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.
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.
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
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.
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.
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.
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.
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.
• The stock market’s major averages rose by 4% to 8% for the July-August
period, but the advance appears to be maturing. A fall correction
may be more severe in the technology sector than in the
market as a whole. We continue to favor accumulating issues in
the value areas of the market during an expected fall setback.
• Whether the market’s recent upswing is the start of a durable
advance from the major averages’ spring lows or merely an
interim recovery from those lows that will be followed by
renewed weakness may depend on the sector of the market to
which one is referring. In the case of the technology sector, we
continue to believe that its summer performance sequence was
an interim recovery, or B-wave, that will likely be followed by
a second phase of weakness, or C-wave decline.
• The non-technology/growth rest of the market consists primarily
of a wide array of mid-to-small cap value stocks,
although many large-cap basic-industry/capital-goods issues
could also be included. Those stocks, in general, have been out
of favor or correcting for the past two to three years, but now
appear to be stabilizing or recovering on a gradual or national
basis. The improvement in that wide array of stocks has
lifted the NYSE’s 25-week advance-decline ratio to its highest
level (1.27) since April 1998 and raised the percentage of NYSE
common stocks trading above their 200-day moving averages
to 63%, also the highest level since early 1998. Akey difference
between now and then: In 1998, those figures were
declining from higher preceding levels; now they are rising from
lower levels and showing improving momentum. Although a
market reaction during the next couple of months would certainly
have some effect on those stocks, it would be part of a
major uptrend rather than a reversal of it.
• Meanwhile, the recent catch-up in the previously laggard technology
sector may be the latest indication that the market’s
spring-summer recovery trend is in a mature stage. Moreover, if
that were to be followed by signs of a faltering in the recent leaders
(financial, energy, utility stocks), it would increase the evidence
that a fall pullback or corrective phase was unfolding.
• Against that background, we continue to recommend that trading
accounts raise cash reserves in coming weeks and that
longer-term investors buy on a price scale-down basis.
