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Marcopolis presents the Saudi Arabia Report focused on the investments, doing business, economy and other topics featuring interviews with key executives. The sectors under review in this issue are industry, real-estate, ICT, investments, banking sector, telecom sector and many more.
InterviewsApril 19, 2021
Mezahem Basrawi Presents Alhamrani-Fuchs Petroleum: A Leading Supplier of Lubricants in Saudi Arabia
Mezahem Basrawi, CEO of Alhamrani-Fuchs Petroleum
- Written by Sandra Francisco
- Published: April 19, 2021
Interview with Mezahem Basrawi, CEO of Alhamrani-Fuchs Petroleum
What are the challenges that you face to grow your business?
There are two facets to this: pre-COVID and post-COVID. We serve automobiles, cars in the streets, and we serve industries. When the economy is not doing well and the projects slow down, industries also slow down and business slows down. That is the challenge. There has also been quite a bit of slowdown on the import of cars in Saudi Arabia in the past three years. Even before COVID, it was an economic issue. In 2016 with the oil crisis, oil went down from the $100 mark to the $50 and $40 mark which affected the economy quite badly. But with the Vision 2030, things have started to move away from the dependency on oil to diversification of income from other means. The oil business and the lubricants business depend on the frequency of changing oil. The technology of cars has become so advanced that the frequency of changing oil is not necessary for longer and longer periods now. You are changing oil after 20,000 miles rather than 10,000 miles or 5,000 miles. Even though it is more expensive, that does not offset the difference of your margin versus the sales of your volume. The frequency of changing the oil does not offset the volume that you would have sold at a lower frequency. These are the two challenges we face.
Are you launching new products to counteract this effect? Have you changed how you want to approach the market and how you are going to push the sales?
We are actually opening up our own service stations to be more direct with customers and to educate more customers directly rather than being dependent on dealers and service stations that we do not own. We own 60 stations so far, and we want to grow to own our own stations and to become masters of our own domain. That is the strategy.
What is your assessment of the oil and gas sector?
The oil sector has been affected by the 2016/2017 economic downtrend. However, the high viscosity grades have also changed the intervals of changing oils, not only in automotive but also in industries. A lot of machineries are becoming more advanced now. The more advanced the machinery, the more advanced lubricants that are being produced. Fuchs Germany spends one of the highest amounts of any company on R&D. The business model of Fuchs Germany and Alhamrani is based on three pillars: people, lubricants, and technology. We are committed to people. Our R&D is 100% focused on lubricants and technology. We are always studying holistic solutions for the machineries and going in parallel with what those machineries require as far as lubricants.
Have you seen any effects on the sector with the move towards hybrid and electric cars?
We are providing lubricants for cars, bicycles, airplanes, cameras, windmills, trucks, machineries, metalworking, hydraulics, anything that requires friction, that is in movement, we are into that.
We are in the lubricant business. But to be honest, I have not seen an electric car in Saudi Arabia or the Arab world that is yet to be a direct threat to the lubricants business. Now, it is coming. I do not know when, but it is coming. By 2040 in England, there will be only electric cars. Of course, now, the electric car and hybrid car are two different animals. Hybrid cars still have 350 moving parts, just like the gasoline car. For the 100% electric car, there is only 70 moving parts. Whenever you say “moving parts” that means lubricants. Our business, of course, will be affected. Now, there is even talk of machinery moving fully electrical, but that is down the line. Even in our service stations now, we are putting the infrastructure for fast electric charge units. How long will it be before it affects the market significantly? To affect the market, it would require about 30% to 40% in order to really make a significant change. That may not happen in the foreseeable future, but of course, it is a concern for us. But, the strength of Fuchs lubricants is actually in the industrial business more than the automotive business.
Are you seeing the effects of technology and the need for lubricants in the industry sector, also?
We are using the highest grade of raw material. That raw material is connected with the price of base oil. The shortage of base oil actually determines the price of the lubricant because the lubricant itself is 90% raw material and the rest is the technology of the additives and the mixture of the additives that will make the difference of the finished product.
Can you explain Lubritech in more detail?
Lubritech is a company owned by Fuchs lubricants and they are active in highly specialized lubricants that are used in specialized applications such as the cement industry, the metalworking industries, etc. There are even lubricants that are used in cameras and digital cameras. There are very small parts of the camera that use very specialized grease, lifetime grease. So, every time you click on a camera, you should think of us because that is where the lubricant is. Anything that moves actually requires lubricant. Anytime there is friction, there is lubricant. Whenever there is a high heat and high friction, you require heavy oil. With heavy oil, you also get heavy residue which is not very good for machinery. Lubritech manages to do higher viscosity with less heavy oil to make it much more economical and much more efficient. It is more expensive, of course, but it is a very specialized oil.
What are your competitive advantages? How do you stand out from the competition both in Saudi and in the region?
We export to 16 countries. The product with all the major players is almost the same. Brand equity is what differentiates us. Coca-Cola and Pepsi are the same almost; it is just an acquired taste. Brand equity is what differentiates them. What we would like to see ourselves as a service. The competition can compete with price, can play with costs, can play with the brand look, but they cannot compete with you on service. Service is a very personal thing. We have outsourced customer care to a unit here in Saudi Arabia to really increase our customer care by 180 degrees. This unit reports to me directly. Service is a major part of our competitive edge.
How do you interact with these clients?
We do not go to our clients as salespeople. We go to our client as an advisor and as a consultant. We do not divulge pricing issues to a client as much as we divulge cost issues. We tell them that if they use this oil, how much cost they are going to save on their machinery or their cost per unit. Using oil is not just using an oil and changing it. It is the efficiency of the machinery that counts. Now, you can use that oil for a year or you can use it for a year and a half. We have a program called the CENT program that shows how efficiently the machinery works. Based on that, if we can show you how efficiently your machinery works, we can really show you your cost per unit, or how much you save on your cost per unit. That is the most important thing: how much is the cost of the price per oil? If our price is $100 and the competition has their price at $80 it just does not work this way. If I sell to you at $100, but I am saving you in the long run on the efficiency of your machinery, then you should jump on that. And that is how we visit the customer. That is how we explain to the customer: as educators more than just salespeople. With the economy, a lot of people are price conscious now. They do not really care about efficiency or the price per unit. They just care about the price. But we do not change our strategy because in the long run it works.
What percentage of your business is international or regional and what percentage is local?
Our strategy was to export. We found the Egyptian market to be a very lucrative market and we have opened a direct office in Egypt now. Unfortunately, most of the countries that we are exporting to are troubled countries. Yemen is at war. Iraq is at war. Syria is at war. Sudan is now upside down. Tanzania we are no longer exporting to but Fuchs have taken it directly with a joint venture. The only non-troubled country we are dealing with now is UAE. We continue to export, but it is not a significant revenue stream. But it is presence for us.
Do you see this changing in the future?
Yes. Interestingly, Yemen accounts for 40% of our export. Iraq is moving with promise. Egypt is a good market. The size of the entire market is about 500,000 metric tons a year. We sold about 1,000 metric tons in only the initial year on industrial business and we are growing there directly, not through a distributor.
Of course, CSR is becoming more and more important in the oil industry. Everybody is also looking at the green aspects because politics are very oriented towards a greener world. What is your policy to that? How have you reacted?
We have actually been very active some years ago in beach cleaning where our manufacturing plant is and we worked with an elementary school. We gave those kids a lot of gifts and we cleaned the beaches. We also did a high school program for scholarships to teach them English and to send them to England. Now, we are planning to plant trees as part of the initiative by the Crown Prince to plant millions of trees for the environment.
What are your current projects?
We are expanding our service stations to have direct service stations. Our service stations do not sell anything but our brands. It is called Fuchs One Stop. We are trying to educate our own customers and to capture loyal customers only. We already have 63 stations and we are expanding that number.
What are some success stories that you are proud of?
In 1997 we became partners with Fuchs. Before that, Alhamrani was also in the oil business with a major brand that was really known in the market and they had a good market share. Now, in order for them to convert the brand to Fuchs brand was a very difficult issue because people were pronouncing the name wrong. It was even more difficult to gain market share with a brand that is difficult to pronounce. In one year, we were able to penetrate the market, get a market share, and we were able to replace our shelves with the Fuchs brand. That is a success story that I believe was a case study. It was 100% based on marketing.
What was your personal journey within the company?
I joined the Group 30 years ago as an Assistant Manager of Marketing. On a rollercoaster of ups and downs, I made it to the CEO level of Alhamrani-Fuchs Oil Middle East and it has been fun since then.
What is your personal inspiration and your drive?
The good thing is, I am just as good as the people around me. But, I am just as bad as the people around me, too. If I receive the wrong information, and based on that I make decisions, that is the end of it. The people around me are the most important assets I believe in. But also, if I pick the wrong people, it is my mistake not theirs. So, I find it very difficult every day to look in the mirror and say, "Have I made the right decision in picking the right person today?". When picking the right person to ask about something, I do not only call people that report to me. I call subordinates of subordinates to ask them a question. I have sessions where everybody can come up and say ideas. Ideas are free, unless they are implemented. When you implement the idea, it is very important that everybody is convinced of that idea. It is a very difficult task. The zero politics culture is very important to us and it is the most important thing to keep a company growing. Politics is a cancer. If you have even one bad apple in a 6,000 person company, you will have a problem. Now, my advice to all of the people I work with is to keep the culture going, keep the Swiss clock going. Do not allow the culture to go beyond what it is today. Do not try to reinvent the wheel. If the culture works, do not fix it. There is always room to improve, but just do not try to reinvent it. My challenge every day and my challenge from the day I became a CEO is to get people to work together as one and as one team.
What is your ambition for the company in the medium term, three years' time? What do you want the company to be?
We are working on the strategy to be a total solution provider. We are providing lubricants for cars, bicycles, airplanes, cameras, windmills, trucks, machineries, metalworking, hydraulics, anything that requires friction, that is in movement, we are into that. We have the technology behind it and we have the R&D behind it. I would like to see more contact with the customer directly rather than through the middleman in the retail business, at least. In the industrial business, we are already in contact with the customer. But, in the retail, we would like to be more in contact with the retail person directly rather than through service stations that we do not own. I would like to own 1,000 stations one day, even 2,000 stations one day. We are very hopeful for the country after COVID-19. The country is going through a growth phase. If it was not for COVID-19, you would have seen a huge growth in Saudi Arabia. Two measures that will open opportunities for foreign investment are the diversification in the income from the oil to the non-oil sector and the national transformation where the private sector will create more jobs. In Saudi Arabia, 40% of the population is under the age of 25 years old. 72% of that population uses social media heavily. It is among the largest in the world. If you put that together, you can foresee what is going to happen in the next three to five years. We are taking advantage of social media to promote and to send our messages and marketing. We are very hopeful that post-COVID, the psyche will change. The economy is going to boom. It will not be the boom of the 1980s but it will be sectorial booms such as in education, hospitalization, privatization. You will see a lot of growth in these areas and with that growth, we will grow.
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