Roundtable: supplier concerns in the region
Call made for greater support from manufacturers
Prominent suppliers and distributors in the region discuss and debate the challenges faced with clients as well as manufacturers and reveal where they need support from the F&B industry as a whole
Meet the experts
- Wissam Nabulsi, managing director, Chefs First
- Massimo da Lozzo, general manager, Emirates Kitchen Equipment
- Sami Nasreddine, managing director, Quantum Enterprise
- Aiman Joudeh, general manager, Quality Kitchen Equipment Trading
- Hilary Barreto, operations and commercial manager, Elenco General Trading
In association with MKN, Caterer Middle East met with regional distributors and suppliers to understand what are their concerns and challenges when it comes to working with both manufacturers and clients, and how the market is treating them right now. The debate raised multiple issues faced by these companies, with the delegates opting to focus on coming up with ways in which to better deal with any concerns going forward.
As suppliers of multiple brands, has it been easier for you when manufacturers set up shop here?
Sami Nasreddine, managing director, Quantum Enterprise: It’s much better for them to be here — at least you can call them, be in contact with them. We face problems between here and Europe, with the time difference. When we have someone located here, we can communicate with them, and raise our issues.
Are more manufacturers setting up office here?
Hilary Barreto, operations and commercial manager, Elenco General Trading: Yes, we have had at least five or six, just last month.
Aiman Joudeh, general manager, Quality Kitchen Equipment Trading: Yes, lots of manufacturers are approaching the market here.
Barreto: It is good for them as they promote their own brand with the consultants. And indirectly it helps us as well when their products are specified.
Nasreddine: They are targeting this market now because there is more business in this area. That’s why they are coming here to generate more and more money.
Tell us how exactly do you expect manufacturers to support suppliers and distributors like yourselves?
Joudeh: There are a lot of ways to support us. One of them is after-sales service, the second one is promoting their product because they know their product more than anybody else. When they are here, they will know the difficulties we are in. If they are abroad, they cannot support us, they cannot understand the circumstances and conditions we are passing through.
Nasreddine: Another thing is the commercial issue. They have to be here to know the way we are getting business. We suffer a lot in this market because you can get the business but it’s not easy to get the money. We are suffering now, especially in the last few months with the commercial terms.
When they are here, they know the requirement of the market. They are not just focusing on shipping the material and getting the money. There is no ideal situation because they have to generate money and we have to generate money. We have to co-ordinate as a partner to get the business together.
Barreto: As far as representatives here are concerned, I’ve noticed that sometimes they are just not able to make a decision. They need to get back to their principals and then come back to us.
That’s not so good for us because we want a decision to be made right here and particularly when it’s a commercial decision. Like you want a discount on a project you’re negotiating and the guy is just not able to take a decision without going back to his office. They need more autonomy and power here.
Joudeh: That’s a valid point, they need to be decision makers and not just a representative.
Barreto: I have somebody who says ‘I need to get back to my principal and come back to you’ — I might as well talk to the factory directly.
Can you elaborate more on the commercial challenges you mentioned?
Nasreddine: We get our money in a deferred payment, let’s say 10% down payment, and a big percent on delivery. Then they have to secure their money, either through LC or payment in advance. Sometimes we have a good relation with the manufacturers and open an account. But it’s not enough. They have to consider this because if they want to get more business in this market they have to think in a different way.
Our main problem starts from the time we put the equipment on-site to 12 months later — because we have to install, we have to give a defect liability period, and if their equipment is not performing well, they will stop our money while they already secure their money. These are things we are facing on a daily basis and it should be considered.
Do you get training, if any, from the manufacturers of equipment? Is that a concern?
Barreto: There are more than 40 companies represented here in the UAE by foreign manufacturers but only a handful of them are able to give local training support. That helps us a lot because then we can take them to our clients and give them hands-on training on the equipment. That’s very, very useful.
Wissam Nabulsi, managing director, Chefs First: There are two levels of training. One is related to service and maintenance, where mainly engineer technicians carry out the repair. The second is operational, which is for the chefs and the cooks who are going to use this equipment.
Most of the locally represented manufacturers have these two wings of training which are equally important. At the end of the day, we as distributors are doing more of the service but not the operations. We are not chefs ourselves. The manufacturers are, and the people who are using the equipment are chefs and they need somebody to talk to in the same language and that’s very important.
If you don’t get appropriate training, do you, as suppliers, have to figure this out yourselves?
Nabulsi: The big manufacturers, the one with the lion’s share like MKN, they definitely follow that and they have the representation. For the smaller ones it depends, some of it is done by us.
Nasreddine: Sometimes for a complicated machine we pay for engineers to come from abroad and this is an extra cost.
Barreto: We, for instance, send our technicians abroad to get trained in the factory so they in turn do the same training.
Who absorbs that cost?
Joudeh: We do.
Barreto: Maybe they will take care of the hotel while you buy your own ticket but the rest of the expenses are on us.
When it comes to project negotiation, do you get any support from manufacturers?
Barreto: We do it ourselves but occasionally we might need some help from the manufacturers because of a project which is large enough to get their involvement in.
Joudeh: The business now is different from before. We used to have to do everything, all the negotiations and then we just place the order with the supplier. This is what we used to do but the manufacturer has to be with us during negotiation, they have to give us the support.
In terms of price, delivery, payment terms, and even after-sales service. Sometimes they have to provide us with spare parts and it has to be part of the package and the order. So I think the trend now is different and the overseas manufacturer has to understand this if they want their share in the market. Old style is totally finished.
Do you think there are differences between being distributors in this region and elsewhere?
Joudeh: Yes, in our culture, relationships are very important.
Nasreddine: And simple things like spare parts. We request them many times to keep spare parts here. Sometimes they give the courier more than the cost of the spare parts itself. Sometimes you need a small part for €5 (US $6.35) and they spend €10-15 ($12.7-19) for couriers. It’s in their interest as well when they tell any client they have spare parts available in Dubai or Abu Dhabi.
If manufacturers suddenly change the price of their product after you’ve signed a deal, who absorbs the change in cost?
Barreto: It’s a clause in our contract that we will not raise the prices no matter what, whether the currency fluctuates or any other reason.
Nasreddine: Unfortunately, now there are specialised project management companies in the market and they put everything to the benefit of the client. This means they tighten us in a way that we cannot breathe. We supply, we have do everything — sometimes we reach the point where we finance the project.
We give everything and later on they give us the money. And the manufacturer is aware but they insist we give the LC. LC is a commitment; if it is one day or 120 or six months, you know that you have to give the money. But we wait two years to get ours.
Massimo da Lozzo, general manager, Emirates Kitchen Equipment: It’s much easier to work if the manufacturer is based here and you get more support, the communication is faster, and if something goes wrong, you can call.
Nasreddine: He worked with a manufacturer before but now he’s a contractor.
Lozzo: Before I didn’t understand why I couldn’t close a deal or why I wasn’t able to work with some distributor. Now I’m on the other side, I know perfectly why there are some difficulties.
Massimo, as someone who has seen what it is like on both sides, what do you think manufacturers need to consider?
Lozzo: There are two totally different mentalities. For the manufacturer, there is one goal, which is to produce. So the manufacturer has to fulfil the factory plan with orders.
The contractor’s aim is to take jobs, deliver the jobs, do the proper installation, do the service. I cannot say it’s more complicated because to produce is not easy, but it’s different. You are representing, you are in touch with the end-user, with the investor. It’s a different aspect.
Are one of the challenges you face related to delivery of products?
Nasreddine: Yes, with time. Each manufacturer deals with 50 different countries and they have to give priority to the order that’s coming in. Time is a basic issue and sometimes we lose business because we need something in eight weeks and their delivery time is 14 weeks.
Lozzo: The main problems are when things change. We are a sub-contractor; it’s very easy for the main contractor to blame the kitchen contractor for delaying things. Unfortunately there are no penalties on the main consultant.
Joudeh: Since he was a manufacturer and now he’s one of us, and he’s an Italian living in the Middle East, I want to know, did you understand the culture of the market, and how important the relationships between you and the customer, and you and the manufacturer are?
Lozzo: It’s extremely important. Our job is based on relations, on networking and how much they recognise and respect you. It’s a very small world, the kitchen industry — from the supplier to the distributor and of course, now that I’m working on this side I answer to clients, main contractor, and consultants. A manufacturer who is based here has the advantage to promote his brand and create a demand from the end-user. Meanwhile the manufacturer who is not present doesn’t know what is happening.
Barreto: Some tend to become our friends over the course of time, especially when you are long in the industry. We have an excellent relationship with the manufacturers so we can work situations out. When it comes to deliveries, if they stick to their schedule then we are fine with it, but if they delay, then we are in deep trouble.
Joudeh: Usually there is a standard delivery time from the manufacturer and we negotiate based on that, but sometimes they surprise us by saying they are delaying the delivery by three or four weeks. The client signs the contract with us with a specific delivery time and a price and if there is any increase in the currency or any delay from the manufacturer or the manufacturer increases the price, the client says it’s not his problem, it’s our problem and we have to take the loss.
Nabulsi: Sites get delayed, the client gives us a programme and 6–7 months down the road that has gone out the window. We are still committed and the client doesn’t necessarily take any responsibility towards the delay. So we end up with materials on stock and on-site that are not installed, and that happens a lot.
If a project gets delayed like that, what happens to the payment?
Nabulsi: The best case scenario is that they pay you for materials on-site. But that is maybe 70%, 80% in the best case.
Nasreddine: They will deduct the down payment, they will deduct many other things… the 70% will become 60% or 55%, which is not enough to cover the cost.
Barreto: It depends, sometimes you have one contractor who might decide to pay you while keeping the goods in your own warehouse against the resting certificate but that’s very rare.
Lozzo: It’s very rare. Around 80-90% of our contract cost is only material, so the incidence of our labour is very low. Paying us 10% in advance puts us in the position that we have to finance the project.
Nasreddine: The manufacturers know they can control their cash flow because after one or three months they will get their money. But for us, it’s open-ended.
Lozzo: There’s not one of us who doesn’t have a lot of money on the market.
So how long is the limit before you absolutely have to get paid by the client?
Nabulsi: There is no limit.
Isn’t it in the contract?
Nasreddine: It’s always in the contract but they can find a lot of excuses or deviate from the contract to blame you.
Barreto: For example, I have a contract where the main contractor is at fault. But I am tied to him, so he’s not paying me and he’s not getting paid by the client.
Joudeh: When we are not paid by the client, we cannot pay the manufacturer. If the manufacturer insists, we have to tell him ‘it’s not our problem, next time we will not propose you to the client’. This is what we have to do. Either come here and understand the market and the difficulties, or we are not interested to work with you. This is my policy.
Lozzo: Dubai is a tremendously big city with billions of investment but it is not an easy market.
What do you think needs to happen moving forward?
Barreto: The manufacturer needs to be a part of our problems because right now they’re not. They just want their money for the goods they sell to us, they don’t want to know what’s going on with the payments or the contracts we have entered. They need to work with us on the financing of the project; maybe give us extended tender terms according to what we have in our contracts, six months down the line for instance, instead of payment in advance or 60 days.
Nabulsi: Manufacturers, but also clients, should understand the nature of our business and the importance of getting paid on time.
Nasreddine: We have start saying no for some commercial payment terms. All of us have to start doing this because at the end of the day there are 5–7 kitchen contractors… if we’re not doing the job then no one will. We have to say no, we have to start telling them these are our terms and conditions.
In case there is anything like what happened in December 2008, we will be responsible. We have to carry all the risk while they are going to be safe. This is the main reason — why are they putting the cost on our head and not on theirs? Instead of the bank calling real estate or the client, they will sit on our head.
Lozzo: We are not competitors, we are colleagues because not one of us will be able to take over all the projects. If we don’t consider this now, with the Expo 2020 coming up, it will never happen because the client will understand only when he gets barred.
Joudeh: Another issue is the manufacturer gives us one year warranty from the date of shipment. But actually we hand over to the client after say one year and we have to give warranty to the client one year from hand over. They have to start the warranty period from the handing over to the operator.
Barreto: That’s a very good point. By the time the manufacturer’s warranty is over, we are just about handing over the project and the warranty starts for us.
Joudeh: We have to understand that our relationship is more as colleagues than competitors. We cannot accept back-to-back agreement, we cannot accept open duration agreement. They will hand over the project after three years and we suffer. All this we have to put in paper and stop accepting these terms.