“Beit Binzagr”: Evolution of Family Business in Saudi Arabia

The term we use is “Beit Binzagr” as opposed to Binzagr Group. “Beit Binzagr” is a house, in Jeddah that means a trading house. A number of other merchant families would also refer to themselves as “Beits”.

Interview with Abdullah S. Binzagr, President of Binzagr Group

Abdullah S. Binzagr, President of Binzagr Group

Can you talk about the evolution of the Binzagr Group and some of the key milestones?

The term we use is “Beit Binzagr” as opposed to Binzagr Group. “Beit Binzagr” is a house, in Jeddah that means a trading house. A number of other merchant families would also refer to themselves as “Beits”.

My grandfather started the business. His father Obeid had married a local Jeddah girl from a family called Zamka. His father died when he was still very young. Following the death of her husband, she married a man named Mansour Harbi — a sea captain. He owned a big ship that sailed out of Jeddah to Suez, Aden, Bahrain etc. He effectively became the boy’s guardian. He would take him along on his seafaring trips.

In those days, up to the 1850s, there were two kinds of merchants in Jeddah, the land based merchants and the sea based merchants. The sea-going merchants would be given capital to go out and purchase supplies and goods. They would be authorized to buy specific goods or general items, predominantly commodities. The merchants would bring back wood, like teak from Indonesia. Trade was colony based. The traders dealt with the British, Dutch, Portuguese, who controlled the trade in their colonies.

Teak came from Indonesia, a Dutch colony, so it followed certain routes. The traders from Jeddah would pick up manufactured goods from Europe in Suez, or Aden. Sometimes they would travel as far as Mombasa or Zanzibar or they would usually go to Bahrain, which was a British colony. There was a lot of trade between Bahrain and India.  

After the death of his stepfather, he inherited his role as a merchant sea captain. We estimate that in about 1881, he stopped travelling and became a land–based merchant in Jeddah. He traded in the same kind of commodities as before, until his death in 1920. Around 1918, he went to Egypt, for a ‘change of air‘. He had a visa from the British Consulate in Jeddah to travel to Suez. That is how you would travel to Egypt in those days, you would go by boat to Suez, get on British territory and from there you would enter Egypt. His visa was for Suez, the reason was ‚change of air‘. That meant he was unwell and he was going to see a physician in Egypt. After he came back, in about a year and a half, he was dead at about the age of 70.

He had two sons, my father and my uncle. They were minors when he died. By the time of his death, the business was a private partnership. If a partner died, the surviving partner would take stock and decide if he wanted to take on the descendants as partners. If not, the business would be reconstituted among existing partners or new partners could be taken on. At that time, the business had 3 partners; my grandfather and two partners, who were also about his age.

In his will, he appointed both of them and two other pillars of the community, as his executors. His will reflected what had happened to him in his childhood. His will stated that if his wife, my grandmother, remarried after his death, the executors were to put aside a certain amount of money to rent a place and (in those days there were no maids, just slaves) to buy someone to look after the boys until they reached the age of majority. This was to ensure that what happened to him did not happen to his sons, that is, the mother’s new spouse abuses his position towards them.

Though he learned a lot from his stepfather and became what he became because of his stepfather, it obviously left a deep impression on him. He didn’t want that situation to be repeated in his sons‘ lives. It never happened because his wife, their mother, never remarried. She actually outlived her children.

The other two partners took my father and uncle into their partnership. The business continued after the death of my grandfather. The partnership was the two brothers and two others, one of whom was an uncle by marriage. When he died, his children, two girls and a boy were also minors, so they did  not come into the business. The business ended up with my father, my uncle and the third partner, M.A Shinkar. They continued to grow the business.

Around the 1930s our business shifted from bulk commodities to manufactured products. We started importing manufactured cigarettes from British American Tobacco Company, from their agent in Aden. We imported starch from a Belgian company that was eventually acquired by CPC. It became Best Foods and was finally bought out by Unilever, which makes Knorr and Mazola. In the 1930s we started bringing in starch, Mazola corn oil etc.

At about the same time we started working with Unilever on certain products like soap. It wasn’t branded soap like Lux that we get today. It was basic, brown soap, called Wheel, a cube of hard soap that people used to clean everything. They would wash with it, wash their hair, do their laundry with it, it was an all-purpose soap. That was the second stage, where we imported and sold manufactured products from western companies and multinationals, as they later became known. To this day, we are still with Unilever. 

Subsequently in the 1970s we began building factories and industrialized. In those days we were working with Lever Brothers for soap, and the Dutch Margarine Union, for hard fats etc. We’ve been working with Unilever for longer than Unilever has been a company. With World War II, a lot of the trading activity stopped, not much trading happened in those days.

In the 1950s, my oldest brother, who has since passed away, joined the business. Then it was Faisal my second brother, and Mohammed my third brother, and me, we all joined the business by the mid-1970s. In this third stage of the company, there were many changes.

We started manufacturing soap with Unilever in the early 1970s. We started industrializing and had joint ventures locally in Jeddah. Initially we made powder detergent and then Lux soap. Then we built a match factory with a German company. We built a soft drinks factory with a Danish company, making what is now called Suntop and Sunquick.

It has been 30 years since we started making Suntop and the price has not changed in all this time, it is still 250ml for SAR1. The reason for that, in spite of inflation, is mainly improvement in automation. In those days, a tetrapak machine could generate about 1000 packs an hour; today’s machine makes about 400,000 packs an hour. In those days, about 50 people operated one of those machines; today one person operates about four of those machines. Therefore, while labor numbers have not really changed, production capacities have multiplied so much, that prices have stayed stable for 30 years.

In the mid 1980s, before Unilever bought Best Foods, we started making Mazola corn oil with them. We still have these factories and others, from our third phase. In the 1980s, we entered retailing. First, we opened supermarkets, and then we opened clothing stores. In the beginning, we stayed in the mass-market clothing business. More recently, we have moved into the luxury segment. The company has standalone boutiques, for Gucci, Armani and Prada etc. That brings us to today. The retailing is the fourth stage of our growth.

We have a number of joint ventures. For instance, we have a joint venture with Avon, but it’s very different here. The global Avon model provides a livelihood for many savvy women. Before women entered the workforce in large numbers, Avon gave women a livelihood to support themselves, if they did not have males to support them. We also have a joint venture with a Norwegian company called Wilhelmsen. They own ships. Our joint venture with them is on clearing and agency representation of ships that come through Jeddah port.

In the late eighties, we started a company in the Eastern province, which works with ARAMCO, mainly to provide insulation and refractory for pipelines. That company fabricates insulation and does refractory work for protecting valves and pipelines and insulating inside tanks. It’s a completely different line of work, mainly with ARAMCO and SABIC.

We have been doing business since 1881. I am the third generation. Today, we have the fourth and fifth generations working in the business.

Binzagr Company
Binzagr Company distributes over 1,500 SKUs spread across 28 categories, comprising 55 leading brands.

The average life span of a family-owned business is 24 years (familybusinesscenter.com). About 40% of U.S. family-owned businesses turn into second-generation businesses, approximately 13% are passed down successfully to a third generation, and 3% to a forth or beyond. (Businessweek.com, 2010) What do you think are the key competencies or key skills needed to survive?

Some of them are biological, in the sense that my grandfather had two sons, one of whom had children, and the other one did not. As they say from clogs to wealth to clogs, it’s usually 3 generations. We had an extra one because the second generation effectively became the first generation. The third generation, my generation, we are still brothers.

Problems usually occur in the third generation, when cousins become partners. Therefore, the first risk is biological. In the third generation, you start having cousins running the business together. Cousins do not really know each other; they are brought up differently, by different mothers. The mother conditions the male ego. Having the same mother is no guarantee of course. It might not be sufficient. However, once you get to the level of cousins, the chances of survival drop very quickly. If at that stage you have a process in place that encourages cooperation and a belief in the long-term survival of the mission, then it may work.

That again is necessary but not sufficient. Having done that, the business needs to be profitable and growing at a rate that is faster than the rate of growth of the descendants. That is another biological handicap. With each generation, there are more people. Unless the rate of growth of the business keeps up, the members of the family get poorer. Even if not everyone gets involved or interferes in the business, the standard of living can potentially be lowered.

There’s a lot of challenges for a business to survive. Many companies do disappear, statistically a lot of companies do. However, in Europe particularly, you will find many companies that have been around almost 500 years. Often they are small private companies. By small, I mean they are not publicly listed and they get on with their business without too much commotion. Some became publicly listed companies because perhaps there were no descendants and it was a way of preserving the business.

It is definitely challenging though. In our business, the most important thing, other than making sure it remains profitable, is making sure that the business family remains viable. That means we have to work on all the generations going forward, not so much into making them good business people but into making them good friends with each other. If they are not good business people, they can always hire somebody. However, if they are not friends with each other, that is the end. That is paramount for a family business. Whether they are brothers, cousins, or second cousins, if they do not like each other, there is no hope. They might as well sell it.

 Can you give us any financial data on Bizagr Group.

We are a private business so we do not publish figures.

The companies employ about 7,000 employees.

In one hundred years, Saudi Arabia went from being one of the poorest countries on the planet to one of the richest. You have witnessed part of this evolution. Do you think the country is on the right path to a long term, sustainable, profitable future?

What I said to you about my business and family also applies to the country. It has the same challenges. If the family that runs the country manages its relationships with one another, then it survives. If they do not, it does not. In the end, it is the same model.

Right now the attempt is being made to transition to a third generation. In effect, they are a political party. They have to organize cohesion to maintain sustainability. That involves getting the team to work together, closely. If the team does not work together closely, it will not be sustainable.

You look at Saudi Arabia as a family business?

Of course it is.

What about the economic policies?

Saudi Arabia has a Chairman, a Board of Directors; we call them the Economic Council. The Minister of Labor was moved and became the Minister of Planning and Economics. Most people thought he was demoted.

In reality, the CEO, King Salman, has decided he wants to run the country like a business. Now, the Ministry of Planning and Economics is going to be the key ministry. In the past, it would do plans and the ministers would file it. My understanding is that we are going to have a situation where in the Economic Council, every minister will have to deal with the reality of KPIs and other business metrics.

They have to work within the plan and give reviews according to what is laid out in the plans and address other things in the plan. Saudi Arabia has 700 billion invested in factories. The ministry of Industry will have to address what enablers it will provide to ensure the projected rate of growth. It’s a completely different way of thinking. It’s coming out of the mindset of the younger generation.

It’s the same on the political side. We have younger people, educated in a very different way. They are expecting deliverables according to very clearly planned, agreed results. There will be regular measurements and evaluations. My guess is, if people do not perform, they will be evaluated on that basis. It’s a very business-like way of thinking. Adel Fakeih is perfectly adapted to that, with his background.

You’ll notice changes in a number of areas. What we are getting is a team that understands management by objective. In reality now, we have a vision that is calling for a different way of operating, which will be demanding of ministers and ministries to deliver very specific, agreed results.

If that happens, there will be a very different outcome. When things do not work out, they can use simple KPIs that a person can be measured against. If they are found wanting, then there’s a door waiting for them. My understanding is this is how things are changing. It’s happening right now. This is very positive.

How do you structure your strategy?

We tend to be predominantly focused on Saudi Arabia. The tea factory in UAE, that is Unilever, we have a minor shareholding. We are 99.9% in Saudi Arabia. The edible oil factory we have in Yanbu, and the brand Mazola, we bought it from Unilever, at a time when Unilever felt it wanted to dispose of certain brands.

Mazola was one of the brands they bought from Best Foods. They strategically didn’t want that, so they sold it to different parties in North America, in the UK, the Far East, in the Middle East, (which is the Arab League and Iran). I bought the brand and the factory from Unilever, so I own the Mazola brand in the Middle East.

We manufacture corn oil, sunflower oil, palm oil, ghee, shortening, margarine and mayonnaise and we export it. We focused on making it export savvy. It’s a very dispersed, highly administered setup.  We focused on export and maintaining the quality of the brand as opposed to doing sub-deals with other people.

In Iran, though it is much more expensive than the local product, the brand is recognized as high quality. We export large quantities to Syria. The most amazing, mind boggling thing is, after three years of civil war, our exports to Syria have only gone down by 2%. Our distributors there all deserve a medal, because they have managed to get this product out there in the same quantities since the pre-civil war days. A number of them have died; they’ve had trucks blown up etc. I’m absolutely amazed at what humans can actually do. Some of them are doing it almost as welfare work, to get food to families throughout Syria.

Our sales to Lebanon have dropped by about 50%, because the visitor numbers to Lebanon from the Gulf are down. However, in Syria, the drop has just been 2%. In Libya, our sales have virtually disappeared, because there is not the same cohesiveness there is in Syria.

In Iraq, where we send oil and mayonnaise through Jordan, I am aware of ISIS. When the truck arrives at the border, they like the oil, they do not like the mayonnaise. They charge a fee of certain number cases of the shipment to allow it to pass on to Baghdad. For the mayonnaise they don’t charge anything because they don’t like it. I know they don’t like mayonnaise but they like cooking oil. They charge the equivalent of $500 a truck, which is a lot, but that’s what they charge. We try and send some from Kuwait, but it’s more convenient sending from Jordan.

They charge $500 a truck in order to get the goods to Baghdad?

It’s like customs duty, they are on the border. They’re collecting taxes. I know they’re there, it’s a fact. We have a problem getting our product to Kurdish areas. We can’t send it through Turkey because some countries are very difficult. It’s easier to get it in through Iraq, even with all the problems, than to get it in through Turkey.

There are border issues in Syria, to maintain supplies, we now try to send it to Latakia by sea. The business hasn’t stopped, it’s just that transporting has become very challenging. While I have the right to sell in Morocco and Algiers, and while there are almost zero duties between the Arab countries, it is almost impossible to get it into Morocco and Algiers, because they have some non-tariff barriers that prevent import of Arab manufactured products. Local lobbies are strong. Agreements are only as good as the local inspector decides it’s worth. The Saudi Minister of Commerce has spoken to them, they urge us to go in there. In reality, trade between the Arab world is not easy.

It is easier to ship to France and then to Morocco. It is no wonder that business between the Arab countries does not develop well, but business between old colonies and the old colonizers seems to be healthy and strong. The people in those countries seem to not want bilateral businesses. There are very difficult, built-in obstacles in spite of all the agreements between countries.

Lastly, a family business question. There are new disruptive technologies coming online, like the Uber Taxi Service, which hope to disturb the market, disrupt it. You are one of the traditional houses in Saudi Arabia. How do you plan for the future, especially when it comes to opening of the borders or Saudi accession to the World Trade Organization? The liberalization, the globalization?

We signed the WTO agreement a number of years ago. If a disaster was going to happen, it should have happened by now. Our business is traditional in the sense that it has been around for a long time. But we keep up with the times.

We have invested a lot of money in computerization, our salesmen use GPS enabled handheld computers, our vehicles are GPS monitored so we track all our cars and trucks, our salesmen have GPS coordinates so we know where our salesmen are going.

Unlike some of our competitors who work predominantly in wholesale and semi-wholesale, we have about 2000 direct salesmen, who manage things with very sophisticated and accurate technology.

 The complexity and the size of the business is managed by the use of technology. 

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