By Ed Attwood
Traffik360's Marcel Khairallah on how his gift ad agency is doing big business with world's top companies
If you’re a business traveller making your way through the world’s airports these days, you are more than likely to pick up a selection of free gifts alongside your purchases at duty-free outlets. You may, or may not, give these trinkets a second thought, but this niche industry is actually a global multi-billion-dollar concern, involving some of the biggest corporates on the planet. It’s all part of yet another way for blue-chip giants to get their message across to a hard-to-reach demographic in a world where studies estimate that people living in cities are exposed to over 5,000 different advertisements every single day.
The industry is known internally as the below the line solutions sector, and its undisputed leader in the Middle East is a small firm based in Dubai Media City, Traffik360. The company’s colourful and trendy office is stacked high with a bewildering array of gifts, from ashtrays to decanters, and from trolley-bags to footballs. To outsiders, the company might seem a small concern, but a short meeting with founder and owner Marcel Khairallah reveals that Traffik360 is actually doing business with some of the most famous brand names in existence. Diageo? Check. L’Oreal? Check. Unilever? Check. The client list that comes tripping off Khairallah’s tongue is the envy of many larger companies, proof of the fact that in just over a decade, the Lebanon-born entrepreneur has managed to carve out a lucrative portion of this relatively unknown industry segment.
In many ways, Khairallah’s fifteen-strong team is proof of the UAE dream. Put aside glitzy thoughts of oil, Emirates Airline, and tourism for a moment. The growth in any economy — not just in the Middle East — is driven largely by its ability to attract small and medium-sized enterprises (SMEs). In the UAE, SMEs make up well over 90 percent of companies registered in the country, employing 60 percent of the workforce. As a result, firms like Traffik360 play a vital role in determining the economic future of the nation.
So what’s Khairallah’s business model? The businessman splits it into four separate sections: promotional merchandising (gifts with purchases), point of sale material and development and production (that’s the stands near store checkouts), advertising stands and print services. On top of that, Traffik360 also has a share in a local logistics firm, allowing it to provide shipping, warehousing and dispatch services for its clients.
“We create, we design, we produce,” Khairallah says. “Some agencies can only design but need other people to produce. Some people can produce but not design. So we try as much as possible to combine both and give a complete turnkey solution to the client.”
It’s a model that has come on in leaps and bounds since the firm was founded back in 2002, with a branch opened in Saudi, and a vital procurement office based in Hong Kong.
“There has been huge development — on the client scene we have acquired more and more multinational clients,” says Khairallah. “When we started we only pitched to local clients, because we wanted to test ourselves and not run before we could walk. But after the first multinational clients came on board, there was a flood.”
But it’s not just Middle Eastern work that the company has hoovered up by winning business from the global players. For Diageo, Traffik360 caters for the drinks giant’s global operations — including in the Americas and Europe — designing and producing products as diverse as Johnny Walker bags and Smirnoff speakers.
That translation from a Dubai-based outfit into a global presence has undoubtedly been helped by Khairallah’s membership in the International Advertising Gift Council (IGC), which has 56 members — with over $1bn in turnover overall — in 53 countries around the world. The organisation became a cooperative in May this year, and allows members from different countries to discuss best practices, weed out the good suppliers from the bad, and — most importantly of all — share global clients.
“We have only one member per area, so we don’t compete, and the ultimate goal is to pitch to the big multinationals,” the Traffik360 founder says. “The advantages for clients are numerous: we can club together for orders, work excellent deals with shipping agencies and get great economies of scale. And the client benefits from all sides – it’s a case of thinking global but acting local.”
Since the IGC formalised its operations earlier this year, Khairallah has already picked up more big names, with Bloomberg, Bayer and AstraZeneca joining the roster and Siemens shortly to follow.
Here in the Middle East, Traffik360 appears to have been one of the few firms to have seen some benefit from the financial crisis, with turnover rising an impressive 40 percent in 2009 versus 2008. When questioned as to how these figures came about, Khairallah says the answer is simple: the cowboys that presumed that it was an easy sector to enter have been forced to evacuate the industry.
“The credit crunch or these past years have really cleaned up and sifted out the bad competition,” he says. “During the Dubai boom, every Tom, Dick and Harry had some contact in China, came back with some samples, went to clients, and got some orders. Some of these were badly delivered, but these bad practices have really been weeded out.”
Khairallah also puts part of the firm’s recent success down to stringent certification procedures — it is ISO certified by Lloyds — which ensures that its Chinese manufacturing suppliers don’t use child or prison labour, in turn removing any potential public relations headaches for clients further down the line.
However, the news is not quite so good right now. The executive had planned to see sales rise by 30 percent in comparison to last year, but due to various issues — led by the regional unrest — it is now pushing to match the 2010 numbers. Much of this is down to Traffik360’s regional operations; although it is based in Dubai, a smaller percentage of its business is UAE-based in comparison to many of the other firms headquartered here. As such, Khairallah’s story gives a strong indication of how the world’s biggest firms are being affected by the Arab uprisings.
“A lot of budgets and promotions have been on hold,” he muses. “We are very close with our clients, and they tell us how much, even in percentages, they have lost in North Africa and Libya. In Bahrain, for example, Diageo lost a lot because they sponsor the Formula One race [which was cancelled earlier this year].”
Even if markets like Saudi Arabia are performing well, Khairallah adds, the cumulative effect of other countries suffering unrest are pulling the market down. Reading between the lines, the same is the case for the more well-known branches of the advertising industry across the region as well. Even in the UAE — and contrary to popular assessments - the story is not wholly a positive one.
“None of the clients are particularly optimistic about this year,” he says. “Even FMCGs [fast moving consumer goods firms] are facing difficulties, and everyone has to eat and drink. I’m not talking luxury products, or things that people can live without. We have a lot of IT clients like Du, Etisalat, Cisco Systems and Kaspersky Labs — these have all been really affected.”
It’s hardly surprising that some IT budgets have been hit. Middle Eastern companies and governments that might have been planning to install anti-virus software on hundreds of laptops or ministry PCs have now found that sort of spending has slipped right to the bottom of their agendas. The knock-on effect is naturally hurting the multi-billion-dollar advertising industry that relies on those key budgets. Khairallah also cites the example of a kitchen appliances firm, which had planned a major event in the region in April, but has now postponed its plans to September, and possibly indefinitely. Furthermore, the outlook for the near future is also uncertain.
“As we talk now, the budgets are being prepared for next year,” Khairallah says. “For a lot of multinationals, their fiscal year ends now. What I hear from some clients is that the outcome looks positive: it might be a better year than 2010, but it will be more stable than this year. It’s not been a bad year, but the rollercoaster ride has been tiring.”
The next step is to focus more on Saudi Arabia, where the office currently concentrates mainly on supporting Unilever. In addition, Khairallah is also hoping to launch an office in Beirut this year, as well as pitching to the new global clients that are available through the IGC network. Further goals for the medium to long term are to cement Traffik360’s market leadership role in the region and around the world, although the businessman says that at some point, that will probably involve some external help.
“My ultimate goal for Traffik360, and why I’ve done all this for it, in terms of the IGC membership and certification, is that I want to make this company a market leader and then probably merge it or put it within a group that can really take it on a much higher and faster scale,” he says.
And there has been plenty of interest for such a deal; Khairallah hints that discussions for a potential takeover or merger are currently ongoing, and that a deal with an English marketing giant fell through at the last moment when the recession hit in 2008. However, he also says that the firm has grown immeasurably since then. From a personal perspective, he has his own plans to consider as well.
“I like to change — I was from a totally different background before I did this, so once I know that Traffik360 has reached the goals I had for it, then I will think about some alternative businesses. I’m really into tech and alternative innovation, and there’s a lot of need in our environment for retail environment solutions. This is where you can make the consumer decide where he goes to buy — and this hasn’t yet been done in this region.”