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The Gulf Special
Keeping The Home Fires Burning
Yusuffali of LuLu is betting big down south on just about every business that he is into: retail, hospitality, IT parks, logistics and financial services
COMMENTS PRINT
Special Issue: The Gulf Special The Gulf Special

5 billion Revenue in US$ in 2013

18.7 2008-2013 retail revenue CAGR (%)

10 countries operating in

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It was just two days after his mother’s demise when a crestfallen Yusuffali MA, sitting in his native place of Nattika in Thrissur (Kerala), was informed that an old lady was keen on meeting him. Still to recover from the personal tragedy, Yusuffali conveyed through his assistant that he would meet her after a few days. But the lady persisted as she had something important to tell him. When Yusuffali met her, she handed him a crumpled receipt that showed that a single gold bangle had been pledged with a bank to borrow money. Yusuffali assumed that the lady wanted him to clear the loan and said he would take care of it. But when the lady divulged that the bangle did not belong to her but to his mother, he was flummoxed. “How did you get hold of this?” he quizzed. The lady then revealed to Yusuffali that on a previous occasion, she had approached his mother for monetary assistance to fund her daughter’s wedding, but since his mother was not carrying any money, she had handed over her bangle to the lady, saying, “Do not worry about the bangle. If you pledge it, my son will clear the lien and bring it back.”

 
 
Yusuffali chose his native state for his maiden investment of Rs 1,600 crore to build the LuLu mall in 2013
 
 
This moving account of his mother’s magnanimity prompted Yusuffali, touted as the world’s richest Malayalee worth over $3.2 billion, to resolve never to allow any of his staffers to let down their dependent parents, especially mothers, of monetary aid. A rule that the 57-year-old follows to date, across his privately-owned $5 billion empire called the LuLu Group, one of the biggest retailers in west Asia. Parents of his employees are free to write to him directly if they are in dire straits. Depending on the gravity of the situation if an employee is unable to send money, Yusuffali himself sends funds and if it’s a case of a lackadaisical attitude, the employee concerned is given a dressing down and, in extreme (and rare) cases, even sacked. In fact, every year, Yusuffali makes a few trips to Kerala and recruits people from his village, depending on their qualification. His personal involvement in recruitment is to weed out middlemen, who tend to fleece villagers seeking jobs abroad. “Agents charge upwards of Rs 50,000-60,000 for a visa, but Yusuffali arranges for the visa and the only expense that the candidate has to incur is the flight cost,” says Saneer M, village officer at Nattika panchayat. “Though we hire professionals around the world, as the business is getting highly competitive, I still hold recruitment meetings in my village to give a chance to educated youth. Many such recruits have gone on to become top ranking executives today,” remarks Yusuffali, who has over 34,000 employees in 10 countries. He is the single biggest overseas employer of Indians — over 23,000 at last count. And it’s not just livelihood, Yusuffali builds homes (600 sq ft to 700 sq ft) for the needy. “In the last year, he built 10 homes and contributed over Rs 20 lakh to the panchayat fund,” adds Saneer. But, of late, it is business that is bringing Yusuffali closer to his motherland, a place he had left for good in the early ’70s.

Early Days

Born in Kerala in 1955, Yusuffali finished school and moved to Gujarat, to where his father had migrated along with his kin in the late ’50s. After spending some years in Gujarat, in December 1973, Yusuffali set sail on a nine-day long journey from Bombay to Dubai, where his paternal uncle MK Abdullah ran a small shop, Emke Store. The journey is still fresh in Yusuffali’s memory. It was 11 AM on, incidentally, the last day of the year when he touched the shores of Dubai. That the emirate state of yore lacked the basic infrastructure comes through when Yusuffali points out that it took him five days to reach Abu Dhabi, a destination that today takes less than three hours. “UAE was a far cry from what it is today. Very few buildings, barren desert everywhere, irregular power and water supply. ACs were unheard of. I used to sleep on the roof as the summer heat was compounded by immense humidity,” recalls Yusuffali, who began assisting his uncle in the shop located at the old souk (marketplace in Arabic).

 
 
"Kerala may not rank high statistically As a retail destination, but it has all the right attributes"Anil Talreja, partner, Deloitte Haskins & Sells
 
 
The onset of the oil boom in the UAE changed the course of Yussufali’s destiny. Rather than sitting at the shop waiting for customers, Yusuffali, together with a driver, started delivering food products to the western settlers engaged in the newfound oil wealth in the interior areas. “One thing led to another and we were soon importing a host of frozen foods from Europe and elsewhere and the business stared to flourish,” adds Yusuffali. It was only a matter of time until his ageing uncle handed over the reins of the small trading business to Yusuffali, who then scripted an entirely new chapter in retail, which was slowing moving away from mom-and-pop stores to supermarkets. But the onset of the Gulf war meant that Yusuffali had to make a tough choice of either staying put or fleeing, like his native folk did. Calling it quits would have meant losing everything that was painstakingly created over the years. “So I decided to take the chance. I opened the first LuLu supermarket in Abu Dhabi,” recalls Yusuffali, who continues to hold Indian citizenship. His investment was appreciated by the royal family and the citizens, who viewed it as an act of loyalty. Even as the Gulf war raged, Yusuffali stayed the course and his business flourished. The next big inflection in the business followed the entry of French hypermarket chain Carrefour in Deira City Centre in the mid-1990s, as that meant that Yusuffali had to up the game beyond supermarkets. In 2000, he just did that by opening the first LuLu Hypermarket in Al Qusais, Dubai, and within eight years, he ended up with 72 stores. As he had cracked the success formula in retail, the group entered the shopping mall business in 2004. “Hypermarkets are our main business and not shopping malls. But both complement each other. Shopping malls will complement hypermarkets and the hypermarkets will complement the shopping malls. This is our model,” mentions Yusuffali. The typical timeframe for a return on investment for a hypermarket is about three years. Though the 2008 crisis cast a shadow over UAE as well, Yusuffali continued to expand, adding over 32 hypermarkets in the following years as part of a strategic plan called ‘Achieve 100’, under which, the 100th outlet was opened in 2012 in Ras Al Khaimah. Unlike Saudi food retailers Panda and Al Othaim, which took 30 years to break the 100-store threshold from the time they opened their first supermarket, LuLu did so in just 11 years. Yusuffali’s reasoning: recession or no recession, people will eat, and that largely explains why to date, LuLu is seen as a value-for-money chain rather than a luxury destination.

Given that west Asia is largely reliant on food imports, retailers such as LuLu group have created a strong manufacturing, sourcing and logistics network. “When you import products, you tend to import inflation. We always try to find a way to keep prices low, at least of essential commodities. Retailers are always the last link in the chain, with no control over the price — we are normally the ones who get penalised for rate hikes,” Yusuffali was quoted as saying in a local publication. LuLu had to rethink its strategy of sourcing in 2008 when food inflation hit its peak in the GCC region. For the past seven years, LuLu and other retailers have signed an agreement with the ministry of economy for freezing the prices of essential commodities and to bring down the prices of imported products. While one part of the strategy focused on introducing its own private labels, the other aspect led to LuLu eliminating middlemen and establishing 37 direct sourcing offices in major hubs of Asia, Far East, Africa and Europe. It also has a two million sq ft warehouse in Abu Dhabi, where products can be stocked for three to six months.

 
 
Supermarket and hypermarket sales in the GCC region are expected to reach $59 billion in 2018
 
 
Today, every day, more than 300,000 people in the Gulf region shop at one of the many supermarkets, department stores, hypermarkets, and shopping malls that LuLu operates. With a 32% market share in the Gulf region alone, LuLu is ranked among the top seven retailers in west Asia and the ninth fastest growing chain among the top 250 global retailers, according to Deloitte. Between 2008 and 2013, the group averaged a CAGR of more than 18%, to touch revenues of over $5 billion. “Despite the recent fall in the oil price, there is little evidence that it will negatively impact consumer spending in west Asia. Although European grocers might be slowing expansion, no such problems are affecting those in west Asia,” mentions Herve Ballantyne, partner and consumer business leader at Deloitte Middle East, in the 2015 Global Powers of Retailing report. Given that sales at supermarkets and hypermarkets in the GCC region are expected to reach $59 billion in 2018, a CAGR of over 9% between 2013 and 2018, Yusuffali has no reason to worry even as he plans on expanding into Asia, especially Malaysia and India.

Shopping Binge

Over 55 years of age, M Sudhakaran has spent 26 years broking real estate deals in and around Ernakulam, but he has not got a chance to associate with Kerala’s most ambitious retail project and also the country’s largest — the LuLu Mall spread across 18 acres of prime land in Edappally Junction, and less than 8 km from where Sudhakaran operates his business. “Unlike other malls, they are not entertaining brokers. They are dealing with clients directly,” says Sudhakaran rather ruefully, possibly not aware of Yusuffali’s aversion to middlemen.

Though the state has time and again proved to be a nightmare for businesses, Yusuffali chose his native state to make his maiden retail investment of Rs 1,600 crore for building the mall that opened in 2013. “From acquiring land to getting various government permissions to mobilising large workforce for the construction, everything was full of challenges. But I kept going and reached my goal as per the timeline set by us,” points out Yusuffali, who got both the chief minister and the opposition leader of Kerala to preside over the opening. Since buying the first land parcel at around Rs 2 lakh a cent (1 cent = 435 sq ft) a decade ago, the arrival of the mall has jacked up real estate rates. “Now the going rate is Rs 5,000-6,000 per sq ft. All developers want to showcase his property as being close to the mall, even if the distance is over 8-10 km,” chuckles Sudhakaran.

 
 
A big overhang on the convention centre is the strict liquor policy that the govt plans to implement
 
 
While closeness to his home state is one reason being offered by LuLu, the other reason is that the population of West Asia is very cosmopolitan, and Keralites form a majority. Yusuffali agrees: “They are well aware of our brand. So, the obvious choice for our first retail venture in India had to be Kerala. And Kochi, being a commercial and tourism hub, gave us the right catchment,” elaborates Yusuffali, who also built an extravagant 60,000 sq ft waterfront home in Kochi.

Incidentally, the state economy has been growing at around 7.5-8% over the past five years, and despite the absence of a strong industrial base, service sector jobs are being created in IT, ITeS and telecom. Anil Talreja, partner, Deloitte Haskins & Sells, believes the state is among the few virgin markets that have yet to be fully exploited by retailers. “Compared with other markets, Kerala may not rank high statistically as a retail destination, but it has all the right attributes which cannot be ignored. The state has a huge literate population that appreciates good brands, a strong remittance-driven economy aided by rising income levels and a strong tourism sector. We all know that it is one of the biggest markets for the alcobev sector.” And if the management is to be believed, against the expectation of a footfall of around 30,000 to 40,000 a day, close to one lakh people visit the mall, which is spread over 2.5 million square feet and home to 350 local and international brands. Given the quantum of investment, the retailer expects the mall to break-even in 24 years. “Honestly, breaking-even or making money was not the top criteria as we were fully aware that a project of this magnitude would require huge investments and maintenance costs, which will constantly escalate,” explains Yusuffali.

But at a time when consumer spending is not exactly buoyant, is there room for worry? In FY15, despite lower inflation, the growth in private final consumption expenditure in the latest December quarter hit a decade low at 3.5%, compared with 7-9% during the high inflation period between FY09 and FY12. Yusuffali is not reading too much into the numbers. “Shopping is a very important aspect of Indians, both for necessity and leisure, and I believe that if you can adapt to changing times and offer something new for shoppers, there is no way you can fail.” Not surprising, then, that Yusuffali is looking to expand further in the state, into cities such as Thiruvananthapuram and Kozhikode, and neighbouring states such as Karnataka and Telangana. In fact, LuLu is most likely going to open its second mall in Kozhikode, which will be spread over 10 lakh sq ft. But Yusuffali is not confining his interests to retail; hospitality, logistics and IT also feature prominently in his scheme of things.

Hospitable Terrain

Rajeev Menon has shifted based to Singapore on a promotion that he truly deserved. Till recently the area vice-president for south Asia at hospitality major Marriott International, Menon has now taken over as the chief operations officer for southeast Asia and Pacific. Under Menon, Marriott, whose business model focuses on managing and franchising hotels rather than owning them, saw its India portfolio grow from six operating hotels in 2007 to 28 hotels under seven different brands. “We are a pure management company and prefer to work with partners in different markets who will build the asset, while Marriott will provide the expertise,” explains the 46-year-old. Following that strategy, Marriott has created a network of around a dozen such strategic partners across different markets. For example, it has partnered with developers Rahejas and Kanakias in Mumbai, with Prabhakar Reddy of the Reddy Group in Hyderabad, with the Chordias of Panchshil Realty in Pune, with the Guptas of Asian Hotels in Delhi, Agarwals of DB Group in Bhopal and the like. “The way we approach our partners is that we look for businessmen with a strong reputation, who have good real estate and are keen to foray into the hospitality business,” adds Menon. One such name that Marriott recently added to its roster is that of Yussufali. The chain is running two properties in Kerala with the LuLu owner. A 100-room property is located near the Kochi airport, while the second one is adjacent to the LuLu Mall. “Having a hotel adjacent to a mall is a win-win alliance. While it ensures more footfall at the mall, for a hotel it means tourists don’t have to go around the city to shop and also it works as an added attraction for travellers to stay at the property,” explains Menon, refusing, though, to draw an inference on occupancy levels.

With more than 49 additional properties in the pipeline, Marriott is open to scaling up the alliance beyond Kerala with Yusuffali. “We are willing to grow and expand with our partners and given that LuLu is an international operator, our interests won’t be confined to just India,” says Menon, who confirms, without divulging any details, that the two partners are in discussions for setting up additional properties.

 
 
"Given that LuLu is an international operator, We are willing to grow and expand with them"Rajeev Menon, COO, southeast Asia and Pacific, Marriott International
 
 
While for its pure hospitality foray it has tied up with Marriott, Yusuffali has roped in Hyatt for setting up a five-star hotel for his next pet project — a convention centre called Bolghatty international convention centre. This marks Yussufali’s interest in the niche-but-expanding MICE (meetings, incentives, conferences, and exhibitions) business in the country and specifically in Kerala, where the only convention centre is from Le Meridien. This will be his second biggest investment in the MICE space after the LuLu international convention centre (ICC) in Thrissur, which was set up around eight years ago, his first investment of over Rs 60 crore in India. Explaining the rationale behind the foray, Yusuffali says, “Kerala has long been known as the best tourist destination in India, and we want to leverage this brand equity to further push commercial tourism. The mixed-use project, coming up at Bolghatty Island near Kochi, is another dream project that will position Kochi and Kerala as the MICE destination of southeast Asia.”

This interest to tap into the international convention market is why Yusuffali chose Kochi as the destination, and is investing over 13 times the sum that LuLu spent in building ICC. Spread over nearly 12 acres, the convention centre will have several halls of different capacities with kiosks, banquet halls and service areas, and more importantly, the capacity to park over 1,400 vehicles.

 
 
"The plan is to more than treble the existing capacity of LuLu Tech park with an additional Rs 400 crore"Hrishikesh Nair, CEO, Infopark Kochi
 
 
Jose Sebastian, who is in the charge of the convention business since its inception, points out that, around 10 national-level conferences and around 30 state-level conferences are held at the ICC each year. “The idea is to project the Bolghatty project as an international convention centre. Hence, we roped in Hyatt for a 250-room property as you need to offer scale and flexibility to international clients in order to be in the reckoning in the MICE business,” says the 42-year old, who expects the new convention centre to open in 2018.

With a break-even period of more than 15 years, Yusuffali is ready to invest for the long haul. “He is very well aware that the hospitality business is a long-gestation investment and is not obsessed about returns. We need to build customer loyalty to ensure repeat business, and nurturing relationships takes several years,” explains Sebastian. Incidentally, through a deal signed with Hyatt, LuLu is looking to conduct 200 international conventions annually at Bolghatty. However, the big overhang on the convention centre is the strict liquor policy that the government is planning to implement. If the policy is made effective, it’s quite likely that the convention centre will face a huge challenge. Experts believe that it could take away almost 80% of potential MICE business from the state. However, with the hospitality industry making a strong case against imposing a liquor ban, Sebastian does not expect the government to remove one of its biggest sources of revenue.

Yusuffali has also set his sights on the growing logistics sector. The group has taken 26 acres of land on long lease from the Kochi port authority, and has built a 7 lakh sq ft mega logistics park called Emmay Logistics Park, also the biggest down south, by investing over Rs 300 crore. “With the retail sector booming in India, we saw great potential in the warehousing and logistics sector, and we have been involved in this sector in the Gulf as well. And, with our hypermarkets too spreading wings, this facility will be of great support,” points out Yusuffali. Located at Aluva, the park has a cold chain warehouse that can alone accommodate 18,000 tonne of fruits and vegetables, while the general warehouse can accommodate up to 1 lakh tonne of regular cargo.

Pay And Park

While Yusuffali is building the logistics business the greenfield way, in the case of IT, he did just the opposite. Though nascent, LuLu also has a presence in the ITes space with group companies Syscoms Information Technologies and Syscoms College, which have been engaged in IT solutions, undergraduate education and IT training in west Asia since the ’90s. But in India, Yusuffali has stayed away from the IT training business and has, instead, ventured into the IT park business. It was in July 2013, that Hrishikesh Nair got appointed as the CEO of the Kerala-government Infopark Kochi. In his previous stint with US-based Sherwin Williams, Nair was involved in the implementation of the company’s eBusiness solution, but in his new role, he had a much more daunting task — to woo global and domestic IT majors to set up shop in Kerala. He got his chance to meet Yusuffali at a dinner function hosted by the state government in honour of Prince Charles. “Though it was our initial meeting, he was quite clued into what was happening on the IT front in the state and about the potential that Infopark offered,” recalls Nair. It was only a matter of days until the picture became pretty clear for the 41-year old, when he got the news of LuLu buying out L&T Tech Park for Rs 150 crore. Spread over a 7.44-acre campus, the 4-lakh sq ft building, Tejomaya, was renamed Lulu Tech Park. But Yusuffali is betting much bigger on his new vertical. “The plan is to more than treble the existing capacity with an additional Rs 400 crore,” points out Nair. The investment will go towards developing a new 9 lakh sq ft building, Cyber Tower 2, which, on completion by 2017, is expected to employ 11,000 people.

All Roads Lead To Home

Arguably, the founder of LuLu, through his actions, is proving to be the best brand ambassador for God’s own country. With 13 branches in the state and 12 centres across the country, Yusuffali has entered the currency exchange space with LuLu Forex. He has put his personal money, too, in the four banks based in Kerala — he has a 4.99% stake in Dhanalaxmi Bank, 2.23% in South Indian Bank and 5% ownership interest each in India’s Federal Bank and Catholic Syrian Bank.

 
 
Yusuffali entered the currency exchange space with LuLu Forex and now has 13 branches
 
 
The state connection seems to run in the family too. Tablez, the F&B retail division headed by daughter Shafeena Yusuffali, owns in-house brands Bloomsbury’s (cafe and bakery) and is a franchisee for London Dairy (ice-cream parlours), and Galito’s (South African casual dining chain known for its 100% flame-grilled chicken). Tablez has opened Bloomsbury’s in Kochi mall and will soon open a Galitos outlet as well. His son-in-law, too, runs a franchisee of Cream Centre, a vegetarian restaurant chain owned by Mumbai-based Prince Cuisines.

From the looks of it, Yusuffali appears to be putting all his eggs in one basket. So, does over concentration in one region worry Yusuffali? “India will always be my prime destination for new investments, be it retail, hospitality or related sectors. I feel it is my duty to keep Kerala’s interest as top priority but we are actively pursuing new markets in Bengaluru, Chennai, Telangana and Andhra Pradesh,” explains Yusuffali, who adds that the group has food and meat processing plants in Mumbai, Delhi, UP and Kerala and sourcing offices across the country, employing around 4,000 people. Just like his investments, his tastes, too, have stayed the same. “Over the years, the quantity might have come down but I still relish simple home-cooked Kerala dishes,” says the unassuming father of three daughters. While it would be interesting to see how successful Yusuffali will be in his motherland, the man himself is not too perturbed and puts it down to basics. “There are no short cuts to success, never take your customers for granted and never consider others any lesser when you become big.” And on all those counts, Yusuffali has indeed fared well.

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