Cinnabon in Tripoli as Libya Opens Up to Foreign Business
By Matthew Campbell and Christopher Stephen on December 13, 2012
After 42 years, the country formerly known as the Great Socialist People’s Libyan Arab Jamahiriya is getting its first taste of consumer capitalism in an unlikely form: sweet, sticky cinnamon rolls. Cinnabon, the Atlanta-based bakery chain, is at the vanguard of a potential business boom in the North African country, which deposed dictator Muammar Qaddafi last year in a bloody civil war. In July the unit of Focus Brands became the first U.S. franchise to open since the revolution, with a two-level Tripoli outlet. It’s become a popular destination in a city with few diversions for residents.
Cinnabon’s bet on Libya—it plans to open at least 10 new locations over the next five years—shows the perils and potential of this wealthy new consumer market, which is being eyed by a growing number of foreign companies. Yes, Libya has a rickety electricity grid and few formal property rights. And due to ongoing sectarian violence, it remains a dangerous place. But the country sits atop Africa’s biggest oil reserves, which may generate as much as $55 billion for the state oil company this year. That means there are plenty of well-off locals and expats who can afford to pay for a Western-style sweet.
The country is a less incongruous place for Cinnabon than one might expect. Syrupy treats like baklava are beloved in Libya, as in other Arab countries, so local palates are ready-made for the chain, explains Mike Shattuck, president of Focus Brands International. What’s more, in a Muslim country where bars are almost nonexistent, young people need places to hang out. Finally, an influx of investment from Persian Gulf property developers means “down the road there’s no question there will be a big mall culture,” providing the natural habitat for future Cinnabon outlets.
For now the Tripoli store is very much a foreign oddity. Positioned as more upscale than the chain’s food court roots in the U.S., the shop has become a fixture on Gargaresh Road, Libya’s Fifth Avenue, where it attracts an affluent clientele. The prices are First World as well: A cinnamon bun and a regular coffee cost 6.50 dinars, or about $5.15, close to the price in the U.S.
The franchise owners, brothers Arief and Ahmed Swaidek, first planned to open Cinnabon in 2008, but bureaucracy delayed completion of the store until January 2011. A splashy grand opening was abandoned when revolution broke out that February. Nonetheless, news of the shop spread quickly after its opening this July.
On a recent evening the store was busy with young customers, about two-thirds of them women, who tend to avoid the traditionally male-dominated coffeehouses. Unlike at most Western restaurants, all of the staff are male. In addition to the chain’s signature pastries, it serves Carvel ice cream (another Focus Brands product), sandwiches, salads, and cakes. An upstairs lounge caters to patrons who want to linger, and the shop stays open until about 11 p.m. to accommodate the local preference for late-night snacking. All that activity can push Libya’s patchy infrastructure to the limit: The utility in Tripoli can’t always cope with two floors of full-blast air conditioning. The franchise relied on a generator to keep things cool during the busy Ramadan season, says store manager Ehab Abdelo-Meged.
Serving Middle Eastern customers isn’t new for Cinnabon, whose portfolio of 900 worldwide locations includes outlets in Kuwait, Jordan, and Egypt. It also has experience operating in less-than-salubrious locales such as Pakistan and El Salvador. Still, Libya presents particular challenges. Security in Tripoli is shaky. In August, Salafi Muslim militants demolished a downtown mosque of the more moderate Sufi sect with bulldozers. Libya has yet to charge anyone with the murders of U.S. Ambassador Chris Stevens and three of his officials, killed when the Benghazi consulate was stormed in September. Kidnappings, including that of the head of Libya’s Olympic Committee in July, are a fact of life. And gunfire can be heard most nights in the capital.
Shattuck points to more mundane concerns, such as sourcing ingredients (the majority are imported from the U.S. on a quarterly basis) and finding a reliable way to pay suppliers in a country that still lacks a modern banking system. “There are a lot of institutional needs still, from our perspective. But we feel things are moving in the right direction,” he says.
Others are optimistic as well. Companies from France Télécom (FTE) to Qatar National Bank (QNRK) are looking to invest in Libya as Prime Minister Ali Zaidan’s new government plans to kick-start asset sales, privatize state companies, and break up monopolies. “I’m 10 times more bullish on Libya than I was at the end of 2010,” says Abdulla Boulsien, a former Merrill Lynch (BAC) investment banker who helps run Tuareg Capital, a Libya-focused private equity firm. So Cinnabon is unlikely to be the sole refuge for Libyans craving an American-style dining experience for long. “It’s a virgin land,” manager Abdelo-Meged says of the country. “Any franchise coming here will be a success.”
The bottom line: Libya, with 6 million citizens and $55 billion in state oil revenue this year, is attracting Western investments like Tripoli’s new Cinnabon cafe.