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Fri 12 Apr 2013 11:34 AM

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Spinneys - the price is right

Lebanon-based food retail chain Spinneys — which saw more than 20 percent growth to almost $1bn in revenue last year — is making its next big step when it comes to new markets. Its CEO, Michael Wright, talks new outlets, IPOs, and the future of online retail

Spinneys - the price is right

Despite fast approaching its 80th anniversary, Middle East grocery chain Spinneys shows no sign of losing its appetite when it comes to new markets.

Established in Alexandria by an ex-British Army serviceman to supply provisions to Palestine Railways, the crisis in Lebanon in the 1970s forced the high-end retailer to pare back its operations, before the brand came back with a bang in the 1990s and 2000s. In the years since, the firm has aggressively snapped up market share in its home turf of Lebanon, as well as moving into new markets including Egypt, Qatar and Jordan.

In his role as CEO, another Englishman is charged with spearheading the brand’s next stage of growth. Michael Wright, who has been with Spinneys for 25 years, says the company is eager to not only expand into exotic new locales, but also offer customers innovate news ways of doing their weekly shop.

“[In] sub-Saharan Africa, we have a lot of interest coming our way, and we also have an interest in these markets,” explains Wright during an interview in Dubai. In the near future, he continues, the company hopes to have opened outlets in far-flung markets including Nigeria, Kenya and Angola.

“[It’s] now at the stage where we’re talking to people and we now have to... take that forward into real projects. We have the same mindset on what to do on general terms but now those terms have to be crystallised,” Wright adds.

Spinneys is also keen to push through deals to open outlets in Saudi Arabia, Kuwait and Iraq, as well as North African countries including Libya, Tunisia and Algeria.

“We’re currently talking to a big developer in Saudi Arabia, we also have some talks going on in Algeria and Iraq,” he goes on.

For Saudi Arabia, Spinneys hopes to open up ten outlets in major cities like Riyadh and Jeddah in the Gulf’s most populous kingdom over the next decade.

“In Saudi Arabia, we’ve worked with the developer on projects before, so he was very happy and he would like us to come to the market. What we’re working on is to line up the sites and then decide on what kind of investment and structure of ownership to do that,” Wright explains.

The company has also this year signed a Memorandum of Understanding with a partner in Kuwait to open Spinneys’ first store in the Gulf state and is currently agreeing a deal to open outlets in the Libyan cities of Tripoli and Benghazi. All of these new outlets should open at some point next year, Wright explains.

“What we’re building into the programme [in Libya] is up to five stores, but the market is still maturing. Extrapolations show that the population will double with lots of expatriates, so we see a lot of future for that,” he says.

Spinneys does not have a typical ownership model that it applies uniformly across its stores, Wright explains, although the company does not own any real estate, instead leasing its own outlets from developers and other partners.

In Algeria, for example, Wright says Spinneys could partner with an existing retailer in the country. “We have talks going on that may take us in with someone who’s already a large player in the market. It would enable us to leverage us off whatever market presence they have. They may be in one segment of business and Spinneys would complement them.” This could take the form of Spinneys providing an “upmarket” alternative to its partner, so that they would not be in direct competition.

Wright says that all of the expansion plans mentioned above will be financed through existing cash reserves and borrowing from banks.

UK supermarket giant Sainsbury’s was famously forced to pull out of Egypt in 2001 after a failed expansion into the country, but Wright insists that Spinneys will not make the same mistakes in North Africa.

“Many big retailers came and failed [in Egypt]. We were into profitability within six months,” he explains.

“We’re near enough to the consumer and to the staff to see what the issues are and to see whether we need to change what we’re doing with the supply chain or the way we operate, and directly alter. We’re not a big ship that takes ten miles to turn.”

Wright’s push into new markets does not mean that he is ignoring existing ones. In the four markets that Spinneys currently has a footprint in (Lebanon, Jordan, Egypt and Qatar), he says the company continues to see strong growth. Spinneys also has a significant presence in the UAE, although this has been operated by a franchisee since 1999.

“In the four countries we currently manage and have an equity involvement in, we’re basically growing above 20 percent every year for the past four years, in revenue terms,” Wright says.

Last year the company is believed to have reached approximately $1bn in revenue.

He adds that between like-for-like growth and planned store openings, privately-held Spinneys should be able to keep up revenue increases of 20 percent-plus per year for “the next three years”.

In terms of EBITDA (earnings before interest, tax, depreciation and amortisation), Wright says that Spinneys has “tripled over the last three to four years and we plan to do the same going forward”.

Spinneys continues to do the majority of its business in home market Lebanon, Wright continues, but is increasingly seeing the fruits of its labour in foreign shores, although not without some difficulties.

In Egypt, for example, Wright explains that the instability following the ousting of former president Hosni Mubarak in 2011 was felt by the grocer.

“Despite what’s happening in the country and the economic position, which isn’t quite as strong as it was a couple of years ago, we’re getting very strong growth,” Wright says, adding that the business in the country has partly been impacted by the depreciation of the Egyptian pound against the dollar.

Jordan, where the group currently has two stores, is also suffering economically. The Hashemite Kingdom, which has been spared the full force of the Arab unrest, is aid dependant and recently slashed fuel and cooking oil subsidies, which has had a knock-on effect on consumer spending.

“Jordan is a market that’s not economically great at the moment, so we’re having to work hard to get the market penetration,” explains Wright.

Still, Wright is eager to push ahead with widening Spinneys’ footprint in these markets. In Lebanon, the chain has two stores in the pipeline that it plans to open next year, at a cost of approximately $15m, as well as further outlets that are not yet confirmed but “will require a similar kind of investment”.

Wright says that Spinneys has “reached a critical stage” with its hypermarkets in Lebanon and will now shift its focus to filling in gaps in the market in the country with “a very fast roll-out” of smaller stores.

The firm is also planning on a further two openings in Qatar, where Spinneys presently has two smaller stores, as well as another large outlet in Egypt.

Wright says that Spinneys’ expansion has to an extent been throttled by availability and pricing of suitable lands in these markets. “Land prices are outrageous everywhere, but they always have been,” he admits.

It is not only in terms of bricks and mortar that Spinneys is seeking out new consumers, with Wright set on also branching out into the digital world this year.

He says that the group is in the process of introducing online retail services which will roll out in Lebanon in May, followed by Qatar, Jordan and Egypt in October.

The functionality will allow customers to compile grocery lists via the internet that can then be delivered to the buyer’s home, or collected in-store later at the shopper’s convenience.

“Because we have a lot more resources in Lebanon, we trial everything in Lebanon and then roll it out to the other countries from there. It will be before the end of the year in all the other countries,” Wright says, adding that Spinneys is developing an application to allow customers to make orders via their phones.

Wright believes that the move to online shopping is indicative of an overall shift in how retailers not only rely on attractive pricing to lure countries, but increasingly targeted marketing campaigns and more innovative technologies.

“As we see it going forward, it’s more to do with one-on-one direct marketing to individual customers,” he says.

“Part of that is the offering inside the shop, it’s the loyalty, how we tailor the promotions to the individual consumer and then deliver it to them when they wish to have it delivered. It dovetails into the whole way we’re changing our business.”

Since its foundation in the early 20th century, Spinneys has remained firmly in private hands and is currently majority-owned by Dubai private equity firm Abraaj Group, which bought into the retailer in 2004. Abraaj, which has around $7bn in assets under management, has refused to comment on speculation it is looking to exit its investment.

Wright is equally coy on the future ownership of the company and refuses to rule out a potential initial public offering (IPO), a strategy that would likely open up fresh capital that could pave the way for even more ambitious expansion.

“It’s not on the horizon. But at the right moment in time of the market and the company, it could be, but obviously that’s a matter for the shareholders,” he says.

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