Playing the middleman

HBG Holdings’ CEO talks about transforming Spinneys Jordan and the art of keeping both retailers and suppliers happy

  • E-Mail
By  David Ingham Published  August 1, 2005

|~|feature-1-L.jpg|~|Imtiaz Hydari: Where others saw disarray in Spinneys Jordan, he saw an opportunity.|~|At the end of 2003, Spinneys Jordan, one of the Middle East’s oldest FMCG distribution firms, was a company in disarray. Despite an exclusive regional portfolio of brands that read like an international shopping basket, boasting the likes of Unilever, Kraft, Wrigleys and California Garden, the company was losing money with disappointing annual sales of just US $23 million. For its owner at the time, Cupola, Spinneys Jordan was more trouble than it was worth. But to Imtiaz Hydari, the founder and CEO of UAE distributor HBG Holdings, it was a potential goldmine suffering from severe mismanagement. “I was aware of the company from my time with Inchcape [the owner prior to Cupola], and knew Cupola wasn’t giving it enough attention to make it work,” says Hydari. “Fundamentally it was a very solid business because it had such a good portfolio [of brands]. All it needed was a cash injection and a bit of attention.” Upon acquiring the company in 2004, Hydari’s first task was to persuade Spinneys Jordan’s disgruntled FMCG principals that he was serious about turning the operation around. “I had to boost the confidence of both Spinneys Jordan and its leading brands. The principals knew that FMCG was my core business and they could see that I had put my money where my mouth was. In reality, the reason why the company was under-performing was starkly simple.” According to Hydari, Spinneys Jordan was not shifting, or indeed physically stocking enough goods for it to be possible to break even. Unsurprisingly, given the straightforward nature of the problem, its solution proved equally problem-free. “It was a question of injecting some money, talking to the right principals, rationalising the portfolio of the stock, finding out what products were most important, what was easiest to stock fast and get an immediate turnaround in terms of sales,” explains Hydari. “We had a 40% increase in sales from literally the first month we took over. It boiled down to having the right stocks at the right time and making sure the principals were supportive of both us and the marketing campaign.” After the initial effort to balance the books, a series of initiatives to rationalise costs followed, together with logistical improvements and staff incentives. The end result was a staggering reversal that has prompted 2008 sales forecasts of US $70 million by the company’s general manager, Husam Shalabi. “The 2005 forecast is for sales of over US $40 million and a healthy profit is projected,” he confirms. “As a result of the positive growth we are currently achieving, Spinneys Jordan is now looking at the possibility of extending its reach in Jordan and beyond.” Hydari attributes this success to one core distribution philosophy in particular. “Running a good distribution business is like running three businesses at once. It’s not just about how your own business is doing in terms of sales, channels and stock. You also need to take a great deal of interest in the businesses of your principals, the FMCG manufacturers, and your clients, the retailers,” he explains. “The principal expects that wherever his product should be, it is in the correct position and properly displayed so the customer sees it. We work together with the principal and agree what the channels for distribution are and therefore where the product should go. For example, expensive chocolate is not put in the small grocers because they haven’t got the facilities or the market for it. Once the product is in place, the marketing is the responsibility of the principal – he has to make sure that he advertises enough for a customer to say, ‘I only use this product’. As a distributor, I am responsible if the product is not there, but if a competitor has done a better in-store display or undercut the principal’s product, then that is not my problem,” adds Hydari. Having said that, a distributor is heavily involved with the task of positioning a product in the optimum space for its class. If it is an A-class brand like Heinz, then it should retain eye-level shelf-space. “Retailers actually appreciate the work done by our in-store merchandisers, because we help them to arrange their store attractively as well as ensuring that top products enjoy prominent displays,” Hydari says. In the cutthroat world of supermarket retail, premium brands will always get premium space, while fighter brands pay hefty listing prices to jostle in the less enviable positions. So what gives the A-class brand carte blanche on the shelves? “It’s a vicious circle because retailers will always want the biggest brands in the best positions, so it is hard for the smaller ones to make progress. Ultimately, the big boys will always be the big boys because they have brand equity,” he explains. “What is Coca-Cola other than water, sugar and colouring? It’s even bad for you! But the brand itself is phenomenal. Something so simple that you could practically mix at home yourself is worth billions because of the money behind the brand. “There is nothing to stop somebody from making soap and packaging it in exactly the same way as say, Unilever. I can go to Jebel Ali and have a product made exactly like a quality product, maybe even better than it. I can go out in the market cheaper than the product, but I can’t sell anywhere close to this product because in the mind of the consumer, Dove by Unilever is a great brand.” By representing the brand and dealing with the retailer, it is the distributor that allows manufacturers to put more effort into achieving that elusive brand equity. In return, the distributor has more clout with the retailer when it represents bigger brands. “If I am the exclusive distributor of Kraft and Unilever brands in that particular region, the retailer knows that if he wants to stock those products he has to buy from me,” comments Hydari. “On the back of this, I can push lesser-known brands in my portfolio because I have that leverage. In turn, subsidiary brands are desperate to get onto the books because they know they can cling to the coattails of the A-class products.” Such a strong position does not come easily, however. Although HBG owns Spinneys Jordan, a company with an emphatic brand line-up in Jordan, its own UAE portfolio is less star-studded. The company has just acquired Pakistani brand Young’s, products that Hydari describes as ‘good, solid, second-tier’. The distributor’s job very much depends on the status of the brand it represents. “Each distributor usually has three tiers in his portfolio. The international brands like Unilever are top, regional brands like Young’s just below, and in the third tier he might market his own brand,” Hydari explains. The emphasis is geared towards achieving a portfolio that represents products across every supermarket category, from dairy to pet care. Then it is a case of finding the right quality and a supplier who fits the bill. “I can also go to the brand, when it is a good regional brand like Young’s and say, ‘You are not present in Oman, Qatar and Bahrain and I can get you into these regions’. These brands will never compete with the multinationals but they give me solid support and more margin, which makes them an ideal buffer. We are bringing Young’s to the region for the first time, at least in terms of bulk supply.” Hydari is keen to stress his commitment to the brands on his portfolio, which goes much further than simply ‘passing the product on’. “We are not just a channel, we are a tool for the supplier,” he says. “If I bring a product to a region for the first time, I will say to the company, ‘Your product fits in here, its main competitors will be X and Y, the market size is Z. If you position it here, you have a very good chance of attaining a certain volume and I can work with the wholesalers to ensure that it reaches the smaller outlets’. “It may not be suitable for the top retailers, but it’s certainly possible to do a deal. I will ask for my margin, maybe 18%, and if they can’t do any promotion then perhaps they give me another 5% and I will promote the product for them. My job is then to vouch for that product and represent it, not just pass it on.” In the current retail climate, FMCG brands need all the help they can get to secure optimum shelf-space, given that the rise in supermarket own labels means lesser brands are being shown the door. While it may seem that retailers are onto a sure-fire winner by placing their private brands in eye-grabbing positions, Hydari insists that numerous pitfalls await a supermarket that is overly aggressive in promoting own labels. “Every retailer stocks own labels, but when they push them too hard they end up upsetting the major brands,” he claims. The key measurement, by which all own labels should be judged, he argues, is whether their category is growing fast enough to accommodate them. “When the own label simply substitutes another brand, there is a problem. If a retailer sells more of his own soap, but less Dove, he may have made slightly more margin but he has upset Unilever. Own labels are successful when sales of an A-class brand continue to grow as planned and the introduction of the private brand also grows the category.” Despite the focus on satisfying all the brands in HBG’s portfolio, Hydari argues that he is equally concerned with keeping retailers happy too. Ultimately, the job of the middleman is to provide a link in the supply chain. But why use a distributor if you’re a big retailer with enough muscle to barter directly with the supplier? “Sure, they can do that, but it’s not always possible to source products through a global network, because the requirements and the tastes of the consumer in, say, the Middle East are very different from those in Europe,” Hydari says. “The last thing a retailer wants is surplus stock. Our job is to save them the hassle of purchasing and replenishing on a regular basis. We do the market research; we provide the manufacturer with feedback. These are all important roles that ultimately serve to benefit the consumer.”||**||

Add a Comment

Your display name This field is mandatory

Your e-mail address This field is mandatory (Your e-mail address won't be published)

Security code