Retail on the run

According to Ayat, reaching a level of around 10-12 percent of technical losses would be in line with international benchmarks. On the other hand, non-technical losses are mostly due to theft and uncollected bills, and can be reduced with the installation of smart meters coupled with a strong political decision and support to disconnect the contraveners.

The original government plan, which had been reviewed last in 2019, mentioned the installation of 1 million units of smart meters by 2021 by the DSPs to facilitate better collection, but for the moment, this has been put on hold. According to the World Bank report, to date, billing lags approximately 12 months in some areas, and cash receipts for 2016 and 2017 reflect a collection rate of 74 and 66 per cent respectively.

In light of cost and environmental concerns, Lebanon would have to reduce its fuel cost by using natural gas. According to the World Bank, it is estimated that switching from liquid fuels to natural gas would save the electricity sector up to $200 mil

diesel-powered stations to gaspowered is not without hurdles, but is very feasible if a plan is put in place. 60 percent of EDL existing power generation assets can be switched immediately to natural gas.

Such gas procurement can be obtained via a Floating Storage Regasification Unit (FSRU), which is a Liquid Natural Gas (LNG) storage stationary marine vessel that has an onboard regasification plant capable of returning LNG back into a gaseous state and then supplying it directly into the power plants.

According to Mona Sukkarieh, a political risk consultant and cofounder of Middle East Strategic Perspectives, there are two main ways to import gas: via pipeline or in liquified form as LNG. “Lebanon is connected to neighboring countries via one pipeline, the Arab Gas Pipeline (AGP),” Sukkarieh explains. “But there are obstacles that stand in the way of importing gas via the AGP to Lebanon.” This is because the AGP passes through Syria, and the Lebanese Government has had difficulties until now dealing with the Syrian regime.

Egypt has expressed the desire to export gas to Lebanon, which could either be in liquefied (LNG) form, which would require special facilities such as an FSRU, or via the AGP, which is sensitive due to the difficult relationship with the Syrian regime. Overall, according to Sukkarieh, reaching a decision with Syria is a political issue, which will depend on the policy a Lebanese government would adopt towards Syria. In addition, to import LNG, Lebanon would need special terminals, the FSRUs, which it does not have at this stage.

Another possibility would be to import natural Gas in a compressed form directly from Egypt via ships, a solution defended lately by member of Parliament Neemat Frem after a meeting on July 20, 2019 with the former Minister of Water and Energy, Nada Boustany. Nevertheless, there are questions with regards to the feasibility of this option according to Sukkarieh. As to date there is only one project using this technology, in Indonesia, according to a World Bank report.

Questions arise regarding the possibility to use Lebanese gas, should any be discovered. At this stage, Lebanon has not made any gas discoveries, and it would be difficult to assess when and if a commercial discovery will be made, according to Sukkarieh.

“There is no more denying that the future of energy is green, and we need to invest in the future. Lebanon is blessed with strong solar, wind and hydro resources,” affirms Ayat, head of Energy Finance at Bank Audi SAL. “Prices of solar panels have dropped by more than 90% in the last 10 years, so much that solar is today more competitive than thermal power in many parts of the world.”

Once perceived as an environmentally friendly initiative, today, renewables provide undeniable benefits. The first round of wind farms in Lebanon were priced at 9.6 cents/kW and the first round of solar farms in the Bekaa at 5.7 cents/kW. Both tariffs are well below the average cost of production of EDL at 14 cents/kW in 2018.

In addition, these electricity generation costs are fixed, and do not fluctuate with the price of oil, offering clear advantages in terms of price stability and security to the country.

The wind farms project, which would procure about an additional one hour of clean electricity to Lebanon per day, had received financial approval by the European Investment Bank “EIB” on November 14, 2019, but the disbursement of the loans was halted following the crash of the Lebanese economy. The funding is still pending, its disbursement resting on the same conditions highlighted above: improved governance and the transition to sustainable, efficient and clean power production.

Renewables are also environmentfriendly, capital intensive, bring developmental benefits and create more jobs than thermal energy. Once Lebanon adopts a least cost generation plan, the share of renewable energy in the energy mix will have to be substantial. Lebanon has already committed to the Paris Agreement to generate 30 percent of our energy production from renewable energy by 2030.

To help the government reach such a target, the private sector can play a significant role. Due to the high cost of electricity supply in Lebanon stemming from the reliance on expensive private generators, the private sector is highly incentivized to invest in decentralized solar power. Such solutions provide a cheaper, cleaner and more efficient source of electricity. This however would require the enactment of certain regulations and laws to allow for peer-to-peer trading of electricity and net metering with EDL.

Overall, Lebanon is at risk of plunging into the dark as early as February 2021, should the government fail to initiate macroeconomic reforms, electricity reforms and negotiations with the IMF. Such reforms primarily need political will to be put in place, and one can only hope that they are initiated imminently due to the urgency of the situation.

The short story of Lebanon’s vital trade of 2020 has three chapters but no resolution at the end. The tragic and dramatic lead character of the story is the Beirut port, which is revealed throughout the year as, in a succinct synopsis of this ballad, the open secret and potential epitaph of the Lebanese economy in its overwhelming dependence on external trade.

In the story’s first chapter, external trade was hit by the worst economic headwinds that stakeholders in Lebanon’s trade have experienced in years, due to severely restricted imports and port activity. The second chapter of the story starts out bloody and brutal, opening with one port warehouse’s gigantic explosion on August 4. The immediate fallout of this unimaginable catastrophe was a perfect storm of an eliteinduced humanitarian and economic emergency, and the people’s justly outraged response; a cataclysm that has swept away a – by that time already shockingly ineffective – 20-member government that had been in office for 202 days but was never truly in power. The yearlong narrative’s third chapter overlaps with the existential pain felt by the myriad direct and indirect blast victims in the latter part of the year but, from the perspective of trade and container operations at Beirut port, actually constitutes the resilience part of the story. The narrative’s conclusion, however, is a cliffhanger of unanswered questions and tensions leading into the next year.

In the first six months of the year, activity at the country’s existential point of entry for goods and gateway for exports – the Port of Beirut – saw a 47 percent contraction of imports. Already in the prior year of 2019, the port had seen a modest weakening of its business, but “2020 is the first real contraction and it is a drastic one” in the experience of Samih El Zein, marketing manager of shipping industry stalwart Mediterranean Shipping Company (MSC) Lebanon, part of the five decades old Europebased MSC shipping empire.

As Zein told Executive in an interview in the second half or July, the worrying contraction in the number of standard containers – the so-called twenty-foot equivalent units or TEUs – processed at Beirut Port between January and July was overshadowed by the risks of misfortune that would befall Lebanon’s vital imports if there ever was a systemic breakdown of crucial port equipment, especially of the huge Chinese-made gantry cranes that have been working 24/7 as the physical backbone of the port’s container terminal for the past two decades. “We are at risk of losing everything that the industry built over many years,” he said.

Both, the contraction of shipping activity in the first 6 months of 2020 (by over 50 percent when compared with the port’s longer term performance over the same periods in the past four years), and the perception of excessive risk if crucial equipment failure would occur, were unsurprisingly rooted in Lebanon’s economic meltdown and the debilitating restrictions on transferring funds abroad.

As a side note to the problem, the outlook for the global logistics industry in the middle of the year appeared momentarily uncertain and gloomy, exacerbated by the coronavirus lockdowns in various countries and the supply chain and logistics disruptions of spring. Whereas cargo arrivals to Lebanon from the distant manufacturing hubs of China in the first half according

to Zein were mere “ghosts of the past” and container shipment flows already reflected changes in Lebanese consumer behaviors and prioritization of basic necessities, cheaper goods and shorter international supply chains by importers, Zein expected inflows of containers through Beirut port to continue at reduced levels but not to dry up in the remainder of the year. The paramount concern on his mind, before the blast, for the nearterm horizon was the specter of the Beirut port becoming unable to pay for equipment repairs due to transfer restrictions in combination with the rapidly weakening Lebanese lira.

While the global shipping and logistics industries were adjusting their ways to the global trade realities and emitted first signs of returning freight volumes and profits by the beginning of the year’s third quarter, the second chapter of the 2020 Lebanon trade story unfolded on a sunny Tuesday evening in Beirut. Out of the blue, first a fiery roar, then a fireball, and then a devastating blast-wave raced through the streets and buildings of Beirut in neighborhoods near to the exploding, ammonium-nitrate filled warehouse of the centrally located port.

In itself, this part of the port’s story was as short as it was destructive. This “Beirut Blast” was reported extensively in the hours following the catastrophe. The human cost, traumatic stresses, medical and survival needs and livelihood impacts on hundreds of thousands have been recorded and the responses documented over the following months. In parallel to those valid human interest stories, much has been opined, analyzed and speculated about everything and everyone who was ostensibly involved or morally responsible for the catastrophe, so much so that it does not need to be repeated here.

In the context of the Lebanese trade story, the explosion’s dramatic chapter of humanitarian needs and amazing human solidarity does not have the central role. Therefore, just one encouraging recent piece of information might be noted: the latest update (No 15) in the regular situation reports by the United Nations Office for Coordination of Humanitarian Affairs, (OCHA) that covers the Beirut port explosion and aid responses, the UN flash appeal for relief funds has lately been revised downward to $196 million and was noted to have been funded to 80 percent.

This is notable for both the important funding success of the flash appeal and for the downward reassessment of emergency needs by almost 45 percent when compared with the appeal issued at the end of August (an even earlier iteration of the appeal on August 14 contained an estimate of $566 million in total need, covering eight needs categories from food security and shelter to medical and education. The December 2020 situation report by OCHA thus can be read, among other things, as testimony to the amazing international and local solidarity with the people of Lebanon – notably, it bears repeating that the volunteerism and solidarity among the people of Lebanon excelled over months after the catastrophe – that has made considerable strides towards healing the city.

While this human narrative wrote itself, the economic story of trade continued developing and did so, as usual in the Middle East, inclusive of regional and political overtones. Firstly, detailed numerical analysis of first-half and nine-month container traffic at Beirut Port showed that altogether, import shipping operations by the top five shipping companies and freight forwarders – which handle close to 80 percent of goods moved into Lebanon – through the port reached 110,033 TEUs in the first nine months of 2020, a 48.8 percent drop from 215,011 TEUs in the same period of 2019. The announced revenues of Port of Beirut clocked in at $84.8 million over the nine months, which shadowed the drop in activity through a contraction of 44.5 percent when compared with the same period last year.

The Lebanon This Week publication of Byblos Bank further noted that by the end of Q3, 2020, the five largest shipping companies Mediterranean Shipping Company (MSC), Merit (CMA CGM), Maersk, Gezairy Transport, and Tourism and Shipping Services handled 35,569 TEUs (13%), 28,606 TEUs (10.3%), 20,339 TEUs (7.3%), 14,104 TEUs (5%) and 11,415 TEUs (4%), respectively. These five shipping companies and freight forwarders furthermore accounted for 89 percent of exported Lebanese cargo and 18 percent of the total export freight market, including transshipments through Lebanese ports. Maersk registered a year-on-year increase of 15 percent in export shipping in the first nine months of 2020, the highest growth rate among the top five companies. Indicative of the volatile exporting situation, the companies’ export-shipping operations increased by 70.8 percent in September 2020

Shipping activity in the Beirut port contracted by 50 percent in the first 6 months of 2020 when compared to the port’s performance over the same periods in the past four years. from the previous month, following a decline of 25.4 percent in August 2020.

For the political and strategic angle of trade in the eastern Mediterranean, the news of rapprochements between various Arab countries and Israel was the autumn period’s defining news. No wonder that the question of competition between Lebanese and Israeli ports was occupying local minds in Lebanon. With Beirut

port still in transition from arrested managers to their replacements and being consumed by investigating the blast, making repairs, and clearing up many messy questions over political responsibilities, operational negligence, possible terrorist implications, oldfashioned stupidity, destructive self-interests and handy scapegoats, attention for a while turned to the Tripoli port and its capacity.

With regard to the Tripoli port’s utilization in short term substitution of the Beirut port, analysts recorded year-on-year increases of shipping volumes for the month of August. Those were reported as 55 percent increase in the number of vessels that called at the port and 79 and 99 percent increases in total shipping volumes and importation of goods, respectively. However, the number of TEUs processed at the port rose by a less spectacular 23 percent and analysts pointed out that Tripoli’s very modest container terminal cannot serve as a sustained alternative to Beirut.

As far as the question if the port might be at risk of losing business to Israel’s Haifa port under a changed political paradigm of commercial ties between some Arab nations and Israel, the Tripoli port director Ahmad Tamer responded that he has no fears of the Haifa port competing against Lebanese ports, on grounds that Lebanese ports would be able to count on the support of the Arab states to Lebanese exports. “We are not afraid [of such competition] since our ports have a distinguished geographical location. Besides, the Arab always stand with Lebanon and its exports,” he tells Executive.

However, Elie Zakhour, the head of the International Chamber of Navigation in Beirut, sees the competition of the Haifa port as a serious concern. “The Haifa port is not only a competitor to its Beirut counterpart but also to the Suez Canal.” This view is based on buzz, first created in mid 2019, over creation of rail links between Israel and the United Arab Emirates and Saudi Arabia and also on the signing of a memorandum of understanding between the UAE’s Jebel Ali Free Zone Authority and the Israeli chambers of Commerce, a move aiming to build new partnerships and allow data exchange. Zakhour further pointed to agreements between Dubai Ports Authority and

The operational recovery of the port’s trade heart was achieved by August 10, the start of the next workweek after the devastating explosion.

Israel to revamp the ports of both countries, something which he considered as posing large competitive threats to the Beirut port.

While pundits chase catchy labels for the problems of the Beirut port – the “cave of Ali Baba and his 40 thieves” was a hit – the resilience chapter of the port’s return to operations and facilitation of imports and exports must be accounted for in the year’s trade narrative.

Contrary to the initial cries of alarm that the people in the city and country would be largely derived of bread and all existential goods, which could no longer be off loaded at the devastated port, the operational recovery of the port’s trade heart – the container terminal with its towering cranes that have been defining the Beirut seaside since the beginning of the century – was achieved by August 10, the start of the next workweek after the devastating explosion.

Situated between 1.3 and 2.3 kilometers from the warehouse where the irresponsibly stashed store of ammonium nitrate had blown up, the damages to the all-important container terminal ranged from destruction of a spare parts warehouse containing 100,000 items to far slighter damages to the most distant equipments and facilities, including the quayside cranes. Several department heads in the management team of the Beirut Container Terminal Consortium (BCTC), the public-private partner

ship (PPP) company that has been operating the concession for the terminal and yard under a 15-year contract that actually expired in 2020 and was put up for a new tender in March, recounted their experiences in the days after the explosion in a meeting with Executive.

The first hours were filled with shock and implementation of evacuation plans in the operation that numbers 650 employees and has about 150 on shift at any time of day and night. Safety, quality, and efficiency, in that order, are the three top priority objectives of procedural management that govern BCTC operations at any time, explains Terminal Manager Sarah Haidar. The safety, evacuation, and emergency response plans at the container terminal – a district in the port that is in a tight customs enclosure – thus were implemented within minutes of the blast. Search for employees on the ground commenced. Combining their efforts, uninjured managers and employees from all departments soon were heading to the hospitals all over Beirut’s conurbation, checking for injured colleagues. Phone trees were implemented to verify the safe whereabouts of every employee in the chaotic first two days after the blast. The team of BCTC suffered 10 fatalities and 42, partly major, injuries. The last two missing bodies could be found and recovered only after a week.

The next action steps included setting up an outdoor emergency operations node in the parking lot, checking the integrity of containers with dangerous materials, finding of temporary electricity solutions for hooking up containers that depend on refrigeration in the heat of the Lebanese summer, retrieving one existential piece of equipment from the BCTC administration building – the server – and starting to sort through the debris, all in organized and orderly fashion to the extent possible.

Making a really long story short, the 99 percent Lebanese workforce of BCTC, returned the container terminal to partial operating functionality by August 7 and resumed the terminal’s activity on August 10, following safety checks of the port area and basins by the Port Authority and Lebanese security agencies. Up until the end of November, operational capacities were further recovered in increments.

If the past year has reinforced any trade knowledge, this must be the knowledge that external trade is inseparable from the economic success of this country. For a century, there have been and still persist man-made challenges for the geographic edge-and-transit country of Lebanon; these will not vanish until the global neighborhood of the Near East finds, if not outright peace (we dream of it, along with dreams of good national governance and 24hour electricity, etcetera), but contractual and orderly coexistence which pays non-war dividend.

The Tripoli port is a fine example. According to its director Ahmad Tamer, one week of Beirut Port closure saw 4,000 containers rerouted via the northern gateway to Lebanon, translating into temporary increases of general cargo volumes by 50 percent and containers by 10 percent during the period. But the real significance of the Tripoli port and development ideas for locating maritime transport hubs away from Beirut is the stunted regional gateway potential of such facilities. “The Tripoli port’s main aim is to serve external trade, but unfortunately the transit routes through Syria were closed when the civil war began in this neighboring country,” Tamer says, pointing furthermore to the border closures between Syria and its other Arab neighbors.

The self-interests of countries in the Mashreq region and the impediments of ongoing conflicts are not the only barriers that constitute historical challenges to greater crossborder economic utility of Lebanese ports. In any case, Israeli-Arab rapprochement or not, it stands to reason that ports located on the eastern and northeastern Mediterranean and the Red Sea and Gulf/Shatt Al Arab coasts will have to compete for business in the wider Middle East where transportation infrastructures and emerging sea-land bridges are bound to re-shape the long-term equations of economic transit between Europe and Asia.

In the short term, the Beirut container terminal operation is far from a comfortable situation because of the stresses on the economic equation that are caused by capital controls, need to maintain the expensive equipment, and downside risks on Lebanon’s importation volumes. As the concession for operating the terminal has this year been renewed in piecemeal extensions of three months at a time, question marks loom over the operation and the today very questionable proposition to reach another multi-year concession agreement with a qualified operator. This all endangers what in the words of BCTC general manager Ziad Kanaan was the successful creation of an industry. He tells Executive enthusiastically, “This project has in our opinion been the most successful PPP project in Lebanon.”

One could easily argue that any further deepening of the past year’s economic policy and financial liquidity problems besetting Lebanon’s external trade can only be detrimental for the future trans-regional and international trade position of Lebanon if the ongoing challenges for finding better governance and national maritime coordination among Lebanese ports remain unsolved. The last two decades of gains in the utilization of the well-managed Beirut container terminal are an asset that must not be eroded.

Consumer landscape redefined

From the perspective of consumer markets in Lebanon today, there are two classes of people: 1, those who can no longer carry out basic transactions in a consumer economy, and 2, those who are lucky enough to still go shopping, without knowing how long their luck will last. The large and growing first group includes those residents who depend to varying but overall increasing degrees on food aid, and those store keepers who have been forced by the economic crisis to shutter their small stores. The number of destitute families today is innumerable in exact terms but assumed to be in the hundred thousands; the store shutdowns by many estimates are reaching up to 10,000 points of sales, numbering between one third and 40 percent of traditional retail outlets. Their retail experience is existentially nil.

The second group, those who are still in luck of having access to printed paper currency (the perception these days is that of paper, more than that of currency) still includes many city dwellers in Beirut and elsewhere, judging by the visual evidence of crowded streets, socially distanced holiday fairs, and supermarkets in the Christmas season of 2020.

However, from a perspective of retail shopping as the quintessential modern activity in pursuit of economic satisfaction, the experience of the shopping class today is a rather sad mixture of opportunism – a combination of bargainhunting and hoarding of basic food and household items in bounded rationality – and frustrations, from the sudden disappearance of brands and items that used to be abundant on the shelves to having to frantically calculate costs and compare prices against the available real budgets. Those personal wallets after all look deceptively large in lira amounts but have next to no purchase power when compared to the relative stable purchase power of the last 5 or 10 years. Ergo, the average retail experience this year is either absent or, in the fortunate case, a mixed bag of pains and excesses.

From the vantage point of profitseeking retailers, consolidated retail turnovers have posted a sharp decline in the past 12 months, between third quarter of 2019 and third quarter in 2020, with all sectors of retail witnessing a “continued – and even worsening deterioration”, as stated by retailers and trade analysts in statistical documents that are rife with very disturbing numbers. The Beirut Traders Association – Fransabank index of retail activity in Lebanon (BTA-Fransabank Retail Index) in this regard paints a picture of steady erosion of retail volumes over the ten years between the beginning of 2011 and the third quarter of 2020.

THE RETAIL INDEX

The index fluctuated from the starting line of 100 points in the first quarter of 2011 – a quarter that predated the Arab Spring unrest and recurrent malfunctions of the political system and top institutions in Lebanon. By third quarter of 2019, the nominal index had receded to 49.57 points and the inflation-adjusted index to 45.04 points. While seriously worrying, both the nominal and inflation-adjusted index readings

at this point in time one year ago were comparable to the two previous quarters in 2019 and also the first two quarters in each of 2016, 17, and 18 when the index had dipped below the 50 points mark.

Over the four following quarters – Q4 2019 and the first three quarters of 2020 – however, the index fell off the cliff, dropping to less than 40 points (nominal) in the fourth quarter of 2019, then deteriorating successively further to 31.5 (Q1), 21.8 (Q2), and 21.9 points by the third quarter of 2020. While the nominal index thus suggests a near stabilization at low-level between the second and third quarter of this year (20 retail categories were still shown as receding quarter on quarter by between 5 and 90 percent, but the three retail categories of stationary/office supplies, used vehicles, and medical equipment reported increases when compared to the second quarter), the inflation-adjusted index number collapsed to 5.52 points in Q3 of 2020, down from 33.96 points a year earlier. In combination with the failures of negotiations and absence of government action except for valiant attempts to stem the rise of Covid-19, the report’s wholly cheerless opening line was that the third quarter of this year for Lebanon “was catastrophic in all aspects”.

Khoury Home, confirmed to Executive not long ago that the chain adjusted to the challenges of 2020, even before the full extent of the crises could be anticipated. The company of then 450 employees, according to its chairman Romen Mathieu, decided to downsize in the summer of 2019, shift more into e-commerce and change the retail model. “It was hard to let go of about 200 employees at the time, closing over five showrooms, and right-size the administration. But every single employee got his full benefits at the time, with commitment to every employee that they would have the first right to rejoin the company if it were to expand again. When the thawra started, our competitors had big issues because they had large expenses [at a time of] slow business. We were already up to speed in e-commerce and terms of organization and flexibility,” he says.

“After the thawra, the economic crisis and the failure of the Lebanese lira, the banks, the Beirut blast etc, we have been sustaining a very good business adapted to the situation and ready to pull up again – not like before, the business model will be different to not only cover Lebanon but hopefully also a number of countries around Lebanon, with the knowledge that we have developed,” he tells Executive.

TRADITIONAL VS MODERN

One changed reality appears to be that modern retail and traditional retail have been thrown into a new dynamic, one that is reducing the role of traditional players in favor of more professional operators. The sudden death of so many small retailers in Lebanon – think “traditional retail” to be represented by a standalone shop or small familyowned network – is a huge problem for Lebanese society.

About this, even the country’s largest supermarket operator, the Grey Mackenzie Lebanon Group that owns Spinneys, is adamant. By the destruction of 10,000 or 15,000 retail points of sales in Lebanon, “we will create oligopolies and monopolies. This is exactly what nobody wants. We have talked about free competition and having as much competition as we can, and this was working before all of this started. Now, due to inflation and [because many traditional retailers were] not making all the right decisions, or being forced not to make the right decisions because the circumstances are extreme, everybody as a sector is looking at traditional trade to make sure that they are able to survive. We hope that

By the destruction of 10,000 or 15,000 retail points of sales in Lebanon, “we will create oligopolies and monopolies. This is exactly what nobody wants.”

we can help,” says Hassan Ezzedine, the chairman and general manager of Grey Mackenzie.

For big players in modern retail – think chain stores or supermarkets – the crisis forced them to work much harder to keep their shelves filled with goods that the consumers would accept and could somehow still afford. But the changing retail landscape also means that there are opportunities for the swiftest and best capitalized players to acquire market share and expand, where, before the crisis many expansion attempts had been unsuccessful.

The challenge now is to reinvent Lebanese retail paradigms, as behavior changes have been forced on consumers and as the country is by necessity shifting towards more rational solutions of modern retail at the expense of cherished shopping habits. New business models with inclusion of salient online and offline strategies and considerations of exports (including brands of agro-foods that are really produced in Lebanon and not just packaged or labeled here) will indubitably be challenging to implement from the tiny Lebanese market base, but the retail crisis of 2020 does not preclude that some groups will convert these challenges into platforms of growth.

Before the inflation of 2020, supermarkets in Lebanon had a lot of competition, and price wars drove down the price of goods. Now, that the Lebanese pound has devaluated so fast, from 1,500 L.L. to above 8,000 L.L. in Q4 of 2020, consumers are facing a new reality: prices are going up fast.

There has been great stickiness to traditional retail [think family-owned business] in Lebanon. Modern retailers [think hyper and super markets] have not taken more than a third of the market. How is the split between traditional and modern retail looking today?

Traditional trade has shrunk. Today, according to many of our suppliers, and Nielsen Data also shows this shrinking of traditional retail, we are at 50:50 [between modern and traditional]. For some [suppliers], it is 60:40, but this also depends on the supplier. Modern trade has definitely taken a big chunk out of traditional trade during the economic crisis. Inflation has not helped traditional trade, or wholesalers, and increased the size of modern trade. Now it is up to modern trade to decide how to take this further. As I told you earlier, if I am looking at tier two and tier three [regions, further distant from the main coastal population centers] and start going up into these areas, then we will take an even bigger chunk. I think there are huge opportunities for modern trade in these [rural] areas.

Pre-economic crisis, according to Nielsen we were 7 percent of the total trade, modern and traditional.

By value at the time [when the group took over Spinneys]. We made a few improvements and one year and a half after we acquired, we improved two [percentage] points. I thought that was a very good achievement that we made. The changes that we made bore fruit. During the crisis I think that we reached 30 to 35 percent of modern trade, if we used to represent 20 percent of modern trade. This is based on numbers that we have seen from our suppliers when they share with us how much we represent from their turnover.

It depends on the category. There are categories that have lost demand, let’s say imported water, to give an example. Because the price of the [imported] product has increased, the quantity [of that product] decreased. The price of Perrier increased 40 percent, the volume decreased 40 percent. The category, however, has either maintained its level or has grown [as buyers switched to other, cheaper brands]. So, as a total per category, continuing with this example, there was not a contraction of sales of bottled mineral water.

Definitely, in areas where Lebanese are in this category.

Let’s start with wine. Two to three years ago, I decided that the wine category at Spinneys needed a total renovation. We did a type of [joint venture] with Vintage and we took

[our wine selection] down from 2,000 references to 200. We depleted the old stock that we had, and we worked on certain price points for each type of wine and what values we were getting. When the inflation happened, everything obviously went down the drain, all price points were blown out of proportion. With the inflation, we still had a consumer that wanted our wine, but we also had great demand on Lebanese wine, because the price suddenly was more attractive. Lebanese vineyards have good wine. In certain years, great wines.

Spinneys had 90 payable days; today it has 30. We were able to pay our distributors and suppliers to make sure that they stay afloat. We were able to pay bonuses. Today, it is time to survive and the main concern in January is that we cannot hold back any longer. We need to increase salaries, it is not enough to give food vouchers. We are helping as much as we can but people have lost their purchasing power and we have to find ways to bring it back.

As you have mentioned, this year has been full of hiccups - sometimes overnight a supplier announces that they can no longer supply Spinneys. Is there a lot of pressure on the management team, such as your procurement and branch managers?

There is, definitely. But we have a super team.

Let me put it this way: we have 70 people that steady the ship from the operational and commercial perspective.

If, hypothetically, there were an international investor who would want to acquire the group and offer you what you paid for the company plus a 20 percent premium on the acquisition, would you sell?

No, because I feel there is a lot more potential in this company. We have many plans to expand it whether at home or in Syria and we have created brands that we want to take outside. Also, you become an addict to retail and FMCG. I think I found my calling. It would be very hard to lure me away from it.

How has your platform for e-commerce and home delivery been performing in 2020 and how are you planning to work on it?

We renovated the whole platform. We still have a few areas to tackle. We renovated how the platform is perceived by the consumer, but there are many things that have to be done in the background. We still have a few logistics issues that we want to fix.

We are working on time slots. So that means that whenever you pick a two- hour time slot, we have to be there. If you choose a time slot like 8 to 10, 10 to 12, etcetera, we have to be there within that time slot. Today we are being late by 20 minutes or half an hour, but we are working on it.

Will you seek to corporatize the home delivery into an independent unit that would also serve third-party delivery needs from other stores or restaurants?

What we are trying to do – and we are following this model for Grab’n’Go, Happy and Spinneys – is that each concept has to make money on its own. All these stores are using the purchasing power of the group, and online, we will be able to use that purchasing power to create the margins required [for every entity to function individually]. But it has to make money as an entity itself before we expand and drown ourselves with investments that are not giving us any return. What I see is that Amazon is converting to brick and mortar. So what has happened is that both cannot live without each other. As brick and mortar I need my online platform and the online platform needs brick and mortar.

In the first lockdown that happened in [spring] we did not yet have our new platform ready. So we saw an increase, but if you want me to compare it to what our brick and mortar was selling – and [that is the case] even with the new platform when we got the new lockdown in November and sales were comparable [to those from March and April], the representation of online in comparison to what the brick and mortar was doing, was negligible. That does not mean that we will not enrich this channel and enhance it as much as we can.

[Delivery] will grow slowly and gradually with time, there obviously is demand for it. Through Grab’n’Go we will go for fast deliveries, and through Spinneys, we will be creating a full marketplace. But we would like to perfect our logistics, our dark stores, do everything so that when we fully engage the consumer, they get the best experience that they expect when they come to Spinneys.

It will always be Spinneys. We believe Spinneys is a great brand name in Lebanon, it has the equity and the trust of the consumer, and we would like to develop and build on it.