Fine times

Fine Hygienic Paper is responding to the challenges thrown up by the emergence of major hypermarket chains.

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By  David Ingham Published  February 15, 2005

|~|janho.jpg|~|Peter Janho: “The more we have hypermarkets, the better.”|~|The emergence of major supermarket and hypermarket chains across the region is throwing up new challenges for suppliers. Armed with their bulk buying power, supermarkets are demanding lower and lower prices from suppliers. At the same time, the move towards lean inventory means that stock needs to be delivered on an increasingly regular basis to each individual outlet, a change from the system of large centralised warehouses that suppliers could visit once a week to deliver a bulk order. Added to all that is the looming threat of own label brands, and the fact that large chains can always opt to take their bulk buying power elsewhere if they don’t get what they want. Fine Hygienic Paper FZE, a Jebel Ali-based supplier of paper-based and sanitary products to outlets in the UAE, Kuwait, Bahrain and Qatar, has been actively responding to these challenges and appears to be succeeding. In fact, the company’s general manager, Peter Janho, tells Retail News Middle East that, “the more we have hypermarkets, the better.” In his opinion, the new hypermarkets have shown themselves to be much better at handling supplier relationships than some of the traditional co-operatives. One reason is that growing competition between chains means suppliers have alternatives if one treats them badly, so keeping a supplier happy is in the best interests of the hypermarket buyer. Another factor is the generally high level of professionalism that exists in today’s new breed of hypermarkets. “If you have a win-win, everybody will be happy,” says Janho. “We have argued that with them and succeeded in convincing them. The guys in the hypermarkets know what they are doing, although they will try to squeeze you if they can.” Nevertheless, the emergence of hypermarkets has presented new challenges for Fine. The company has responded with an increase in warehouse space, greater product innovation and a sharper focus on operational efficiency. Boosting Fine’s warehouse space, with the addition of new facilities in Dubai and Abu Dhabi, has been particularly important, as Janho explains. “The hypermarkets don’t have large warehouses,” he says. “They minimise their cost by having 72 hours of stock in each store, so you have to deliver almost every day and you tend to deliver to each [store] separately…This puts pressure on your delivery and distribution channels.” “The older supermarkets, however, have their own central warehouses, so you deliver to one point and they take care of distribution to their outlets.” What all means is that Fine must have more storage space available, keep its warehouse shelves fully stocked and be able to respond quickly to its customers demands. “They depend on your warehouses and your delivery capabilities,” explains Janho. “Thankfully, we are quite large and we are managing [to provide service to] all these big outlets, but at the same time, it is very costly to maintain the warehouses.” Fine manages to deal with this extra overhead through economies of scale and greater operational efficiency. This is where being part of a large industrial conglomerate, Jordan-based Nuqul Group, gives the company an advantage. The company, in business since 1952, is a diversified industrial group with offices and manufacturing facilities right across the Arab world. Fine is one of its key brands. Now sold in most countries of the region, Fine has manufacturing facilities in Dubai, Jordan, Lebanon, Saudi Arabia, Palestine and Yemen. In recent years, the company has sought to create efficiencies by unifying production across these factories. That means that if there is a peak in demand for tissues in the UAE, the Fine production line in Lebanon might be given over to producing tissues flat out. At the same time that Lebanon is wringing out economies of scale by mass producing tissues, a line in Saudi might focus exclusively on the production of diapers. “At the moment, for example, I’m getting my toilet roll from Lebanon and that makes me competitive because Lebanon is running with that item at 100%,” explains Janho. “At the same time, I’m sending him diapers from here because I’m running at a capacity where I can compete with prices in Lebanon.” Another key to maintaining efficiency is to streamline materials procurement. “That is one of our main targets for this year,” says Janho. “Our target is to reduce extra costs by having a more centralised procurement system at our head office.” A rollout of the Oracle ERP system, which is designed to help companies better analyse and manage their spending, is underway across the group. Another key element in maintaining operational efficiency and keeping the customer happy is the ability to effectively align supply and demand. For that reason, Fine has implemented an online ordering system with wireless capabilities. The system, developed by the company’s own IT team, allows Fine’s sales representatives to check stock and key in orders from the client’s premises using their mobile phones. Janho claims that the system is a first and is vital in helping Fine maintain a customer service edge. “The sales representative can visit a client, check stock, log in an order and whilst they are there, with the client, they will know whether or not we have the stock and whether or not the order is approved,” he explains. “They can also change the order immediately; for example, if you order Fine tissues, 100 pulls, and the stock does not show it, you can suggest an alternative order.” This need to be responsive to customer needs in large part explains why Fine, like many suppliers to the retail trade, opts to keep its warehousing and distribution in-house. Another factor is cost. The company has dabbled with third party logistics companies, but found that their model of charging by volume simply did not work with bulky, low cost diaper and tissue boxes. “We outsourced through three companies, but because they work on a volume basis, it did not work out to be very feasible for us,” says Janho. “It’s not like perfume, for example, where value is high and volume is low, so you can outsource it. With my product, you would have to pay for one full truck and the cost simply would not make it feasible.” Logistics management, maintaining relationships with retailers and boosting efficiency are all major challenges in themselves, but perhaps bigger than all those is product innovation and differentiation. Fine operates in a commodity industry, where price is the main factor influencing consumer buying decisions, and it is up against literally dozens of other brands. Nevertheless, Fine believes that there is room for innovation in its industry and it does try to ram home the message that quality counts. One of the company’s biggest recent initiatives is the introduction of a patented sterilisation process that eliminates germs from tissues before they are packed. The Fine facial tissue range now carries the ‘SteriPro’ hygiene stamp, certifying that the tissues inside every box have been sterilised before packing. The company believes it is the first and probably only manufacturer locally that sterilises tissues before they are put in the box. It also claims to have been the first to introduce oud-scented tissues, a move copied by others, and Fine constantly seeks to make itself stand out by developing new types of packaging. To coincide with the 2002 Football World Cup, for example, the company introduced tissue boxes shaped like a football. Fine has also produced Disney tissue boxes and recently it launched a product called Fine Living, where boxes carry designs based on the idea of using the tissue in a certain environment, like the kitchen or living room. “We try to be different,” says Janho. “It reinforces our brand, our leadership in the market and our reputation for innovation.” As well as trying to innovate, Fine also believes that it is worth investing in marketing. The company had a large campaign to promote SteriPro when it was introduced and Janho says that such activities are vital to keep consumers informed of what Fine stands for. “You have to know what differentiates us from others,” he says. “If it’s just another product on the shelf, you will pass it by and not pay any attention to it.” Fine’s commitment to marketing should stand it in good stead if regional hypermarkets start to put more effort into pushing own label products. Although some chains, most notably Spinneys and Carrefour, have introduced own label brands, they do not yet appear to have taken significant market share away from established suppliers. Nevertheless, Fine takes the threat seriously and is in constant dialogue with retailers on the subject. At the moment, regional consumers’ preference for established brands and Fine’s marketing efforts are keeping own label products at bay. Still, Janho says, if they ever do take off with regional consumers, “it will be tough for us.” For now, however, Fine appears to be coping with the challenges that have been thrown at it. Through a combination of cost control, product innovation and investment in warehouse capacity, the company appears to be surviving and thriving in the age of the hypermarket.||**||

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