Real estateReal Estate

The merits of renting

by Michael Dunn
written by Michael Dunn

Whatever the traditional love

or owning property,

Lebanon is beginning to

follow the worldwide trend toward

rental. International operators prefer not

to have capital tied up in real estate,

whether it is offices, shops or industrial.

They prefer to rent from pension

funds, insurance companies and real

estate companies – businesses that

have an interest in stable, long-term

yields. In developed countries, retail

will offer a yield of 5%, offices 7% and

industrial 9%. An average of around

7% is an ideal way for pension funds

and the like to help balance a portfolio

with yields of 4% on cash (no risk) and

11 % on high-tech and developing

markets (high risk).

In Lebanon, yields have been higher

– around 8.5%-9% on prime retail

and perhaps 10.5% on prime office.

These yields will reduce as the market

develops and becomes more settled.

But whatever the yield, the case for rental is strong, and one that

Healey & Baker always recommends to our clients.

Imagine owning a shop worth $1 million. If you sell the freehold,

but remain in occupation on a lease at $100,000 a year, you

immediately have $900,000 to invest in other shops or, if you prefer,

to buy Nasdaq stocks. Sale and leaseback can open up all sorts

of possibilities for many companies: It is extraordinary, for example,

that banks, whose expertise is exactly one of making money

grow, tie up their capital in owning buildings, something in which

they are not specialists.

Owners need to think long term. Looking for a low yield is,

paradoxically, a sign of confidence and not of weakness. Prime

property will tend to produce capital accumulation, especially

over longer periods of time. In retail, for example, attracting a

committed tenant who can generate rising year-on-year

turnover will help increase the value of the property, and this in

turn can justify rising rent that the owner can then capitalize. (It

is even possible to relate the rental to turnover.)

This goes against much practice in Lebanon, and there are still

short-sighted owners trying to justify absurdly high yields. But

it is, nonetheless, best business practice. Take the case of

Birmingham, a city of around 1.5 million in England: Yields of

just 4% have produced rental income rising by 300% in five years.

In Paris, yields have gone down from 6% to 4% in the past two years –

a sign of the city charging from recession to boom.

This kind of growth is not possible in

small towns, only in city centers with

large catchment areas and potential

for rapid expansion. But is Beirut

very different to Birmingham or Paris

in this respect? In its Saifi village residential

development, Solidere has

produced rental figures ($80-$110 per

m1 a year, with sale starting at$1,750)

that offer a yield of just 5%, way

below the figures of 13%-14% that

developers will look for on residential.

But is Solidere wrong? Why should

owners expect returns of 14%? And

why do they leave property empty

rather than let it at realistic prices?

Residential properties generally

require more management than commercial

ones, so if Solidere can take a 5%

yield on its flagship residential, how can

owners justify returns above 9% on office and retail? Part of the

answer lies in their worries about securing payment Just as banks

are beginning to show concern about bad loans, property owners fear

that tenants will either not pay or pay late. So they look for a high

yield to hedge against future risk.

This is, without question, a problem resulting from the lack of

regulation in the market and one that needs to be addressed. It

should be a top priority of the incoming government to strengthen

the judiciary, so that contracts of all kinds are properly

enforced and that all parties come to accept that prompt payment

of dues is in everyone’s long-term interest.

Sooner or later, this will come. Here as elsewhere, rental is very

much the future. Schemes like lease-with-option-to-buy are compromises

of limited worth. They may suit the mentality of the

would-be homeowner, whether in Lebanon or Britain (though the

French of course have no such qualms about renting their homes),

but they have no obvious benefits for business professionals.

If you want to own a castle or a palace, buy one. If you want to own

real estate, invest in a real estate fund. Don’t buy a house and certainly

don’t buy an office block. Leave it to the property professionals,

and spend your time and money doing what you’ re good at.

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Real Estate

Moven’ ·on up

by Executive Editors
written by Executive Editors

Construction at the $100 million

Movenpick resort in Raouche steams

ahead. The 72 chalets and 1,000 cabins

have already gone up 7% in price since hitting

the market on August 1, and while

Kingdom Holding won’t reveal the figures,

the diagrams in the on-site sales

office suggest sales are going well.

Sales manager Samer Abu Ayash admits

that the project has faced a credibility gap.

“Everyone knows the checkered past under

the old owners,” he says. “This makes it

more important that we get things right and

on time.” Movenpick has similar resorts at

the Dead Sea and Sharm el-Sheikh.

Branding is important. Alwaleed Bin Talal

is himself a brand name. “When he says the

project will be finished in summer 2002,” says

Abu Ayash, “people believe him.”

The project has a 4,000m2 health club, a

30,000m2 hotel, a l ,500m2 shopping mall,

swimming pools, restaurants, chalets, cabins,

a marina and 700 parking spaces. The

shops, says Abu Ayash, will attract local

residents as well as those using the resort.

The biggest unit until now is 80m’,

although the design allows up to 200m2

“Visitors to the hotel will be able to do

everything within the resort,” says Abu

Ayash. “This is unique in Lebanon. They

can rent a boat, put the kids in their own

pool, have a mud bath and go to a restaurant.

Some people who go to Sharm el-Sheikh

never leave the resort for two weeks.”

The main interest in chalets has come, says

Abu Ayash, from Lebanese expatriates,

while interest in cabins stems mainly from

Beirutis. The largest chalet, around 208m’, is

close to $ l million (with prices between

$4,250 and $5,250 perm’) and the 6m2 cabins

are $25,000 to $30,000. Not cheap. But

there is no rival project on the horizon.

Score one for SMGH

The Saudi-run Societe Mediterraneenne

des Grands Hotels (SMGH) has finally

received permission to demolish the old

Hilton, amalgamate the plot with an adjacent

one and keep a built-up area (BUA) of over

31,000m’ on the combined site. That clears

the way for a new 20-storey Hilton.

The company bought Mi net el Hosn plot

111 – complete with the 27,000m’ ruined

hotel – in 1980. When the Solidere master

plan came into effect, the appraised value

of the site was around $ 11 million, but the

owners decided to keep it rather than take

Solidere shares. SMGH then paid $4 million

for the adjacent plot with 4,300m’ of

BUA. Under current regulations, new

build on I LI would have been restricted to

around 10,000m’, but the council of ministers

has granted an exception and

allowed the combined site to retain the

existing BUA of 31,300m2

It adds up to a shrewd move by the owners.

If they had bought at current Solidere

prices, they would have paid around $31 million

for both plots. Construction will take

around three years. The company is confident

that Lebanon can accommodate more

five-star hotels in addition to the Phoenicia.

Building a

bad reputation

Architect Charles Hadife had a shock in

June when he opened a newspaper

and saw a picture of his home in Beit

Chehab house. “A traditional Lebanese villa

developed by the Hayek Group,” he read. Not

true. Hadifeh did the renovation himself.

The newspaper explained that the Hayek

Group is using the Internet to market themselves

to Lebanese expatriates, offering services

from brokerage to engineering, finance

and legal advice.

Hadife was livid. “I sent someone to

Hayek group asking if I could buy the house

– they said they’d sold it.” EXECUTIVE contacted

the Hayek Group and asked where to

find the house and whether Hayek renovated

it. “I think it’s in Beit Mery or Broummana,”

said the receptionist, “and no, that’s not one

we did.” Strange, then, to choose a house that

has been featured in international architecture

magazines and belongs to one of Lebanon’s

best-known architects.

Southern bargains

The market is even more sluggish in the

South than in Beirut. A 1995, 320m’

duplex with four bedrooms, three bathrooms

and five balconies on the edge ofTyre can be

yours for just $80,000 – and yet it’s been on

the market for several months. The brokers are

Cedarweb (www.cedarweb.com).

Real estate in the south declined with the

Israeli attacks of 1996. The stagnation, says

Tyre developer Ibrahim Mourtada, has been

not so much in prices – which have fallen up

to 20% since 1996 – as in the delay or

amount of a fust payment. Smaller units of

around 120m’ are about $250 per m2, with

new duplexes fetching $320-$350 per m2

This suggests the Cedarweb duplex is a bargain

– provided you have the necessary: It’s

a cash sale with no credit facilities.

EXECUTIVE has teamed up with international real estate consultants Healey & Baker to provide information

about market activity in Beirut and its suburbs. The real estate listings change monthly and

are updated quarterly. The following profiles will be revisited in February.

The BCD residential market is currently skewed by Solidere’s pricing strategy at Saifi,

which is to sell at $1 ,750 per m’ (base) and rent from a base of $85 per m’ – a strategy

followed by the company in order to attract residents downtown when clients are unwilling

to buy at these prices. The rate outside Saifi is around $1,500 perm’ for sale and something

over $100 perm’ for rental. It will be interesting to see how this develops over time,

especially as approximately 65% of BCD is zoned for residential.

After all the delays, and the ups and downs, the market in BCD now seems to be

finding its level. Refurbished offices are fetching between $150 and $175 perm’ in

annual rental, and new build, like the Atrium, is going for up to $250 per m’. Demand

is now focused on new build (especially from international companies), with less for the

renovated buildings.

Solidere’s target price for retail is $5,000 per m’ for sale and $500 per m’ for rental.

The highest price achieved so far for retail downtown appears to be $9,000 per m’

in the Atrium, where proximity to the souks and Banks Street has proved a crucial factor.

The cheapest ground floor retail is available for less than the Solidere target. This

is very much a market that will change quickly, especially when the souks project

comes on stream.

Ever popular for homes, Hamra is a genuine community with local amenities and a

busting, cosmopolitan atmosphere. The cheaper residential is the older buildings,

and there are some bargains here for those seeking character rather than up-to-the

minute luxury. Parking problems, traffic and honking horns will always limit the potential

for growth.

Hamra is mixed as a business area, just as it is in retail. There are no obvious benchmarks

for pricing offices. While there is attraction for some businesses to be in such a busy area,

others – especially international companies – will be deterred by the traffic congestion, the

very low number of up-to-date office blocks and the general lack of purpose-built parking.

I n the best locations, retail prices in Hamra remain high. At the same time, there are a

number of badly designed malls that have fallen into disrepair. The opening of the

Crowne Plaza should give Hamra a big lift, adding to the boost already given by names

like Starbucks, lntimissimi and The Body Shop. Hamra will endure the opening of the

souks downtown if it can continue to offer impulse, easy-access shopping. Don’t

expect large stores in the area.

Mar Elias became a popular retail destination during the war, and subsequently has

suffered because of Verdun’s proximity. The development of retail downtown will

lead to a further deterioration. Housing in Mar Elias – including new build – is of mixed

quality and not helped by the large amount of property let at old rents, which act as a

huge disincentive for owners to carry out repairs, much less improvements. Most rental

is at the medium level.

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Real estate

Too much tor the asking

by Gareth Smith
written by Gareth Smith

Leading real estate consultant Raja

Makarem has produced new evidence

that Solidere’s sales prices

are too high. Managing partner of Ramco,

Makarem has supplied EXECUTIVE with an

analysis of Transmed’s purchase of the

prestigious Marfaa 225 building, that puts

its retail at $2,500 per m’ and offices at

$1,500, way under the Solidere target

prices of $3,600 and $2,500. Makarem’s

criticism of Solidere’s pricing, which he first

made last autumn, has been given added bite

by the company’s half-year figures showing

sales of just $1.8 million.

Marfaa 225, on the eastern side of Foch,

was bought by Transmed from a third party

owner in September and is seen by

Solidere and independent consultants as

one of the most desirable properties in

Foch-Allenby. Transmed paid $5.5 million,

but this, Makarem points out, included

$500,000 for 20 car spaces, making the

price of the building $5 million.

At $5 million for 2,626m’ of floorspace,

Marfaa 225 can be priced at an average of

$1,900 perm’ . This, argues Makarem, confirms

his earlier analysis that the market

price of land downtown is at most $700 per

m’ of built-up area (BUA), and not the

$950-$1,050 target maintained for over five

years by Solidere. Makarem derives the figure

from the rule of thumb that projects

costs are one-third land, one-third construction

and one-third for interest payments

and profit. A third of $1,900 is just over $600 per m2 of BUA.

And there’s more, says

Makarem: The details of the

Transmed deal give a precise

breakdown of current

market prices for offices and retail downtown.

 “The building has a

362m’ basement, plus 362m’ at

ground and 335m’ at mezzanine,”

says Makarem. “This amounts to

one of best showrooms downtown.

That’s a total of 1,060m2 of prime

retail, which I would price at $4,000

per m’ for ground, $2,000 for mezzanine

and $1,500 for basement.

That’s a total price of $2.661 million for retail, at an average of

$2,500 per m’ .” That’s much less than Solidere’s targets of $5,000 for ground floor,

$3,333 for mezzanine and $2,500 for

basement. “The building has 1,570m’ of

office space, which at $2.35 million in total

comes out at $1,500 perm’ ,” he says. ”These

are the clear market prices downtown.”

Makarem believes that Solidere will need

to understand the implications of these figures,

even if its luck with construction permits

improves under the new government.

“Solidere has been too passive in its sales

strategy,” he says. “In current circumstances,

I do not see how a developer can buy

land at $950 perm’ of BUA and expect to

make a return on any development. The lack

of progress downtown is not just due to government

delays; it’s also due to Solidere

asking unrealistically high prices.”

Solidere’s transition from phase one

(1994-1999) of infrastructure work to a

second phase of growing income from land

and building sales coincided with a recession.

The company has kept

its prices constant, rather

than reduce them, on the

basis that they offer the

potential for a one-off cash

flow. But it has also used the

strange argument that those

who bought earlier would feel “let down”

(the words of finance manager Mounir Douaidy) if prices fell.

Critics of the approach have noted that

Solidere, while not lowering prices, has

eased payment conditions. Last year,

Douaidy admitted that rents in the Saifi

village residential project had “effectively

fallen” to $85-$110 per m2

•Solidere still has around 3.25 million m’ of

BUA in its land bank, and the fate of this land

will have a huge effect on the whole market.

Yet only three buildings – Marfaa 225, the

lzzeddine building on Martyrs Square and the

Association of Banks building- have sold in

the past two years. “The downturn is no reason

to persist with policies that have proved

useless,” says Makarem. “Solidere is such a

big player in the market that it cannot sit back

and wait for things to improve; it should help

to get them moving.”

In a market brief in July for Jones Lang

Lasalle, Makarem reported that the majority

of recuperated buildings downtown

were still vacant, citing occupancy rates

of 85% in Banks Street, 20% in Foch Allenby

and just 10% in Maarad.

His analysis of the Marfaa 225 figures

gives food for thought not just for real estate

specialists, but for all the companies that are

thinking about opening downtown.

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Real Estate

Memory lane

by Marwan Naaman
written by Marwan Naaman

0vercrowded, congested, dirty and

literally falling apart, Hamra street

bears little resemblance to the

fabled upscale shopping and nightlife hub it

was less than three decades ago. Lined with

chic boutiques and elegant sidewalk cafes, the Champs-Elysees of the Middle East – as it was

once called – was the grande dame of Beirut

prior to 1975. But the war rubbed off most of

the area’s luster. “The Christian residents,

fearing for their lives, fled the area,” says

Walid Noshie, president of the Hamra Trade

Association. ‘The Kuwaiti and Saudi owners

of buildings and businesses abandoned their

property, leaving janitors in charge of everything.”

Hamra was left to deteriorate. Stores

are run down, cafes cater to a seedy clientele

and the formerly lavish movie theaters now

screen soft porn flicks to a crowd of Syrian and

Egyptian laborers.

Younger, trendier shopping and business

centers have taken over the role Hamra once filled.

Verdun is Beirut’s Fifth Avenue, with

high-class boutiques and upscale shopping

centers, while Ashrafieh is the undisputed

center of the capital’s nightlife – Hamra is virtually

dead after sundown. North of Beirut,

Kaslik provides yet another elegant shopping

venue and a good selection of restaurants and

11.ightclubs. What’s more, since most Hartlra

property owners are not even in Lebanon –

while many residents are still paying ridiculously

low old rents – there has been little

incentive to rehabilitate or redevelop the

area. At the same time, the government has

made no attempt to reinvigorate Hamra and

its image. The street now offers a sad picture

of urban decay.

Despite all its faults, Hamra can still lay

claim to some of the capital’s most prized

real-estate. The average sale price for residential

space in the area is between $500 and

$1,000 per m2, while retail prices range

from $2,000 to $6,000 per m2

• This compares to Ashrafieh, where residential runs from

$600 to $ 1,500 per m1 and retail averages

between $2,500 and $5000 per m2

. In Verdun residential apartments cost between

$850 and $1,300 per m2, while retail goes for

$7,500 to $10,000 per m2

.

In the last few years Hamra has become an

attractive spot for investors. Starbucks, The

Body Shop, Grand Stores (GS), Calzedonia

and lntimissimi have all set up shop along the

busy street. The Crowne Plaza hotel, opening

in June 2001, is the biggest real estate project

in the area. The hotel will contain 200

rooms, two movie theaters, a huge shopping

arcade, six conference rooms, three banquet

halls and a food court with seven restaurants.

General manager Georges Aoun firmly

believes that Hamra is on its way to

regaining its past glory. “Hamra is in a prime

location,” he says, “and the area is changing.

It will go back to what it was before the war.

That’s why we’re building the hotel.”

Hamra may no longer symbolize the opulence

of Beirut, but the street is still one of

Lebanon’s biggest hubs of activity, surrounded

as it is by universities, hospitals,

banks and hotels. It is near downtown,

Verdun, Ashrafieh, the sea and the airport. Its

proximity to the American University of

Beirut, Lebanese American University and

Haigazian University has helped to buoy

rental prices. As has the Lebanese tradition

of holding onto property – even in a recession

– kept real estate prices artificially high.

Selling today wouldn’t catch the price that

most owners are holding out for. ” Prices in

Hamra have technically declined,” says

Noshie. “But since some landlords and

homeowners don’t need the money right

away, they prefer to hold on to their property

until there is an upswing in the economy.”

But Hamra’s biggest asset is undoubtedly its

charm. “Hamra is the only street in Beirut

where you have Muslims and Christians, rich

and poor,” says Noshie. “It’s the only city

street where you have decorations for both

Ramadan and Christmas.” In Hamra, he

explains, all of Lebanon’s sects intermingle,

regardless of personal income. “Eventually,

downtown will look like Europe, but Hamra

will always look like Lebanon.” The area’s

nostalgia is also a major draw. “People who

used to come to Beirut before the war still want

to stay in Hamra,” says Karim Ibrahim, managing

partner of the property management

firm Operators. “It’s the memory of Hamra

that accounts for its appeal.”

Syrian painter Khaled Takreti comes to

Beirut every other week for a two-day getaway

from Damascus. He always stays in

Hamra. “Some streets are more fashionable

or upscale than Hamra,” he says. “But that’s

not what I’m looking for. Everything I need

can be found in Hamra. There are sophisticated

and common people, shops are varied

and have reasonable prices. And there are

good movie theaters and lively cafes.”

During his Beirut sojourns, Takreti stays at

the Al Sultan House, near the St. Michel

store, where the rate per night is a mere $30.

Hamra now welcomes a certain kind of

visitor – mostly Arab tourists who drive to

Lebanon and want affordable shops and

cheap hotels. “Hamra is Like Mar Elias and

Furn El Chebak. It’s a lower-middle class

shopping area, where customers can argue

about the cost of an item and pay 20% less

than the listed price,” says Ibrahim, adding that

new investments in Hamra cater to mass

market shoppers and not to the upscale travelers

who came in the ’60s and ’70s.

Thanks to the heavy foot traffic in Hamra,

store owners rely on high volume sales rather

than big profit margins. According to Noshie,

the GS branch in Hamra has higher turnover

than in any other location. “In Verdun, you

have one customer who comes in and spends

$ 1,000. In Hamra, 500 customers come in and

spend $100 each. That’s five times more

money than in Verdun,” he says.

Even though Hamra has retained a certain

allure and real estate prices remain stubbornly

high, poor infrastructure, lack of parking,

congestion and the ugliness of many buildings

will probably prevent a major renaissance. But

in a decade or two, when Solidere fills up and

becomes too expensive for the average resident

and retailer, the overflow will hit

Hamra, and the historical street will be rediscovered

by a new generation of Beirutis

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Money MattersUncategorized

The more the merrier ?

by Peter willems
written by Peter willems

Bou Khalil Markets recently shifted

into expansion overdrive. In 1999,

the supermarket chain listed on

the Beirut Stock Exchange opened outlets

in Tripoli and Mkalles and built a central

distribution warehouse in Hadath. In early

2000 another outlet popped up in Ras

Beirut, bringing its number of stores up to

six. A greater reach pushed up sales 30% last

year, from $29.6 million in 1998 to $38.7

million. But with expansion costs and

increased competition driving prices

down, earnings dropped from $1.9 million

to $377,000, an 81 % drop.

According to Shawki Bou Khalil, one of

the owners, last year’s low profits were just

a glitch: “It was rapid expansion, all in only

13 months,” says S. Bou Khalil. “It’s time to

get results from our expansion.

Then after two years we’ll expand some more.”

Financial Funds Advisors (FFA), which

helped Bou Khalil go public in 1998, estimates

earnings to reach $ 1.25 million this

year and $3.4 million in 2003 (see graph).

But for earnings to reach FFA’s target,

momentum has not been enough so far this

year. Although sales jumped 49.4% in the

first half of 2000, pre-tax profits reached

$364,000, lagging behind FFA’s projected

profit figures by 43%. Operating expenses

increased, which hindered better profit

growth. This year’s projected sales were $55

million, but the first six months added up to

$23.1 million.

Reaping handsome rewards from expansion

may not be easy. Tough competition,

especially in the midst of the recession, has

put pressure on prices. Spinney’s invasion

into the market in 1998 brought with it

ongoing promotional deals that made an

impact. Last year Lebanon’s consumer

price index (CPI)-now compiled at the ministry

of economy and trade – dropped

2.13%. By the end of June 2000, CPI fell

another 2.16%. “More supermarkets promote

products and cut prices,” says Zena

Sara, communications manager at

Spinney’s. “You cannot fool the customer

anymore. The consumer knows what are the

best prices, what are the cheapest.” In 1999

Bou Khalil’s gross revenue margin dropped

below 12% from over 14% the year before.

Probably a more serious threat that may

hinder Bou Khalil’s growth is the new

supermarket philosophy brought by

Spinney’s and Monoprix, which opened in

summer 1999. ”There has been a change in

attitude with the consumers,” says Ali

Berro, director of the ministry’s research

center for pricing policies. “It’s not only

prices. They are now looking for convenience,

space, location and atmosphere.”

According to Michel Abchee, chairman of

ADMlC, which runs BHV and Monoprix,

that was precisely his aim. “It’s the comfort

of shopping that counts,” says Abchee.

“There has to be enough space for the customers

to feel relaxed, there must be easy

access to products making it easy for customers

to find everything and the environment

must be comfortable.” Visit a Bou

Khalil outlet and you’ll find the store in a

smaller space, more congested and more difficult

to find your way around. As one analyst

says, “l got lost in Bou Khalil in Ras

Beirut. Plus, at Monoprix it has a personality.

Bou Khalil has no character.”

So far, the two foreign chains have proved

their strategy well with just one outlet each to

date. Projected revenue for Monoprix’s first

full year of operations is just over $40 million.

Spinney’s will not disclose an exact figure but

claims that it~ projected revenue will be more

than FFA’s estimated revenue for Bou Khalil

at $55 million. And the two are making

moves to cover more ground. Abchee says

plans to open another outlet will be finalized

in the next few months. Spinney’s plans to

invest up to $20 million to open four more outlets

over the next two years. There are also

rumors that one of France’s leading supermarket

chains, Carrefour, is planning to set up

shop in Lebanon.

The number one supermarket in sales has

been Co-op, pulling in around $ J 50 million in

revenues with 47 outlets operating. Famous for

selling at low prices, Co-op has been a challenge

to the rest of the market. But its status is

now in question. Cash strapped and burdened

with debt, Co-op has been negotiating with

Saudi Arabia’s AJ-Mouhaidib in hopes of

getting a new lease on life. When EXECUTTVE

went to print, no deal was signed. While suppliers

and other creditors will suffer if Co-op

isn’t saved, other supermarkets would celebrate.

But a rescue plan with foreign help

might be worrying to the competitors.

With its first phase of expansion completed,

Bou Khalil is working to be more

competitive. Instead of suppliers running

haphazardly to reach Bou Khalil’s outlets,

its central warehouse takes on responsibility.

This facilitates inventory control and

timely delivery to keep shelves adequately

filled. According to Wajih Bou Khalil, in

charge of IT, outlets and the distribution center

might be connected online by the end of

the year, making the supply chain faster and

more efficient. The central warehouse will

eventually become a wholesale/retail outlet

selling in bulk at lower prices. Prepared for

the launch, S. Bou Khalil predicts that the

transformation will happen towards the

end of the year or in the first quarter of 2001.

Bou Khalil’s margins are moving up. In the

first six months this year, the gross revenue

margin increased to over 14%. S. Bou Khalil

gives credit to economies of scale. With

more outlets, Bou Khalil has the leverage to

negotiate with suppliers to bring down the

cost of goods. Also, promotional deals on the

market have diminished. That is part! y due to

pressure on Spinney’s to limit its price tactics.

“We cannot do promotions unless they are

previously cleared by the ministry of economy,”

says Sara. ‘This has changed Spinney’s

policy. We want to sell at prices we want, but

are not allowed.” Although government

interference on prices in a free market economy

is ironic, breathing space on margins

could help Bou Khal.il ‘s profit growth.

FFA has faith in Bou Khalil reaching projections

this year. It argues that there have

been seasonal patterns in grocery sales, with

55% to 57% of sales generated in the second

half of a year. FFA claims that sales were

higher in July and August and that once the

central warehouse includes a point of sale,

earnings will get a boost. S. Bou Khalil

holds that the increase in operating expenses

was expected. A number of expenses

were one-time charges that will not affect

profits in the second half of the year. An

increase in salaries came soon after the new

outlets opened, and he expects an increase in

customer turnover to lessen the effect.

“Earnings in the short term can be dampened

by expansion,” says Jean Riachi, chairman

and general manager of FFA. “Competition

is so tough that you have to grow and take

advantage of economies of scale. You have

to sacrifice short term for the long term.”

FFA also gave a buy recommendation on

Bou Khalil’s shares, which have been dormant

with the rest of the Beirut Stock Exchange. If

the market comes alive, Bou Khalil will have

to get the new outlets and profit growth up to

full speed to attract investors’ attention.

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Cover story

What next?

by Carl Gebeily
written by Carl Gebeily

A bude Omari is known· for his charm and pit-bull mentality:

When he has an idea between his teeth, he might be pleasant

about it, but he will never let go. For the boyish-looking

entrepreneur, with his casual attire and winning smile, the world of the

Web is a natural fit. He always looks to the future, say colleagues, and

his sales pitches cany a New Economy resonance. Striking a chord with

the general public, he calls his e-venture, “Internet for everyone” and

describes his concept as “the next breed in portals.”

As co-founder of Cyberia along with college roommate Walid

Fakhry, Omari has experienced the adrenaline highs and the growing

pains that accompany the transformation and sifting of ideas into

a cohesive business. The main pressure, bigger than earnings in a

topsy-turvy environment, is to build organizations – fast- before opportunities slip away.

His breakthrough idea? ‘There is no single

idea,” says Omari. “Cyberia doesn’t operate

with a unique selling proposition.” Instead, by

strapping on a family of value-added services

such as voice services – still in beta testing

phase – webmail and news, the company hopes

to move away from its position as purely an ISP.

“Our approach is not generic,” says Omari.

“From the start, we looked specifically at what

would make _a Lebanese customer go out and

start using the Internet.”

It took barely a year for Cyberia, launched

in September 1996, to climb to pole position, and it soon became

clear that the charismatic entrepreneur had tapped into the mindset

of the New Economy. Investors were drawn to his idea of a “Net

for the people.” And why not? Lebanese consumers flocked to his

user-friendly startup kits and were able to replenish their online credits

from a large distribution of resellers – both Cyberian innovations

that were later emulated by other ISPs. Omari had already signed

up some long-term investors, including Lebanon Invest, financier

Elias Hallak, founder of Invest Corporation, and Chase

Manhattan, whose names added cachet to the venture.

So what are the payoffs? The exact answer is safely guarded in

some Cyberian high-encryption electronic vault. However, the average

growth in revenues has been of the order of 64% over the past

two years, and by estimates gathered from both the local ISPs and

independent market research, Cyberia commands as much as

42% of the 200,000 dial-up access market, compared with

lnconet’s 29% and Data Management’s 19%.

None of the companies would divulge revenue or profit figures. But

it’s unlikely that any are profitable with their ISP services and questionable

whether they’re making money on anything else -just look

at the poor track record in that regard of Internet companies in the West.

Revenue is offset by Cyberia’s high operational costs. Other than

the overhead charges, the large office spaces in Hamra and the 54

employees, are the astronomical charges incurred by the ministry

of post and telecommunications (MPT) who have a monopoly on

phone lines and prices. Bandwidth is leased at the monthly rate of

$59,000 per 2mbs, which is split as a $27,000 fee for connection

to the Internet backbone, a further $27,000 in licensing fees and

$5,000 in charges to the international gateway. ‘The MPT still doesn’t

have a clear policy toward regulating the private sector in terms

of charges and frequency allocations,” complains Omari. “The

monthly charges hit you like a brick wall.”

This discomfort is shared by ISPs across the board, particularly when

they look with envy at the palatable US rate of $4,000 per 2mbs.

Cyberia’s Internet service runs on 8-10mbs, requiring monthly

charges in excess of $250,000. This expense is quite aside from the

$13 charge per phone – the company has some 3,000 lines nationwide.

If the company’s finances remain somewhat opaque, what is more

apparent is Cyberia’s corporate evolution from ISP to all-in-one portal

– an evolution that has its parallels and differences with other

ISPs. With mobs of new users logging onto the Net and annual growth rates of some 150%,

the future was looking bright for ISPs in

1997. Until they had the rug pulled out from

under them that is.

That year the number of ISPs peaked at over

20. Today there are just a handful of players. First

came an attack from an unexpected quarter.

Banque Audi entered the ISP market in August

1999, with a free dial-up service to win over consumer

Internet users. Offered in conjunction with

Inconet, the usual access charges were paid by

a monthly account-handling fee ofLLl0,000-at a time when unlimited access charges were

still about $30. Not wishing to be outdone by the Audi/Inconet

alliance, Byblos Bank teamed up with Data Management in a

PC/unlimited-internet package. The entrance of the bank Net accounts

spelled disaster for small ISPs and big trouble even for ISPs

like Cyberia, who hadn’t chosen a bank partner.

Barely a month later, Omari announced to a surprised Internet

community that his company had adopted a $12.99 unlimited

access price – slashed from $29 – in a desperate maneuver to consolidate

his electronic ground. The fallout was severe. The price cut

effectively signed the death warrant for many smaller ISPs.

“Many ISPs fell by the wayside,” recalls Jacques Hakimian,

Internet analyst with Dialog. “The ones who survived were forced

to differentiate in any way shape or form.”

ISPs have responded on several fronts. While some complain they

can’t survive if prices go any lower, others continue to use the access

charge as a key trump card. (Terranet has maintained a monthly $9.99;

and Libancom, having dropped its access charge to an unprofitable

$6.66 is back on $11.99.) Others still are concentrating on adding Web

services, such as website hosting, or are trying to lure customers with

promises of better service and access with less downtime.

A case in point is US-based PSINet, which entered the Lebanese market

by purchasing Lynx, a local ISP in its death throes. It is the only local

ISP with a direct fiber-optic link from Lebanon to North America. And

since about 85% of all Internet activities run on the American backbone,

this translates into significant cuts in delay – typically 53% on

the 30kpbs norm of a copper cable. This is an important selling point

in a cutthroat market that looks for added benefits. Mike Mansour, IT

consultant for PSINet Lebanon believes that speed, not ISP content,

is the way to survive. “We offer a super-carrier service that cuts out all

the middlemen,” he says. “That’s what will count in the future.”

Data Management adopted a different strategy to widen its revenue

base. Keen advocates of Web hosting, the ISP turned its focus

into helping startups find their footing such as E-comlebanon, a B2C

venture that was launched by entrepreneur, Karim Saikali. “Data

Management’s expertise was key in implementing my project,” says

Saikali. That expertise brings with it a startup fee of $25,000 for

average-sized Web ventures.

Data Management also launched Yalla! in 1999, a homegrown

Yahoo!, proving that their corporate focus had already shifted to

services, content and e-commerce. “In the Internet world, no one

is willing to invest in a company that grows slowly,” says Antoine

Haddad, advertising and marketing manager of Data

Management. “Go find an Internet company that said it was going

to be methodical.” Yalla! carries some 570 Web pages, ranging from

news and business to computing and kids, that are updated daily

or weekly and register a total 3 million hits a month.

“It’s not that ISPs are no longer providing Internet service,” says

Dialog’s Hakimian. “But they are having to evolve and cater to

niche markets.” Omari is more succinct in his assessment of the

changing ISP model: “Access will become more and more of a commodity

while content will become more and more relevant.”

Cyberia’s e-magazine was launched in July 2000 with sections

on news, business, arts &entertainment and sports, bringing to

fruition over a year of planning. Is the result another homegrown

Yahoo!? Not quite, says Wadad Awam, Yalla!’s editor-in-chief. “In

essence, we’re more of a portal than Cyberia,” she says. “Our content

is collected from various sources just like Yahoo!. Cyberia, on

the other hand, is more of an e-magazine, like CNN: that is, a one source

media.” Cyberia has four sections to Yalla!’s eight, but rather

than resorting to wirefeeds, the majority of their news and features

are written in-house by a newly hired staff of reporters and editors.

Independence comes at a cost. Cyberia’s news center carries a

running tag of about $30,000 a month- and with no significant post publication

boost to the roll of subscribers, the online magazine has

so far added little in terms of returns. With all the

other expenses, that’s quite a cash burn

rate. How long can it last

without having to

take austerity measures

that might

include staff or salary

cuts for instance?

Revenues from the online

news, if there are to be any, will come at a later stage. “For instance, a customer who reads a movie

review in the arts and entertainment section, and is interested in the film,

will want to know where it’s playing,” says Omari. ‘The next stage will

be to allow that customer to reserve and buy his ticket online- and that

becomes commerce that can generate profits.” And, reasserting its move

away from the original ISP model, Cyberia launched chat rooms and

message boards in October in a bid to drive more traffic to the site.

But some analysts believe Cyberia has done too much, too soon.

“They got going too fast,” says Sam Lutfallah, general manager of

Inconet. “They got unfocused.” The changes are draining cash, he

believes, and are wiping out any chance of profitability. “It may be

only a matter of time before they burn out.” Whereas he does see

the need for ISPs to play more of a portal role in today’s e-landscape

lnconet itself is working on plans to reposition – he maintains that

Cyberia is rushing headlong, almost impulsively. “The name of the

game is to hold on to your subscribers,” says Lutfallah – Inconet has

some 50,000 subscribers, about 45% of whom are signed up on Audi

Net-accounts. “Cyberia seems to be in the process of putting the carriage

before the horse’s head.”

Omari is certainly a young man in a hurry. But, for the time being

at least, he has a solid following among the mouse-clicking voters.

Cyberia registered some 13 million hits for the month of September

2000, an increase of roughly 450% from September 1999 and some

10 million more hits than Yalla!. And according to an inside source,

the arts & entertainment page has grown by more than 300% in hits

in the last two months.

The jury is still out on whether this new whiz kid on the media block

will meet with success. But traditional Lebanese newspapers are

extending their print operations to the Web to counter Cyberia’s

foray. Both An-Nahar and L‘Orient-Le lour have consolidated their

content into bright Internet portals that blends news with entertainment

listings and other local information.

So what next? Cyberia ‘s territorial ambitions aren’t limited to a home

turf. Plans are already afoot to expand into the relatively untapped e-markets

of Jordan and Algeria. The coming five years foresees expansion

throughout the Middle East- an e-market of roughly 2 million.

Given this pan-Arab goal, Omari can expect more competition – not

only with local rivals like Yalla! but also with such regional players as

Arabia.com, AiwaGulf and

California-based Planet Arabia.

It’s a strategy that has the support

of his shareholders. “Our outlook is

that there’s a great potential in

Cyberia’s future,” says Nicole

Gebara, assistant general manager at

Lebanon Invest. “Given the falling

prices of access charges, it makes

economic sense to extend the revenue

base by incorporating a portal

within the ISP model.” Through its

venture capital fund, the financial

house bought into Cyberia in 19% to

the tune of $1.1 million – or 15.4% •

of the ISP’s $7 .2 million value at

the time – and sold about two-thirds

a year later for about $3 million.

“Going regional is a logical progression,”

she says.

It’s a gamble that may just pay

off. In Lebanon, as in the West, the

gold-rush mentality has all but

gone, and it’s apparent that just

select dot-corns will strike the mother lode. However, in contrast

to the tortoise-like speed of development in brick-and-mortar

industries, capitalists with stars in their eyes might be more willing

to finance the handful of homegrown companies that they

believe will become the region’s eBays and Yahoos.

And why eBay or Yahoo!? ”The concepts that have the best chance

of surviving on the Web,” says Hakimian, “are those whose content

and services are not portered from traditional media and retailing, but

are purely Internet or interactive services.” Companies that fit best into

this slot are those that let consumers negotiate their own price, and the

best of these are auctions. The biggest online auction site, eBay, used

the Web’s technology to bring together an audience that had previously

been fragmented by geography. A collector of nargileh pipes, for example,

no longer needs to peruse every bazaar and souk in the Middle East

to find the perfect hubbly-bubbly; he just needs to search online.

But venture capitalists will need a lot more than theoretical models

to be moved into signing checks: They will need practical reassurances.

“Foreign capital, most of it from America, is hovering overhead

waiting to dive into Lebanon’s Internet industry,” says Joseph

Hanania, general manager of Compaq’s Middle East and North Africa

division. “All they’re waiting for is a firm commitment from the

Lebanese government to the New Economy – dropping Net phone

charges would be a start.” Others warn that capitalists, despairing of

any easy exit through which to sell their investments, may move on

to neighboring countries, leaving Lebanon’s nascent Internet industry

gasping for cash. The money could also quickly vanish or move

elsewhere because of regional instability. Foreign venture capitalists

could decide Lebanon, and indeed the entire region, is not

worth the risk, leaving people like Omari stranded.

It’s a delicate situation – but not one without its silver lining. Most

insiders and market analysts predict that Cyberia will do well in the long

haul and that its share price will eventually reflect that success. Even

in the West, the growing list of dot-com deaths is mitigated by some

good tidings. A recent report by Forrester Research, based in

Cambridge, Massachusetts, has predicted that global Internet spending

by consumers could increase to over $180 billion in the next five

years, up from $20 billion last year.

The money earned off the Internet is not yet sinking very deeply into

Lebanon’s economy. Buses and billboards that have been taken over

by dot-com advertising hardly make for a Net nation. And Cyberia’s

battle cry of ”All you need is love” can only go so far to drive the New

Economy. As mercantile Lebanese know only too well, capital is power.

Omari and other young Internet entrepreneurs will need to hang onto

their assets and make them grow if they wish to emerge as a potent force

shaping Lebanon’s economic – and political – future.

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Best Sellers

How sweet it is

by Natascha Schellen
written by Natascha Schellen

0 nce their kids had grown Hanan

Faour and Dalal Turk, aka the

Tabbara sisters, began making silk

bridal flowers and fancy chocolate arrangements

– the type traditionally offered to

guests at births. “It started out as a hobby, as

favors for friends,” says Turk’s daughter

Reem Albanna. By word of mouth their reputation

grew and before long the hobby

developed into a small business. Their children

encouraged them to register the homebased

enterprise, Heart to Heart, in 1997.

Today business is growing by about 8% a

year, even though they’ve never advertised.

Well, that isn’t completely accurate. “Every

piece of chocolate that goes out of this store

is an advertisement,” says Albanna. The

chocolates, which are sealed with a sticker that

has the company’s name and phone number

printed on it, have gone far. Heart to Heart regularly

receives phone orders from Kuwait,

UAE, Switzerland, London and Paris.

Why the appeal? Big players in the field, like,

Paatchi and La Cigale, are more commercialized,

so their selection has standard designs. At

Heart to Heart all designs are unique. The

personal touch starts from the moment clients

enter the boutique. Customers enter a conference

area resembling an elegant living room,

where they explain what they’re looking for

while sipping coffee. Designs are suggested

based on the client’s preference and budget.

“We cater to all budget.5,” says Faour. A

piece of decorated chocolate starts at $2.

Elaborate designs can reach $20 apiece, in

rare cases $75. Likewise, the price of containers

varies tremendously. A small wicker

basket simply decorated costs $45. A genuine

wicker cradle bedecked with ribbons and

stuffed animals costs $120. Clients sometimes

bring in their own containers, which are then

decorated according to budgets.

Heart to Heart now caters to all occasions,

although chocolate arrangements for births

still constitute about 75% of business. The

company declined to reveal turnover, saying

only that profit margins are 10% to 15%.

Profits are reinvested, mostly into stock

Advertising gets a lift

N abil El-Chemaytelly can appreciate:

the adage that innovative ideas

are often inspired by the mundane.

He came up with a novel concept during a routine

elevator ride, after noticing a small bulletin about plumbing services. “I realized that it’s

a great way to advertise,” says El-Chemaytelly.

“The elevator is something

people use at least twice a day.” Last January,

he resigned from Kodak Lebanon and established

Pin Point Marketing on an initial

investment of $250,000. El-Chemaytelly

owns 51 % of the company.

Pin Point Marketing places advertisements

in elevators, which calls for securing

networks of elevators, largely in residential

buildings. In return the company provides elevator

maintenance valued at $500 annually.

“We’re trying to build networks by region,”

says El-Chemaytelly. The five regions outlined

are highly populated West Beirut, East

Beirut, Dahie, Metn and Kesrouan. “In each

network our initial target is 1,000 buildings,”

he says. ‘That’s about 17,000 households, or

68,000 consumers.”

Phase one concluded three months ago,

with Pin Point securing 1 ,000-plus buildings

in West Beirut. Two billboards, 30X40cm, are

placed in every elevator. The company offers

one package: 1,000 buildings for one week at

$2,900, printing included. ”Clients are receptive

to the idea because the approach is

unique,” says El-Chemaytelly. Pin Point’s

clients include such big names as Americana

and Kettaneh. Clients can buy weekly reports

from Stat lpsos, which was hired to monitor

the system’s effectiveness.

El-Chemaytelly says that profits aren’t

expected for two years. The second network

is progressing, with over 200 buildings

secured in East Beirut, although 5,000 buildings

are required for the project to be feasible.

“For the last ten months we tested the concept,”

says EI-Chemaytelly. “Now we’re

working on building the company.” That

• called for bringing in investors to finance a

$450,000 expansion plan. ‘The investment is

needed to reach our breakeven point.”

Pin Point eventually plans to introduce

market-specific packages, to sell clients

buildings most suited to their target consumers.

EI-Chemaytelly anticipates copycats,

but says he’s prepared for that.

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Best Sellers

In the freezer

by Hadi khatib
written by Hadi khatib

The timing was hardly ideal.

Four years ago, the Samba

ice cream factory in the

Syrian city of Homs began operations,

rolling chocolate-covered ice

cream bars off its modern assembly

line. Samba’s aim was to be one of the first makers of premium ice cream in the country.

Production jumped from 600 tons in 1997 to 1,400 tons by 1999 with forecasts

at 2,500 for this year. The newly expanded factory is now working

around the clock. The firm’s national distribution network includes

35 refrigerator trucks and vans covering

7,500 points of sale with logistics and distribution

offices in Damascus, Aleppo, Al-

Jazira and Homs. Samba refused IP disclose its revenue. Using the official exchange

rate, sales for 1999 can be roughly calculated

at $4.5 million based on output and an

average price of SL10.

If the story sounds rosy, it’s not.

Expansion has not translated into big profits.

At about the same time that Samba went into

operation, no less than three other new companies

opened top-of-the-line ice cream factories

of their own: Muller, Carina and

Iceman. Carina, which enjoys a formidable

name in Syria. is a joint venture between Saeb

al Nahas and Hasan and Mohamed

Alameddine, the latter being owners of

Lebanon’s Cortina. Iceman, which entered

the market in 1995, produces about 3,000 tons of ice cream annually.

For Samba, the new arrivals meant that as production increased,

competition got stiffer. And with the onslaught of a nationwide recession,

reducing people’s purchasing power, the company had no choice

but to drop its prices. Profit margins shrank from around 15% to less

than 10% for ice cream companies, says Yihiya Talgabini, part-owner

of Muller. Iceman tried to counter that trend by increasing output,

while Samba shifted its production toward the lower end of the market.

When Samba started out, 60% to 70% of sales were in medium range

products (costing between SLI0 and SL15), whereas today

70% of sales are in low-range items (costing around SL5), says Imad

Rifaii, Samba’s vice general manager. “We had to reduce our prices

outside the city, where the purchasing power is lower,” he says, adding

that increased availability of other products created more competition.

“Of course, profits went down with falling prices.”

But there was even more competition for Samba at the low end of

the market. Ice cream has traditionally been produced for mass consumption

in Syria rather than for a premium

clientele. Hundreds of mom-and-pop

type operations manufacture mostly

Arabic ice cream manually. Few have bothered to upgrade their production line

but together they control 30% to 40% of

the market. Al Mees is one of the more

innovative of the traditional Syrian ice

cream companies. The firm started operations

in I %2, producing ice cream manually

until 1980, when it introduced new

machinery. Al Mees claims to have 5,000

points of sale and is planning to expand its

factory. ‘There are only about 10 factories

using machines and about 500 old factories

still making ice cream manually, 200 in Aleppo alone,” says Mohamed

Zoukeir, part-owner of Al Mees.

Focusing on the low end of the market

meant that Samba was forced to reduce the quality of raw materials

it imports such as milk, milk powder and sugar. “We use the same

suppliers but lower than premium quality without it much affecting

the taste for the consumer,” says Rifaii. The firm has also beefed up

its marketing effort. Samba spends about 10% of its sales each year

on advertising-60% on TV ads though the company also uses billboards.

Today, Samba offers more than 40 different ice cream products

in a wide range of flavors.

But probably one of the biggest challenges Samba faces is the limited

Syrian market. Ice cream consumption in Syria is among the

lowest in the region. The average Syrian licks up a mere one kilogram

of ice cream per year, partly because of the absence of large

supermarket chains. The Lebanese, by contrast, gorge themselves,

with a annual per capita consumption of about nine kilograms, which

is still just half the level in Europe and a third of that in the US.

Syria’s Muller recently tried to enter the Lebanese market. But the

venture proved unsuccessful after it became entangled in a legal battle

with a local company. Al Mees is also contemplating moving into

Lebanon. “Muller entered and is now out, but we will follow

Muller’s move next year at this time, and we will compete on both

quality and price,” says Zoukeir. As for Samba, Rifaii says that he has

no plans to move into Lebanon, because that would only increase his

overhead and distribution costs with little effect on profits.

Eitl1er way, the situation in Syria is likely to get worse before it gets

better. New president Bashar Al-Assad is seriously talking about

economic reform, which might mean opening the country to more

imports, including foreign ice cream brands. Perhaps the time has come

for Syrian ice cream companies to team up. “Merging is a sound policy.

We can buy out small factories, improve their production and take

advantage of their market, but we haven’t studied that option yet,” says

Rifaii. He better get busy; times are changing in Syria.

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Best Sellers

Taking the plunge

by Tania Avoukdjian
written by Tania Avoukdjian

For most people, summer means lazy days lounging by the swimming

pool, catching rays. But for Salim Makhoul, summer is

time to make money. In 1969, he founded Aquarius, a company

that has built the swimming pools of such prestigious beach

resorts as Rimal, Portemilio and Halat-sur-Mer. But pools are just a

small part of Aquarius’ business activities. The firm also installs luminous

fountains, offers water treatment services for residential and industrial

areas, assembles desalination and sewage treatment systems and

supplies equipment to recycling plants and pumping stations.

Aquarius is an almost recession-proof business. Between 1995 and

1999, as the economy plunged into its current abyss, Aquarius’ overall

revenues actually increased about 20% to $50 million. Last year,

profits totaled more than $6 million.

In contrast, Emco Engineering, a competitor that does water and

sewage treatment projects for industries but not swimming pools,

saw revenues drop to $4 million between 1998 and 1999, a 30%

decrease. This year, however, Emco is expecting revenues to jump

to $8 million. Water Tech, a manufacturer of swimming pools, is

projecting a l 0% drop in revenues by the end of 2000, although sales

increased from $2.2 million in 1998 to about $3 million in 1999.

Aquarius has been able to ride out the hard times because 92%

of its business is outside Lebanon. In 1978, Aquarius became the

first Lebanese company to do water treatment projects in Saudi

Arabia. In 1999, the firm opened an office in Egypt, a market that

generated $1 million in sales during its first year.

Water Tech has not been as successful in foreign markets.

Although the company has completed a few projects in countries such

as Syria, Jordan, Egypt and Sudan, it has not yet opened an office outside

of Lebanon. “It isn’t as easy anymore to establish yourself

abroad,” says Charbel Yazbek, owner of Water Tech. “It’s too late for

that now.” Emco, on the other hand, has generated considerable revenue

from outside Lebanon. The firm has worked in Saudi Arabia,

Iraq, UAE and Egypt. “We don’t rely on Lebanon as a source of income,

” says Elie Shalhoub, Emco’s business development manager.

“Eighty-five percent of our business is abroad.” But Emco’s revenues

of $7-$10 million are only a fraction of Aquarius’.

Local waters have not been very inspiring for Aquarius. But even

at home, the company’s sales have not belly flopped. Demand for

swimming pools dropped by 50% in Lebanon this year and the number

of projects for Aquarius declined by l0%. Nonetheless domestic

revenues edged slightly upward, from almost $3 million in 1998

to $3.3 million in 1999. In contrast, Aquamania suffered a 30%

decrease in revenues this year, according to Jean Nakouzi, the firm’s

general manager. Aqua Pro has been having similar problems.

“We have 50% of the local market,” says Makhoul. But

Yazbeck believes that Water Tech is quickly gaining ground.

“We built 12 swimming pools more than Aquarius last year.”

One reason for Aquarius domination of the Lebanese market

is its strong maintenance and after-sales service department.

Eighteen employees attend to the needs of2,800 clients once or

twice a week. The company charges $15 to $75 per maintenance

visit, depending on the location. Emco, which hasn’t given as

much importance to this division, charges between $50 and

$150 for a service call, depending on the location and system complexity.

“We have not focused on services as much as Aquarius,”

says Shalhoub. “It’s very difficult to take a business away from

Aquarius, because they protect their clients. They have done that

very well.” Yazbek disagrees. ‘They don’t follow up on their customers

as much as we do,” says Water Tech’s owner. “Some clients

started working with Aquarius but ended up with us.” Water Tech ‘s

prices range between $25 and $100 per visit, if chemicals are not

used, and between $100 and $1,000, if chemicals are used.

Aquarius, however, has its shortcomings. Its prices are much higher

than its competitors’. While the firm charges $10,000 on average

for a six-by-12-meter swimming pool, Water Tech’s price is

around $8,000. Aquarius charges between $1,000 and $2,500 for

an automatic swimming pool cleaner while Water Tech charges

between $700 and $1,800. “We lost some of our market share due

to our prices, but we have kept our name,” says Makhoul,

adding that the company imports all the parts and equipment it needs and

assembles them locally.

Emco, whose prices are usually 5% higher than the rest of the market,

follows the same philosophy. The firm designs, manufactures and

assembles most of its equipment in its Byblos factory and only

imports certain items such as pumps and valves. This helps the company

cut costs. “A lot of customers call because we offer the best service,”

says Shalhoub.

Even its competitors

admit that Aquarius is a

firm to be reckoned

with. “Only companies

like Aquarius survive in

this fluctuating market small

ones are eventually

weeded out,” says

Shalhoub. Yazbeck concurs:

“I consider them

one of the best companies in Lebanon.” And 2

when your rivals say

you are good, who’s to

argue to the contrary.

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