12 SEPTEMBER 2001

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Victor Zammit
Talking to Victor Zammit
The rise, fall and resurrection of the Price Club

Price Club director Victor Zammit tells RAY ABDILLA how he regrets having been unable to involve himself in the chain's daily affairs, given his capacity as a non executive, and about how Malta's largest supermarket chain crumbled

In an interview with this newspaper a year ago, you had told me that the local supermarket industry must change to survive and that Price Club is not afraid of change nor is it afraid of being part of a the large European market. Now the Price Club has had to practically shut down. Was this due to a not being ready for change or were there other determining factors in the chain's financial failure?

I still reiterate that the local supermarket industry must change to survive. However, the problems faced by Price Club are not related to the changes I had spoken of last year. The main factors contributing to Price Club's present situation are related to financing, management and anomalies in the supply chain that exist only in Malta.

Many people are wondering why, with thousands shopping at Malta's Price Clubs, did it collapse? For example, the Swatar branch would be packed every day with people from all over Malta spending considerable sums of money.

The Price Club chain used to generate one of the largest turnovers in Malta - over Lm22 million. The Price Club concept was, in the beginning, based on huge discounts. The new management that took over the chain in 1998 tried to change the objective of the business from one based only on discounts to one of ‘better service'.

This plan, which required substantial capital to materialise - such as through changing the product mix and the actual layouts of the stores, could not be finalised due to the inability to raise the necessary financing from local institutions. Moreover, the information technology supporting the business was non existent when the new management took over three years ago and a sizeable investment had to be made in this area as well.

The financial strain of these investments had a negative result on normal trading.

Other supermarkets are reportedly doing well, such as Smart Supermarket, a family-owned business. Do you think that if Price Club had been a family-run business, it would have faired the storm better?

Undoubtedly, a family run business has its advantages. However, this is a very different strategy to that of the Price Club chain, which emulated the Tesco concept for Malta - but obviously to a much lesser extent. The management, in fact, hired a former Tesco consultant to advise it.

Is it true that some of your workers had astronomic salaries, which were perhaps not viable for a new company?

Salaries do not come into the equation. It is more a question of whether management was too top heavy, rather than the quantum of the salaries.

What is your reaction to the GRTU's negative stance on injecting foreign investment into the Price Club?

The GRTU's stand is both anachronistic and confused. The globalisation of trade is a fact that nobody can stop and Malta is no exception.

The GRTU's fuss about foreign investment over the last months is the remnant of a custom from a period to which Malta no longer belongs. There are already hundreds of shops in hotels that are either partially or totally foreign owned. Protectionism is a theory of the past and the creation of wealth and jobs is irrespective of whether it is in retailing or in industry.

We cannot apply a concept in one area only for convenience. What's more confusing is the fact that the GRTU's stance discriminates against large retail shops. Has it become a union for smaller retailer only?

Many describe you as a workaholic, a proud self-made businessman with a penchant for inventing new strategies and concepts to make businesses run better. Why do you think you failed at Price Club?

Unfortunately I was a non-executive at Price Club. Although I was on the board of directors, I was not involved in the daily running of the business. With hindsight, I regret not involving myself in the chain's daily affairs.

What are your comments on Arcadia in Gozo taking over the Price Club?

It was not really a take over. But the management decided that it was not in its best interest to carry on trading in Gozo.

You had said in the past that the setting up of supermarkets in Malta was not well planned, as it happened without any forethought and many individuals who had a large property simply opened it up as a supermarket. Do you think that the local market has become saturated?

Supply is definitely much greater than demand and this is not only in retailing, but is also taking place in all spheres of business. One cannot talk of market saturation, but of a process of evolution in the retailing business. What happened in the western world over the last two decades was a change in consumer shopping habits.

The supermarkets have taken over the small retail shops. In Scandinavia, for example, 95 per cent of all consumers satisfy their shopping needs at supermarkets. This 'retailing' revolution has been developing in Malta over the last ten years but it is still in its infancy.

You had said that in these days of heavy competition there is a good deal of price slashing taking place. From your experience, it’s not only the cheap prices that sell but, moreover, it is efficiency. What are your comments now on the issue, do you still think that one can’t survive on slashing prices alone?

As I mentioned before, a business cannot survive solely on the concept of huge discounting. It also needs to incorporate ‘better service'. Hence, a business can develop only if it gives a better service than its competition.

Price Club had sent some of its staff to England and the United States for training so they would come back qualified and able to train others. The directors also had to learn how to run a supermarket and pass this knowledge on to those working in the field. Did this happen? Did you and the other Price Club directors, as you are all involved in other businesses, have the time to do this?

Training is not just essential but it is a 'must'. Yes, Price Club was involved in an international training scheme and most of its managers were sent abroad for training. The concepts learned were right but, unfortunately, these could not be exercised properly due to the problems I mentioned in my answer to your first question.

In 1979 you invested in Biochemicals, which produces toiletries and detergents. The company has been in operation since then and is the most important of its kind locally. At the moment it exports well-known brands such as Men Only, Replay, Action Replay and Sports to 30 established export market countries - local brands locally made from start to finish. Why has this company been so successful?

BiochemicaIs Int. Ltd. has been established since 1979. At first, it used to cater solely for the local market but over the years it developed its own brands which are now being exported in over 40 different countries. In fact, the Men Only and Action Replay brands are now very well established in important markets. It is quite a satisfaction to see our own brands competing with multinational brands. The success of the company is mainly attributed to its vision, its creativity and its workers.

80 people work at Biochemical Ltd and you are in the process of expanding. When will the other factory start operating?

The impact of our expansion in the overseas markets necessitated a growth in its operations. The Malta Development Corporation allocated another factory to the company last year. Infrastructural works have now been completed and the new machinery will be installed in the coming months. Hopefully, the factory will be fully functional in January 2002.

Do you think the Maltese economy is facing a recession today?

A recession is measured by economic indicators such as inflation, employment and GDP. Official government statistics indicate a control on inflation and employment and an increase on GDP.

However, there is an air of pessimism in all sectors of the economy which is puzzling when one takes these economic indicators into consideration. I believe that the main factors contributing to the current negative attitude are a result of the overspending that was rampant in all sectors over the last decade.

Both the businessman and the consumer are feeling the pinch now, especially since the local banks began adopting a policy of stringent control on spending.

From a businessperson's point of view, how do you feel about Malta's accession to the EU?

An accession to the EU brings about positive aspects to the economy in certain areas, and negative aspects to others. It also imposes stringent control on environmental positions, which Malta badly needs.

It is true that we do not necessarily need to form part of the EU for government to take the necessary action on environmental issues, but once they are imposed as a part of full membership we cannot postpone these issues ad infinitum.

Another positive aspect is the fact that products exported from Malta to non-EU member countries would not require tariff barriers as is the case today.

However, there are also many negative impacts on the local economy due to economies of scale. Looking at the issue from a non-political point of view, one should not let himself be biased by a definite 'Yes' or 'No' stance. One should evaluate the situation properly when all chapters have been negotiated and closed.

How many companies are you are involved in?

I am involved in different companies but my main activity and base is Biochemicals Int. Ltd.

What about Birkirkara FC? Is it as difficult to manage as the Price Club?

When I took over the club in 1996, I had planned a five-year strategy that I believed has worked well. Birkirkara FC today is established as one of the main clubs in Malta and the recent successes have been the result of good work.

We are now in a phase of laying the foundations for a good base to make the club self-sufficient in its financial requirements. It is not very easy, I admit, to change the mentality of the people around me at the club to turn the club into a proper business concern from the traditional type, which was run by committees and which depended solely on voluntary work for its income. It is definitely an uphill struggle but I am convinced that I will eventually manage.

You had discussions about the Price Club with a British and a Libyan company. What are your views about Price Club's take over. Will you still hold some shares in the company or will you be selling it off lock, stock and barrel? Were the discussions difficult?

Since the problems started in spring, both our financial consultants and the creditors’ consultants, PricewaterhouseCoopers, have indicated that the chain requires an injection of fresh capital. They are both of the opinion that the Price Club model should work well if this capital is found. We had various options from beyond Malta's shores, while we found that the capital needed simply could not be raised in Malta.

I have been having long discussions for about three months with one of these companies and, in principle, an agreement of participation has been reached. All due diligence procedures have also been carried out and should be ratified over the coming days. This should allow the foreign company to take a fifty per cent equity stake in the chain, with our participation in the other half.

This capital should make Price Club supermarkets stronger than ever and I believe that the future of the chain should be brighter.



The Business Times, Network House, Vjal ir-Rihan San Gwann SGN 07
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