Solidere, with the third and final phase being a department store which has been delayed due to “a few complications.”

It’s all in the design
The remaining part of the second phase is an entertainment center whose exterior structure is complete — and can be seen to the left side of the cinema complex — but whose concept is yet to be determined. “We are bidding for a concept but we decelerated work on it because we want something unique and distinguished. Also, we don’t want to open it in the uncertain times the country is facing and risk burning the concept,” explains Ariss, adding that the entertainment center should be open within a year but that for now Solidere is focusing on the new cinema. Solidere’s goal is to have the cinema be an anchor for the mall itself and increase overall footfall to the area.

Cinemacity, a partnership of Empire Cinemas and World Media Holding, a media company operating in the Middle East, collaborated with Solidere on the cinema. Both Empire and World Media Holding have their separate cinema-related operations in Lebanon and the region, with their first partnership being Cinemacity in Dora’s City Mall before moving on to the Beirut Souks.

The cinema is run and operated by Cinemacity with Solidere taking the role of both the landlord and a partner of the operating company.

Hammad Atassi, chairman and general manager of Beirut Souks Cinemacity, says over $25 million was invested into the project — “a big undertaking.” Solidere’s Ariss says that the company ensured no cost was spared to create something iconic that would be sustainable for many years to come. In fact, according to Ariss, one of the reasons for the delay in the theater’s opening date was that there were many details involving the aesthetics of the design to cover.

The multiplex stands apart from most cinema complexes in Lebanon, if only by nature of its size. While typical mall cinemas in Lebanon are 3,500 square meters, Beirut Souks Cinemacity — the only stand-alone multiplex in the country — spans 27,000 square meters and is the largest in the region.

The space is divided into 12 regular theaters and two VIP sections — with an 18 and half meter screen in two of the theaters. There are three food concession areas serving a variety of munchies ranging from typical cinema fare like popcorn and nachos to salads and sandwiches, as well as some shops on Allenby Street and a food court. Despite its size, the cinema does not have the most seats in the region, a trade-off, Atassi says, for its comfort and aesthetics.

The project’s concept is based on visuals and vibrancy. The exterior architecture was created by Valode et Pistre and is enveloped in LED screens, visible from Allenby Street as one approaches the Souk area. The screen is part of the interactive façade of the cinema and displays ever-changing scenes, such as the Lebanese flag on Independence Day or various holiday images in December.

The interior was designed by Nabil Dada’s Dada and Associates, whose brief says they “worked in response to the distinctive external architecture of the cinema by modifying the internal volumes and seamlessly integrating cutting-edge technology into their design to create a young and vibrant atmosphere.” This is reflected by some interior features such as the vaulted ceiling lined with 256 LED screens and the 50 meter long corridor leading to the lower level theaters, with its projections of animations on both sides and the various uses of lights on the escalators and walkways to create moods within the structure. Aside from its design and technology, Beirut Souks Cinemacity’s location in downtown Beirut and the free use of the Beirut Souks parking for four hours also attract cinemagoers. “A city’s downtown is usually where the major cinemas are located and this was the case in Lebanon before the civil war, but not after it. This project was long overdue and deserves to get the kind of business it is getting now,” says Atassi.

A box office hit
The cinema’s performance has exceeded expectations and Atassi says that in his experience with other cinemas in Beirut new theaters in Lebanon usually take three to four months before they achieve their average ticket sales. Thanks to the project’s visibility, he continues, ticket sales at the Souks rapidly exceeded the 1,000 tickets daily margin and were closer to 3,000 a day, something that no new Lebanese cinema has achieved in such a short space of time. “We expect it to get a third of the share of the Lebanese box office shortly,” says Atassi.
December’s bombing in the downtown area adjacent to the Souks slowed admissions to 450 people but the number shot up to 1,700 the next night.

“Despite it having the same ticket price as other theaters in Lebanon [$8], the Beirut Souks Cinemacity is attracting high-end, mature customers who are drawn more to intellectual films than the latest adventure blockbusters,” says Atassi, adding that since they have so many theaters, they will be playing films for a longer time and also featuring independent films.
While it is too soon to tell whether the cinema has had any major impact on footfall in the Souks, Atassi tentatively attributes the increased activity and longer opening hours in the restaurants around the cinema to its presence. “It is difficult to tell if this is the usual holiday traffic for the Souks or an increase brought on by the cinemas. To be able to have a solid understanding of its impact on the Souks themselves, you need normal circumstances for the Souks. Now we will be able to see,” says Ariss.

February 6, 2014 0 comments

Society

Something to talk about

by Michele Azrak, Zeina Loutfi & Ramsay G. Najjar February 6, 2014

written by Michele Azrak, Zeina Loutfi & Ramsay G. Najjar

The single biggest problem with communication is the illusion that it has taken place.” One could easily argue that in this statement George Bernard Shaw aptly described the affliction of the world of corporate communication for the longest time. Communication is the exchange of information between people. Yet most companies have left out the word exchange by talking at people instead of talking with them. In today’s increasingly connected world, the power lies in the hands of consumers, who are inducing change in the communication landscape by demanding less noise and more value. While this does not necessarily imply a drastic departure from what already exists, the coming years will surely see major improvements in how we use what we already have — knowledge, tools and platforms.
What is certain today is that this intrinsically complex communication landscape is forcing companies to look within and refocus on the value they have to offer for a new generation of consumers and stakeholders. Understanding where the future of communication lies is driving companies to improve experiences and relationships, and to do so it has become obvious that companies need to focus on delivering valuable content.

Content is still king
In the increasingly virtually vocal society in which we live, everyone has a voice and wants to use it. The amount of content being published online is growing exponentially; with so much competing for consumers’ attention, companies need to become more relevant and authentic in order to break through all the noise. For this, companies should favor the creation and distribution of valuable and compelling content over controlled messages and fabricated sales pitches. The primary intent of such a content-driven approach is to engage and build meaningful relationships with consumers, rather than to sell to them.

Whereas this approach has been around for a while, the focus had been on the quantity of content, with companies trying to publish as much content as frequently as possible. However, it has become clear that the future lies in quality-driven content. Companies should start creating content that educates, informs, inspires and entertains. This can be in the form of blog posts, newsletters, white papers, live presentations, podcasts, standard and micro-videos, and the list goes on.

There have been several success stories so far, with top global brands leading the pack. Last year, Coca-Cola made the news when it completely revamped its website and re-introduced it as an online magazine entitled the Coca-Cola Journey. It featured articles on entertainment, environment, health and sports, later adding food and music channels. The difference of course is that the content in that “magazine” is subjective, not objective: it is stories that favor Coca-Cola’s brands, products and interests. HSBC is also showing the way with its Global Connections website, which helps in the positioning of the bank as an authority on international business with in-depth articles and strategies for global businesses — rarely mentioning HSBC.

Coming to our part of the world, we have started to see local and regional companies begin to dabble in content creation and publishing, but these fledgling efforts remain far from really delivering brand-agnostic content that is seeded with inspiration and that covers topics customers deeply care about. Though quality content creation is challenging and time-consuming, it will allow companies to distance themselves from their competition, attract and maintain an audience, and create and sustain business opportunities.

A shift to more dynamic storytelling
It is important to highlight however that it is not enough to simply create interesting content and put it out there. Without a coherent story that brings together the content, one would just end up with more noise and confusion. The goal is to create a unified and coordinated experience for the audience, and to develop deeper emotional connections with them. This can only be done by storytelling, which should be the thread that links the content together across all channels.

Even then, not just any storytelling will do. The new reality we live in also means a shift from one-way storytelling to dynamic storytelling that factors in the consumers’ voice. Moving away from the traditional in-house generated stories, companies need to now focus on stories that spark a conversation with their consumers as well as encourage and make the most of consumer-generated stories. Following through with the Coca-Cola example, the company has established itself as the leader in storytelling, creating a whole stimulating world around the brand, with compelling stories that strongly involve consumers.

While companies in the region have started to listen to what is being said about their brands, there remains a long road ahead: they need to start having a conversation and get the audience involved in it.

Rethinking the landscape
As companies alter the way they communicate with consumers and increase their focus on content, they will need to rethink many of their channels. The most notable one would be their website, which should now adapt to a more consumer-focused philosophy and accentuate the brand’s story flow through design. Instead of being static, websites are starting to look more like magazine portals with greater focus on the content produced with combinations of rich articles, interviews, opinions, interactive functionality, visuals and videos. Soft drinks leaders such as Coca-Cola, Pepsi and Red Bull are setting the trend and their websites are worth checking out.

This does not mean that the main corporate sections such as investor information, executives’ biographies, and press releases are no longer present on the sites; these are just relegated to the sidelines. And this certainly does not imply that all companies should just stop what they are doing and jump on the bandwagon, especially the less established brands that will continue to need a more business-oriented website for some time to come. They could start with enriching their site with more pictures, sounds and videos, and most importantly thoroughly plan and understand the consumer’s journey through their website before diving into any redesign.

Furthermore, simply creating good content on a visually engaging website is not nearly enough as thousands of pieces of great content go unread every day. The challenge will also be for companies to focus on effectively getting their content outside of their website. They should understand how content spreads across the web and find ways to reach new prospects by amplifying great content through multiple channels. For example, Forbes provides a digital platform for sponsored content, but one that is high in quality and that answers to audiences’ needs. Companies like SAP, Merill Lynch and Microsoft have been writing and distributing thought leadership content that is as interesting as pieces written by reporters and knowledgeable contributors, and their content seems to be viewed for the same amount of time as editorial content.

Content-driven communication does not yield value solely to already established brands. While some companies may be restricted in terms of means or resources, no company is too small to experiment with this approach as long as it crafts a clear communication strategy, evaluates its performance, and makes changes along the way accordingly. With titles such as content marketing manager, director of content, or even chief content officer popping up more than ever before, companies in the years ahead will have to embrace content-focused communication as part of their overall communication strategy. They simply can’t afford to be content (pun intended) with staying on the sidelines in the content world we live in. You can only toe the water so long before you have to dive in headfirst.

February 6, 2014 0 comments

Comment

Uncoiling Iran

by Gareth Smith February 6, 2014

written by Gareth Smith

Nothing raises the entrepreneurial juices like the smell of a new market. Last month’s implementation of November’s interim Geneva nuclear deal between Iran and the world powers alerted United States and European companies to the prospect that, sooner or later, sanctions will loosen and Iran will open up.
The business potential is immense. Income that could be generated from the world’s largest gas reserves, at 33.6 trillion cubic meters or 18 percent of the global total, and the fourth largest oil reserves, at 157 billion barrels or 9.4 percent of global reserves, would make the Iranians wealthy.

Lifting sanctions would make possible the 8 percent average annual growth rate envisaged in the Five Year Plan of 2010-15. Iran is like a pent-up spring, pushed back by US and European sanctions which in two years have halved oil exports and obstructed access to both insurance and dollar markets, as well as by older sanctions that stymied the development of gas reserves. The economy contracted 5.6 percent in 2012 and 3 percent in 2013, according to the Economist Intelligence Unit.

But the spring is starting to uncoil. Since November, the clearest excitement has been among car manufacturers, specifically mentioned in the interim Geneva agreement. Peugeot and Renault have led the way, with past experience working with Iranian producers Khodro and Saipa, and envision taking Iran’s annual vehicle production back from 2013’s 385,000 to the peak of 1.6 million reached in 2011.

The agreement also included facilitating financial channels for humanitarian trade, including medicines. Pharmaceutical companies are keen to tap into a market that analysts put at $3 billion annually with 30 percent imports. Germany’s Merck is looking for local manufacturers to co-produce two of its medicines. The French Sanofil, which licenses products to an Iranian manufacturer, is planning new product launches to improve last year’s $3.7 million profit on sales of $10.2 million.

The ‘little Satan’ will not be left behind. British exports to Iran plunged 68.2 percent from 2005 to 2011, the largest fall among leading European Union countries, but during last month’s visit of parliamentarians to Tehran, Lord Lamont, chairman of the British-Iranian Chamber of Commerce and former chancellor of the exchequer, said British pharmaceutical companies and vehicle manufacturers were among those very interested in Iran.

Such companies selling in Iran, or investing in joint production, will have consequences for the country. In the longer term a return to high economic growth, coupled with substantial outside investment, may well transform it. Firstly, high growth and ‘opening up’ imply economic liberalization. Thus far, privatization has been muted and often involved transferring shares to quasi-state bodies or pension funds. This reflects the absence of foreign investment and shortage of domestic private-sector capital. But the 2006 decision by the Ayatollah Khamenei to back privatization of most state-owned industry is compatible with vibrant private banking, more effective capital markets and wider foreign investment.

Secondly, high economic growth is likely to increase Iranians’ expectations for material goods and better job opportunities, especially among the 35 percent of the 77 million population aged 15 to 29, the highest proportion recorded worldwide. Growth may also encourage aspirations for greater social or political freedoms. In all cases, managing expectations will pose a challenge for the leaders of the Islamic Republic. After all, economic growth was high, albeit uneven across sectors, under the Shah prior to 1979.

Thirdly are implications for energy markets. Even a short-term, limited increase in oil exports — given a likely lower OPEC output in 2014, projected to drop 500,000 barrels a day by the US’s Energy Information Administration — implies other OPEC members, notably Saudi Arabia, will be cutting back. Fourthly, are political implications, in central and south Asia, and the Middle East. Supplying energy and simply being richer will enhance Iran’s influence — posing a greater challenge for opponents and critics so far unwilling to accept what the Iranian leadership sees as its legitimate role as a regional power.

Should this be seen as a disaster? Greater trade — especially alongside educational exchanges, more travel for businesspeople and simple citizens — may not just break down barriers set by sanctions. It may enmesh Iran more closely in the outside world, giving all parties more incentives to resolve disputes diplomatically. A more open, richer Iran may be more at peace with the world.

February 6, 2014 0 comments

Finance

Private equity 2014: Room for optimism?

by Imad Ghandour February 6, 2014

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.

February 6, 2014 0 comments