Hedging Bets: BMB Group Co-Founders Bilal Ballout And Mohamad Khachab
Interviewing two entrepreneurial cousins at the helm of BMB Group, one of the largest private label Mediterranean confectionery and chocolate manufacturers in the GCC region, would have been a draining experience, but for a few truffles of De Rafael, their first chocolate brand, served at all the right moments.
Energetic and affable Bilal Ballout and Mohamad Khachab, the company's CEO and Managing Partner respectively, began by taking me on a quick tour of their vast office, designed to encourage both collaborative work ethics as well as impromptu meetings- especially in a centrally located sweet shop replica. I got a first-hand view of how a host of Mediterranean sweets and chocolate treats are made in the production facility, located on the first floor of the BMB Group building in Dubai Investment Park, alongside an hour-long conversation with the two entrepreneurs, which proved hardly enough for all the passion, thoughts, and plans of the two cousins for developing a global chocolate brand originating from the MENA region. BMB Group trades bakery and chocolate ingredients, manufactures private labels, produces its own brands of Mediterranean sweets- Petit Gourmet, Asateer, Mely's, and Simply BKLVA, and more recently De Rafael, a luxurious caramel chocolate. The group now employs 1,100 staff in Dubai, Doha and Riyadh, and has recently set up shop in Russia, Europe, and the US. Its two state-of-the-art facilities in Dubai Investment Park operate with the capacity to produce 35 tons of baklava and Mediterranean sweets, 50 tons of chocolates, 2 tons of ingredients, 15,000 packaging units, and 1,000 gift trays, all per day, and their products get exported to 32 countries.
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In 2006, when the story began, the picture was quite different. The then 21-yearold Ballout stumbled into the chocolate and confectionary business while helping in his uncle's sweet store. While he had earned a Master's Degree in Finance from the University of Durham, he didn't shy away from spending most of his time in the kitchen, learning how to roast nuts and make sweets. However, a failed attempt to improve the small firm's purchasing options led to today's BMB Group. "I went to our suppliers who were very arrogant," he says. "It was a very tough discussion. I was trying to improve credit terms, to improve the way they deliver, and so on, and they ended the meeting by saying that from then on, it would be me going and picking it up from them and paying only in cash. So, instead of improving it, things went backwards. There wasn't an alternative. Then I decided to open a business that would sell ingredients for chocolate."
The business then snowballed after a Singaporean chocolate producer, which Ballout flew to visit after finding it on Google, decided to take him on as an agent for the GCC region, and sign a US$400,000 contract for 100 tons of chocolate, although wary of his young age. "I didn't have a dollar, but I agreed," Ballout says. Back in Dubai, a bank manager had no option but to believe in the business idea, and approve of a bank loan enabling Ballout to rent a warehouse in the industrial area of Sharjah and hire one additional person. "When our first container arrived in January 2007, we went to the market with a briefcase and a block of chocolate, and started knocking on people's doors." And the result: the first 100 tons was sold out in two weeks. Finding his place in the new industry did not take too much time, only due to Ballout spending 16 hours a day working and learning, eventually becoming a master chocolatier. "Once I gained the technical know-how, I started expanding the range," Ballout says. "In January 2008, I went to China and opened an office there. Also, I went to a wine bottle cap manufacturer and convinced him to start making chocolate paper, which had only been made in Italy up until then. There was no other alternative to wrap chocolates, which is big in our culture. So, I convinced him to move from wine bottle caps to chocolate paper. It took a year in development to get it right- it is not as easy as it sounds. But in the end, we were the first ones to bring that paper here, and we were selling it at 50% of the market price."
While expanding its trading confectionery raw materials business, the team also slowly steered towards manufacturing private labels, especially after Ballout's younger brother Mohamad joined BMB Group -standing for Bilal and Mohamad Ballout at the time- to run its day-to-day operations. The decision to set up a chocolate factory in 2009 in Dubai was, however, not based only on the promising market growth figures, but due to the escalating civil war in Lebanon, proving to be a sort of silver lining for the fledging business.
The confectionery and chocolate market in the UAE has been enjoying steady growth due to a local culture of giving chocolates as a gift on festivals and other occasions, rising per capita expenditure, growing youth population, and escalating seasonal demand. The latest industry report by TechSci Research states that the market is set to grow at a compound annual growth rate of 8% between 2016 and 2021. However, it has traditionally been flooded with international brands, leaving local chocolate producers to compete by offering a more authentic taste of Arabic ingredients, such as dates, spices, nuts and milk. Regionally, Lebanese and Syrian confectioners, famed for their culinary skills, have traditionally ruled in the niche catering specifically for Arabic tastes. Yet, a decade into the millennium, vicious civil wars ranging in the two countries changed the landscape of the industry, dramatically. "In 2007, a war in Lebanon started, during which the airport closed down, meaning that the factories in Lebanon could not export anymore," Bilal explains. "The chocolate shops here got hit because they were all buying from Lebanon. At the same time, there were only five local manufacturers in Dubai. They were all small, not industrial manufacturers. Also, we realized that in this domain, everyone had an old-school mentality; nobody was innovative. There were some who were looking at new ideas, but the sector was always five years behind [the more advanced markets]."
From the outset, the BMB chocolate factory has become known for sourcing the finest ingredients, pioneering recipes and innovative presentation, while the co-founders' willingness to offer alternatives to their prospective clients has slowly started transforming the industry across the region. "The usual approach to selling these products was a push strategy," Ballout explains. "We implemented a consultancy strategy, explaining to our customers whether something would work or not, or whether something was saturated. We started tailor-making recipes for clients. That is why we are now known as a consultancy. It is interesting, because we are manufacturers. Even today, whenever we decide to venture into something new in terms of manufacturing, or if our Chief Innovation Officer is coming up with a new product range, we never come up with a product range that is too broad."
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How did the company set up in Qatar, the first foreign market they entered back in 2010? Credit there belongs to Mohamad Khachab, Ballout's third cousin and the company's Managing Partner. When Khachab started talking, it became clear that the two cousins shared more than just a family resemblance. "We believed that if we worked together, we could make it big," Khachab says. "I sat with Bilal for exactly 30 days and got all the know-how. We used to stay 15 hours a day together. After that one month, we planned to open the Qatari market because it was small compared to other GCC countries and there was a lot of potential, no one produced there. I moved to Doha and started making connections. We managed to open a company there after another 30 days. In 2011, Qatar was booming because the market was raw, we started directly going to customers and we made it in one year." Ballout here makes a special note of Khachab's skills in getting this done. "The trick here is that there are people who are good at sales and people who are entrepreneurs," he explains. "Considering his age at the time, going to Qatar, where he didn't know anyone, and establishing a business from scratch, it is clear that it is an entrepreneurial mindset. It is not a sales mindset. We were very skeptical, but not only did he open the market, but he became number one in Qatar in such a short time." In mid-2012, Khachab says, it was time to enter the big market of Saudi Arabia. He started spending two weeks in Riyadh and two weeks in Doha each month, in addition to regular visits to Dubai for a monthly board meeting with Ballout to ensure that the rapid growth did not get out of hand. "Things came fast in Saudi," Khachab says. "At the beginning, the mindset was "No, we want to buy from Lebanon and Syria,' but when the war in Syria started in 2011, they had no choice. Syrians were so strong in Saudi Arabia because they share the border. Also, everything coming from Lebanon was hit because of that war, since shipping by land is much cheaper than shipping by air. We ended up getting some key accounts in Saudi Arabia very quickly, not only because we were so passionate, but because we really had good intentions for the customers. How people dealt in business here in the region was not based on a lot of trust. This is what we found. The good thing is that we really understood, then and now, what our customers want. All our competitors would just show their catalog, take it or leave it. For us, no. To build trust with these big clients, we built strong relationships, we made it more trustworthy, we made it more into a win-win situation, we became a part of their team. This is how we really connected with the big clients. I targeted the key accounts, and it took us three months to get them all." Ballout adds: "Mohammad landed a deal, which was an inflection point for the business. How it happened was because we tailor-made products that ended up being the talk of the town in the whole country. They did so well, and we did so well on the back of that. From the start up to today, we have never sold something to someone we don't believe would work."
The business of trading bakery and chocolate ingredients and private label manufacturing in all three markets was booming, but joining Endeavor UAE, the local chapter of a global network of high-impact entrepreneurs, in 2015 led them to a conclusion that the future of their company should be in owning the brand equity. It also brought about one more important change, causing the BMB acronym to now stand for "Baklava Made Better" after Mohamed Ballout decided to exit the business. "Private equity started coming to us because we went through Endeavor," Ballout says. "Just out of interest to see how much our valuation was, we started engaging with them and they got to one of us. They got to my brother. He had always seen it from a perspective of an investor, whereas the two of us were wearing both an investment and a passionate entrepreneur hat. So, he came to us saying: "Guys, I'm planning to sell.' We agreed on the basis that we would choose a private equity firm. Eventually, I found one that I trust and which I know can open up a lot of doors. We finished the deal in October last year. They are now good partners to have in our dream of geographical expansion. What I'd like to highlight after going through an exercise, such as [the selection process for] Endeavour UAE, is why it is important to find the right partner. I see a lot of entrepreneurs who get excited, such as being the best friends from university and so on, but then the problems happen down the line, if things don't go well and if things go too well, and so on. With us, let's say that we have been lucky. We made all the mistakes that any other person would make, we went in with just our hearts. But, luckily enough, the way our bonding has been since childhood, we have never had to question that." So what can Ballout's peers in the entrepreneurial ecosystem learn from his experience? "The lesson from this is that, first, you have to define who does what," he explains. "Second and foremost, you have to eliminate ego because it is the killer of most partnerships. No matter how much you love each other, if you don't eliminate your ego, you will eventually start questioning something. Lastly, it is about whether you want the same thing. You might want it now, but you might not want it in 10 years. You can change your mind every year and discuss it, as long as you are transparent. If your interests don't align anymore, it is okay to say that it is time for you to move on, as my brother did. As long as you have that word of honor, nothing can stop you."
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As for the future of the company, Ballout says they will be choosing one of two options: either a stock market flotation, or selling it to a strategic buyer. A third option, and a route most commonly taken by other chocolate producers in the region -passing the business to the next generation in the familyis not on the table, he says. "It is interesting psychologically to see why these businesses never grew that big. It is because they are mainly family businesses," he says. "The reason for failure for a lot of brands was that they had too many partners. In our field you can see a lot of brands that families start splitting among their members, with a lot of them becoming kings of only their cities and their countries, but no one had the drive or passion to take the product worldwide." A firm believer in corporate governance, Ballout signed The Pearl Initiative, a project of Badr Jafar of Crescent Enterprises, developed in cooperation with the United Nations Office for Partnerships, to promote a corporate culture of transparency and accountability across the large number of regional familyrun businesses. "It is about investing in it to grow globally but sustainably," he adds. "At the same time, none of our competitors here has invested in the know-how. For Arabic sweets, you need to know very clearly the technicalities of the flavor, the ingredients, how it is done, and so on. That is what we have invested 10 years in, the know-how. We have also realized that we have built scalability because no one else has the machinery that we do. Plus, you can't buy it outside, we have invented it. We believe that our product will be super hard to beat in terms of quality, price, and scale." Khachoub adds: "We are now expanding into Russia, Europe, and the US, all in parallel. We have opened an operation office in Michigan and Moscow, and in April we are meeting with potential partners in London to explore our growth in Europe. We are also dealing with big factories in Europe that have shut down their production and are now outsourcing everything from us because of the scale that we have. That is how much we are able to compete."
In order to remain competitive in a fast-changing global market place, Ballout maintains a close eye on market trends, which is his final piece of advice for fellow entrepreneurs. "No one is invincible," he says. "Sometimes companies are doing so well and say they will forever be number one, and so on. You need to wake up every day and ask yourself: "How is the landscape changing?' or "How are my consumers changing?' You read all these examples of business, which everyone thought were prime businesses in their areas, collapse sometimes over a month, not even a year. So, we keep on asking ourselves how people are changing in the way they give sweets as gifts. Our parents used to visit each other a lot and take a lot of sweets, but today our generation does not do that anymore. We meet each other outside of our homes and our gifts have shrunk, the way we give gifts is different. So, no matter which business you are in, you have to keep track of everything."
The global chocolate market is set to grow at a rate close to 5% through 2020, according to various estimates. Among the most dominant players are companies from the US and Switzerland. It was in the 19th century that Swiss chocolate was recognized as a world standard in the field of chocolate manufacturing, not because the country had natural resources of cacao beans and other ingredients, but due to its continuous research and experimentation. Why then, Ballout asks, isn't there a global brand of chocolate from this region? And that's his vision for De Rafael, and indeed, BMB as well. "While my brother was cashing out, we went through, let's say, a spiritual transformation about deciding where we wanted to steer this ship," he explains. "The fact that we decided to stay made us think what we wanted to do. Thanks to Endeavor entrepreneurs and mentors, we learnt what defines success. We have both agreed that as the way you walk into any supermarket in the world and find a Ferrero, in the same way you should find our brand of baklava, for example. Then we will know that we have made it."