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Thu 8 Jan 2009 04:00 AM

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Mr Beans

Cravia boss Walid Hajj tells Tamara Walid how better cash management is going to see his coffee and food business through the downturn.

Cravia boss Walid Hajj tells Tamara Walid how better cash management is going to see his coffee and food business through the downturn.

Ever since he was a kid, Walid Hajj knew he would end up working for the family business. Although it started with preparing teas and coffees and sending telexes from his father's office in Riyadh, Hajj says he was "groomed" to take over once the business founder retired.

Hajj's father was in the business of food and his son decided to follow suit. After a few years at Procter & Gamble, Hajj realised it was time to take the reins of his father's company, United Group, which specialised in the supply and manufacture of food products.

McDonald's is booming because people can't afford to eat in beautiful restaurants anymore.

It didn't take him long before heading to the UAE and setting up his own firm, United Restaurant Development Company, later renamed Cravia.

"When we started I didn't think it'll be as successful as it is today. But Dubai and its restaurant and food sector seemed promising at the time," Hajj, the CEO of Cravia, recalls.

He's come a long way from his modest office on Sheikh Zayed Road, with only three members of staff. Today, Cravia is responsible for four brands, 38 outlets, and employs 600 people.

It might be best recognised as the parent company of Cinnabon, Seattle's Best Coffee, Zaatar w Zeit and the soon to open Roadster diner in the UAE. "We grew little by little," says Hajj, as the company approaches AED100million (US$27.2million) in sales.

This year, Cravia saw major sales increases and record profits, according to Hajj. He says he prides himself on partnering only with the best brands, offering excellent customer service and high-quality products.

Cravia nearly doubled its size from 20 stores in 2007 to 38 outlets across the UAE in 2008.

The global financial crisis, which has begun to bite into different sectors of the Gulf economies, is not holding Hajj back. Preparations to open five new outlets in 2009 are underway, including burgers and fast food brand Roadster Diner. Hajj sees the crisis as an opportunity, saying he couldn't be in a better position.

"In these times, our business is the best business to be in. I am involved in real estate and I can tell you the difference. We're a cash business; we sell cheap food, and are extremely well-positioned to weather the storm as we've been in the market long enough and expanded," says Hajj.

The economic meltdown has resulted in clear advantages for fast food companies and popular reasonably-priced coffee brands. Hajj looks forward to the crisis ending. He believes there's a silver lining.

"Hopefully, when all is said and done you'll have better real estate prices, and more realistic landlords for malls. It's a sellers market today, and people are controlling you. Also, the cost of food products have skyrocketed in the last year so that's also slowed down. All this will play to our advantage," he says.

But even Hajj, who thinks of himself as an optimist, can't deny tough times are ahead. He expects 2009 to be worse than "anyone could imagine" and believes we're only seeing the tip of the iceberg.

"The crisis is going to be much bigger, much wider spread and [will see the] destruction of wealth by all means," he says.

Yet, Hajj is able to fall asleep at night, claiming he's in a much better position than the chief executives of other businesses. "Our business, although not completely immune to financial difficulties, is somewhat resilient," says Hajj.

He adds: "We are not only [selling] food, but also cheap food in terms of pricing. People will always want to eat - just like McDonald's in the US is now booming because people can't afford to eat in beautiful restaurants anymore, the same is happening here."

And while it's predominantly good news for Cravia, especially as the last month saw record sales, Hajj has to brace himself for the worst.

"We are not in denial and realise that our business is very reliant on mall traffic. If that drops, we'll definitely see a drop. We are connected to tourism, if tourism drops we are going to drop. However, I think the effect on our kind of business is very small, especially as we are in the cash business. All our customers pay immediately so we don't have any receivables, and it's a small ticket item; most people are still able to afford it."

Perhaps a sign that the business is doing well is Hajj's insistence that he is not letting any of his staff go. "No job cuts," he says.

Additionally, he says the company's "aggressive plan" to bump up salaries in 2009 has not been put on hold, but will now be executed in two phases in both halves of the year.

Plans for expansion in 2009 have also not been significantly affected, according to Hajj, who had previously decided to slow down expansion after existing brands reached a suitable number of outlets. Zaatar W Zeit will still have two additional locations next year, while three new Roadster Diner outlets will come to the UAE.Nevertheless, there's a "conscious effort" within the company to tighten its belt and manage its cash better, says Hajj.

"People don't talk about profits anymore. If you survive that's the key. Managing our cash, especially being a cash business, is very important. We are definitely not going to see another 2008 and 2009 in terms of expansion. We're going to be very conservative and take things as they come."

Some of the measures Cravia has undertaken to be conservative include delays of certain investments in its existing stores to the second half of 2009. Hajj plans to review the market situation in the first quarter of next year, and make decisions accordingly.

If there's no improvement he'll keep delaying the investments, he says. "You have to ask yourself if what you're spending on the store level is a necessity, and if you can survive without it don't spend it. If you have to close your store without it, then definitely spend it. We are going with the bare minimum necessities, waiting to see what's going to happen," he says.

Hajj doesn't like to put himself in the same category as Starbucks, which grew to an excessive level in the United States and maintained high prices even with the credit crunch, resulting in hundreds of store closures and even more job cuts.

Whether a similar fate awaits the coffee chain in the Gulf is not yet known, but Hajj believes the company has far too many stores in the UAE.

"Everybody is going to suffer," he says. "It's just a matter of suffering at different degrees. People who are going to come out of this will come out much stronger. People who have thought of a plan B, in case something happens, are going to survive it and be stronger. But what will happen to specific brands is very difficult to say. We have to prepare for the worst and hope for the best."

Hajj also hopes the crisis will result in better quality of food products. He complains about competitors with minimal experience entering the market at boom time and accuses them of "messing it up".

"They did it just for the sake of doing it. They paid ridiculous amounts of money to get the best locations in malls, but those will never survive because they don't have the experience or the right brands. I think you'll see a filtration of all those people, which is definitely good for the consumer at the end of the day. The good will last," he says.

Obviously, Hajj considers himself amongst "the good". Perhaps, looking at the figures, it's justifiable. When it comes to comparative sales (COMP), examining existing stores and measuring their sales against performance a year later, Cravia is in a "great" position, says Hajj.

"In the US when people talk about COMP numbers and say 2 or 3%, it means you're doing a great job. When you do 4 or 5% that is amazing. Today, we are averaging on Cinnabon COMP sales of 30%, on Zaatar W Zeit 25%, and on Seattle's Best Coffee 25%," says Hajj.

Thus far, the company is maintaining those figures, says Hajj. The chief executive says his biggest challenge at the moment, aside from outliving the crisis, is managing people.

Hiring the right people, keeping them and training them are very difficult tasks, especially in Dubai, he explains. Up until recently, job offers were hurled at employees left, right and centre in the city, resulting in a high turnover of staff across sectors.

Finding skilled and experienced people was a challenge prior to the crisis hitting, says Hajj. As high-end fashion retailers feel the pinch of the credit squeeze and will sooner or later sever more jobs, Hajj is eyeing that pool of experienced people, hoping to make them offers they can't turn down.

"We are now looking at fashion brands and any retailers for hiring. We already see that the fashion business has been affected. That will definitely play a role in our planning going forward," he says.

The day when Hajj comes up with his own unique brand, rather than franchise, doesn't seem to be approaching soon. There have been numerous ideas tossed around between Hajj and his team members, but none have had what he calls the "wow" factor.

"There is a cost of learning. Whenever you do anything for the first time you're going to learn; there's no way you'll perfect it. Eight out of every 10 new businesses fail," he says, adding that there is bound to be one or two original Cravia brands in the company's life cycle.

But clearly, it is not the right time to risk failure, as Hajj focuses on survival. "At the end, the rough times will be over and we have to make sure we're still here."

Walid Hajj might soon find himself with more options to hire staff than he'd bargained for, as UAE retailers only begin to feel the impact of the credit crisis.

In December, giant luxury fashion, hospitality and trading retailer Bin Hendi Group announced that its Dubai retail sales were down 20%, forcing the company to lay off staff and put its expansion plans on hold. The conglomerate's boss told the press it was time for all individuals, companies and countries to take prudent action.

After almost a decade of unprecedented growth, the Gulf luxury retail sector is also now slowing down and examining its future. The global financial crisis hit the retail sector in the Gulf just in time for the opening of the world's largest shopping centre, the Dubai Mall, with its gigantic aquarium and huge ice rink.

As consumers increasingly tighten their belts, Dubai's numerous shopping outlets from the Mall of the Emirates to Deira City Centre are expected to face tougher times ahead. Bin Hendi, whose empire runs operations in the GCC and India, says it is planning to take measures to protect itself in case of further decline in consumer spending by cutting the desirables and going back to essentials.

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