Enfield-Neorion 8000: a Greek-British electric car, forty years ago. Can it be brought back to life?

Enfield-Neorion 8000 in Syros Island, Greece

More than forty years ago, long before Elon Musk and Tesla, there used to be a small electric car that was produced in a Greek island: The Enfield-Neorion 8000. Who would knew?

Many people surely won’t believe that Greece produced cars, let alone electric ones. But Greece was indeed producing cars in the near past, before Euro unification, that were mainly foreign designs assembled under license. The main such producers were ELBO (or ELVO, fka Steyr Daimler Puch – Hellas) with military and commercial vehicles , a company that still exists today, TEOKAR-Theocharakis that assembled Nissan models between 1980-1995, before the UK Sunderland factory was established and NAMCO that produced a very popular light commercial vehicle derived from Citroën 2CV called Pony (around 17,000 Ponys were built between 1972-1992 and the company is still active and trying to restart production if it gets state approval). There were also a few less well-known, smaller producers.

The Enfield-Neorion 8000 was developed in the early 1970’s by Enfield Automotive, a British company with history in production of rifles, motorcycles and boats (hence the canon in its logo).  The motivation behind its development was a competition set up by UK’s Electricity Council which Enfield won over Ford and Leyland designs (the latter was producing the popular Mini at that time). This prototype was then redesigned for commercial launch (the prototype Enfield 465 was a 2+2 seater with plastic body and sliding doors features that were not retained).  Probably the daft decision to launch must have been motivated by the oil crisis of the time.

Enfield was owned by the Greek shipping mogul John Goulandris. After production was proven too expensive to be carried out in England (due to salary raise demands amid an era of labor protests; by the way isn’t it strange how such demand happen when something ambitious is under way? same thing brought down the Pony production in Greece, can’t help draw parallels..). In any case, Goulandris decided to move production to the Greek island of Syros where he owned the Neorion shipyard (hence the Enfield-Neorion name). This move might not have been as crazy as it sounds to the unbeknown. Shipyards are a key heavy industry of Greece (yes there is some heavy industry in Greece, even less so today, and it’s got nothing to do with tourism, contrary to an unfortunate if not mischievous saying of populists politicians…). Syros also had a long industrial background. Greek shipyards of which there are a few, have built railcars, commercial vehicles and other machinery apart from ships. Shipyards are at the core of technological and industrial groups in other countries too, such as in Japan (Mitsubishi), China (CSSC) and Korea (Huyndai). Greek shipyards possess ample experience in welding and engineering and also significant work floor facilities; after all the Greek owned commercial fleet is among the largest globally and use them regularly.

A specialized car factory was set up with the equipment moved from England. Shipyard staff transferred there had to be trained while additional auto workmen were hired.  What the staff lacked in experience they made up by enthusiasm for what they were going to produce.

Production started in late 1973 and lasted until early 1976 when it was discontinued. During this period around 120 cars were produced. Almost half of them were purchased by the Electricity Council in England and the rest were sold around the world to various individuals that must have been quite eccentric for the time, more so than the initial Tesla owners. That is because the car had limited capabilities being strictly a city car and its price was 2.5 times that of a comparable sized vehicle such as the popular Mini (2,800 GB pounds). And off course environmental sensitivities should have been running much lower than today.

The car was made with aluminum panels for anti-corrosion protection and lighter weight (which eventually was not that small considering the humongous batteries of the time). It could carry two passengers at a maximum speed of 40mph (with only 8hp engine power which however was tested to cope with the challenging terrain of the Greek island). It had a range of 35-55 miles depending on driving conditions. It used components of other cars (brakes and suspension) to reduce development and production cost. It could be recharged at a typical household 220V power outlet.

The production was organized in a rather atypical setup for the time, utilizing, we may say, lean production techniques that were later introduced by the Japanese in the ‘80s, revolutionizing car manufacturing. In this setup there were six independent teams, each one producing a complete car. They used wooden molds, some presses and machine tools but mostly parts were handmade and assembled manually. Production in a way resembled that of a custom car and as a result it was slow and expensive. Probably it was a stepping stone until the company had large orders to move into a larger scale production. In any case by using the numbers produced during this time, one can estimate that on average it took a bit more than a month to produce one car.

Maybe the actual cycle was not that long considering the learning curve as well as some downtimes and parallel activities such as the production of a couple more prototypes. Somewhere it is mentioned that producing a car took a week. Still that is a lot, considering that it took just a couple hours for a Ford Model T, the line production champion, many years before or the typical lean production cycle of around 20 hours or so in the ‘80s. So it was not an efficient process by any means and resulted into loss making albeit unknown by how much. It is also not known whether that is due to the labor component, it shouldn’t have been that high, or the material one. Reportedly, components were expensive and their cost did rise during production, while there were also logistical problems as production was based at an island where materials were shipped from England through Greek customs and then transferred back to the Isle of Wight, for some reason, for battery mounting before being delivered to buyers…. So over all there were many inefficiencies that could have been avoided in another setting.

Apart from the typical 8000 version (produced in bright colors (white, orange, blue, yellow) a couple more versions were designed but didn’t go into production; the open top (Bicini), the buggy (Olympic Airways version; Olympic was owned by another Greek shipping mogul Onassis, at the time) and the van (Miner).

As only around 120 cars were produced those that exist today are extremely collectible. However it would be a pity to be treasured for that and not for the technological breakthrough they represented. If you are curious to see one, there are some in Greece at the Industrial Museum of the island of Syros as well as at the Hellenic Motor Museum in Athens and lately at the Hellenic Motorcycle Museum.

These cars were recently acquired from collectors after some interest in the car was ignited through a 2014 documentary “A TALE OF TWO ISLES” by Michalis Stavropoulos.

Indeed a very entertaining documentary. It would probably make a great movie too, one about visionary owners, passionate designers and employees, conflicting interests and challenging market conditions that were not ripe for the time. Indeed it was too far in front of its time; even Tesla some years ago was mired with doubt. And there are the usual conspiracy theories about the oil industry’s reaction.

John Goulandris allegedly believed that a car that was owned by Greeks, and designed by Greeks should also be produced in Greece. Romantic. And even if so, it was not even possible for the car to be driven in Greece… due to licensing obstacles by the Greek state.  How strange is that?  Bureaucracy is the easy excuse (“bureaucracy” is what you call when the establishment doesn’t want to do something and uses excuses to slow things down; on the other hand “corruption” is what you call when it wants to do something by all means…). A more realistic view however of Enfield’s General Manager was that the car had to be produced where it was sold and where the know-how and suppliers were located. There was some interest to move production to the US for example, when Ronald Reagan was the California governor and showed some interest in it. Three cars were actually sent to California for that (an idea was floated to be used by residents of the Santa Catalina island). Probably this option wouldn’t have gone far either judging from the fate of GM’s Electric Car.

Now the proposition:

How about bringing the Enfield-Neorion 8000 back to production?

My idea would be to use it primarily as rented car in the Greek islands or other such environments and in the cities (could be used by ride-sharing startups). The car could fit well and support the Greek tourist brand (same as the distinct image of NYC or London cabs) and offer low cost operation (hopefully) and easiness to service (both in terms of standardized know-how and access to spare parts). High speeds are not necessary in the islands, if not avoidable (50km/h is more than enough) and a 70 km range could give a couple of days of use without recharging. Off course a release for the Greek public could be possible too.  There is recently some nostalgia as well as discussion over ways to increase manufacturing in Greece and help the economy out of the debt crisis.

There are also some other advantageous market conditions. Environmental sensitivities are high now and subsidies are provided for electric cars. Countries such as France have announced their intention to move into all-electric cars by 2040 and research on electric cars is increasing. There are technological advancements in batteries (Tesla is working on bringing down cost) and there is even possibility for wireless charging even while moving.  There are also ongoing initiatives for sustainable development and energy sufficiency in small islands in Greece (so called Green Islands such as Tilos. There is also ample renewable energy in the islands (solar, wind, wave, geothermal, biomass and other).

I’d believe that the car wouldn’t need to change much. The existing design would suffice (even though some new designs have surfaced). I think that the original design is amongst the car’s strong points as it gives it a distinct character with simplicity and elegance, let alone that it is aerodynamic. Why change a good thing? Some additions in safety (such as airbags?) and comfort may be needed though.  But not many probably, as this would be a drag on energy consumption (ie air-conditioning). In the end of the day if we are talking about summer holidays or city traffic you just want to get from point A to point B quickly and park easily plus at low cost. It’s also much safer and comfortable for the majority of people compared to the scooters that are rented in the islands or even worse the unstable 4-wheel bikes. It is also the same size as other popular mini models (the Smart is probably smaller).

Improvements in batteries would also be useful if not necessary and by that, range and speed could be improved. There are actually already owners (collectors) that replace the heavy original lead acid batteries with lighter lithium ones. It is also possible to upgrade or replace the motors. Actually there is a car enthusiast and presenter in England (Johny Smith) that installed an 800 hp motor giving it a 140 mph (1-60 miles in less than 3 sec) albeit with serious reinforcements in moving parts, brakes and stabilizers to handle the torque (see Flux Capacitator ).

One wouldn’t advise something like that but what’s more astonishing, is that this particular dragster-type car can be driven legally in the UK! So there’s room for improvements…..On the other hand one could just install some software that would measure 100mph top speed and 250 miles range when wheels not moving something like the #Dieselgate case. Ok, that’s a joke and probably the #ElectricCar wouldn’t get away with it but you got the hint….

Some more production parameters: a lot of positive ones..

Infrastructure: Greece provides some interesting if not fortunate conundrum of favorable production components for this car:

  • Strong metal processing industry: existing aluminum production (in mining and processing) (for example ELVAL elval.gr , Alluminium of Greece www.alhellas.com (quite vibrant industry in aluminum panels as well) Greece also has ample know-how and capacity in the steel industry (for example HalyvoyrgikiViohalcoSidenorHelliniki Halyvourgia,Hellenic Steel (cold rolling) and others)
  • Existing battery production (such as Systems Sunlight S.A. systems-sunlight.com)
  • Idle car production (as mentioned above)
  • Modern infrastructure and logistics (modern highways, railways (soon to be completed) and ports to ship everywhere in the world and Europe highlighted by China’s investment in the Piraeus Port, a part of the Belt & Road initiative)
  • Part of the EU and of Eurozone (for good or for bad… ) so the car could be sold across Europe (if it manages to get the licenses…)

Workforce: Greece has ample and enthusiastic engineering talent:

  • Large number of Greek engineers work as auto designers and engineers in top European and American car manufacturers. Note for example that one of the senior Tesla engineers, Konstantinos Laskaris (Tesla’s Principal Motor Designer) was entirely educated in Greece
  • Workmanship (good supply in various industries such as metallurgical, shipyards, defense, shipyards, auto maintenance)
  • Low wages and a good labor framework for EU standards. Labor supply has increased as the debt crisis has reduced employment opportunities

Market/Use: Let’s start small here. Sure the car doesn’t’ have the amenities or performance that consumers are used to but as said it could be used in special occasions and certain niches:

  • Rented car in the Greek islands. Let’s assume that the rent-a-car fleet in Greek island is around 10,000 units and most of that could be claimed. The usual life of rented cars is 7-8 years or less.
  • Domestic car market: even if it has been decimated during the debt crisis to below 100,000 units per year or one third of its highs). However most of the cars are located in Athens which is a congested city. The Greek public has also turned to smaller and more economic cars because of the loss in purchasing power.
  • Other markets and niches outside Greece with the same characteristics could be export or co-location candidates as well.

Cost and Return: Now the difficult part. I can’t say what the production cost can be and neither the return… But if somebody is interested then it can be studied. I can see though that there’s significant room when it comes to retail price. Small electric cars (Nissan Leaf, BMW i3 sell for well over 30,000 Euro and are subsidized by as much as 25%). Probably one would aim for a much, much lower price to fit with the car’s modest design and at the same time spur demand in the recession stricken Greece.  Obviously it would be very difficult for one to compete with top of the range models of established manufacturers.

Let’s see some of the challenges:

  • Set up production: Apart from facilities and staff, one would have to find the molds or make new as well as select new components and suppliers (brakes, transmission, motor, batteries, suspension) or reproduce old ones (if possible). Also create procedures and train staff (some automation would be probably needed too).


  • Licensing: Greece is now part of the EU so vehicles have to abide with demanding EU regulations (which is actually a problem and the main reason blocking the return of the Pony model back to production). It’s quite unfortunate if this turns to be impossible to overcome as now local production in Greece is necessary to create jobs, add value and take the country out of recession with the ability to repay some of its debt.

By closing, as much as this might sound as a crazy idea, it is still a tempting one. Isn’t it? Imagine how much more unlikely or risky it was back then. One can’t help admire those people courage (although some might see it differently). Drawing some parallels and putting it into today’s era the story would have gone like this: the young entrepreneur gave up his established line of business to take a bet on this innovation that poses a major disruption in the market.  In a gutsy move and contrary to all odds has managed very quickly to put together a team of gifted engineers and motivated staff at a remote island location for this purpose. They are aiming for product launch within a year, something that would be an unlikely achievement on its own. Round A financing is secured through own funds. Once proof of concept is established this startup will definitely be the next unicorn with an estimated market in the billions of dollars globally. Current order book includes more than 100 orders from around the world.

But now we are not in the 70s and people may more easily throw money in some obscure startups and look at this car with disbelief.  And there are not so many Elon Musks’ around.  Still something like that can inspire people and offer a platform for research for universities and technical schools.  Let alone the environmental angle. At least, the writer can speak from his own experience as cars were the motivation to pursue mechanical engineering. And eventually this can provide much needed jobs in Greece (directly and indirectly) and if it is proven so, some profits for its owners too and the economy.

Who could be up for such a journey though?


By Pete Chatziplis, CFA, ACCA, MBA. The articles published here do not necessarily reflect the views of the Transatlantic Business Forum. The writer has no relation to the companies and persons mentioned here. Information is based on publicly available information and comments or correction are welcome.



Common fallacies about the Greek economy and business: how it affects investment

Greece has been in the news constantly over the last eight years due to its sovereign debt crisis and the subsequent recession that has decimated the economy. Most of the talk has been about the Greek economy’s prospects (40% of GPD lost since 2008 and is now at pre Euro levels), the sustainability of its government debt (175% of GDP) and the need for investment and growth that can put to work the 1 million unemployed Greeks (25% unemployment of which over 50% for youth) as well as reduce the brain drain (more than 400,000 have left since the beginning of the crisis, most of which highly educated).

Many that are trying to explain the causes behind the problems of the Greek economy are pointing out to labor and public administration deficiencies and even expand to cultural traits. There is actually a book where many of these articles have been collected (“Greeks: Corrupted, Lazy and Disobedient” by Thomas Tsakalakis, (in Greek) 2016 and “The Greek Crisis in the Media: Stereotyping in the International Press” by George Tzogopoulos, 2013).

You would expect with all this negative talk that nothing is working in Greece. However Greece ranks 86th in World Economic Forum competitiveness ranking (down from 81st). It has comparable rankings to the European and North American average when it comes to health, education, infrastructure and lags in institutions, business sophistication and innovation as well as in sectors affected by the economic crisis ie the macroeconomic environment and financial markets (truth is economy mainly depending on banks that are now facing liquidity problems).

On the other hand negative talk doesn’t offer a solution and often escalates into defamation, bigotry, defamation and stereotyping, no different to what you’d expect in a bar talk (ECOFIN president Dijsselbloem recently went as far as stating that Southern Europeans have spent their wealth on money and women (!!).

Even if one can ignore the demoralizing aspects of this it’s difficult to ignore how it hurts investment. Which reputable investors wants to get involved in such a situation and have to justify to its shareholders? It’s when this talk becomes criminal as it affects peoples’ lives and prospects of economic reversal. At the same time it distracts investors’ attention and costs them opportunities.

The purpose of this post is to examine the main argument behind this negative talk and discover how much is truth and how much pure fallacy. The posts will cover the arguments regarding Labor, Business Environment and overall Investment. Although it relates to Greece, the same analysis could apply in other economies.

The following fallacies will be examined:

  1. Laziness
  2. Labor problems
  3. High Labor Costs
  4. Low Productivity
  5. Tax evasion
  6. Shadow Economy
  7. Corruption
  8. Inefficiency, Bureaucracy
  9. Overall conclusion: Who’d want to invest?

A. Greek Fallacies and Foreign Investment: Labor Issues

  1. Greek Fallacies: Laziness
  • How can you measure laziness? Lazy is somebody that’s not working. Greeks work the most hours among OECD or EU countries; 42 per week on average. The typical workweek in Greece is 40 hours (8 hours daily for 5 day workweek) but probably the 42 number is based on aggregate data (which is one of the highest globally too).
  • It is also common for people to work two or more jobs and sometimes this additional work goes unreported so the number might even be higher (skip to the shadow economy fallacy regarding the economic aspect). Greeks also have less vacations days compared to other countries in the EU (four weeks of vacation compared to five in Austria). Now what they do while working is another question. It depends on the work they have to do (for that go to productivity fallacy)

  1. Greek fallacies: Labor/Union problems
  • The Greek labor framework is similar to that of other European countries (which are generally characterized by strong social aspects). This framework has been relaxed lately with the reforms that are taking place under the IMF restructuring program. This is captured by OECD metrics (Employment Protection Legislation Index), as well as the Labor Competitiveness Index of the World Economic Forum (2016). Greece’s ELP Index for full-time workers (2.4) is below both that of developed Western economies (i.e Germany 3) and similar to that for Emerging/Eastern Europe (ie Poland 2.4, Czech Republic 2.7)
  • Much of the low grading in the WEF Competitiveness analysis arise not from labor characteristics but by low productivity (this is due to low value added of output as discussed), as well as the quality of management (ie extend of reliance on professional management). The latter can be attributed to the large number of small or family businesses (discussed under shadow economy) and can certainly be rectified with training, the utilization of recent graduates and ultimately by the rationalization and concentration of some of the activity in larger companies (refer to the shadow economy fallacy regarding size of businesses).

  1. Greek Fallacies: High Labor Costs

Some might say that salaries in Greece are high. That depends on what you compare them too. Based on 2012 data Greece has one of the lowest salaries in the OECD. Since then wages in Greece have further decreased as a result of the crisis, GDP shrinking and spike in unemployment rates but also because of some regulatory action (decreasing the minimum wage, drop collective bargaining and other).

According to IMF, there’s not a room for further decreases in salaries or disposable income (this has been affected as well through higher taxation). The economy and the people well-being is already too stretched. Furthermore continuous decreases will result in a vicious cycle of contraction with continuously decreasing consumption. On the other hand existing salary levels already constitute an attractive cost point for greenfield investments especially when combined by the fact that Greeks work many hours and are increasingly well educated. And of course besides all that Greece provides a base within the EU.

  1. Greek Fallacies: Low productivity

To examine this fallacy we first have to define productivity. It’s quite unfortunate that productivity in public speech/common talk is related to how much work one gets done. However what the economists refer to in reality is probably a misnomer. In economic terms productivity represents the amount of goods and services produced in one hour of labor. This labor productivity is calculated as real gross domestic product (GDP) divided by total labor hours. That doesn’t say much. If you produce olive oil it doesn’t matter how fast you collect the crops, it’s about the selling price. If you produce gold watches or automobiles on the other hand you can allow yourself some breaks and still appear more productive, right?  To be fiar labor productivity should probably be measured in the engineering way: ie how much output is achieved per labor hour but to do that one has to know a lot more information so this is not realistic.

It is true that the (economic) labor productivity is low in Greece but why? That is because Greek GDP value added are low or working hours are too many.

  • Could it be that working hours are more because there’s less automation? It is probably not the case as most of the activity is in services that are not that much automated anywhere. It might be that there’s a lot of idle time then. If so, to the extent that this work (the GDP in the nominator) can be completed with less hours of work (coming to what the work is about) then by just reducing working hours the labor productivity would increase, isn’t it? Eureka! Question is whether employers would agree with reduced working hours but the same pay…
  • On the other hand, to raise the GDP and GDP per capita high-value output is needed (ie luxury/branded products, high tech etc). That’s a matter of planning and management decisions. High value added is related to branding (requires marketing expenditure) and technology (requires R&D expenditure) among others. And this cannot also be achieved overnight. Branding has worked quite well in tourism but Greece hasn’t done much to promote opportunities elsewhere. On the same time it lags in terms of R&D or manufacturing altogether. Greece can certainly increase R&D as it has a large number of PhDs and graduates (1,600 per year, similar to let’s say Israel), a lot of whom are forced to leave the country to work abroad. More than 400,000 Greeks have left Greece since the beginning of the crisis, most of them highly educated (a brain drain). A lot of them are also unemployed (20%) or underemployed. A tragedy and a waste of resources!

Some further points on that:

  • Know-how: Greece has not always been without manufacturing production. Between 1950-1975 manufacturing activity had increased exponentially and GDP at a 7% rate (it is widely accepted that manufacturing creates more value for an economy and better paid jobs than services. During this time Greece was producing electrical appliances, textiles, fast moving consumer goods even assembling automobiles! It’s since 1980 that manufacturing activity has stagnated and since 2005 dropped off the charts with many bankruptcies as well. Won’t expand on possible reasons for this or search for the culprits. In any case Greece still has significant manufacturing abilities in shipbuilding, defense sector, mining, metallurgy, energy generation, construction, pharmaceuticals, agribusiness/food processing).

  • R&D potential: Greek scientists are well respected and accomplished globally. According to Stamford’s Professor Ioannides (3% of global top researches is Greek, 85% of which live abroad). The Greek universities have respectable rankings according to the QS world university rankings six of them are among the world’s best. http://www.huffingtonpost.gr/2017/03/09/eidiseis-qs-koinwnia-paideia-panepisthmia_n_15259686.html. All these scientist could develop a global networks of distributed learning and R&D utilizing their local contacts as well.
  • Finally, a frequent argument that Greece has small size and can’t develop the necessary economies of scale for competitive advantage in manufacturing can be easily countered by pointing out to same size economies but most importantly to recent technological advances. The production of the future (Manufacturing 4.0) is not be same as that of the past (without long labor and capital intensive production lines). It will be automated and enable small batch production locally vs large production lines of the past. It is estimated that in the near future most of repetitive manual tasks will be taken over by robots with mainly highly educated employees working in factories; in the UK alone it has been estimated that 57% of manufacturing jobs will be eliminated.


B. Greek Fallacies and Foreign Investment: Business Issues

  1. Greek Fallacies: Tax evasion

There are multiple articles regarding Greeks’ alleged dislike for paying taxes and propensity to avoid them, as if that is a Greek only phenomenon (without expanding here on complex corporate transfer, transfer pricing, tax havens etc etc). Let’s see in any case how much of the tax evasion issue is reality and how much a myth:

  • Greece’s total tax income represent 33% of GDP which is similar to the OECD average. Therefore it appears that there’s no abnormality (differences may exist on whether taxes are direct or indirect). However some might say that tax-evasion arises from not declared income (for that you’d have to jump to the shadow economy fallacy)
  • Currently Greece has probably among the highest tax rates in the EU and even outside that (Corporate rate 29%, Individual up to 42%, VAT 23%/13%, real estate 15% see table). Especially during the crisis, tax income has increased significantly to cover inflexible budgetary uses. This gets us to the other reason regarding the difficulty in collecting taxes: deposit drain, GDP shrinking and eventually fatigue and resistance ie. what the Laffer Curve illustrates (the more the tax rates increase the higher the propensity to avoid and for the tax revenue to decrease)

Greek Tax Framework (highlights)

  1. Greek fallacies: Shadow Economy

Shadow economies exist in all countries. In Greece it is estimated at 24% of GDP; it is high but is actually not the highest in the EU or OECD (the respective averages are 19.7% and 17.6% respectively). As a comparison the US has a rather low number of 7% (probably the lowest globally) and on the other end Russia over 40%. The shadow economy results in uncollected taxes (referred to as tax-evasion).

  • There are certain factors contributing to the creation of shadow activity such as fragmented business landscape as well as large number of transactions carried out in cash (hotels & restaurants, retails, transport). The latter has been reduced since the introduction of capital controls with more Greeks now using digital money.
  • On the other hand Greece has an amazingly high number of self-employed professionals (gig economy, services, lawyers, accountants, consultants and other) as well as a higher proportion of small companies. Almost 35% of Greek labor force is self-employed compared to 7% in the US. On the other hand 58% of companies in Greece are very small (up to 9 employees) while the respective figure in the EU is 29%. It’s generally, difficult to collect taxes from these two sectors. The logistics are just incredible; it may not pay in terms of a cost/benefit analysis considering compliance and supervision expenses. That’s the same everywhere. Small companies are crucial irrespective as they generate a large number of jobs. On the other end in other countries there enough large companies that, to the extent that they don’t use creative tax practices, can provide the funds necessary to run the governments (33% of companies are large in the EU (over 250 employees) compared to only 13% in Greece). Apart from that large companies can also invest in R&D and product and people development and move the needle for the whole economy and society the way that smaller companies can’t as they are usually barely surviving.
  1. Greek Fallacies: Corruption deters Investment

Corruption in Greece: that’s a big topic that has been overly discussed, and the most often excuse for inactivity when it comes to investments (along with bureaucracy). Let’s see however how much of that is exaggeration and how corruption affects investment.

Corruption is measured by the Corruption Perceptions Index (CPI) that is published by the Transparency International. The index ranges from 0 to 100. According to this:

  • Greece has a CPI of 44 in 2017. It has ranged between 36-46 over the last five years
  • Greece has better ranking in terms of corruption (CPI) compared to China (40), Mexico, Vietnam (33), Philippines (35), Peru (35), Bangladesh (26) etc. However these countries attract a higher level of Foreign Direct Investment (FDI) (see Table based on 2015 data). So at first sight the argument that corruption matters in investment doesn’t hold.
  • Taking it a step further by running a regression analysis between CPI values and FDI in various countries the result come back indicating that there’s no real correlation. In case that you are aware of any other analytical data that support it, please let me know.

Some further thoughts:

  • Corruption is illegal, let’s not be misunderstood: USS’s FCPA guidelines have resulted in heavy fines to companies that use briberies to conduct business (for example Siemens and ongoing investigations for Novartis, Petrobras). However outside the moral question of legality, Bill Gates, in his $38 billion Gates Foundation 2014 annual letter, said that “corruption isn’t nearly the barrier to development that most people think it isbut kickbacks and bribes are an inefficiency that amounts to a tax on aid”.
  • Talking is branding: Even if corruption is not a deterrent for investment discussing about it creates a negative image for the Greek economy and eventually a vicious cycle and a self-fulfilling prophecy. Who want to be associated with corrupted practices? Therefore when coming to these issues the press should be very careful.
  • Discussing corruption without proof might be irresponsible: the public often overreacts in corruption rumors and this can even lead to unrest, violence and hysteria (for example in cases that affect public health). Even if a system is “rigged” is it responsible to shake people’s trust in it without trying to correct it? Wouldn’t one be opening the Pandora’s Box by promoting mistrust?
  • Defaming: how fair is it to draw conclusions over an entire population based on certain incidents? At best this would be considered stereotyping in the US and is unfair to say the least. It is what the Association fallacy in reasoning describes: when guilt or merit can be attributed to somebody based on its relation to a particular group. It may appeal to emotion or prejudice. There are two types of this fallacy:
    • Guild by association: John is a con artist. John has black hair. Therefore, all people with black hair are con artists
    • Honor by association: country X has higher GDP compared to Country Y. Therefore, John who is a citizen of Country X is superior to Mark, a citizen of Country Y
  • The definition of corruption and the public’s attitude towards it could also vary from one country to the other and this can involve cultural aspects too (we could refer to the work of Weber, Hofstede etc). For example individualistic cultures rely on written laws while collectivist on societal norms. When certain actions are not in accordance with written laws then this is corruption or criminal as per the individualistic cultures, however it might not appear as in a collectivist culture if it is in accordance with unwritten norms that for any reason are not reflected in the law. It’s a rather iconoclastic point of view but you may think about it.
  • The Corruption issue – a case of double standards?: finally, while there’s a lot of talk about corruption, scandals, inefficiencies in Greece. At the same time there are many large scandals in the news that do not result in a long-lasting negative image; often these negative news fade away quickly or bushed off as extraordinary incidents (isn’t this some type of double-standards?). For example:
    • Volkswagen dieselgate ($15bn fine)
    • Siemens bribery scandal ($1.6 billion fine)
    • Deutsche Bank (MBS contracts ($7.2 billion SEC fine)
    • Wall Street banks (as part of their role in the 2008 crisis (total fines estimated at $160 billion)

Does this mean that all the system in Germany or US is corrupted as the association fallacy in Greece’s case would imply?

  1. Greek Fallacies: Inefficiency, Bureaucracy deters Investment

Outside corruption another issue of grave importance and a frequent excuse for abstaining from investment in Greece are shortcomings in public administration, legislation and the legal system such as inefficiency and bureaucracy. These factors can be captured by the Index of Economic Freedom (EFI) that is published by The Heritage Foundation. Taking it a step further one could also look at the all-encompassing Global Competiveness Index (GCI) that is published by the World Economic Forum. The latter covers all aspects of competitiveness of the economy (12 parameters that involve labor, infrastructure, institutions and innovation aspects)

Running again a regression analysis between Foreign Direct Investment (FDI-World Bank) vs the EFI and GCI one could see whether there’s a connection between the two.

This analysis comes back again indicating no significant/visible correlation! If somebody thinks different or if I am missing something I would be interested to know. Therefore the discussion of whether efficiencies affect investment is open to debate; one can’t decide other by looking on a case by case basis.

However I wouldn’t disqualify these indicators completely. If there’s one that appears to be more helpful in linking/predicting investment levels this should be the GCI. Just by observing the data in the Table with all the rankings and using empirical judgement it seems, at least to me, that high levels of FDI appear in countries that offer:

  • Convenience; ie favorable tax or legal regime: for example Ireland, Honk Kong, Switzerland, Luxembourg, Cyprus, Malta
  • Development/size: such as G7 and other Western EU, BRIC, Australia
  • Emerging Economies and/or Low Labor Cost and/or Resources: such as Mexico, Central/Eastern Europe(Czech Republic, Poland, Hungary), Asia (Vietnam, S. Korea, Indonesia, Turkey, Thailand, Singapore), large S. American (Colombia, Argentina, Chile), resource rich African (Nigeria, S. Africa)
  • Capabilities/know-how in a particular area (let’s say startups in California even if not the cheaper location)

Any other observations/opinions are welcome.

FDI vs GCI, EFI and CPI in selected countries (2015 and 1990-2015)

Source: Transparency International (CPI), The Heritage Foundation (EFI), World Economic Forum (GCI), World Bank (FDI)

The questions is whether Greece offers any of these features that attract investment. The answer is that it does or it may do as it will be covered in the next part.


C. Greek Fallacies and Foreign Investment

  1. Greek Fallacies: Who’d want to invest there

There are various reasons that may be given for not investing in Greece. How much of that is true (not much based on the preceding analysis) and how much simply just an excuse (for not investing). The latter is respected when the investor is not familiar with the country or with the industry or doesn’t have the resources to analyze and manage or the funds. The purpose of this is to reduce the instance that this refusal is a matter of disinformation or apprehension as other people may be abstaining (herd mentality). In case that you are convinced about the fallacies that exists as well as the opportunities then the remaining purpose is to highlight investment areas. Some facts regarding who is investing in Greece:

  • FIDI amounted to $1.7 billion in 2014 according to World Bank and 39.5 billion between 1990-2015; Top investors are from European countries (Germany, France, UK and Netherlands) ie western economies. Geopolitics and distance may be a factor for European investment compared to the US that is not a major investor. Lately China is being investing heavily too.
  • Investment has fallen of the cliff lately, obviously due to the crisis and its consequences in business climate, economy, consumption etc
  • There is luck of financing: the Greek banks are facing liquidity problems and operate under capital controls so they are giving loans sparingly. There are no other financing options (other from probably EU subsidies). The use of Private Equity or Venture Capital domestically is very low, if any, compared to western economies. Some foreign Private Equity funds have been quite active though.

Indicatively notable foreign investments in Greece over the recent period include:

  • Blackstone (Lamda) $40million
  • Oaktree (Ikos Resorts, $280m)
  • KKR-Pillarstone ($1.2 billion of NPL portfolio)
  • Cosco (OLP- Piraeus Port) $1.7 billion
  • Fraport (regional airports) ($1.1billion)
  • Deutsche Telecom (Hellenic Telecom- OTE, $5.5 billion)
  • PSP Investments- Canadian Pension Fund (Athens airport, $1.7 billion)
  • John Paulson (shareholdings in Alpha Bank, Piraeus bank)
  • Wilbur Ross (shareholding in Eurobank)
  • Fairfax/Prem Watsa (Shareholdings in Eurolife, Eurobank)
  • Olayan group (Costa Navarino, $150m)
  • Jermyn, Dogus, Kuwait funds (Astir Palace Hotel Complex, $440 million)
  • Dogus, Temes (Hilton Athens, $190 million)
  • Italian Railways (Greek Railways/Trainose) $50mllion)
  • Thassos Grand Resort (Bulgarian investor $28million)
  • Kassiopi Corfu Resort (NCH Capital (NY), $83million)


As indicated, investment is strong where there is a strong/proven case (ie tourism), strategic issues (ie logistics and Cosco) or fundamentals (telecom, airports). Apart from this the country needs, and in my opinion can support, investment in other value added sectors where the young more educated generation can be employed without having to move abroad.

In my personal view investment in Greece can involve:

I. Established FDI target areas:

  • Tourism/Real Estate: large number of hotels houses at low prices that can be used for tourism purposes or even investment (such as trophy investment or new developments such as the Hellinikon project). Greece is a top 20 tourist destination. There are also new forms of tourism that can be developed that will expand the tourist season and target audience such as City Break tourism, food tourism (wine and other), experiential/alternative tourism.
  • Infrastructure & Logistics: Greece can be a hub for transporting to Europe (China’s COSCO acquired the Piraeus port). The route from the East to Western Europe through the Suez Canal and Greece is faster by four days compared to following the Atlantic route. Furthermore the infrastructure of highways, railway, airports are being modernized (to be completed by 2017-18).

  • Financial Services: large international investors (Paulson, Wilbur Ross, Fairfax) have invested in the Greek banking sector. Use of fintech applications are quite limited but expanding especially as the market is trying to find ways to operate around the capital controls imposed on use of cash and fund transfers. The Private Equity industry is also negligible and could be a source of financing while realizing significant returns in a not contested dealmaking space.

II. Established market sectors:

  • Energy: there’s activity in conventional energy resources (a gas pipeline (TAP connecting Azerbaijani gas fields through Turkey to Italy) is under construction and others are under discussion (East Med), there’s offshore gas and oil exploration as well). Renewable energy accounts for 18% of energy consumption and has great potential although activity has come to a stall lately. The electricity market is being liberalized too.

  • Agribusiness/food sector: the Mediterranean cuisine is increasing in popularity. There’s potential for exports; at the same time domestic consumption can absorb much of production as a large part of food products is imported. Furthermore there’s room for automation and intensification of production.

  • Healthcare and Medical Tourism: there’s spare capacity in private sector hospitals as well as great human capital. Capacity can be utilized in medical tourism as well (IVF, dental, physiotherapy/spa among others). This is a service that hasn’t been developed yet. There are 6,000 doctors of Greek origin in the US only and many in Europe that could act as ambassadors. At least 18,000 Greek doctors have found work abroad since the beginning of the economic crisis.

  • Pharmaceutical & Personal Care: the Greek pharmaceuticals sector (generics) possess significant capacity and knowhow. There’s potential in the generics sector where use is limited (18% market share compared to 37% in Germany, according to OECD). There’s also potential in natural products taking advantage of the traditional healing methods (the birthplace of Hippocrates after all) as well as of pharmaceutical R&D that could absorb the large numbers of graduates

III. Emerging/Developing Industries and Promising FDI Targets:

  • R&D and technology/manufacturing: as discussed there’s a large number of Greek PhDs in Greece and abroad and a large number of them are among the top researches. EBRD and the Greek state are sponsoring research programs to keep these scientists at home. At the same time salaries are low compared to other EU countries. Why not develop manufacturing facilities? As seen the modern production of tomorrow will not require large scale production or large labor force. Greece would not have to go through the adjustment phase but rather jump into the new high value added automated future right away. Note that large investment can now take advantage of fast track application procedures that have been lately put in place by the Greek state. Production could cover a wide array of products from fast moving consumer goods to household goods and high tech products as Greece is importing much of these goods not to mention that could also be used as an export base to the EU or other countries.

  • Business Process Outsourcing: there are already companies taking advantage of the highly educated young workforce in Greece as well as of lower salaries by outsourcing IT work or other BPO services to Greece
  • Arts, culture and education: there’s a lot to say about cultural activities and education in Greece. Classical tourism hasn’t even been developed to the extend it could. Arts like filmmaking, apart from shooting revenues from can also create revenues indirectly through promoting the country for tourism or business activities (see such effect in New York City from the huge filming industry there).

There may be more areas but I’m personally not very familiar/able to support the case but I’m open to research.

In any case it is imperative to use advisors that are familiar with the investment environment and can navigate. Becoming making presumption based on investors’ own business environment, inconveniences from differences in legal system or culture or inability to tame bureaucracy can’t be a reason for failure. It’s just an excuse for those that are not prepared well. The difference between success and failure, between generating return or losing money depends on having a knowledgeable advisor to navigate through troubles.  And in the end there are no shortcuts. If you don’t want to invest in advice and research you’ll have to live with the consequences…..

By Pete Chatziplis, CFA, ACCA, MBA. The articles published here do not necessarily reflect the views of the Transatlantic Business Forum.

Middle Market M&A heating up as Private Equity seeks growth

Global M&A value in the first three quarters of 2014 exploded to US$2.5tr up 52% from US$1.7tr last year, according to Mergermarket.  That points towards returning to the M&A boom levels of 2005-2008.  At the peak of that, global M&A value reached $3.7 tr. (M&A surge in Q3 2014, back to precrisis levels).

US represent around half of global activity with M&A value edging towards US$1.2 tr in the first nine months of 2014, already over the US$965 bn for the whole of 2013 according to Mergemarket and reaching towards 2007-8 territory.  Most of the increase has been fueled by the return of mega deals, ie those over $5bn.  Middle market deals although not following the same explosive pattern, grew as well. North American M&As between $250-$500m reached $54m during the first half of 2014 compared to $70m in all 2013. At the lower bracket $5-250m, M&A value reached $61m in the first half of 2014 compared to $102m for full year 2013.

Activity in the private equity space has lagged behind that of the overall M&A market. The first half of 2014 saw 432 buyouts in North America for US$80bn total worth. That was a 13% decrease from first half of 2013 (US$92bn) according to Mergermarket. Private equities, contrary to the past have stayed away from large LBOs and instead turned their attention to middle market and exiting past investments.

North American M&A Size Split 2008-14

Interesting highlights about middle market M&A and the Private Equity in the US:

  • Middle market matters: According to the U.S. Census, there are 360,000 middle size companies in America (with revenues between $5m – $1bn), 95% of which generate less than $100m but a large number of jobs. Mid-size companies increased revenue by 7.5 percent in the third quarter of 2014, compared with 5.5 percent for Standard & Poor’s 500 Index, according to the National Center for the Middle Market. According to Robert Slee, a researcher specializing in this area, 75% of middle size companies destroy value as they usually produce returns below their cost of capital (The New Math of Middle Market M&A, Robert Slee  The Value Examiner, July/August 2009).  Hence there’s significant potential for growth and value creation.  PEs get increasingly involved in this space and own around 10% of mid size companies, usually the top performers.
  • Middle market definition varies by region: Transactions involving middle market companies are considered those below $1bn in value, and more often below $500mn. Actually a good reference point are deals between $250-$500m and at the lower end between $100-$250m. That is according to US standards. Average deal sizes in Europe and Asia are almost 50% below those in the US. Therefore a deal considered middle market or even small by US standards might be a mega deal in the context of a cross-border transaction and by that attract much more attention from local regulators and communities.  Therefore, it has to be approached with increased level of diligence and sensitivity, reminiscent of that for mega-deals.  Well experienced M&A advisors can make all the difference in these situations.
  • Success is not straightforward in midmarket: Although the large number of targets and potential for value creation, it’s not easy to score a home run. Companies are often the extension of their owners’ lifestyles and not clearly distinguishable and investable (Private Equity 2013 Update and Success Factors for Value Realization).  So PEs often pass. In other occasions certain PEs will be the first time investors that professionalize a company and then sell to a more experienced PE to scale up the businesses.  Other difficulties arise from inefficiencies in locating interesting deals, limited attention span, liability risk, and high pricing. So often advisors and PEs complain that many good deals fall through the cracks.
  • PE changing priorities: go solo, go small, drop past weights and aim for growth

Top PE Investments

  • Exits: Not surprisingly, much of recent PE activity has turned into exiting older investments. This is not that easy. According to Mergermarket, PE firms are having difficulty to recoup boom-era investments (EMEA Deal Drivers 1H2014). Because of that, holding periods have increased to six years compared to around three in 2007 (PE Market Update 2013).  Secondary offerings are the most common form of exit nowadays, a change from the IPO heavy past, and represent a large part of middle market transactions as well. Seventy-three percent of PE managers in a 2014 poll expected to exit investments through secondary buyouts in the next year. More than half of respondents expected the industry to sell to a strategic buyer, with 39% choosing IPOs (Global Private Equity Outlook 2014-2015, Duff&Phelps, Shearman &Sterling, Mergermarket).

Private Equity Exits-Buyouts 2007-14

  • M&A Industry focus: much about niches. Certain sectors are more represented in middle market M&A such as consumer products, business services and manufacturing, while mega deals are more concentrated around healthcare, energy and tech, even though mid size deals also take place involving niche players. Private Equities in particular focus on consumer, TMT, biotech and subsectors in industrials, business services and technology.  Notable PE transactions this year: Red Lobster’s acquisitions by Golden Gate Capital ($2.1bn), First Data’s by KKR ($3.5bn), Ortho-Clinical Diagnostics’ and Industrial Packaging Group’s by Carlyle for $4.2bn and $3.2bn respectively (Preqin Quarterly Private Equity Update 1Q, 2Q 2014).
  • Middle market valuations rising: As middle market deals grow in popularity there’s increasing competition between buyers, be it PE firms or strategic investors and hence valuations are rising (with corporate acquirers having the advantage of synergies). This reduces the number of desirable targets and deals are becoming more expensive. Multiples (EV/EBITDA) for the $50-250m bracket went from 6.5 in 2010 to 8.5 in 1Q2014 another sign of increased market activity (Axial Forum, Valuation Inflation: Middle Market Multiples on the Rise, John Slater, Focus Investment Banking, July 9, 2014).  Multiples in larger middle market transactions ($500m to $1bn) have risen to 12x in 3Q14 according to Factset (US M&A Trends & News Oct 2014).
  • Future PE trends and the middle market: Even though the loss of spotlight to mega deals, the overall trend is positive.  PE managers polled by Mergermarket expect increased activity in 2014-15 (Global Private Equity Outlook 2014-2015, Duff&Phelps, Shearman &Sterling, Mergermarket). On average, cross-border transactions are expected to make up 30% of activity.  Main drivers will be consolidation, changing demographics and consumer tastes, technology, debt financing, PE exits, globalization and value creation. Success planning will create a wave of liquidity events as baby boomers that own mid size companies will retire. At the same time, although the consumer sector is cautious there’s always creative destruction and opportunity from new products. For example the Greek yogurt mania in the US created a new segment with explosive growth in less than ten years with a startup, Chobani, being the market leader. Finally, technology is creating ample startup opportunities.
  • Dry powder is at record levels but is not for free. The amount of available capital for Private Equity investment hit a record high of $1.14 tr in June 2014 globally, even higher than in 2006-2008, according to Preqin (Private Equity Has More Than It Can Spend). However the landscape has changed. PE deals are becoming more competitive and considering some boom era failures, managers have to prove their merits by bringing returns. Working only through sourcing inefficiencies, financial engineering or IPO exits are not enough to generate alpha.  Value creation has become more important (Private Equity 2013 Update and Success Factors for Value Realization). In this sense a secondary offering might make sense when the buyer has experience in a particular sector.  Actually there’s even talk about outright acquisitions of PE firms as well.
  • PE regulatory pressures and fair value adjustments: Another interesting development over the last years is that private equity companies now have to fair value their portfolios on a continuous basis for reporting purposes. According to SFAS 157 (a.k.a. ASC 820) under US GAAP as well as IFRS 13 under International Accounting Standards these equity investments should be recorded at market values, when listed or based on comparables listed companies if not and in the absence of both conditions on financial modeling. PE managers were not used to this level of scrutiny in the past.  This, apart from creating a lot of work for valuation professionals and back offices, it is also a source of frustration for deal makers who now have to support book values many of which were made under better times.  But it also adds transparency.


By Pete Chatziplis, CFA, ACCA, MBA. The articles published here do not necessarily reflect the views of the Transatlantic Business Forum.

NYC Urbanomics Part 2: The New York City Food Sector – Market Overview and Investment Parameters

This post is part of a series of posts about the Economics of Urban Centers as illustrated within the context of global metrolpolis New York City.  In this we will cover premium food, and how NYers choose it.


Dining is considered an essential fabric of urban centers. Food in the 21st century is part of lifestyle, an experience, a city attraction and eventually big business. These dayts urban planners have to create a variety of dining options to attract professionals and commercial activity in a city.  Food operators have to go the extra mile and offer uniqueness celebrated in the likes of art, to the high end consumer.  And the consumer has to eventually shell out more for all of this.

Food has become part of the individual’s identity a statement same as clothing, housing, cars (just to remember French philosopher and sociologist Bourdieu). For example there’s green, biological, vegan, vegetarian, ethnic cuisine. Food producers provide information on whether protected origin, photos of people producing the food, whether renewable energy used in production or other environmentally friendly process, whether handpicked or other.  They stay in touch and interact with consumers online.

NYers take pride in having one of the best dining options around the world in terms of variety and quality. The total value of the New York food industry is around $ 19 billion (US Census) and covers a large number of companies and flavors. It is also one of the big income earners for municipal and state coffers and a big employer that caters for the millions of residents and tourists.

On the other hand, considering the cosmopolitan character the population increase, high incomes and many tourists it’s not strange that there’s so much interest in investing both from domestic and international investors and businesses.  Operating here can offer apart from significant return in its own right, visibility across the US and world and hence brand projection and as springboard for expansion.

Below we provide some basic information for aspiring market participants, this is not a complete market study, while we are open to discuss further.

  • Large size: total population of the extended NYC metro area is estimated at 20 million. New York has the highest population density in the US.  Manhattan’s population at around 2 million more than doubles during the day with the influx of work commuters, visitors and tourists.  NYC boasts some of the highest family incomes.  Outside locals tourists are estimated at 52 million with an average spending of $ 700 ($37bn total influx).
  • The bigger picture: The American food industry in total is a $1.1 trn market of which retail food (at home) accounts for $650 bn and foodservice (away from home food) for $ 450 billion of which fast food is $ 184 bn. Sales of specialty food is estimated at $70 nm and or organic food at $30 bn growing at high rates. New York City because of its position as probably the largest business center in the world is the necessary point of presence for global brands. Often NYC, with its international population and tourism serves as testing ground for many ideas and creates trends. Although the overall food market is mature, there is potential for explosive growth in sub-sectors as evidenced by the meteoric rise of Greek yogurt much of which started in NYC. It’s not uncommon for tourist to visit certain stores they’ve seen in movies, (for example the Boathouse or the Serendipity or to try products made famous here like the cronut or the cupcake). You may refer to our earlier post in this series regarding NYC’s redevelopment into an attractive investment destination and a consumer mega-center here: NYC Urbanomics Part 1: NYC Redevelopment, a template for urban renaissance and commercial boom.
  • Demographics: New York City has a strong international/cosmopolitan character. One in three New Yorkers are foreign-born.  Nearly 400,000 millionaires live in New York, mostly Manhattan.  Each borough has a different character with Manhattan being the more affluent and the big corporate, retail and tourist center.  There’s a higher percentage of prime age professionals (20-50) in Manhattan compared to the boroughs and lower percentage of children.  Families and small businesses are more common in the outer boroughs and incomes are generally lower there. However real estate prices have recently been increasing in Brooklyn and Queens even there (Long Island City).  Much of these increases have been due to gentrification and population inflow mainly from foreigners but as well Americans especially the young that have stormed the Brooklyn  All that is important in selecting the locations that are a good fit for a particular concept and then estimate traffic and consumption.

NYC Age Breakdown by Borough and Income Map

  • Spending Patterns: The average household income in most of Manhattan exceeds $100,000 (some of the richest areas in all America) with 12.4 % of that spent on food. In the other boroughs average family income is much lower (the poorest receive food aid). Manhattan residents, where the center of the dining industry, have high educational level and are very sensitive to service quality and healthy, biological and gourmet aspects of food. New Yorkers are characterized by lack of time and small household size factors that favor fast food consumption (40 % of Americans eat 4 times a day) with snacking being more common among the younger. The majority of Manhattan residents are actually single.  On top of that one has to appreciate the huge spending by the more than $50 million tourists, much of which goes to food. With so many commuters and tourists flocking the streets what’s more natural than a quick snack, especially with all the so many intriguing options?  Manhattan is becoming a sort of an urban theme park, a Disneyland for the well off and the many tourists. All these factors create an ideal environment for food away from home.
  • Food retail – Competition: NY is characterized by the absence of large national grocery chains (ie WalMart). The market is fragmented, there’s a large number of establishments divided between supermarket chains, convenience store, discount stores and specialty store. Supermarket chains are upscale, mainly in Manhattan such as Whole Foods, Food Emporium, D’Agostino or more affordable/middle class in the suburbs.  Real estate in NYC is expensive. That means that supermarkets are smaller and more cramped compared to those in the suburbs.  It also means that shelf space is costly which sets the bar high for product sales.  Trader Joe’s, the fast moving product chain, that is also present in Manhattan, has nationwide an average estimated revenue per square foot of $1,750 in 2010, more than double that for Whole Foods (Inside the secret world of Trader Joe’s).  Prices can be high but upscale consumers have as well high expectations from product quality and branding.  There are also many specialty stores (ethnic, deli, organic etc) where prices and margins are higher but they have to make up for lower volumes too.  Outside that, for many busy NYers small specialty and convenience stores are the grocery stores of choice.  Many ethnic stores in the boroughs cater to immigrants communities within which they are located and to their spending power.  Discount stores (like family dollar) serve lower income consumers; although prices there are low, profit margins are significant.

NYC Grocery Store Photos

  • Foodservice — Competition: establishments are divided into fast food, fast casual, casual dining and fine dining. The market is fragmented as well. There is a large number of establishments with most of restaurants being independent and to a much lesser extent franchised/multi establishment.  Apart from the large number of fine restaurants and celebrity chefs, mainly in Manhattan, NYC also offers all other options, from international cuisine, diners, ethnic food and very common street food (food trucks).

NYC Fast Food Store Photos

  • Foodservice segmentation: There’s everything in NYC, something for everybody. If NYC doesn’t have it, then probably you don’t want it, or maybe it’ll not going to be long until it has it…! Here are the main dining categories:
  • Casual and fine dining: Virtually all types of cuisine are available in good supply. Outside typical cuisines and styles (French, Chinese, Italian, American etc) variety extends to hybrids, for example vegan sushi and other; it’s up to innovation. Apart from being distinguished based on type of cuisine, establishment are also classified according to character/setup such as lounges, bistros, brasseries, gastropubs, etc A foodie paradise!
  • Fast food and Fast casual (both not offering full table service but the second being more expensive with upscale/unique design and most of food prepared in the store): The New York City fast food sector includes chains selling the traditional burgers (along traditional ones new specialty are gaining popularity: Bareburger, Five Guys), chicken (KFC), sandwich (Subway), international such as Mexican (Chipotle, Taco Bell), Asian(noodle) and other ethnic options, Bakery/Coffee (ie Panera, Starbucks), Pizza (Papa John’s, Domino’s) and other specialty stores (for example salad (Chop’t), seafood (Red Lobster) etc). The most popular type of fast food is the burger, followed by sandwiches and chicken. The fast casual niche is very promising especially in NYC.  It generates $21−22 bn nationally and is not only growing fast but also setting trends.  It’s more suitable for today’s consumer character same as original fast food chains revolutionized the industry in the 20th  Lately even McDonald’s said it will allow customization.

US Fast Food Store Breakdown

  • Foodmarkets: These are new arrivals to the NYC scene. They are very large stores that combine multiple restaurants and groceries usually centered around a theme. Eataly was the first one, offering all sorts of Italian products and cuisines, capitalizing on famous chef’s Mario Batali reputation and TV persona. It is very successful although the high investment. It has since expanded in other cities and locations. What’s interesting for Eataly is that it promoted the Italian culture through its store and eventually Italy as a destination. It is to be followed by a French themed foodmarket called Le District of the Poulakakos group, in the lower tip of Manhattan.  There are other such projects discussed or coming such as European themed Hudson Market and a global themed one discussed by famous chef and TV persona Bourdain.
  • Consumer profile: High end consumers in NYC are more interested in service, décor and experience; in fact maybe more than food. According to certain surveys this is a general trend.  As René Redzepi, the much celebrated Danish Michelin awarded chef puts it: “Our main mission at the restaurant and what I tell the staff when they leave here is, give your guests a sense of time and place. Whether it’s the product range, which is a big part of us, but also the whole atmosphere, the way that the restaurant is set. That’s how we give our guests a sense of time and place”. A Nielsen survey regarding wine consumer profiles’ is very revealing in this respect: almost half of wine sales are performed by wine enthusiast and image seekers that perceive the product as sort of a hobby or projection of them selves.  They spend a lot of time on research and to get educated on the product so the retailers have to cater by providing variety, good service and information.  Off course price is not their main concern.  Uniqueness, customization is key.



Given that there’s significant interest for investment in the NYC food sector lately we present below some basic information useful in evaluating the feasibility of such an endeavor.  There’s no doubt that operating in New York City offers many benefits in terms of return and visibility but at the same time the capital required is significant and so are the risks. Hence a very careful evaluation is necessary.   You may also refer to our earlier post in this series regarding NYC’s redevelopment into an attractive investment destination and a consumer mega-center here: NYC Urbanomics Part 1: NYC Redevelopment, a template for urban renaissance and commercial boom.

The information below is only indicative based research we have carried out for international chains and importers of upscale foods and opportunity evaluation regarding expansion in the NYC area.  We are able to discuss in more detail with investors and operators the feasibility of their ideas, entry barriers, get-to-market approach, business plan, operating, labor and tax issues, marketing plan and provide consulting services in this respect. We also have successful operating concepts to present to investors as well as proposals for greenfield developments.

  • Concept: As mentioned before upscale consumers are all about character and information, so customization is the name of the game. Fast casual chains offer this possibility (Bareburger, Chipotle etc) as well as premium service. It doesn’t hurt as well to center everything around an environmental/socially sensitive aspect something quite important for the millenials. There are various ways to create product differentiation for upscale pricing but let us keep this for our clients. On the other hand there are opportunities in the lower end of the market just as long keeps limitations into perspective.
  • Location: Manhattan or certain areas in Brooklyn and maybe Queens offer the highest incomes and favorable traffic and consumption patters. The location depends on the type of concept vs the area’s demographics, ie whether it’s more appealing to young or professionals or families.  Traffic also depends on location and whether this is a location with 24 hour traffic, business center with lunch snacking or nightlife spot.  Rents will also be higher for busy areas except if somebody is able to be ahead of the curve although the market has pretty much priced in these days future gentrification, subway expansion, new office and commercial development etc.  Although vacancy rates are low there is new store development as well. Furthermore supply can be crated from a large number of expiration of old leases or stores closing to make way to new concepts. A good real estate agent and lawyer can help a lot in this respect.

Financial Parameters:

  • Sales targets: McDonald’s still sets the standard in fast food. It has one of the highest sales per store at $2.6 million and successful fast casual chains are not far from that (Panera, $2,3m, Chipotle at $2,1m at 2012). Sandwich, coffee and pizza stores are lower than that.  Fine dining/small restaurants will have to aim for as high as $100 per person or higher while lower margin establishments survive on the high traffic/low price concept.  Regarding food import/wholesale we have already noted high shelf cost for retailers something that calls for low risk products ie products with brand awareness (ie marketing support), sales rep expenses and off course administrative and distribution.
  • The rent can be as high as over $100-150/ft per year in Manhattan and moving towards these directions in popular, up and coming locations in the boroughs, although generally lower there. By comparison average retail rent sought in Manhattan in spring 2013 was $116/sq.ft but in prime locations can go well into four digits (Street’s Sunny Side Costs Retailers More in Rent)
  • Wages: The minimum NYC wage is $8.75 per hour (end of 2014) and to be raised to $9 but wages can be higher depending on experience. National accommodation and food industry wages are about $13 an hour on average for all employees and $11.50 for nonsupervisory employees (Six industries that can’t find workers fast enough)  There’s ample labor supply in NYC although unemployment is getting low so good workers have options. There’s also a large number of undocumented immigrants working in the food sector in NYC; that’s a common secret. Healthcare insurance may be avoided if small business, but other business insurance is advised in a very litigious environment.
  • People: Taking into consideration the level of sophistication and competition as well as the lofty economic parameters it’s not strange that stakes are high in the NYC food sector. NYC retailers and restaurateurs have to invent ways to persuade their customer about their distinctive experience something that will justify higher prices. Yes there are new trends, new diets, molecular gastronomy, and other tantalizing tastes but in the end who cares about food? Who wants to eat after all? Actually people are trying hard not to eat and limit calorie intake. But they care about other issues such as the atmosphere, the concept.  There’s a large number of professional going into the product that may have nothing with food, for example architects, designers, concept consultants, marketers, digital/social media professionals not to mention dieticians, food safety and productions experts and other. Customer analytics and other marketing tools are important in analyzing client profiles.  As a result more money goes on sales & general expenses, what’s called customer acquisition, rather than product cost.  No misunderstanding, quality has to be there, this is a common denominator, a prerequisite.  But it’s the branding that feeds into the mind of the self-actualized consumer.  So the money to buy so many brains is important.  See for example the level of expenses going into design vs production for luxury products. This level of professionalism and investment is often mind-blowing for traditional operators.  In some occasions however some of the operators are able to realize trends and come up with fresh concepts on their own (for example Bareburger).
  • Regulations: Establishments have to comply with local food safety regulations and the NYC environment can be unforgiving due to humidity and large number of rodents. Food importers have to check for import quotas and other limitations.  Trading and selling alcoholic drinks require special licensing.  There are also zoning regulations regarding permitted commercial activities in a specific area as well as construction costs and procedures that have to be taken into consideration in the case of new endeavors, which can be lengthy. Setting up a legal entity is quite straightforward though.

Let us know about questions. We are happy to discuss your project or to present proven business concepts to invest (as franchisee or shareholders) or proposals for new projects.


This post is part of a series of posts about the Economics of Urban Centers as illustrated within the context of global metrolpolis New York City.  In this we cover premium food, and how NYers choose it.  You may refer to our earlier post in this series regarding NYC’s redevelopment and how it manage to take distance from a past of urban decline and turn into a consumer mega-center here: NYC Urbanomics Part 1: NYC Redevelopment, a template for urban renaissance and commercial boom.  In this post we also present some of the reasons NYC is an attractive investment destination as well as of the consumer profile there.


By Pete Chatziplis, CFA, ACCA, MBA. The articles published here do not necessarily reflect the views of the Transatlantic Business Forum. For more information on our consulting services please refer to our website at Transatlantic Business Forum..


NYC Urbanomics Μέρος 2: Ο Τομέας Τροφίμων της Νέας Υόρκης – Επισκόπηση Αγοράς και Παράμετροι Αξιολόγησης Επενδύσεων


Ο τομέας τροφίμων και εστίασης θεωρείται βασικό στοιχείο των μεγάλων σύγχρονων αστικών κέντρων. Η εστίαση στον 21ο αιώνα είναι μέρος του τρόπου ζωής, εμπειρία, τουριστικό αξιοθέατο, έκφραση κουλτούρας και τελικά μεγάλη επιχειρηματική δραστηριότητα. Στη σημερινή εποχή οι σχεδιαστές πόλεων πρέπει να προνοήσουν την ύπαρξη μεγάλης ποικιλίας επιλογών εστίασης για να προσελκύσουν επαγγελματίες και εμπορική δραστηριότητα σε μια πόλη. Οι εταιρίες εστίασης πρέπει να παρέχουν υψηλής ποιότητας φαγητό από σεφ που αντιμετωπίζονται σαν καλλιτέχνες. Και οι τελικά οι απαιτητικοί καταναλωτές καλούνται να ξοδέψουν αρκετά για αυτή την εμπειρία.

Τα τρόφιμα έχουν γίνει μέρος έκφρασης της ταυτότητας του ατόμου όπως τα ρούχα, το σπίτι, τα αυτοκίνητα (για να θυμηθούμε και τις θεωρίες του Γάλλου φιλόσοφου και κοινωνιολόγου Bourdieu). Για παράδειγμα, σήμερα υπάρχουν πολλοί τρόποι διατροφής όπως από βιολογικά τρόφιμα, vegetarian, vegan, έθνικ ή άλλα. Οι παραγωγοί τροφίμων παρέχουν πληροφορίες σχετικά με το εάν το τρόφιμο είναι προστατευόμενης προέλευσης, φωτογραφίες των παραγωγών, εάν έχουν χρησιμοποιηθεί ανανεώσιμες πηγές ενέργειας ή άλλες φιλικές προς το περιβάλλον διαδικασίες, εάν είναι χειροποίητα, ποιος είναι ο τρόπος εκτροφής και άλλα. Οι εταιρίες παρακολουθούν τις απόψεις των καταναλωτών και είναι σε συνεχή επικοινωνία με τους πελάτες τους μέσα από τα μέσα κοινωνικής δικτύωσης.

Η Νέα Υόρκη θεωρείται ότι έχει μια από τις καλύτερες αγορές τροφίμων και εστίασης παγκοσμίως λόγω της μεγάλης ποικιλίας και ποιότητας. Η συνολική αξία της αγοράς αυτής είναι περίπου $19 δισ (US Census) και καλύπτει ένα μεγάλο αριθμό εταιρειών και γεύσεων. Συνεισφέρει σημαντικά φορολογικά έσοδα στον δήμο και εκτός αυτού απασχολεί μεγάλο αριθμό ατόμων και παρέχει κρίσιμες υπηρεσίες στα εκατομμύρια των κατοίκων και των τουριστών.

Λαμβάνοντας υπόψη το κοσμοπολίτικο χαρακτήρα της πόλης, την αύξηση του πληθυσμού, τα υψηλά εισοδήματα και τον σημαντικό τουρισμό δεν είναι τυχαίο το γεγονός ότι υπάρχει τόσο μεγάλο ενδιαφέρον για επένδυση στον χώρο τροφίμων, τόσο από το εσωτερικό όσο και από διεθνείς επενδυτές και επιχειρήσεις. Δραστηριοποίηση στην Νέα Υόρκη μπορεί να προσφέρει, εκτός από σημαντική απόδοση, προβολή σε όλη την ΗΠΑ και τον κόσμο και ως εκ τούτου εφαλτήριο για διεθνή επέκταση.

Παρακάτω παρουσιάζουμε κάποιες βασικές παραμέτρους σχετικές με επενδύσεις στην Νέας Υόρκη, κάτι για το οποίο υπάρχει μεγάλο ενδιαφέρον τελευταία και από Ελληνικά συμφέροντα. Αυτό δεν είναι παράλογο δεδομένου ότι οι Ελληνικές εταιρίες έχουν φτάσει σε υψηλό επίπεδο υπηρεσιών και προϊόντων αρκετά από τα οποία θα μπορούσαν να σταθούν στην αγορά της Νέα Υόρκης, κάτω από σωστές προϋποθέσεις. Τα στοιχεία που δίνονται εδώ δεν αποτελούν μια πλήρη μελέτη αγοράς, απλά ενδεικτικά βασικά μεγέθη. Είμαστε διαθέσιμοι για να συζητήσουμε εκτενέστερα την ιδέα σας εάν υπάρχει σοβαρό επενδυτικό ενδιαφέρον και να δημιουργήσουμε ένα πλάνο δρασταηριοποίησης προσαρμοσμένο στα δεδομένα σας.

Μέγεθος αγοράς: ο συνολικός πληθυσμός της ευρύτερης μητροπολιτικής περιοχής Νέας Υόρκης υπολογίζεται στα 20 εκατομμύρια. Η περιοχή αυτή καλύπτει εκτός από την καθεαυτό πόλη της Νέας Υόρκης (η οποία χωρίζεται σε πέντε περιοχές: Μανχάταν, Μπρούκλυν, Κουινς, Μπρονξ και Στεϊτεν Αϊλαντ) αλλά και τις γειτνιάζουσες περιοχές των πολιτειών του Νιου Τζέρσευ, Κοννεκτικατ, Πενσυλβάνια και του Λονγκ Αϊλαντ πολλοί από τους κατοίκους των οποίων εργάζονται ή επισκέπτονται συχνά την Νέα Υόρκη. Η Νέα Υόρκη έχει την υψηλότερη πληθυσμιακή πυκνότητα στις ΗΠΑ. Ο πληθυσμός του Μανχάταν, που αποτελεί το κέντρο της Νέας Υόρκης και την πιο ακριβή περιοχή, ανέρχεται σε περίπου 2 εκατομμύρια αλλά υπερδιπλασιάζεται κατά τη διάρκεια της ημέρας λόγω των εργαζομένων, των επισκεπτών και των τουριστών. Η Νέα Υόρκη περιλαμβάνει ορισμένες από τις ακριβότερες συνοικίες στην Αμερική όπου τα μέσα οικογενειακά εισοδήματα ξεπερνούν τα $100,000 τον χρόνο. Οι τουρίστες εκτιμώνται σε 52 εκατομμύρια από τους οποίους το 80% είναι Αμερικανοί με μέσο όρο ημερήσιων δαπανών τα $700 ($ 37 δισ το συνολικό τουριστικό εισόδημα).

Η ευρύτερη αγορά/επενδυτική ευκαιρία: Η συνολική αγορά τροφίμων των ΗΠΑ ανέρχεται σε $ 1,1 τρις από τα οποία η αγορά λιανικής είναι περίπου $ 650 δις και της εστίασης $ 450 δις με $ 184 δις να αποτελούν το ταχυφαγητό. Οι πωλήσεις ειδικών τροφίμων (specialty foods δηλ gourmet κ.α.) υπολογίζεται σε $ 70 εκατ και των βιολογικών τροφίμων σε $ 30 δισ και αυξάνονται με υψηλούς ρυθμούς. Παρά το γεγονός ότι η συνολική αγορά των τροφίμων είναι ώριμη, υπάρχουν δυνατότητες για εκρηκτική ανάπτυξη σε επιμέρους τομείς, όπως αποδεικνύεται από τη επιτυχία του ελληνικού γιαουρτιού που μέσα σε λιγότερα από δέκα χρόνια έφτασε τα $3δις συνολικής αξίας κάτι το οποίο ξεκίνησε σε μεγάλο βαθμό από τη Νέα Υόρκη. Η Νέα Υόρκη λόγω της θέσης της ως το μεγαλύτερο επιχειρηματικό κέντρο στον κόσμο, είναι απαραίτητο σημείο παρουσίας για διεθνή εμπορικά σήματα. Επίσης η Νέα Υόρκη, με τον κοσμοπολίτικο χαρακτήρα της, τον πολυεθνικό πληθυσμό και τον τουρισμό, χρησιμεύει και ως βάση δοκιμής για νέες ιδέες και δημιουργία τάσεων. Είναι επίσης πολύ συνηθισμένο οι τουρίστες να επισκέπτονται καταστήματα που έχουμε δει σε ταινίες, (για παράδειγμα, το Boathouse ή το Serendipity) ή να δοκιμάζουν διάσημα φαγητά που έγιναν διάσημα στην Νέα Υόρκη όπως το cronut ή το cupcake. Για περισσότερα στοιχεία για την Νέα Υόρκη, την αναμόρφωσή της τα τελευταία χρόνια σε υπέρτατο εμπορικό κέντρο και την φυσιογνωμία των καταναλωτών εκεί μπορείτε να διαβάσετε και το προηγούμενο άρθρο μας της σειράς αυτής NYC Urbanomics Part 1: Αστική Αναμόρφωση της Νέας Υόρκης και Μεταμόρφωση στο Απόλυτο Εμπορικό Κέντρο.

Οι συνολικές Ελληνικές εξαγωγές τροφίμων στις ΗΠΑ ανέρχονται σε περίπου $200 εκατ πολύ χαμηλά σε σχέση με το αντίστοιχο σύνολο της ΕΕ (17δις). Τα σημαντικότερα Ελληνικά εξαγώγιμα προϊόντα είναι ελιές, ελαιόλαδο, τυρί φέτα και τυποποιημένα φρούτα. Οι περισσότερες εισαγωγές προωθούνται στην ομογένεια κυρίως στις πολιτείες της Νέας Υόρκης, New Jersey και Πενσυλβάνια ενώ η διείσδυση και προβολή στο Αμερικανικό κοινό είναι μικρή. Η Ελληνική κουζίνα είναι γνωστή μέσω των μεταναστών ενώ διατίθενται και αρκετά τυποποιημένα Ελληνικά τρόφιμα σε σουπερμάρκετ ή καταστήματα εστίασης (όπως πχ σπανακόπιτες, γύρος (αν και όχι ο αυθεντικός) τα οποία όμως επι το πλείστον έχουν χαμηλές τιμές, χαμηλή προστιθέμενη αξία και προωθούνται ως εθνικ και όχι ως γκουρμέ που απολαμβάνουν υψηλότερες τιμές. Βέβαια η δημιουργία γκουρμε προφίλ απαιτεί οργανωμένη πολιτική μαρκετινγκ και πωλήσεων και διαφημιστική υποστήριξη ίσως και σε συλλογικό επίπεδο. Η αγορά είναι κατακερματισμένη (fractured) αφού δραστηριοποιούνται μεγάλος αριθμός εισαγωγικών εταιριών και χονδρεμπόρων. Γενικά είναι δυνατή η είσοδος μικρών και νέων εταιριών αλλά τα κεφάλαια που απαιτούνται για προώθηση, κεφάλαιο κίνησης και ανάπτυξη είναι σημαντικά. Επίσης υπάρχουν κάποιοι κανονισμοί που πρέπει να λαμβάνονται υπόψη από νέους εισαγωγείς όπως η ύπαρξη ποσοστώσεων για ορισμένα προϊόντα (import quotas) και ειδικών αδειών (πχ για άδεια αλκοολούχων ποτών).

Πληθυσμιακά στοιχεία: Η Νέα Υόρκη έχει έντονο διεθνή / κοσμοπολίτικο χαρακτήρα. Ένας στους τρεις Νεοϋορκέζους έχει μεταναστεύσει από το εξωτερικό δηλ. είναι μετανάστης πρώτης γενιάς ενώ πολλοί άλλοι είναι δεύτερης ή τρίτης. Σχεδόν 400.000 εκατομμυριούχοι ζουν στη Νέα Υόρκη, ως επί το πλείστον στο Μανχάταν. Κάθε δημοτικό τμήμα έχει διαφορετικό χαρακτήρα με το Μανχάταν να είναι το πιο εύπορο και το μεγάλο επιχειρηματικό, εμπορικό και τουριστικό κέντρο. Οι κάτοικοι του Μανχάταν είναι σε μεγαλύτερο ποσοστό επαγγελματίες παραγωγικής ηλικίας (20-50 ετών) σε σύγκριση με τα άλλα διαμερίσματα όπου υπάρχουν αναλογικά περισσότερες οικογένειες και παιδιά. Τα εισοδήματα εκτός Μανχάταν είναι επίσης χαμηλότερα και οι εμπορικές επιχειρήσεις μικρότερου μεγέθους και δυνατοτήτων. Ωστόσο, οι τιμές των ακινήτων έχουν αρχίσει πρόσφατα να αυξάνονται και εκεί όπως στο Μπρούκλιν ακόμα και σε περιοχές του Κουίνς (πχ Long Island City). Ένα μεγάλο μέρος από τις αυξήσεις αυτές οφείλονταν στις προσπάθειες καλλωπισμού (gentrification) και την πληθυσμιακή εισροή κυρίως από αλλοδαπούς, αλλά και Αμερικανούς, ειδικά νέους, που έχουν πλημμυρίσει κυρίως το Μπρούκλιν τα τελευταία χρόνια. Όλα αυτά είναι σημαντικά όσο αφορά την επιλογή των κατάλληλων τοποθεσιών για συγκεκριμένα είδη καταστημάτων (concepts) και στη συνέχεια, την εκτίμηση της κυκλοφορίας και των πωλήσεών τους.

NYC Age Breakdown by Borough and Income Map

Στοιχεία καταναλωτικών δαπανών: Όπως ειπώθηκε το μέσο οικογενειακό εισόδημα σε μεγάλο μέρος του Μανχάταν υπερβαίνει τα 100 χιλιάδες δολάρια, το 12,4% του οποίου δαπανάται στη διατροφή. Στις άλλες περιοχές της Νέα Υόρκης το μέσο οικογενειακό εισόδημα είναι πολύ χαμηλότερο (οι πιο φτωχοί όμως λαμβάνουν και επισιτιστική βοήθεια). Οι κάτοικοι του Μανχάταν, που αποτελεί και το επίκεντρο της αγοράς φαγητού, εκτός από υψηλό εισόδημα έχουν και υψηλό μορφωτικό επίπεδο και είναι πολύ ευαισθητοποιημένοι σε θέματα ποιότητας υπηρεσιών και προϊόντων και προτιμούν μεταξύ άλλων υγιεινά, βιολογικά και γκουρμέ τρόφιμα. Οι Νεοϋορκέζοι χαρακτηρίζονται από έλλειψη χρόνου και μικρό μέγεθος νοικοκυριών κάτι που ευνοεί την κατανάλωση ταχυφαγητού (40% των Αμερικανών γευματίζουν 4 φορές την ημέρα) με τους νέους να είναι πιο επιρρεπείς στα συχνά μικρά γεύματα (snacking). Η πλειοψηφία των κατοίκων του Μανχάταν ζουν μόνοι τους κάτι που επίσης ευνοεί το ταχυφαγητό. Επίσης πολύ σημαντικός παράγοντας για την εστίαση είναι η παρουσία περισσοτέρων των 50 εκατομμυρίων τουριστών κάθε χρόνο και της συνεπακόλουθης τουριστική δαπάνης μεγάλο μέρος της οποίας καταλήγει στο φαγητό. Με τόσους πολλούς περαστικούς και τουρίστες στην πόλη τι πιο φυσικό βέβαια από ένα γρήγορο σνακ ή ένα γεύμα, δεδομένου ότι υπάρχουν και τόσες πολλές και ενδιαφέρουσες επιλογές. Θα μπορούσε να πει κάποιος ότι με τόσους τουρίστες και επιλογές το Μανχάταν τείνει να γίνει ένα είδος αστικού θεματικού πάρκου, ένα είδος Ντίσνεϊλαντ όπου επαγγελματίες υψηλού εισοδήματος, εύποροι κάτοικοι και τουρίστες σπεύδουν να απολαύσουν τις πολλές συγκινήσεις που προσφέρει. Όλοι αυτοί οι παράγοντες δημιουργούν ένα ιδανικό περιβάλλον για τη εστίαση και το τρόφιμο γενικώς μεταξύ άλλων.

Λιανικό εμπόριο τροφίμων – Ο ανταγωνισμός: Η Nέα Yόρκη χαρακτηρίζεται από την απουσία των μεγάλων Αμερικανικών αλυσίδων σουπερμάρκετ (πχ WalMart). Η αγορά μπορεί να χαρακτηριστεί κατακερματισμένη, αφού δραστηριοποιείται μεγάλος αριθμός μεγάλος αριθμός επιχειρήσεων λιανικής όπως αλυσίδες σουπερμάρκετ, μίνι-μάρκετ, εκπτωτικά καταστήματα (discount stores) και εξειδικευμένα κατάστημα (πχ gourmet, deli, οργανικά). Τα σουπερμάρκετ του Μανχάταν είναι σε μεγάλο ποσοστό ακριβά και υψηλής ποιότητας, όπως πχ το Whole Foods, το Food Emporium, το D’Agostino και άλλα ενώ πιο προσιτά στα μέσα εισοδήματα είναι τα σουπερμάρκετ που βρίσκονται στις τριγύρω περιοχές. Τα ακίνητα στην Νέα Υόρκη είναι ακριβά. Αυτό σημαίνει ότι τα σουπερμάρκετ είναι μικρότερα και πιο περιορισμένα σε χώρο σε σύγκριση με εκείνα άλλων πόλεων. Σημαίνει, επίσης, ότι ο χώρος στο ράφι κοστίζει πολύ στην επιχείρηση και για αυτό τον λόγο έχουν υψηλές απαιτήσεις όσο αφορά τις πωλήσεις και την κερδοφορία των προϊόντων. Το Trader Joe’s για παράδειγμα, μία αλυσίδα με λίγους κωδικούς και υψηλή κυκλοφορία αποθεμάτων, που δραστηριοποιείται και στο Μανχάταν, παρουσιάζει μέσο εκτιμώμενο όρο εσόδων ανά τετραγωνικό πόδι $1.750 δολάρια σε όλο το δίκτυό της το 2010, κάτι που αποτελεί κορυφαία επίδοση για την Αμερική και υπερβαίνει σχεδόν κατά το διπλάσιο το αντίστοιχο ποσό των Whole Foods (Inside the secret world of Trader Joe’s). Μπορεί οι τιμές των προϊόντων στο Μανχάταν να είναι υψηλές, αλλά υψηλές είναι επίσης και οι προσδοκίες από τους καταναλωτές όσο αφορά την ποιότητα και την όλη εικόνα (branding). Αν και οι πωλήσεις σε ορισμένα προϊόντα είναι υψηλές αυτό δεν σημαίνει ότι μπορούν από μόνες τους να υποστηρίξουν κάποια επιχείρηση αφού οι όγκοι πωλήσεων είναι περιορισμένοι (πχ για πολύ ακριβά ελαιόλαδα). Κατά το ίδιο τρόπο υπάρχουν πολλά εξειδικευμένα καταστήματα όπου διαθέτουν ενδεχομένως και μικρότερης επωνυμίας προϊόντα όπου οι τιμές και τα περιθώρια κέρδους είναι υψηλότερα, αλλά επίσης και οι όγκοι πωλήσεων είναι χαμηλότεροι. Έκτός αυτών πολλοί πολυάσχολοι και εργένηδες Νεοϋορκέζοι καταλήγουν να πραγματοποιούν πολλές αγορές σε μίνι-μάρκετ και ψιλικατζίδικα της γειτονιάς. Τα καταστήματα που έχουν φαγητά συγκεκριμένης προέλευσης (πχ Ελληνικά) βρίσκονται κυρίως στις περιφερειακές του Μανχάταν περιοχές κοντά σε κοινότητες μεταναστών και ανταποκρίνονται στην αγοραστική τους δυνατότητα. Τα εκπτωτικά καταστήματα εξυπηρετούν καταναλωτές με χαμηλότερα εισοδήματα (πχ προϊόντα των 99 σεντς κλπ) και παρόλο που οι τιμές τους είναι χαμηλές, τα περιθώρια κέρδους τους είναι σημαντικά.

NYC Grocery Store Photos

• Τομέας Εστίασης – Ο ανταγωνισμός: οι κύριες κατηγορίες καταστημάτων είναι το ταχυφαγητό που διακρίνεται στο κλασικό/τυποποιημένο ταχυφαγητό (fast food) και στο σχετικά νέο είδος του προσαρμοσμένου/θελκτικού ταχυφαγητού (fast casual)*, τα κοινά εστιατόρια και η εκλεπτυσμένη κουζίνα. Η αγορά και εδώ είναι κατακερματισμένη, καθώς υπάρχει μεγάλος αριθμός καταστημάτων με την συντριπτική πλειοψηφία τους να είναι ανεξάρτητα ενώ πολύ μικρός αριθμός ανήκει σε αλυσίδες (franchise). Εκτός από το μεγάλο αριθμό των εστιατορίων εκλεπτυσμένης κουζίνας και τους πολλούς διάσημους σεφ, τα οποία βρίσκονται κυρίως στο Μανχάταν, η Νέα Υόρκη προσφέρει κάθε είδους φαγητού και σε κάθε είδους ποιότητα όπως μικρά ταχυφαγεία, καντίνες (food trucks), διεθνή κουζίνα (κινέζικα, Μεξικανικά, Ελληνικά κλπ) και τα γνωστά diners τα οποία συχνά λειτουργούν όλο το 24ωρο.

NYC Fast Food Store Photos

Τομέας Εστίασης – Καταμερισμός αγοράς: Όπως είπαμε υπάρχει κάθε είδους τρόφιμο και τύπος εστιατορίου στην Νέα Υόρκη. Ακολουθεί περιγραφή των κυριοτέρων κατηγοριών:

– Κοινά εστιατόρια και εκλεπτυσμένη κουζίνα: Υπάρχει μεγάλη ποικιλία και σε σημαντικές ποσότητες. Εκτός από τις κλασσικές κουζίνες (πχ γαλλική, κινεζική, ιταλική, αμερικανική, ιαπωνική κλπ) η ποικιλία πλέον επεκτείνεται σε συνδυασμούς πχ vegan σούσι κ.α., υπάρχουν δηλαδή περιθώρια καινοτομίας. Εκτός από το είδος της κουζίνας, τα εστιατόρια κατατάσσονται ανάλογα και με το χαρακτήρα του εσωτερικού τους σχεδιασμού πχ lounge/bar, μπιστρό, μπυραρίες, gastropubs, κ.λ.π. Πραγματικά είναι ένας παράδεισος για τους καλοφαγάδες (ή όπως αποκαλούνται στο εξωτερικό: foodies)!

– Τυποποιημένο ταχυφαγητό και προσαρμοσμένο ταχυφαγητό (fast casual): και τα δύο είδη fast food διακρίνονται από το γεγονός ότι είναι self-service (δεν υπάρχει σερβίρισμα) αλλά η διαφορά τους έγκειται ότι στο προσαρμοσμένο το οποίο έχει αρχίσει να εμφανίζεται τα τελευταία χρόνια, το φαγητό σε μεγάλο βαθμός παρασκευάζεται μέσα στο κατάστημα, έχουν υψηλού επιπέδου/διακριτή αισθητική και η μέση δαπάνη ανά πελάτη είναι υψηλότερη (παραδείγματα αποτελούν το Panera (αρτοζαχαροπλαστική), Chipotle (μεξικάνικο) κα). Όσο αφορά το είδος των τροφίμων ο χώρος του ταχυφαγητού περιλαμβάνει τα κλασικά χάμπουργκερ (όπου όμως κερδίζουν δημοτικότητα νέα εξειδικευμένα concept όπως το Bareburger, το Five Guys, το Shake Shack), το κοτόπουλο (πχ KFC), τα σάντουιτσάδικα (πχ Subway), το τοπικό/διεθνές ταχυφαγητό (πχ μεξικάνικα (Taco Bell), ασιατικά (είδη noodle) κ.α), ζαχαροπλαστεία/καφέ (πχ Dunkin’ Donuts), πιτσαρίες (Papa John’s, Domino’s) και άλλα εξειδικευμένα είδη (για παράδειγμα σαλάτες (Chop’t), θαλασσινά (Red Lobster) κλπ). Τα τελευταία χρόνια παρατηρείται και ενδιαφέρον για τον κλασσικό γύρο (όχι το είδος που ανέκαθεν έχει συνδεθεί με το όνομα gyros στην Αμερική (δηλ το πολτοποιημένο μίγμα) αλλά το αυθεντικό που αποτελείται από κομμάτια κρέας και το οποίο διατίθεται σε μεγάλο βαθμό από Αραβες (είναι κυρίως από πρόβειο κρέας και λέγεται shawarma (σουάρμα)) αλλά και τελευταία από Έλληνες και ειδικά από την Μεγα Γύρος (Mega Yeeros) του Γ. Νίκα και άλλων επενδυτών που έχει δημιουργήσει την αλυσίδα GRK στο Μανχάταν και λειτουργούν και μονάδα παραγωγής στο γειτονικό New Jersey όπου προμηθεύει και τρίτους (σημειώνεται ότι οι υπάρχουσες διακρατικές εμπορικές συμφωνίες Ελλάδας-ΗΠΑ δεν επιτρέπουν την εισαγωγή νωπού κρέατος). Η Μεγα Γύρος έχει καταφέρει να διακινεί περισσότερο από 12 τόνους αυθεντικό γύρο στην Αμερική μέσα σε σύντομο χρονικό διάστημα και έχει προοπτικές περαιτέρω ανάπτυξης**. Να σημειωθεί εδώ ότι ένα εμπόδιο για τον γύρο από χοιρινό, αποτελεί και το ότι το κρέας αυτό απαγορεύεται από την Ιουδαϊκή και Μουσουλμανική θρησκεία οι οποίες έχουν πολλά μέλη στην Νέα Υόρκη. Πάντως τα περιθώρια ανάπτυξης εκτός των κοινοτήτων αυτών είναι σημαντικά.

Το πιο δημοφιλές είδος ταχυφαγητού στην Αμερική είναι το μπιφτέκι (burger) με περίπου 2 στα 5 καταστήματα να παρέχουν αυτό το κλασικό για τους Αμερικανούς φαγητό, ακολουθούμενο από το σάντουιτς και το κοτόπουλο (βλέπε σχήμα US Fast Food Segments). Ο κλάδος του προσαρμοσμένου ταχυφαγητού (fast casual) εκτός από ισχυρή παρουσία στην αγορά της Νέας Υόρκης είναι ανερχόμενος και σε όλες τις ΗΠΑ όπου οι συνολικές πωλήσεις του εκτιμώνται στα $21- $22 δις δολάρια, αυξανόμενες με ταχείς ρυθμούς αλλά και ταυτόχρονα πρωτοπορεί στη δημιουργία τάσεων. Το είδος της εστίασης αυτής είναι πιο κατάλληλο για τον χαρακτήρα των σημερινών καταναλωτών κατά τον ίδιο τρόπο που οι κλασικές αλυσίδες έφεραν την επανάσταση και πρωτοστάτησαν στην εστίαση πιο παλιά, στο δεύτερο μισό του 20ου αιώνα. Θέλοντας να παρακολουθήσουν τις νέες τάσεις, ακόμη και τα McDonalds ανακοίνωσαν τελευταία ότι θα παρέχουν σε κάποιο βαθμό δυνατότητα παραλλαγών στα προϊόντα. Η ποικιλία του τελικού προϊόντος δηλ. προσαρμογή στα γούστα του πελάτη είναι βασικό χαρακτηριστικό της εποχής μας και παρέχεται από τις αλυσίδες προσαρμοσμένου ταχυφαγητού (πχ στα Chipotle ο πελάτης διαλέγει συστατικά, στα Bareburger υπάρχει δυνατότητα διαφοροποίησης τους τρόπου ψησίματος και είδους κρέατος κλπ).

US Fast Food Store Breakdown

– Παντοπωλείο/Εστιατόριο(Foodmarkets): Τα καταστήματα αυτά αποτελούν νέο σχετικά είδος για την Νέα Υόρκη. Συνδυάζουν παντοπωλείο και εστιατόριο κάτω από ένα κοινό θέμα. Ουσιαστικά η μόδα αυτή ήρθε με την δημιουργία του Eataly το οποίο παρέχει όλως των ειδών τα Ιταλικά τρόφιμα. Διαθέτει πολύ μεγάλους χώρους, σε άκρως εμπορική περιοχή, και στεγάζει διαφορετικών ειδών κουζινών (δηλ. ζυμαρικά, ψητά, ψάρια, μεζέ, ζαχαροπλαστείο κλπ) καθώς και προϊόντα όλα γύρω από το Ιταλικό θέμα. Τα μαγαζιά αυτά απαιτούν μεγάλες επενδύσεις, συνεπώς έχουν αυξημένο ρίσκο, και προσεκτικό σχεδιασμό. Το Eataly επίσης εκμεταλλεύεται την ύπαρξη του πολύ γνωστού σέφ Mario Batali ο οποίος έχει πολλές εκπομπές στην τηλεόραση. Το ενδιαφέρον με το είδος(concept) αυτό είναι ότι μέσα από το φαγητό με την πληροφόρηση που παρέχεται στο κατάστημα προωθείται και η εικόνα της Ιταλίας στους πολλούς τουρίστες που επισκέπτονται την Νέα Υόρκη. Το κατάστημα έχει μεγάλη επιτυχία και επεκτείνεται και σε άλλες πόλεις της Αμερικής. Σε αυτή την τάση βαδίζει και το foodmarket με γαλλικό θέμα Le District του γκρούπ Πουλακάκου, στο κάτω άκρο του Μανχάταν κοντά στους άλλοτε δίδυμους πύργους μια περιοχή που αναβαθμίζεται. Άλλα ανάλογα επιχειρήματα θα αποτελέσουν Hudson Market με Ευρωπαϊκό και Βρετανικό θέμα και ένα ακόμα με θέμα διεθνές φαγητό του ποδιού (international street food) που συζητάει ο επίσης γνωστός από την τηλεόραση σεφ Anthony Bourdain.

Καταναλωτικό προφίλ: Για τους απαιτητικούς καταναλωτές της Νέας Υόρκης οι ανωτέρου επιπέδου υπηρεσίες, ο διάκοσμος η όλη εμπειρία, ίσως είναι πιο σημαντικά από το ίδιο το φαγητό. Όπως λεει ο βραβευμένος με Michelin διάσημος Δανός σεφ René Redzepi: “Κύρια αποστολή μας στο εστιατόριο και ότι λέω στο προσωπικό όταν φεύγουν από εδώ είναι, να δίνεται στους πελάτες μια αίσθηση του χρόνου και του τόπου. Είτε αυτό αφορά την ποικιλία των προϊόντων, το οποίο είναι ένα μεγάλο μέρος αυτού που κάνουμε, αλλά και η όλη ατμόσφαιρα, ο τρόπος που το εστιατόριο έχει διαρρυθμιστεί. Αυτό δίνουμε στους επισκέπτες μας μια αίσθηση του χρόνου και του τόπου ». Σύμφωνα με ορισμένες έρευνες αυτό είναι μια γενικότερη τάση της εποχής. Ερευνά της Nielsen σχετικά με τα προφίλ των καταναλωτών κρασιού υπογραμμίζει ακριβώς την διάσταση αυτή: σχεδόν το ήμισυ των πωλήσεων κρασιού πραγματοποιούνται από ενθουσιώδεις οπαδούς του κρασιού (wine enthusiasts) και αυτούς που αποσκοπούν στην αυτοπροβολή τους (image seekers). Δηλαδή για τους μισούς καταναλωτές το προϊόν είναι ένα είδος χόμπι ή καταξίωσης και όχι τρόφιμο. Οι καταναλωτές αυτοί αναλώνουν πολύ χρόνο στο να συλλέξουν κάθε πληροφορία για το προϊόν, πρωτίστως για λόγους ενδιαφέροντος και για αυτό τα καταστήματα πρέπει να τους παρέχουν ποικιλία, καλή εξυπηρέτηση και πληροφόρηση ώστε να κεντρίζουν το ενδιαφέρον τους. Φυσικά η τιμή δεν αποτελεί το κύριο μέλημά τους. Είναι αυτό που θα λέγαμε αυτο-πραγματωμένοι καταναλωτές (self-actualized) οι οποίοι έχουν ικανοποιήσει τις βασικές τους βιολογικές ανάγκες αναζητούν εμπειρίες που τους κάνουν να νιώθουν μοναδικοί. Μιλάμε φυσικά για την κορυφή της κοινωνικοοικονομικής πυραμίδας. Η μοναδικότητα της εμπειρίας και η προσαρμογή στις προτιμήσεις του πελάτη είναι το κλειδί.


Με δεδομένο ότι υπάρχει σημαντικό ενδιαφέρον τα τελευταία χρόνια για εξαγωγές στην Αμερική ή και για απευθείας δραστηριοποίηση παρακάτω παρουσιάζουμε κάποια βασικά λειτουργικά μεγέθη που συνήθως ερωτούν ενδιαφερόμενοι επιχειρηματίες. Οι πληροφορίες αυτές είναι γενικές και θα πρέπει να θεωρηθούν μόνο ως μία αρχική ένδειξη η οποία θα πρέπει να ακολουθηθεί από λεπτομερή έρευνα σε βάθος για το συγκεκριμένο προϊόν ή είδος εστίασης. Η πληροφόρηση βασίζεται σε έρευνες αγοράς που έχουμε πραγματοποιήσει τα τελευταία χρόνια για εταιρίες εστίασης και εισαγωγείς ποιοτικών τροφίμων στην περιοχή της Νέας Υόρκης. Είμαστε σε θέση να συζητήσουμε πιο λεπτομερώς με ενδιαφερόμενους επενδυτές και επιχειρηματίες τη δυνατότητα υλοποίησης των ιδεών τους όπως πχ στρατηγική εισόδου στην αγορά, ενδεχόμενους κινδύνους, καταρτισμό επιχειρηματικού σχεδίου, λειτουργικά, εργασιακά, φορολογικά θέματα, στρατηγική προβολής και μάρκετινγκ κ.α.. Είμαστε επίσης σε θέση να προτείνουμε σε επενδυτές επιτυχημένες ήδη λειτουργούσες επιχειρηματικές ιδέες ή να παρουσιάσουμε προτάσεις για νέες επιχειρηματικές δραστηριότητες. Όπως έχουμε ήδη αναφέρει εκτός από την απόδοση που μπορεί να αποφέρει μια επένδυση από την Νέα Υόρκη και μόνο, παρέχει και την δυνατότητα προβολής στην υπόλοιπη Αμερική και διεθνώς κάτι το οποίο είναι σημαντικό για διεθνή σήματα. Τα μεγέθη επένδυσης είναι βέβαια μεγάλα στην Νέα Υόρκη και ανάλογα είναι τα ρίσκα. Για περισσότερα στοιχεία για την Νέα Υόρκη, την αναμόρφωσή της τα τελευταία χρόνια σε υπέρτατο εμπορικό κέντρο και την φυσιογνωμία των καταναλωτών εκεί μπορείτε να διαβάσετε και το προηγούμενο άρθρο μας της σειράς αυτής NYC Urbanomics Part 1: Αστική Αναμόρφωση της Νέας Υόρκης και Μεταμόρφωση στο Απόλυτο Εμπορικό Κέντρο.

Επιχειρηματικό Θέμα (Business Concept): Όπως προαναφέρθηκε ειδικά για το ανώτερου επιπέδου καταναλωτές πολύ βασικά ζητούμενα είναι η μοναδικότητα του χαρακτήρα (concept) της υπηρεσίας εστίασης και η παροχή επιλογών στον πελάτη. Εταιρίες προσαρμοσμένου ταχυφαγητού (fast casual) προσφέρουν τη δυνατότητα αυτή (πχ Bareburger, Chipotle κλπ) καθώς και υψηλής ποιότητας υπηρεσίες. Δεν βλάπτει, επίσης να υπάρχει και μία παράμετρος του θέματος που να έχει να κάνει με την οικολογία ή άλλα κοινωνικά θέματα (πχ υποστήριξη αδυνάτων μέσω προσφορών κλπ) καθώς ειδικά για την νεότερη γενιά των ΗΠΑ (20-35) τέτοια θέματα αποτελούν πολύ σημαντικό στοιχείο της κουλτούρας τους. Υπάρχουν διάφοροι τρόποι για να δημιουργηθεί μια ξεχωριστή ταυτότητας ή ενός προϊόντος και συνεπακόλουθα δυνατότητα υψηλότερης τιμολόγησης αλλά επιτρέψτε μας να κρατήσουμε τη συζήτηση αυτή για τους πελάτες μας. Από την άλλη πλευρά, φυσικά υπάρχουν δυνατότητες να απευθυνθεί κάποιος και στα μέσα και χαμηλότερα τμήματα της αγοράς και να επιτύχει καλές αποδόσεις, με την προϋπόθεση ότι έχουν ληφθεί υπόψη οι δυνατότητες και ιδιομορφίες των αγορών αυτών.

Τοποθεσία: Το Μανχάταν και ορισμένες περιοχές στο Μπρούκλιν και ίσως τελευταία και του Queens προσφέρουν τα υψηλότερα εισοδήματα και ευνοϊκότερες συνθήκες από πλευράς κυκλοφορίας και κατανάλωσης. Η τοποθεσία για κάθε είδους καταστήματος εξαρτάται από την θεματολογία/ταυτότητα του (concept) τις πληθυσμιακές ομάδες που απευθύνεται (δηλ. επαγγελματίες, νέοι, οικογένειες κλπ) και άλλα. Υπάρχουν περιοχές που έχουν κίνηση καθ’όλο το 24ωρο (πρωινό, γεύμα στην εργασία, νυχτερινή διασκέδαση, περαστικοί κλπ) και άλλες όχι. Τα ενοίκια έχουν εκτιναχθεί τελευταία για τις πολυσύχναστες και ακριβές περιοχές. Ενδεχομένως να υπάρχουν κάποιες ευκαιρίες σε ανερχόμενες περιοχές, αλλά η αγορά συνήθως τις προεξοφλεί γρήγορα. (πχ περιοχές που εξευγενίζονται (gentrification), όπου επεκτείνεται το μετρό, περιοχές με νέα γραφεία και καταστήματα κ.λ.π). Αν και υπάρχει μικρός αριθμός ξενοίκιαστων μαγαζιών και αυτά για μικρό διάστημα στις δημοφιλείς περιοχές υπάρχουν και δυνατότητες εγκατάστασης σε νέα καταστήματα που δημιουργούνται ή σε παλαιά όπου λήγουν παλαιότερα/χαμηλότερα ενοικιαστήρια ή ακόμα και στη θέση μαγαζιών που κλείνουν για να κάνουν χώρο σε νέα. Ένας καλός κτηματομεσίτης και δικηγόρος μπορούν να βοηθήσουν πολύ σε αυτό το τομέα.

Οικονομικές Παράμετροι:

Στόχοι πωλήσεων: Τα McDonald ‘s παρά τις ανακατατάξεις της αγοράς εξακολουθούν να θέτουν τα πρότυπα στο χώρο του ταχυφαγητού. Παρουσιάζουν από τις υψηλότερες πωλήσεις ανά κατάστημα οι οποίες ανέρχονταν σε $2,6 εκατ το 2012. Παρά το διαφορετικό μοντέλο, οι επιτυχημένες αλυσίδες προσαρμοσμένου ταχυφαγητού (fast casual) δεν είναι και πολύ μακριά από το νούμερο αυτό (Panera, $ 2,3εκ, Chipotle $ 2,1 εκ. το 2012). Τα καταστήματα σάντουιτς, καφέ και πίτσας έχουν χαμηλότερες πωλήσεις. Εστιατόρια ποιοτικής κουζίνας/μικρά εστιατόρια, όπου δηλαδή η ταχύτητα εναλλαγής της πελατείας είναι χαμηλότερη θα πρέπει να στοχεύουν ενδεχομένως σε υψηλό μέσο έσοδο ανά πελάτη, της τάξης των $ 100 ή περισσότερο, για να επιβιώσουν. Όποιος επισκεφτεί το Μανχάταν θα αντιληφθεί ότι τέτοιες τιμές παρατηρούνται συχνά. Καταστήματα με χαμηλότερες τιμές επιβιώνουν ακολουθώντας το μοντέλο υψηλή επισκεψιμότητα/χαμηλή τιμή εκτός κι αν βρίσκονται εκτός Μανχάταν και όπου τα κόστη είναι χαμηλότερα.
Όσον αφορά τα εισαγόμενα τρόφιμα έχουμε ήδη αναφερθεί στο υψηλό λειτουργικό κόστος στο λιανεμπόριο το οποίο συνεπάγεται και υψηλές απαιτήσεις κερδοφορίας. Για να τοποθετηθεί κάποιο νέο προϊόν θα πρέπει να παρέχει κάποια εχέγγυα ως προς τις πωλήσεις δηλ να είναι γνωστό προϊόν, σε σωστή τιμή για την συγκεκριμένη πελατεία, με καλό περιθώριο κέρδους και υποστήριξη από μάρκετινγκ, πωλητές και φυσικά διανομή. Τα έξοδα πωλήσεως και προβολής είναι σημαντικά. Δεν γίνεται να χτυπάει κανείς φλέβα χρυσού κάθε μέρα όπως έγινε με τη Ελληνικό γιαούρτι που καθιερώθηκε σχεδόν τυχαία και ακόμα και εκεί την πρώτη θέση δεν κατέχει Ελληνική εταιρία.

Ενοίκιο: οι τιμές μπορεί να είναι υψηλές ίσως και να ξεπερνούν τα $100-150 ανά τετρ. πόδι ανά έτος στο Μανχάταν ενώ αρχίζουν να κινούνται προς αυτές τις κατευθύνσεις και σε δημοφιλείς περιοχές κοντά στο Μανχάταν. Γενικά όμως οι τιμές είναι χαμηλότερες εκτός Μανχάταν. Αναφέρουμε ενδεικτικά ότι για εμπορικά καταστήματα στο Μανχάταν το μέσο ενοίκιο το 2013 ήταν $ 116 / τετρ.πόδι αλλά σε προνομιούχες περιοχές μπορεί να φτάσει σε τέτραψήφια νούμερα (Street’s Sunny Side Costs Retailers More in Rent ) (Για παράδειγμα: ενοίκιο $100 ανα τετρ. πόδι ετησίως μεταφράζεται σε $1.000 ανα τ.μ. (1 τ.μ. έχει περίπου 10 τετρ. πόδια, ή 10,76 για την ακρίβεια) το οποίο σημαίνει περίπου $90/μήνα δηλ για ένα κατάστημα 500 τ.μ το νοίκι μπορεί να φτάνει και τα $44,500 (ή €35,500))

Μισθοί: το κατώτατο ωρομίσθιο στην Νέα Υόρκη είναι $ 8.75 ανά ώρα (από αρχές 2015) και πρόκειται να αυξηθεί περαιτέρω στα $ 9. Βέβαια οι μισθοί εξαρτώνται από την εμπειρία. Το μέσο ωρομίσθιο σε παναμερικανικό επίπεδο στον χώρο τουρισμού και τροφίμων είναι περίπου $13 για όλους τους εργαζόμενους και $ 11.50 για την βασική βαθμίδα/nonsupervisory (6 industries that can’t find workers fast enough). Υπάρχει άφθονη προσφορά εργασίας στη Νέα Υόρκη, αν και η ανεργία είναι χαμηλή σχετικά με άλλες περιοχές, λόγω της οικονομικής ανάπτυξης και έτσι οι καλοί εργαζόμενοι έχουν επιλογές. Είναι κοινό μυστικό επίσης ότι υπάρχει ένας μεγάλος αριθμός παράνομων μεταναστών που εργάζονται στον τομέα εστίασης στη Νέα Υόρκη. Δεν είναι απαραίτητη ακόμα η παροχή ασφάλισης υγείας για μικρές επιχειρήσεις, αλλά από την άλλη συνίσταται η ασφαλιστική κάλυψη για άλλους επιχειρηματικούς κινδύνους μια που υπάρχει το περιβάλλον είναι εξαιρετικά δικομανές.

Ανθρώπινο Δυναμικό και Πνευματική Εργασία: Δεδομένου του υψηλού επιπέδου μελέτης που απαιτείται για νέες επενδύσεις όπως και του σημαντικού κόστους και ανταγωνισμού η δραστηριοποίηση στην αγορά δεν πρέπει να θεωρείται εύκολη υπόθεση. Οι επιχειρήσεις εστίασης και τροφίμων χρειάζεται να εφεύρουν τρόπους για να πείσουν τους πελάτες για την μοναδικότητα της εμπειρίας που προσφέρουν έτσι ώστε να δικαιολογήσουν τις υψηλότερες τιμές. Ναι, υπάρχουν νέες τάσεις, νέες δίαιτες, μοριακή γαστρονομία, και άλλες εξεζητημένες γεύσεις, αλλά τελικά ποιος έχει ανάγκη να φαει στην σημερινή εποχή; Στην πραγματικότητα οι άνθρωποι προσπαθούν περισσότερο να μην τρωνε και να μειώνουν τις θερμίδες που λαμβάνουν. Ειδικά στην Νέα Υόρκη το θέμα της εμφάνισης, της υγείας και της άσκησης είναι εμμονή. Αλλά από την άλλη οι καταναλωτές ενδιαφέρονται για ην μοναδικότητα, την ατμόσφαιρα, την φιλοσοφία μιας υπηρεσίας και αν τους κάνει να νιώθουν ξεχωριστοί (δηλ. όπως έχουμε ήδη αναφέρει αυτο-πραγματωμένοι/self-actualized) δεδομένου και ότι μιλάμε για την ανώτερη κοινωνική βαθμίδα με υψηλό επίπεδο εισοδήματος και μόρφωσης. Συνεπώς υπάρχει ένας μεγάλος αριθμός επαγγελματιών που απασχολούνται στον χώρο οι οποίοι μπορεί να μην έχουν να κάνουν τίποτα με το τρόφιμο καθεαυτό αλλά με την εικόνα. Για παράδειγμα, αρχιτέκτονες, σχεδιαστές, σύμβουλοι θέματος (concept), σύμβουλοι μαρκετινγκ, επαγγελματίες ψηφιακών μέσων και μέσων κοινωνικής δικτύωσης για να μην αναφέρουμε διαιτολόγους, τεχνικούς ασφάλειας και παραγωγής τροφίμων ή οικονομικούς συμβούλους (κοστολόγηση, προϋπολογισμός και διαχείριση κλπ). Ο κύκλος των επαγγελματιών αυτών ολοένα αυξάνει με την εξέλιξη των τεχνολογιών όπως π.χ. αναλυτές του προφίλ των πελατών (customer analytics). Ως αποτέλεσμα, περισσότερα χρήματα μπορεί να πηγαίνουν στην υποστήριξη των πωλήσεων και τα γενικά έξοδα, αυτό που αποκαλείται κόστος απόκτησης του πελάτη, παρά στο καθεαυτό κόστος του προϊόντος. Δεν θέλουμε να παρεξηγηθούμε ότι η ποιότητα του προϊόντος δεν μετράει. Αυτό εξυπακούεται, είναι δεδομένο, κοινός παρονομαστής. Αλλά είναι η εικόνα που τροφοδοτεί το μυαλό του σύγχρονου αυτοπραγματωμένου (self-actualized) καταναλωτή. Συνεπώς και η δαπάνη για να αγοραστεί η πνευματική συνεισφορά τόσων επαγγελματιών είναι σημαντική. Ας δούμε για παράδειγμα το ύψος των δαπανών που πηγαίνει στο σχεδιασμό προϊόντων πολυτέλειας σε σχέση με το κόστος παραγωγής τους που είναι πολύ χαμηλότερο (γι’αυτό άλλωστε και η απομίμηση είναι κερδοφόρα). Το λέμε αυτό γιατί το επίπεδο της πνευματικής εργασίας που απαιτείται είναι πολύ σημαντικό και κάτι το νέο σε σχέση με το παρελθόν. Αυτό ξενίζει κάποιους επιχειρηματίες. Το βλέπει κανείς αυτό στην πράξη με την αλλαγή του επιχειρηματικού τοπίου. Οι καιροί αλλάζουν και απαιτούν ανάλογες επιχειρηματικές προσαρμογές. Παράλληλα δεν είναι δυνατό να προωθηθούν νέες ιδέες και προϊόντα από επιχειρηματικές υποδομές του παρελθόντος χωρίς βέβαια να υποτιμούμε την εμπειρία και τις επιτυχίες τους. Νέα προϊόντα και υπηρεσίες μπορούν να ευδοκιμήσουν συ συνεργασία με ανάλογες επιχειρήσεις και όχι να προσπαθούν επι ματαίω να συνεταιριστούν με παρωχημένες πρακτικές. Σε ορισμένες περιπτώσεις, ωστόσο, ορισμένοι καινοτόμοι επιχειρηματίες είναι σε θέση να αντιληφθούν τις τάσεις από μόνοι τους και να προχωρήσουν σε σύγχρονες επιτυχημένες ιδέες (όπως για παράδειγμα το Bareburger).

Κανονισμοί: Τα καταστήματα τροφίμων και εστίασης πρέπει να συμμορφώνονται με τους τοπικούς κανονισμούς λειτουργίας όσο αφορά την ασφάλεια των τροφίμων. Κάτι τέτοιο εκτός από υποχρέωση αποτελεί και συνετή πρακτική, μια που η υγρασία της Νέας Υόρκης και τα πολλά τρωκτικά μπορούν εύκολα να δημιουργήσουν υγειονομικά προβλήματα. Νέοι εισαγωγείς τροφίμων πρέπει να ελέγξουν τις ποσοστώσεις εισαγωγής και άλλους περιορισμούς που μπορεί να υπάρχουν. Συνιστάται η συνεργασία με πράκτορα εκτελωνισμού. Για την διακίνηση υπάρχει δυνατότητα συνεργασίας με κάποια αποθήκη αλλά θα πρέπει κάποιος να λάβει υπόψη τα σημαντικά έξοδα προώθησης (πωλητές, προσφορές κλπ) ενός προϊόντος τα οποία ειδικά για νέα προϊόντα μπορεί να είναι σημαντικά και να μη καλύπτονται από τις προμήθειες επί των πωλήσεων. Ειδικά για την εμπορία και πώληση αλκοολούχων ποτών απαιτείται ειδική άδεια και το πλαίσιο είναι αυστηρό. Υπάρχουν, επίσης, προκαθορισμένες ζώνες δραστηριοτήτων στην πόλη όπου επιτρέπονται συγκεκριμένες εμπορικές χρήσεις το οποίο θα πρέπει να λαμβάνεται υπόψη για νέα καταστήματα ή αποθήκες όπως και το κόστος κατασκευής και οι σχετικές διαδικασίες οι οποίες μπορεί να είναι και χρονοβόρες. Η ίδρυση εταιρικής οντότητας είναι αρκετά απλή υπόθεση. Τέλος, θα πρέπει να ληφθούν υπόψη και θέματα άδειας εργασίας σε περίπτωση που το προσωπικό δεν είναι Αμερικανοί.

Αυτά αποτελούν σε γενικές γραμμές κάποιες από τις πιο συχνές ερωτήσεις ενδιαφερόμενων επενδυτών στο χώρο της εστίασης ή και εξαγωγέων. Όπως είπαμε μπορούμε να συζητήσουμε πιο λεπτομερώς σε περίπτωση που κάποιος σοβαρός επιχειρηματίες ενδιαφέρεται να δραστηριοποιηθεί καθώς και να παρέχουμε συμβουλευτικές υπηρεσίες σε αυτή την κατεύθυνση. Είμαστε επίσης σε θέση να σας προτείνουμε έτοιμες δοκιμασμένες επιχειρηματικές προτάσεις για επένδυση (με franchise ή ως μέτοχοι) όπως και προτάσεις για νέες επιχειρήσεις.


Αυτό το άρθρο είναι μέρος μιας σειράς δημοσιεύσεων που αφορούν τις οικονομίες των μεγάλων αστικών κέντρων όπου ως βάση ανάλυσης χρησιμοποιείται η Νέα Υόρκη, ένα από τα μεγαλύτερα και ίσως πιο σημαντικό κέντρο διεθνώς.  Σε αυτό το άρθρο καλύπτουμε το χώρο του ποιοτικού τροφίμου και πως οι Νεοϋορκέζοι το προσεγγίζουν.  Δείτε προηγούμενο άρθρο αυτής της σειράς σχετικά με τον τρόπο που έχει αναμορφωθεί και αναπτυχθεί η Νέα Υόρκη τα τελευταία χρόνια διαφεύγοντας από την υποβάθμιση του παρελθόντος (NYC Urbanomics Part 1: NYC Redevelopment, a template for urban renaissance and commercial boom). Στο άρθρο αυτό αναφέρονται και κάποια δεδομένα σχετικά με την ελκυστικότητα της Νέα Υόρκης ως χώρος επένδυσης καθώς και το προφίλ των καταναλωτών εκεί.

Συντάχθηκε από τον Παναγιώτη Χατζηπλή, CFA, ACCA, MBA.

Το άρθρο αυτό βασίστηκε με βάση μελέτη αγοράς του υπογράφοντος.  Το Transatlantic Business Forum δεν μπορεί να θεωρηθεί ότι συμμερίζεται τις απόψεις των άρθρων που φιλοξενεί.  Για μια λεπτομερή ανάλυση των υπηρεσιών και των εκδόσεών του Transatlantic Business Forum μπορείτε να ανατρέξετε στο website μας


* Σημειώνουμε εδώ ότι διαλέξαμε τον όρο προσαρμοσμένο για την απόδοση στην Ελληνική του όρου fast casual σε σχέση με το οικείο, φιλικό ή ευπροσήγορο που υποδηλώνει ο όρος casual, γιατί για εμάς η διαφορά του είδους αυτού είναι ότι προσπαθεί να προσεγγίσει τις προτιμήσεις συγκεκριμένων υποομάδων καταναλωτών και να τους κάνει να νιώσουν πιο κοντά στο προϊόν και στο concept δίνοντας τους την δυνατότητα να επιλέξουν συστατικά και έχοντας και ένα πιο ζεστό διάκοσμο που εξυπηρετεί το συγκεκριμένο concept}.

** Επιτρέψτε μας εδώ να κάνουμε μια παρεμβολή και να δώσουμε συγχαρητήρια σε τέτοιες προσπάθειες οι οποίες «βάζουν τα πράγματα στη θέση τους» σχετικά με το τι είναι και τι δεν είναι Ελληνική γαστρονομία, ακόμα και για τον ταπεινό γύρο. Κυρίως όμως τέτοιες προσπάθειες τολμούν να δείξουν την πρόοδο της Ελληνικής επιχειρηματικότητας στο κέντρο της Αμερικής σε μια απαιτητική αγορά που δεν καλύπτεται με «ταξίδια Σαββατοκύριακού» από την Αθήνα αλλά χρειάζονται πλέον σχεδιασμό και επένδυση σε οργανωτική αυτοτέλεια και κεφάλαιο. Ελπίζουμε ότι το γνωστό επιχείρημα ότι η Ελλάδα είναι μικρή για να παράγει, να εξάγει και να δραστηριοποιείται διεθνώς με τέτοιες προσπάθειες θα αρχίσει να ξεθωριάζει έστω και αν αυτό γίνεται σε κάτι σχετικά ταπεινό όπως το τρόφιμο (ίσως κάποτε αυτό να φτάσει να συμπεριλάβει και επιχειρηματικές δραστηριότητες σε τεχνολογία και αλλού που να μπορέσουν να απορροφήσουν τους πάρα πολλούς αξιόλογους Έλληνες επιστήμονες-ερευνητές σε Ελλάδα και εξωτερικό). Για την ώρα περιμένουμε συνέχεια και από άλλους φιλόδοξους ενδιαφερόμενους στο χώρο του τροφίμου όπως καθώς και την προσπάθεια πιστοποίησης των εστιατορίων που διαθέτουν ελληνικά τρόφιμα. Μια προσπάθεια που συζητιέται αρκετό καιρό αλλά κάπου σκοντάφτει και θα μπορούσε να στηρίξει την Ελληνική παραγωγή αλλά και να ισχυροποιήσει την Ελληνική γαστρονομία δεδομένης της δημοτικότητας της μεσογειακής δίαιτας στην Αμερική, η οποία όμως γίνεται αντικείμενο εκμετάλλευσης στη βάση της γεωγραφικής/προσχηματικής διάστασης αλλά όχι της πραγματικής έννοια της λέξης.

***Σχετικά με το ελαιόλαδο το οποίο συγκεντρώνει από τα μεγαλύτερα ενδιαφέροντα για εισαγωγή στην Αμερική μπορείτε να διαβάσετε και ένα προηγούμενο άρθρο σχετικά με τις αντιξοότητες όσο αφορά τον ανταγωνισμό στις ΗΠΑ: Virginity; a dubious virtue when it comes to olive oil and the overlooked costs for consumers and the economy.

NYC Urbanomics Part 1: New York City Redevelopment, a template for urban renaissance and commercial boom

—————————————————————————————————-This is the first of a series of posts about the Economics of Urban Centers as depicted by trends in economy and society in one of the most important globally: New York City. In this first post we’ll cover how NYC has emerged over the last decades into a thriving commercial and real estate center, taking distance from a depressed past. We’ll present facts and thoughts on how this transformation was brought about in what may serve as inspiration for others. The analysis will also highlight some of the reasons for which NYC is a prime consumer market for existing and new businesses and products.


According to the 2012 Economist Intelligence Unit, New York City is ranked on top of the competitiveness list of all cities globally.  New York is characterized as an Alpha ++ world center, sharing this highest title only with London. Although not the most populous globally, NYC is considered of immense importance as developments there can have an effect around the world.  Its importance is also demonstrated by ability to attract capital, businesses, talent and visitors. For these reason NYC, is the necessary point of presence for global businesses and brands but can also serve as launching pad for new products and concepts.

Some interesting NYC highlights:

  • NYC’s population is estimated at 8.3 million, spread over its five boroughs (Manhattan, Queens, Brooklyn, Bronx and State Island). It is growing and expected to surpass 9 million by 2020.  The broader NYC metropolitan area, includes parts of Long Island, Connecticut, New Jersey, even Pennsylvania. This area has a total population of 20 million.  Many of them commute to NYC’s center daily where population almost doubles during the workday.  Manhattan is the most densely populated in the US; as illustrated by the many high-rises that keep on spreading there as in the surrounding boroughs.
  • NYC’s GDP stands at $1.4 trn or 11% of the whole US. If taken separately, this could place it in the top 20 countries worldwide, close to Australia.  In the same way NYC’s theoretical GDP per capita is estimated at $57,000 by the Brookings Institute which could place it higher than countries such as Japan, France or Germany.  NYC differs from the rest of the US in terms of demographics, character and economy. For all these factors NYC can be approached as a separate market on its own comparable to those of Belgium or Switzerland.
  • New York boasts some of the most expensive neighborhoods in all America with family incomes exceeding $100,000 for a large part of Manhattan. Other high income areas are located in New Jersey, Long Island and Connecticut Nearly 400,000 millionaires live in New York. Retail space is one of the most expensive in the world. Multimillion apartments are sold to international investors and new residential skyscrapers go up as fast as ever to cater for this demand.

NYC Population and Tourism 1900-2010

  • NYC’s economy has recovered well after the 2007-2008 financial crisis and is being diversified away from overreliance to the financial sector, assisted by tourism as well as investment in real estate, education, new media and technology. Population is increasing driven by internal and international immigration. New York City has evolved from the tumultuous ‘70s of urban decay and population decline to a magnet for tourism and expensive real estate investment.  There are currently 52 million tourists each year steadily growing, contribution $37bn to the economy. Who would imagine that as recent as in the 90’s?

So how did this happen?


Much has been attributed, sort of a cornerstone, to the increase in safety and gentrification. Back in the ’70s-‘80s, NYC was a dangerous place, even in its iconic Times Square, as depicted in this era’s movies.  It’s almost hard to imagine that today, same as it’s hard to envision the tenement era misery.  Much of the crime reduction has been attributed to Mayor Giuliani and his heritage of tough handed policing such as the ambiguous “broken windows” concept.  There were 2,245 murders in 1990 but have fallen by 90% to 240 in 2013.  Other crime statistics have also been in decline. That off course it’s making it safe for people to live there or visit and spend on retail and entertainment. And that in turn is building confidence for real estate and other business investment.

42nd street in 70s and 2010

Urban landscaping

This has to do with architecture and creating communities that promote certain consumer, leisure or business activities. For example, much of the Times Square turnaround has been attributed to the arrival of high profile business offices, starting with advertising firm Conde Nast a move considered odd at that time.  In this context whole neighborhoods have been redeveloped, often changing names to take distance from their past. The process is well documented: first avant-garde artists and youth move in driven by low prices and inspiration from disenchanted surroundings.  NYC being liberal and welcoming assists to that. Soon others flock in for this unique character and to rub shoulders with the famous. Prices start to go up with preexisting residents moving out and eventually the artists themselves.  That’s what happened, with some variations, to SoHo, Village, Tribeca, DUMBO, Lower East Side, Meatpacking.  The trend has been assisted by rezoning policies. During Bloomberg’s administration almost 40% of New York has been rezoned, changing use for large blocks and transforming once industrials sites. Meatpacking or the Brooklyn river side parks are such examples.  Once industrial uses are phased out, new businesses step in to support residential development.

City branding

This we would say involves the development of a city image that promotes a place as a destination. A tool for enhancing NYC’s image and establishing it as a magnet internationally is through arts such as movies, music and fiction. “If you can make it there, you can make it anywhere” the saying goes that has stuck with many, even probably if it’s probably harder to make it in other places.  On the local radio and TV, New York is called “the greatest city in the world”. This might be true under some metrics but it’s quite subjective isn’t it? In any case saying it, is believing it; it sticks.  This image development didn’t happen accidentally either. Filming in NYC has been benefited from a municipal program instigated some 40 years ago (see NYC’s Mayor’s Office of Film, Theatre & Broadcasting (MOFTB)). This has also created many jobs such as film crews, catering and other support not to mention celebrity coverage.

Population increase and Urbanization

As traditional economic thought has it, an economy is growing where population is growing and vice versa. NYC’s population has considerably increased during the last 30 years both from domestic and international immigration.  Apart from the quest for opportunities this is also attributed to an attitude shift among younger generations that now favor urbanization and city centers over suburbs. According to the 2013 Urban Land Institute Survey, 62% of Americans planning to move in the next five years, would prefer to settle in mix-use communities (they offer entertainment, shops, offices).  Indeed in 2011, for the first time, population growth outpaced suburban growth.  As Michael Bloomberg put it in his last speech as Mayor: “It’s clear that the golden age of the suburb is over, and it’s being replaced by a new urban renaissance”.  

Urban trends by generation

The younger generation in particular, called the Millenials (or Generation Y) are the ones favoring urban centers. The Millenials (estimated at 80 million in the US) are more individualistic, challenge status quo, drive less, are more sensitive to civic issues and activism such as ecology. They are more attached to technology and online communities, less committed to employers than previous generations and more interested in work-life balance that allows for free-time.  They not only change city planning but marketing as well.

Technology and startups

Among the most critical parts of NYC’s population increase have been the influx of the young and the brightest.  This has been assisted by high paid jobs in finance and law but more recently from a lively startup scene that is now compared to that of the West Coast.  Silicon Alley in Manhattan or the Brooklyn Navy Yard are such startup and tech hubs. Business sectors are been reinvented. The loss of print media is counterbalanced by the rise in online and social media.  Technology growth is supported by conscious political decisions such as expansion of Columbia’s Engineering School and the development of the Cornell-Technion Graduate School at Roosevelt Island.  Another critical component is availability of financing.  Venture Capital funds invested in the New York City area were valued at $1.2 billion, in the fourth quarter of 2013 according to PWC research. This marked a 49% increase over the same period the year before, surpassing Boston for the first time since 2001. NYC is now only trailing Silicon Valley in this area, the undisputed leaders, that raised $3.2 billion during the same period.

The special character

The saying goes that NYers are a special breed.  May be this is a myth may be not. It’s still an intriguing thought. But who are the NYers? Those born there or the ones that immigrated? The NYers of the tough past? The high net worth investors? The aspiring artists? The young transplants searching for urban thrills? Those searching a break? The yuppies? The old school? Probably all of them.  So it’s probably difficult to pinpoint to a common denominator. NYers seem rude by American standards but then again coexist in a multiethnic, multiracial, multidenominational environment, they are self-consumed but civic, and although liberal they coexist with the highest income inequalities. Manhattan is one of the most densely populated American cities yet over 50% of its residents live alone. (Going Solo: The Extraordinary Rise and Surprising Appeal of Living Alone, 2013, Eric Klinberg). In a way living together in isolation This is not typical for the US and may illustrate differences in character. Back in 1957, a University of Michigan survey showed that 80% of respondents believed that people who preferred being unmarried were “sick,” “immoral,” or “neurotic.”  Something like a Scorcese or Woody Allen movie character or if you subscribe to the notion that media create stereotypes or reflect them popular series like Seinfeld, Girls, Sex and the City, Friends etc.  Back in the 50’s more than 70% of US adults were married something that although changing now still from the norm in NYC.  So what are the implications? No matter what the NY character is allowing for so much variety, freedom of expression but also privacy probably fuelled population growth mainly by singles. It would have been more difficult for families to move in Manhattan let alone afford it.  Living alone doesn’t come cheap even when sharing apartments.  This in turn supports or justifies high real estate prices.

Real Estate boom

NYC real estate prices have soared over time. Median sales price in Manhattan has reached $1,050,000 ($3,500,000 for townhouses) in 2013 according to Trulia and Douglas Elliman more than doubling over the last decade with average price per sq. ft at $1,260. Median rental price reached $3,100 with a vacancy rate of just 2.8%.  Brooklyn has also developed rapidly with prices reaching those of Manhattan especially at the neighborhoods close to it such as Williamsburg and more lately downtown Brooklyn that have attracted a crowd of young professionals, startups and hipsters, a self-contained community. Although the other boroughs have not followed at the same pace there are pockets of interest developing in Long Island City in Queens that has seen spectacular development with high-rises lately.  Proximity to Manhattan also counts in this migration as higher prices there are pushing people further and further. There’s even talk about South Bronx. It’s now called SoBro…

NYC avg price per sq feet 2000-2013

And if you’d think that was it, then wait to see the new wave of megastructures currently under development such as Hudson Yards, 432 Park (89floors, the tallest residential at least building in NYC, penthouse sold for $95m), One57, 30 Park Place (68 floors), 225 West 57th Street (88 floors), 220 Central Park South (41 floors).

Chinese buyers invested $22 bn on real estate between March 2013-2014 up from $12.8 billion the year before according to the National Association of Realtors. It’s something more than simple pied-à-terre; it’s trophy investment. New expensive buildings on 57th with views on Central Park have earned it the name Billionaire’s Belt. The retail sector is booming.  Seventyone fashion stores opened in 2012, one every 5 days and even this metric can hardly illustrate the level of activity. Prime retail rents go for as high as $3,500 per square foot.

We shouldn’t forget mentioning the office space coming in the market with the World Trade Center development. Conde Nast has left Times Square to occupy One World Trade Center and the nearby former World Financial Center is turning into a dining wonder. Development in Hudson Yards and subway expansion coming in line for first time after many years, accommodate coverage over wider areas.

Eventually NYC real estate has developed into a coveted, safe investment. An interesting aspect is that with so much foreign investment a risk of recession for the city is not purely dependent on the US economy. On the other hand a crisis could be just as easily triggered by overseas economic instability. And at the same time problems here will be felt far away.

There’s the other side too

Closing we wouldn’t like to ignore some negative effects from development. Gentrification and tough police practices don’t come without complaints. The financially weaker suffer from housing prices. They have to leave their neighborhoods or pay a higher percentage of salary to rent than in other US cities, pretty much living month to month.  Until the ‘70s in most US metro areas average median homes worth roughly three times median income; in New York now the ratio reaches 6 or 7 and during the housing boom at 10 (How Can We Be So Dense?, Forbes). In NYC the average rent to income ratio is 50% in 2012 while in Miami at 29% (Priciest Cities to Rent, CNBC). Many have to move out, whole communities and lives change. But the social effects are a discussion we won’t cover in this post; we only focused on the business/commercial aspect of the development.

The NYC self-actualized consumer profile

NYC, or at least Manhattan, is pretty much run as a business; companies go there to hire the best, access high returns and promote their global image. Through that they provide income for the city directly as well as through their employees that bear a high living cost for all the amenities offered. Tourists flock in to see the numerous NYC attractions promoted by media while new ones are continuously created (such as the High Line and other parks, new museums etc). Capital flows into high-end real estate, clothing, luxury goods and gourmet food creating many jobs.  But earning these consumer dollars is not straightforward.  Consumer preferences in such upscale markets tend to satisfy not some basic needs but self-actualization or projection of status, , it’s maybe what Veblen called “conspicuous consumption” and Bourdieu “identity statement”.

Marketers have to adopt new techniques to cater for the self-actualized consumer psyche. We will cover the economics and characterizes of the self-actualized consumer in other posts as it applies in doing business in retail, food or other.

Closing: NYC a template for urban redevelopment and economic growth but at what cost?

New York always was a great business center. But during the last couple decades NYC has gone a long distance from the rough ‘70s and ‘80s to evolve into a coveted real estate investment destination and a consumer Mecca. Global brands can’t afford not to be present there and new concepts are tested and spread out globally. This transformation couldn’t have happened accidentally.  Certain policy decisions as well as intelligent urban planning have been critical in promoting the city’s image and in attracting immigration and the type of business activity that can favor growth.  We tried to identify some of these policies in order to provide food for thought for other urban development attempts elsewhere.  Off course there are always positive and negative effects in such situations.  There are complaints for NYC’s loss of character and high cost of living especially for the weakest.

Some may call it a global center, some a business, some playground of the rich or Theme Park for grown ups. A type of Disneyland, a Manhattan-land if one could coin this term, for urban consumers and tourists.  Probably Travis Bickle (the Taxi Driver protagonist) wouldn’t recognize NYC any more; he would have found it very hard to fit in anyway….


By Pete Chatziplis, CFA, ACCA, MBA. The articles published here do not necessarily reflect the views of the Transatlantic Business Forum.

We predicted it! M&A Activity Surge in Q3 2014 back to precrisis levels

Alongside the stockmarket, there’s another sector now starting to erase recession losses: Mergers & Acquisitions. Activity in the US has surged in the first nine month of 2014 helping uplift global volumes towards precrisis levels.

In the first three quarters of 2014 global M&A value reached US$2.5tr up 52% from US$1.7tr in the same period last year, according to Mergermarket (Monthly M&A Insider 3Q 2014 edition). By comparison global M&A volumes have hovered around $2.3 tr following the 2009 crisis, so we have already covered that ground in three quarters. It seems that 2014 will end strong contrary to 2013 when the US government shutdown slowed the market. By comparison in 2006-2007 M&A spiked to $3.7 tr. We have actually predicted this breakthrough in our last year’s post (M&A 2013 Activity Update, the Middle Market and Critical Success Factors) by analyzing US GDP, stockmarket and economical cycle patterns. It seems that at least in the last couple of cycles M&A breaks out towards the end of the cycle while GDP growth stays strong and the stockmarket starts to level out. As we noted last year, “looking at the latest two economic cycles, the fact that we’re four years in the current one, the economy keeps on growing and the stockmarket is breaking new highs could one bet, just even by looking at the graphs(below), that M&As will come back with a bang in 2014 or most probably 2015?” Admittedly there’s a heavy US weight on this argument but then again North America is the largest M&A market and hence barometer of global activity. In any case there’s no need for a question mark anymore.

7. M&A DJIA and GDP %yoy and Points synthesis_Corrected
Based on that, we can very well be looking now at a few good years of M&A activity, assuming that nothing happens to end the trend prematurely. The discontinuation of QE, robust corporate profitability and sound balance sheets all point towards that. We can expect the M&A boom to persist even as stockmarket growth tapers off or even reverse since M&A activity to some extent lags behind it. M&A may even persist during the first years into a downturn when companies rush to acquire weaker competitors.

M&A Motivations: growing, expanding and the taxman

Main drivers behind M&A have been buying resources or market share to consolidate presence. In a tepid GDP environment this is preferred to organic growth. Access to technology and IP play also a part especially in internet and pharmaceuticals while resources and consolidation is mainly a driver in energy, consumer, pharmaceuticals and telecoms. Another recent motivation has been US tax benefits arising from inverse transactions and headquarter relocation although this practice has attracted attention and was criticized by the US Treasury. The main however factor behind the M&A explosion is the return of large transactions involving listed companies same as in the 2006-2008 boom period. The difference this time around is that the main driver is strategic investing rather than LBOs and PE activity.

Geography breakdown: US in the center with strong cross border M&A

The highest M&A activity has been reported in North America rising to $1.2tr from around $950bn the same period in 2013, ie a 25% increase! The region’s comparative attractiveness increased both for foreign and domestic investors, something precipitated by US$ strengthening and some re-shoring. Europe, amid challenging economic conditions, has seen good growth especially in the first half of 2014 reaching $722bn in the first three quarters, 12.5% up compared to full year 2013 according to Mergermarket. UK has been leading the charts there. Asia continues to grow and gaining weight in global M&A reaching almost 19% of global value in 3Q 2014 with significant activity in China, Japan and recently South Korea.

2. Global M&A Value

Cross-border M&A volume surged 132% so far this year to account for 39% of global activity according to Reuters (Global M&A at seven-year high as big corporate deals return), assisted to a large extent by inversion deals. U.S. cross-border M&A saw record volumes, both inbound and outbound. There were $205 bn in outbound deals during first nine months of 2014, with UK companies being the top targets. The U.S. was also a top destination for inbound M&A at $305 billion, led by Canadian and German acquirers according to FoxBusiness (Deal Frenzy: 2014 Sees Record M&A Volume). Transatlantic dealmaking i.e. that involving American and European companies more than doubled in the first half of 2014 to €128 bn, a 156% increase according to Mergermarket (EMEA Deal Drivers 1H 2014). Asian companies are also investing in the US to gain market access. Main drivers for cross border transactions are access to consumers and IP Although human capital is the primary driver for only a small number of transactions (8%) and that mainly in search of a lower cost base, it is nevertheless one of the most important considerations (25%) for M&A success. Other concerns are employee retention, cultural barriers, politics and regulatory framework. Cross-border acquirers are mainly shopping for consumers in emerging markets, resources in Africa, intellectual property in US and Japan, manufacturing assets in Europe or for lower cost production elsewhere (Baker McKenzie, Going Global: Strategy and Execution in Cross-border M&A, June2014).

Industry breakdown: Oil, drugs and streaming

Energy has seen the highest activity both globally (18% of deal value) and in the US, followed by pharmaceuticals (16%) and then consumer and industrials. Below we briefly cover trends and notable deals in these sectors in US and Europe, which are the main focus areas of this blog.

Energy: Activity has been driven by consolidation and access to resources. The largest transaction in the energy sector involves the consolidation of the Kinder Morgan group for a total value close to $70bn. Recently Halliburton announced an offer for Baker Hughes for $35b. Falling oil prices may accentuate consolidation trends.

Healthcare has seen high activity in 2014 even though some large announced transactions were later aborted. Pfizer unsuccessfully bid for AstraZeneca ($116bn) and Abbvie for Ireland-based Shire ($54bn), at least as this is written. After a long drama Dublin based generics drugmaker Actavis succeeded in its $66 bn pursuit of promising botox maker Allergan. It has been speculated that tax benefits were part of some of these transactions and that may have affected their prospects since they cannot alone substantiate a transaction. On the other hand a much more credible driver are operational efficiencies especially when it comes to realigning business lines. For example Bayer AG bought Merck’s consumer business for $14bnn and Eli Lilly bought Novartis’ Animal Health division (€3.9bn). Other than that Walgreen acquired UK’s Alliance Boots for $24bn to expand internationally and Actavis bought US’s specialty producer Forest Laboratories (€16.8bn) in its quest to grow. In the medical device sector Medtronic Inc bought Dublin based Covidien Plc (€34bn). Apart from large deals there’s also activity in the lower end of the market, especially with biotech companies where PEs also participate. There’s also interest in the convergence of software and healthcare services to increase operating efficiencies and patient treatment.

Consumer: notable deals so far are the $16bn acquisition of US’s Beam distiller by Japan’s Suntory, increasing coverage in the premium spirits sector as well R.J. Reynolds’ acquisition of Lorillard Tobacco for $27.4 bn seeking consolidation in a highly regulated sector. Burger King proceeded with the $11 bn purchase of Canada’s coffee-and-doughnut chain Tim Horton which although denied, some speculate can offer tax benefits. Note as well of acquisition underperforming Red Lobster casual dining chain by private equity.

TMT: M&A activity in telecoms is driven by consolidation and convergence between the various TMT sub-sectors (wireless, broadband, content, cable). It’s interesting to see how technology and market developments in broadband cost and content delivery will shape up the industry going forward. Notable transactions in the US are Comcast’s proposed takeover of Time Warner Cable at $45.2 bn to build scale and AT&T’s $48.5 bn purchase of DirecTV. Let’s not also forget Murdoch’s Twenty-First Century Fox $75bn aborted offer for Time Warner. In Europe Altice acquired mobile operator SFR from Vivendi ($17bn) to complement its telecom services. Oi SA, Brazil’s biggest phone company, agreed to merge with Portugal Telecom (€8.6bn) to form a large transatlantic operator. On the technology side, high margin revenue growth is the main driver for M&As in big data, social media, mobile computing and Software-as-a-Service (SaaS) sectors. Technology and internet saw significant activity in the US notably with Facebook’s $19bn WhatsApp acquisition.

Financial services: activity is subdued compared to the years before the crisis. Regulation, legacy issues, capital restrictions have decreased appetite in banks. Regulators are wary of further consolidation in the sector. The financial technology space however is much more attractive and evolving and will see a number of deals (for example in payments and IT infrastructure). M&A is also sluggish in insurance with some activity arising possibly from international expansion such as Japan’s Dai-ichi Life’s acquisition of Alabama-based Protective Life (US$5.7bn). It’s interesting to see as well how new healthcare coverage laws in the US will play out. Finally there’s consolidation in asset management with smaller or underperforming managers in a difficult fundraising environment being absorbed. There’s even talk of acquisition between private equity companies.

• Apart from the above, interesting transactions involved European cement makers Holcim and Lafarge (€29b) while Volkswagen acquired Swedish truckmaker AG Scania for €6,6bn to further consolidate its presence.

Deal Size: Return of the mega deals and Middle Market heating up

As already mentioned mega deals are currently the main factor behind M&A growth. Mega deals in the US where they are more frequent, accounted for 42% of the overall M&A value in the first three quarters of 2014 up from around 28% in the years following the 2009 crisis. As a matter of fact, mega deals, those of over $5b in value have reached 2007-2008 boom levels, another indicator of the M&A market returning to precrisis territory. Average deal size in North America in Q3 2014 is at its highest since Q2 2007 at US$371mn, mainly due to some high value transactions (Mergermarket Monthly Insider 3Q 2014). Mega deals are less frequent outside the US though. Average deal size Europe and Asia is generally smaller. In the first nine months of 2014 average deal size there was almost 40%-50% below the US.

We have a specific interest in middle market transactions in this blog. Although the mega deals are taking up the spotlight, there’s large volume of deals taking place in the background with significant value created or lost and alongside significant effects for local economies. Middle market deals offer room for significant value creation as we argued in our past posts and require significant input by management and advisors to bring fruit (Private Equity 2013 Update and Success Factors for Value Realization). Furthermore a deal considered middle market or even small by US standards might actually be a mega deal in another region and by that attract much more attention by local regulators and communities so have to be approached by increased level of diligence and sensitivity, reminiscent of that for mega-deals. For that special attention and M&A advisory requirements we do not view middle market deals from a US size standpoint in the global context. Well experienced M&A advisors can make all the difference between success or failure in the context of cross-border transactions both in the pre-acquisition and post-acquisition phase in the same way as for highly visible mega deals.

Total value of US Middle market deals in the $250-500m range amounted to $54m during the first half of 2014 compared to $70m for all 2013. In the higher $500-2bn bracket value reached $143m in the same period in the first nine months of 2014, compared to $233m in full year 2013. So activity here is satisfactory even if not at the same level as for larger transactions and off course there’s a high volume due to smaller deal sizes. Certain sectors maybe more represented in middle market M&A such as consumer products, business services and manufacturing while mega deals are more concentrated around healthcare, energy and tech, even though mid size deals also take place there involving niche players. Deals here can be driven by value creation, consolidation (you may call that scaling up), succession or financial distress. There’s significant room for value realization in the presence of experienced strategic investors or operating partners. For that, specialized funds with a middle market focus have lately been setup. PEs are more keen in the middle market especially in niche subsectors in industrial, business services and technology. For more information on middle market M&A and value creation you can refer to our past posts: M&A 2013 Activity Update, the Middle Market and Critical Success Factors, Private Equity 2013 Update and Success Factors for Value Realization, Middle market cross-border M&As set to grow.

3. NAmerican M&A Split 1H2014

Even though the loss of the spotlight to mega deals, the overall trend is positive in middle market and deals are becoming more expensive. Multiples (EV/EBITDA) for the $50-250m went from 6.5 in 2010 to 8.5 in 1Q2014 another sign of market health (Axial Forum, Valuation Inflation: Middle Market Multiples on the Rise, John Slater, Focus Investment Banking, July 9, 2014). Multiples in larger middle market transactions ($500m to $1bn) have risen to 12x in 3Q14 according to Factset (US M&A Trends & News Oct 2014). The outlook is positive for middle market considering among others the exit planning for the many baby boomer business owners in this part of the economy. Other drivers are consolidation, changing demographics and consumer tastes, technology, debt financing, PE exits, globalization and value creation as we have covered in the past.

Private Equity: Home-cleaning

Activity in the private equity space has not followed the overall M&A market’s explosive growth. The first half of 2014 saw 432 buyouts in North America for US$80bn total worth. That was a 13% decrease from in H1 2013 (US$92bn) according to Mergermarket, but then again last years there were a couple of mega deals that made the difference. Apart from large deals, those over $1b, the bulk of buyouts are valued at less than US$100m, so we are really talking middle market here. As a matter of fact that makes more sense as we covered on past posts (for example Large Private Equity Deals-that 800 pound gorilla). Most of the PE focus is on consumer, TMT, biotech and manufacturing.

It’s worth noting that much of the latest PE activity is not in buyouts but in working through the backlog of prior investments. According to Mergermarket PE firms are having difficulty to find trade buyers to pay the premiums necessary for sellers to recoup boom-era investments (EMEA Deal Drivers 1H2014). Because of that, as we noted last year, holding periods have increased to six years compared to around three in 2007. You can also refer to our last year’s update for more information about PE trends: Private Equity 2013 Update and Success Factors for Value Realization.

4. PE Activity 3Q2014

Secondary offerings are the most common form of exits nowadays, contrary to the past. Seventy-three percent of PE manager in a 2014 poll expect to exit investments through secondary buyouts in the next year. More than half of respondents either plan to or expect the industry to sell to a strategic buyer, with 39% choosing IPOs (Global Private Equity Outlook 2014-2015, Duff&Phelps, Shearman &Sterling, Mergermarket).

The landscape has changed in PE investing. Although capital is available one has to prove its merits by bringing returns. Working through sourcing inefficiencies, financial engineering or IPO exits are not enough to generate alpha. Value creation has become more important. In this sense a secondary offering might make sense when the buyer has experience in a particular sector. Actually there’s even talk about outright acquisitions of PE firms as well. Outside that however the sector’s outlook is positive. Based on the previous poll PE managers expect increased activity in 2014-15. On average, cross-border transactions are expected to make up 30% of activity.

There were no large private equity transactions in 2014, such as those for ketchup maker HJ Heinz or computer company Dell in 2013. Actually most of large transactions were secondary offerings. On the buyout side we can note Red Lobster’s acquisitions by Golden Gate Capital from Darden Restaurants ($2.1bn), First Data’s by KKR ($3.5bn), Ortho-Clinical Diagnostics’ and Industrial Packaging Group’s by Carlyle for $4.2bn and $3.2bn respectively (Preqin Quarterly Private Equity Update 1Q, 2Q 2014).

Another interesting development over the last years is that private equity companies now have to fair value their portfolios on a continuous basis for reporting purposes. PE managers were not used to this level of scrutiny in the past. This, apart from creating a lot of work for valuation professionals and back offices, it is also a source of frustration for deal teams who have to support book values many of which were made under better times. According to SFAS 157 (a.k.a. ASC 820) under US GAAP as well as IFRS 13 under International Accounting Standards these equity investments should be recorded at market values, when listed or based on comparables listed companies if not and in the absence of both conditions on financial modeling. That’s where the fun begins.

Market values were considered unreliable during the big recession, the theme then was “market dislocation”. Finding comparable companies may sound simple in theory but in reality not many companies are really the same. Although they may operate in the same sector they may differ in product lines, profitability, leverage or other. In fact much can be said and many adjustments made, hopefully well-indented, in the process of selecting a reference sample. Finally, as a last refuge one would revert to financial modeling usually cash flow models. Although this approach is ordinarily used in M&A deals and security analysis, quite justifiably so as it captures future benefits and conceptualize business paths and aspirations, it was initially faced with skepticism in the context of fair value reporting. That is may be due being a novice in the traditional compliance space and because it extensively relies on business assumptions that are open to manipulation or difficult to be verified and substantiated for compliance purposes. In any case the market is adjusting to that and it may be another motivation behind secondary activity besides the fact that funds have a certain horizon, they are setup and closed to make room for new capital raising and new focus as market opportunities change.

Outlook: M&A world is looking up!

We are expecting M&A growth to persist in 2015. After all, as we mentioned last year “as optimism keeps settling in among at least the investment community, this is an environment that buyers will feel comfortable or even compelled to make a move or otherwise feel pressure for stock buybacks and dividend payoffs by activist investors”. We’ll stick to that reasoning.

As a consequence we expect significant demand for M&A and management consulting professionals. Interesting to see how this play out with the market pretty much doubling up quickly, coming from a leaner, lower headcount period. M&A professionals are not only necessary but also critical for the execution and success of a transaction. They carry out the deal structuring and execution and then the due diligence, financial reporting and post merger integration. Noone wants to spend significant time and money only to get tangled with unseen liabilities and unrealized synergies; and this happens more often than not as we have covered in the past. Consulting professionals are also important in identifying and carrying out performance improvements, compiling strategic plans, monitoring and executing integration and reporting while assisting management teams through transition.

But the jobmarket is not only improving for M&A professionals but across the board; it’s only that this rebound has been slower compared to previous US recessions. Lower unemployment and increased labor confidence is reflected in the numbers of people switching jobs and in consumer spending. According to the latest US Labor Department data the number of people who quit their jobs jumped to 2.75 million from 2.5 million which is the highest in more than six years while US companies had accelerated their hiring. More than 5 million people were hired in September 2014, the most since December 2007 when the last crisis started to unfold. Off course the overall decrease in unemployment, doesn’t capture differences across skill levels and industries or long-term unemployment and underemployment. However, gradually, increasing labor participation will lead to income improvement and consumer spending. Figures in this area are also looking up. Off course this trend will persist as long as not interrupted by unexpected developments. Challenges to the global economy are seen for example in Europe and Asia. We just prefer to stay optimistic for the near term for this cycle.


By Pete Chatziplis, CFA, ACCA, MBA. The articles published here do not necessarily reflect the views of the Transatlantic Business Forum.

M&A 2012-13 Activity Update, the Middle Market and Critical Success Factors

M&As have to some extent bounced back from the 2009 lows, however they are pretty much hovering around pre-crisis levels. Activity during the last three years seems to be quite out of sync compared to the precrisis highs or the stockmarket comeback. Then again one could argue that this is just the normal way of things and that the stockmarket hike is due to the QE or the 2006-2007 mergermania to the abundance of leverage. On the other hand M&A cycles move in 5-7 years intervals so we may just be waiting for the next big story that will spark a boom.

Global M&As reached $ 2.2 tr in 2012, barely posting any growth from 2013 with North American deals at $943bn up 5% from the year before. These figures amount to 2/3 of the 2006-7 deal value. We have to go back to 2004 to note an increase of a mere 2.3% CAGR which actually lags even GDP growth, at least when it comes to the US. There’s always talk of growth but for the time being it pretty much sounds like Beckett’s “Waiting for Godot” play: it’s unclear what the next big thing will be and when will come, let alone if it’ll come, but then again that’s always the case.

1. Global M&A 2006-2012

In the first three quarters of 2013 global M&As reached $1,607 bn according to Mergermarket; a 5.5% increase over the same period in 2012. US at roughly $535bn accounted for 40% posting a 22% increase while Europe for 30% at roughly $480bn and a meager 2.4% growth. Taking into consideration that 2012 had a quite strong M&A finish, it’ll be interesting to see how things will evolve at year end as there are fears that the US government shutdown may have cooled the market. Total global PE buyout reached $259bn in 2012 with US representing almost half of that. PE activity has grown at 25% post 2009 lows in Europe and Asia but in the US, where PEs are more prominent, growth was double that at 50%, according to Bain. In the first three quarters of 2013 PE buyout activity reached $ 194bn a 11.6% increase over 2013. For more information about recent PE activity you may refer to our post here.

The M&A increase in the US is attributed to the existence of cash, return of mega deals but also public to private deals. Bigger US deals were those of Verizon Wireless ($124bn), Heinz ($27bn) and Dell ($20bn) the latter two being PE driven. In Europe that has been going through fiscal crisis and recessionary pressures, among the most prominent deals were this for Virgin Media ($25bn).

So, where is the M&A market heading? Let’s try be a bit inquisitive in this blog by looking at the connection between GDP and stockmarket; apologies to academics and analysts who thought of this before. Looking at GDP, DJIA and M&A trends in the last 10-15 years we see that the stockmarket has overreacted to the crisis and didn’t keep pace with GDP growth, only recently catching up. So probably things are just starting to look up. Despite talk of exuberance, the average P/E ratio at the NY Stock Exchange (Dow Industrial) is 17.95 compared to 14.45 a year ago. S&P500 P/E is at 18.85 compared to 16.5 according to WSJ data. Although valuations seem quite hefty they as well depend on what point in the cycle we stand and what’s the ability to generate extra profits. Still valuations are much lower than during the crisis when average stockmarket P/Es reached three digit figures, so exuberance may still be kept in bay. On the other hand when DJIA growth patterns exceed those of GDP such as in 2001 and 2007, it doesn’t turn out that well, with the exception maybe of the post great recession era. On the other hand M&As are usually slow to follow the other two upward trend; often lagging by a couple of years.

2. US and Global M&A DJIA and GDP

Cross Border M&As: Focus on Emerging Markets

True to our focus in this blog let’s see what happened to cross-border deals especially in the transatlantic space. Cross-border M&As are almost half of global activity compared to much lower importance a decade ago, an indication of today’s interwoven globalised world. During the last years there has been some decrease, especially when it comes to outbound activity from Europe, while US interest in Asian and emerging markets remains strong. Main cross border inbound/outbound deals in the Americas last year were Grupo Modelo’s acquisition by Anheuser-Busch ($20bn) and Sprint by Japan’s Softbank ($35b). Among the more significant outbound deals were Liberty Global’s acquisition of Virgin Media ($21.8b) and Alliance Boots by Walgreens ($6.7bn). Cross-border deals are more evident in the energy sector.

In the transatlantic space activity has been pretty much subdued, staying below the precrisis highs. Total transatlantic deals amounted to $180bn in 2012 ending lower than in 2011, with an average size of around half billion US$. By comparison during 2008 transatlantic deals reached $ 270 bn (see our past blogpost about Transatlantic M&As in 2008). NorthAmerican buyers took the reigns over European, reversing an earlier trend that saw European companies being the ones most often making the leap across the Atlantic, trend especially profound in the aftermath of the latest US crisis. UK and Ireland were the most active markets for inbound activity in Europe.

Although international expansion makes sense for large companies we have argued here that it’s also the obvious move for middle market companies that can this way grow to global niche players once a product and operating model is tested in their domestic market. However the challenges are in analyzing and executing the deal and finding qualified advisers with global exposure and experience with middle market peculiarities that are able to be profitable at this level of fees and challenging global regulatory framework. The Big4 along with a handful of boutique investment banks and consultancies may be able to carry out this role, but one has to research their value proposition before committing.

Industry Sector Activity: The Return of Tangibles: TMT, Energy, Industrials

Sectors with particular M&A interest in US are TMT, Energy, Industrials and Pharmaceuticals. Industrials along with Business Services tend to have more activity due smaller deal size and higher frequency. In a change of times Financial Services have been lagging in importance, a far cry from mid 2000’s, but then again the sector has had its fair share of troubles post crisis (Source: The Future of M&As in America, Merrill Datasite and Mergermarket, 2013).

There are different drivers for transactions across industries. Low growth and interest margins as well as technology and compliance burdens drive M&As in financial services, same with insurance. Consolidation is the theme in TMT, especially when it comes to digital and mobile transition. In pharmaceuticals is about getting access to smaller companies with promising drugs. In consumers is about cash rich companies using reserves and expansion, same with energy where buyers are looking for smaller targets with resources. Industrials are looking for expansion to new markets as well as consolidation benefits. The affordable healthcare act changes the competitive landscape in the healthcare sector and is expected to increase consolidation between insurers, hospitals and independent practices (Source: NA Deal drivers 2012-13).

M&A Pricing: kept lower for now

Global multiples have decreased post crisis from the low teens to well into single digits. In 2012 the average EBITDA multiple was at 8.8X down from 9.1X in 2011. Multiples further fell in Q1 2013. US multiples were at 9.3X in 2013. Tax cuts expiring in 2012 pushed down multiples as US shareholders rushed to realize investments before capital gains rates shot up. In Europe multiples were much lower at 8.6X, down from 10X in 2011 but let’s bear in mind that Europe is going through a recessionary phase and fiscal crisis that puts pressure on earnings. Most of activity is intraEuropean continuing a long consolidation trend. Multiples in Asia fell because of economic slowdown.

3. M&A Multiples

When it comes to industry specific valuations higher prices are currently offered for energy companies. Can’t resist however to bring up here Al Gore’s reservations over these valuations arguing that they are based on reserves that will never be probably extracted. Better IRRs are offered in TMT rather than energy or industrials as well as better EBITDA. Valuations are low in financial services, less than 1.25 book value. Latin America with favorable demographics and growth prospects for many even better than those in Asia, offer good M&A prospects, hence a solid base for higher valuations. In this context Modelo brewery was bought in 2012 at a 14.1 multiple. Private equity multiples are low as IPOS are down and many exits are realized thought secondary offerings. PE financing multiples are currently at the 7-8 range with average exit multiples at 11 according to Mergermarket. Refer to our post on PE activity in 2012-13 for more info. American Appraisal expects M&A multiples to increase in 2013 as US economy will continue to fair well, Eurozone sort out its problems while Asia continue to grow (Global M&A Valuation Outlook 2013).

M&A Value Realization: Not always getting what you paid for

In order to realize value from M&As it is important to get valuation right as well as due diligence and post merger integration. We are not getting tired to remind Graham’s saying that Warren Buffet goes by: ‘Price is what you pay; Value is what you get’. Getting price and value to meet is not always easy, in fact most of times it doesn’t happen. An example of that comes from a KPMG analysis of stocks of certain companies’ engaged in M&As during 2007-2008. Average size for those deals was at $2.3b with the median at $620m. What KPMG found is that companies announcing deals in 2007 saw prices fall by 8.4% 24 months later, while those during 2008 increased by only 2.5%. As expected those targets with the highest PEs at acquisition offered the worst returns. According to KPMG deals “during exuberant 2007 may not have received the same level of due diligence as those in 2008 when it was much more difficult to complete transactions” (Source: The Common Determinants of M&A Success, KPMG 2011). This disappointing performance may well have to do to some extend, with the overall stockmarket trend. On the other hand one can’t deny the importance of getting the valuation right.

Aside from valuation, critical factors for successful M&As are carrying out an efficient due diligence that will unearth issues and proceed according to a well designed post-merger integration plan that focuses on effective communications, quickly establishing goals (usually under a 100 day timeframe), having a post acquisition plan in place, well before closing and selecting key people. That’s at least according to a survey of M&A practitioners, carried out by Deloitte and Mergermarket in 2012.

4. Critical Factors in Deals-Triplex

Middle Market: the next big thing? Not that straightforward

Although expectations about middle market activity arising from the sector’s massive size and pockets of underperformance, it hasn’t picked up the slack left by the eclipse of mega deals. The market simply seems to lack direction. Activity across segments is moving in tandem. Middle market activity in 2013 (ie deals between $500m-$2b) was at over $800 bn according to Mergermarket or around one third of total global M&A value, posting a small increase over 2011. During 2013 Q1-Q3 middle market deals in the US were valued at $400bn, down 7.7% compared to the same period in 2012. That was mainly due to decrease in Europe and US; Asia shows much more resilience in this segment. Looking at the European-US combined space in the lower middle market ($250-500m) we see that deal value is not that much different from the pre-crisis levels of $150b in 2004 and only at 2/3 of the 2006-2007 highs. What’s important at least is that middle market has recovered compared to after the crisis when it fell to almost 20% of global M&As.

5. M&A Deal Size in Europe and US Doublex

According to Citizens Bank’s 2013 Middle Market Survey, around 80% of middle market companies (defined as those with $5mn-2bn revenue) are currently open in making an acquisition with 20% actively engaged. Acquisitions in this space are of smaller size and more frequent. Buyers tend to buy smaller firms that can absorb more easily. Most of the deals are below $10m in value. Their main M&A motive is to increase revenues. Geographic expansion, adding products or putting cash to work come up frequently too.

Other reasons are buying-out underperforming customers or taking out competitors; objectives may differ in middle market compared to big business. Small firms and tech companies especially are looking at acquisitions as means to add talent and know-how while manufacturing companies as an opportunity to add distribution. Although post crisis there’s better availability of debt financing only about 20% of companies are currently looking at raising capital.
A quarter of the market is also looking at selling to upload outperforming segments, raise capital or create liquidity for their owners. As a common theme, many baby boomers will be looking at monetizing their holdings and retire in the near future.

There is a good case for M&As in this space, as it has depth and room for improvement but also some factors inhibiting it. We have covered middle market and PE activity as well as success factors on earlier posts: Private Equity 2012-13 Update and Success Factors for Value Realization, Middle market cross-border M&As set to grow, Large Private Equity Deals-that 800 pound gorilla.

Critical Success Factors in Middle Market M&As

According to Citizens’ Bank, the main concern when undertaking a middle market M&A is undetected liabilities. Information is more difficult to gather and audit in this segment. Conducting adequate due diligence, losing key employees or clients and off course valuation of the company are other frequent concerns. It seems that most of the middle market executives are aware of the process and don’t shy away from getting involved in them. Almost 70% deals are managed internally with advisors coming in for valuation or due diligence; however the devil is in the details.

6. Middle Market M&A Issues

The “detail” in this context is that traditional valuation techniques might not hold as reliability of earnings, cash flows and attainability of synergies may come into question. This is more often the case than in larger deals. Reliability of information as well as operational rigidities that limit the businesses’ scalability have a direct effect on value. Critical factors potential acquirers should consider before committing to a middle market deal, according to Deloitte, include:
• Strategic fit when it comes to products, markets and culture
• Root cause of depressed or bloated earnings
• Probability of improved financial performance
• Identification and attainability of potential synergies
(Factors for Mid-market Companies to Consider When Evaluating M&A Targets, 2012 Deloitte, Making the Deal Work, 2007 Deloitte)

Another “detail” is that traditional finance theories such as the CAPM may not completely hold in this segment. Cost and access to capital and investor profiles may differ than for large public companies (see Robert T Slee, Private Capital Markets: Valuation, Capitalization and Transfer of Private Business Interests, 2004). There are certain adjustments to be made. Market participants can go by gut feeling or rule of thumbs but often that may not suffice or hold in the eyes of auditors and regulators that come to review them. And the list of details can go on.

Even if however the buyer’s management has dealmaking experience we would argue that the challenge comes in the form of bandwidth availability. Buyers should mind to preserve the value of the business while analyzing the deal or later merging the two organizations. So it’s all about whether management can handle the workload at the same time that doesn’t take their eye from the ball ie, day-to-day operations and customer service. It’s also usually not always possible to leverage the acquired companies’ management as prior leaders may create political or loyalty conflicts that cause more harm than good, let alone not able to perform under the new playbook. Actually as discussed in previous posts, in most cases prior management is replaced.

Best practices approach calls for delegation of the M&A process to external experts or devoted teams, albeit with clear senior management endorsement and commitment. Other specific challenges with middle market M&As arise in the context of cross-border transactions. Knowledge of foreign economic circumstances, business practices, cultures, regulatory and tax regimes is not easily attainable without local expertise. In these cases it is better not to try reinvent the wheel but simply look for competent local or global advisers; problem is that there are not that many middle market advisers with true global reach.

Future Trends: Dare a comeback prediction for 2015?

M&A activity is expected to increase as the economies and stock market recover. In a survey of more than 150 investors and corporate executives performed by Mergermarket in 2013 (The Future of M&As in America, Merrill Datasite and Mergermarket, 2013). Almost 2/3 of respondents expected activity to increase, at least when it comes to the Americas. US companies turn to M&As as means for expansion (access to new markets) vertical integration and synergies. Asian Pacific economies keep on exhibiting strength and local companies see opportunity to acquire targets in US or Europe to gain access to markets and technology. It is expected, in this poll at least, that most of transaction activity will happen in the lower middle market i.e., $250-500m and below. Then again that may primarily indicate frequency and not overall value.

So where will it be the next big thing for M&As if there will be one, and when? Will it be middle market, emerging markets, technology, energy, cross-border, public to private, PE or stock-market driven? We’ll have to wait and see. It seems that after all what the market is missing is leadership, as the popular saying goes, that mainly comes from mega deals and the availability of leverage. That’s what moves the needle.

Looking at the latest two economic cycles, the fact that we’re four years in the current one, the economy keeps on growing and the stockmarket breaking highs could one bet, just even by looking at the graphs, that M&As will come back with a bang in 2014 or most probably 2015? After all, as optimism keeps settling in among at least the investment community, this is an environment that buyers will feel comfortable or even compelled to make a move or otherwise feel pressure for stock buybacks and dividend payoffs by activist investors as lately often happens.

7. M&A DJIA and GDP %yoy and Points synthesis_Corrected

So shall we wait for Godot for a couple more years?


By Pete Chatziplis, CFA, ACCA, MBA. The articles published here do not necessarily reflect the views of the Transatlantic Business Forum.

Private Equity 2012-13 Update and Success Factors for Value Realization

M&A activity has recovered since the 2009-10 lows albeit not mirrored the Stock Market rebound with the Dow hitting and surpassing all-time highs. M&As as well as PE activity on the other side seem to be hovering around pre-crisis levels. During full year 2012 global M&As reached $2.2tr, barely posting any growth from 2013. North American deals reached $943 bn, a 5% increase over previous year. These figures stand at 2/3 of the 2006-7 total deal value. We have to go back to 2004 to note an increase of a mere 2.3% CAGR, which should be in line with GDP growth patterns.

PE Overview: A new Paradigm or Trough?

These lower levels of activity may be just the normal state of things, a new paradigm away from the mega-deals facilitated by excessive leverage in 2006-7. On the other hand PE and M&A cycles move in 5-7 years intervals with PE buyouts representing a sliver of total M&A activity, at around 10%, slightly increasing as a percentage during the last decade. Taking this into consideration we may just be waiting for the next big story that will spark a boom. Furthermore as textbook financial planning has it, a proportion of private assets should be allocated to alternative investments for diversification and excess return purposes. This may as well spark, at some point, PE growth. We will cover M&A trends, segmentation and valuations on another topic. In this we will focus on PE activity as well as ways to increase value and returns by operational means, more so since financial engineering and exits are not that easy.

PE buyouts reached $259bn in 2012 with US representing almost half of that at $118bn, up from $112bn in 2011. Outside US, around 35% of PE buyouts took part in Europe, 11% in Asia excluding Japan, with the balance spread around the world. Although fiscal problems, Europe has been a source of dealflow due to integration, cross-border deals, bottom fishing and privatizations. Average deal size is around $100mn in Europe but 50% higher in the US. PE activity has grown at 25% post 2009 lows for Europe and Asia but in US, where PEs are more prominent, growth was double that at 50%, according to Bain. In the first half of 2013 global PE buyouts reached $144bn (according to Mergermarket) up by 17% from the respective period in 2012.

Global PE Market 2012 - TBF

Sectors of interest for PE investment at least in the US are consumer (B2C businesses), computers/IT, followed by pharmaceuticals and health. Energy is also attractive both in resources and equipment. Biggest PE deals in 2012-13 were: Heinz ($27b by Berkshire Hathaway and 3G Capital Partners), Dell ($20b by Silver Lake partners and Michael Dell), BMC Software ($6b). The Dell deal also underlines the increasing interest for public to private transactions.

Exits: Can I cash my chips please?

Investments don’t worth much more than what you get paid for. Much of the PE activity currently is not in buyouts but working through exiting the backlog of prior investments. As a result holding periods have increased to 6 in 2013 compared to around 3 in 2007 according to Pitchbook. Secondary investments have been gaining attention over IPOs due to difficult conditions there. According to Bain, sponsor-to-sponsor deals tend to historically fair better than other deal types. Almost half of exits in 2012 were realized through secondary buyouts vs. 25-30% five years ago. Other more unique methods such as dividend recaps are gaining traction, especially in uploading large investment. KKR and Bain for example geared up HCA prior to refloating, to take some money out of the table.

Exits by type

Middle Market: Ample opportunity but where’s the value?

PE activity has been affected by the absence of leverage and the eclipse of the 2006-2007 mega-deals (such as Energy Future Holdings (TXU) for $44b, HCA for $32.7b, Equity Office Properties for $39b, first Data $29b, Harrah’s $27b, Alltel $27b, Hilton $26b to name the biggest). In this environment middle market deals (between $250-$1bn ) are fairing much better. It’s easier to maneuver such investments, turnaround and even exit as we have discussed in this blog before (see Middle market cross-border M&As set to grow, Large Private Equity Deals-that 800 pound gorilla). For example the largest ever LBO of TXU has not turned out very well with the company heading to bankruptcy and the PEs that led it, even prominent, such as Goldman Sachs Capital Partners, KKR and TPG Capital, standing to almost write-off their investment (Business Week, Buyout firms clash over energy biggest ever LBO).

Middle market investments also offer benefits when planning exits through aggregating/consolidating companies into larger units and ripping benefits of scale and better valuations. It’s what we’d call “riding up the multiples curve”, ie pretty much scaling up a business by adding activity around a tested operating model and get higher valuations with size. A small company might have good products but what makes or brakes a company is the structure, that’s the reason so many wonderful ideas fail. Access to distribution channels, capital and talent is easier for larger companies.

TEV-EBITDA multiples

There are an estimated 300,000 middle size companies in the US of which PEs own around 35,000 (The New Math of Middle Market M&A, Robert Slee The Value Examiner, July/August 2009). According to Robert Slee, who is probably one of the very few if not the only finance theorist in the context of small/private businesses, 75% of middle size companies destroy value as they usually produce returns below their cost of capital. Cost of capital for small/private businesses according to his calculations is in the high 20s. That is after taking into consideration risk, cost of financing and bypassing CAPM theory that arguably is more suitable for capital markets. These low return patterns can be more accentuated by the fact that much of the owner’s investment is not recorded, such as unpaid/underpaid management time as well as other resources. Although the ample availability of opportunities, it’s not easy to score a home run in the sector. Companies are often the extension of their owners’ lifestyles and not purely an investment. Owners are not willing or not equipped to realize value for their businesses. In these cases it’s simply better to pass. As Graham put it ‘Price is what you pay; Value is what you get’ and in these cases the two diverge significantly. Slee estimates top performers in middle market an additional 9,000 over the ones already owned by PEs. So numbers are not that good, hence PEs prefer to go international where there’s higher demand for capital.

Valuation Multiples: Buying low and selling high, at some point..

Current M&A multiples are below those of the last crisis, although edging higher. PE buyout multiples are usually lower than those for strategic acquisitions but during the crisis spiked over them; another sign of those times. Currently, MA multiples are at the 8 range, having reached low teens, around 12, in 2007 according to American Appraisal. Financing multiples are currently at the 7-8 range with average exit multiples at 11 according to Mergermarket. This is rather low if compared to multiples of low 20s during 2006-2007. Median exit multiples are even lower, close to 8 times, according to Pitchbook. Considering the backlog of rich investments from previous years and challenging exit multiples this is not the best situation. All these indicate a much narrower space for realizing returns which stress the importance of operational gains.

GLobal Exit multiples

PE Turnaround Strategies; It’s more than theory

PE investing is not a straightforward success. Currently one year PE IRR is at 5%, much fueled by mark to market valuations, the change brought about with IFRS and SFAS fair value accounting rules. The five year IRR is at 10% having fallen from almost 30% in 2006-7 and much higher in the 40s, at end of 90s, according to Bain. Hence the academic discussion now centers around the PEs’ elusive alpha.

5 year PE IRRs

So how do PEs create value? We can’t go over the secret sauce in detail here but in general PEs work with performance indicators that are tied to financial performance, which is how they measure their own performance after all. For example ROE based models focus on increasing factors such as Asset Utilization, Profitability and Leverage which pretty much center around sales strategy, cost of capital, cash flow management, cost cutting and getting rid of underperforming assets and units. Asset stripping is a well documented strategy that frees up capital and unrealized value. Pricing is another important value creator. Bain estimates that 1% rise in price results in 15% boost in pretax profits while an increase in sales volume only has half the effect (due to variable costs incurred). This can be achieved with specially targeted sales and marketing strategies.

An example of a recent turnaround story is Kodak. The once blue-chip giant has filed bankruptcy two years ago as its core business gradually failed. The company had been criticized for denying industry changes and remaining attached to its once dominant film business, passing over the digital revolution. After emerging from a private equity backed restructuring plan it just recently returned to the stock market. Under the restructuring plan Kodak sold its film business to its UK pension fund, as well as various patents and inevitably downsized. It now focuses on high-end market segments of packaging, graphic communications and digital imprinting.

Turnarounds though are not easy. Many investments fail, same as for TXU, even if some of the best PEs are involved. According to a survey of M&A practitioners, carried out by Deloitte and Mergermarket in 2012, factors critical for successful M&As, were communicating effectively, quickly establishing goals (usually this is under a 100 day plan), having a post acquisition plan in place before closing and selecting key people.

Deloitte Survey Resuts X3-2b

Value creation starts however with information. This is the foundation and more; without it doing business is like sailing without a compass. Information is important both at the pre-acquisition phase during due diligence, as well as after that through value buildup. An accurate due diligence that will reveal the target’s true operational and financial position as well as a well-planned post integration plan are of paramount importance. Especially with smaller companies due diligence may be more challenging as information may not be there. According to the Deloitte survey, almost half of buyers would spend more time on due diligence. That’s where PE consultants are particularly useful as they bring to the table specialized knowledge and readily deployable bandwidth. Pursuing an M&A is nothing to be taken lightheartedly; it’s a specialized, stressful task that requires detailed planning and execution. Don’t take us wrong, it’s possible that buyers can carry this on their own, but trying to reinvent the wheel while keeping eyes on running own business might turn out particularly costly (ie, don’t text and drive). So when in this situation do yourself a favor and turn to external M&A experts.

Collecting the information is one thing and acting upon it in a timely manner is another. In many cases companies are not ready to operate under PE professionals’ standards that often have blue chip corporate or consulting background; hence high expectations in terms of strategic planning. Urgency and efficiency in implementation is important, otherwise problems tend to linger and front loaded value/cash flows wasted. According to a SolomonEdwards survey, part of the grievance and inefficiencies result from poor communication between target CFOs and PEs. We could add here that communication can’t work if the two speak difference languages. What we mean by that: traditional CFO roles in small-middle companies fall more within the controller/bookkeeper domain. Their primary focus is keeping eye on expenses and cash levels. Planning is not a known quantity. Little is done in collecting information for strategic decision making. CEOs/owners pretty much flow with past norms or gut feeling. Getting to perform at strategic level and communicate with the finance/MBA types of PEs is just about similar to learning another language; a change one may not be prepared for, let alone able to make. Increasing financial literacy or management training is useful. Just clocking in and out may not be enough anymore; consciousness of value factors throughout the organization and even equity in them might help (ie management by objectives models). However that is not always easy if people have not been used to. That’s where PE consultants are again useful. They are called to support these CFOs both at the pre-acquisition/due diligence phase as well as after that in streamlining operations and coordinating communications. Companies like Accordion or Solomon Edwards are building successful business models around that by providing specific resources, bandwidth and knowledge. Accordion has also established a specific service for facilitating information collection and dissemination. Operational partners are also used in improving performance. PEs also usually work with tested interim managers who have industry specific experience and are posted to targets to perform specific functions.

We want to point out here to Peer-to-Peer networks that can also support executives. These are however more useful for independent companies that want to up their game as there can be a duplication with the PEs. Midas Managers or Michael Milken-backed Vistage are such networks. Midas Mentors take a cut of returns they create while in Vistage there’s a cost for participating in meetings. Other formal or informal groups, associations and NGOs exist for the same reason. After all there’s good supply of resources as the recession changes has created a slew of experienced middle managers and executives to tap into. However without being able to control implementation, results can be dubious. Moreover is also difficult to find listening ears that are appreciative of intellectual contributions and able to afford them before it’s too late or for owners to connect with experience that is right in the money.

Finally turnarounds come down to people. On the outside management theories make sense to all but the real challenge is implementation. Many can spot shortcomings in an underperforming company; what’s differentiates the makers is the effectiveness in pursuing and implementing changes. Humans mostly resend change, let alone if those changes challenge a favorable status quo. New PE owners may be in a better position to change things due to the power they are versed with, but this is not always adequate. In fact it can as well backfire. Most of the times however the main problem is, as one of practitioners bluntly put it, “what’s behind the manager’s desk”. According to the Deloitte research, around 2/3 of acquirers state that key personnel is one of the main success factors in M&As. It’s one thing not to be able to do, or don’t want to do something and another ignore its existence (and contrary to Socrates, still believing that you know everything). In these cases it’s fair to make a decision and move on with a management change. A high percentage of executives, especially CFOs are eventually replaced when PEs step in. The CFO role has become indeed quite challenging and tenures have shrunk significantly over the last decades.

PE Outlook

In closing, let’s discuss PE trends going forward. As already mentioned this is not a great environment, at least as practitioners would like, however the picture is not that bleak. One good thing is that there’s a lot of capital available for investing. Bain estimates that the PEs’ dry powder can last for up to 3 more years. Main focus of activity will be North America along with middle market and emerging markets. Fundraising is pretty satisfactory as fund managers are seeking diversification, rebalance their appreciated portfolios as well as the elusive alpha. However capital doesn’t come easy. What’s important in selecting GP teams is consistency of performance as well as having “skin in the game”. After all everybody makes mistakes, it’s how many vs. successes that differentiate the leaders. Stock markets are also getting stronger to facilitate exits. On the reverse route public to private deals, such as Dell’s, are gaining attention and may contribute to the sector’s comeback as did in 2007 (ie the HCA deal). After all however buyouts are justified when the underlying business is healthy, valuation is correct and there’re promising exit prospects. As Warrant Buffet put it: “It’s far better to buy a wonderful company at a fair price than a fair company at a wonderful price”.

By Pete Chatziplis, CFA, ACCA, MBA. The articles published here do not necessarily reflect the views of the Transatlantic Business Forum.

Effectiveness in the Implementation of European Bailout Plans and the Cultural Perspective; Individualism vs Collectivism in the Greek Case

Much has been said about European periphery’s economic problems and how they led to economic crises and the IMF intervention. Much of the discussion centers on overleverage, lost competitiveness and other macroeconomic figures. This is what one could call technical analysis. On the other side much of the “softer” or at times irresponsibly “casual” analysis gravitates towards cultural traits some of them being well-indented and some not so.

Let’s look at the Greek crisis in particular: The Troika(lenders) are complaining about inefficient public administration, corruption, opportunistic political system and the absence of civic society as manifested through tax evasion and other. On the other side Greeks are complaining about the recovery plan being unrealistic, recessionary, insensitive, flawed. The bailout plan supporters may jump into what’s called in psychology attribution bias error confirming their prejudices while the subjects find painful gratification in self fulfilling prophecies: since we are not up to par why bother trying improve after all? But then again and allow this parenthesis why Greeks or other nationalities perform much better in well structured economic systems such as that the immigrant communities in the US, Australia or Germany prosper? Is it because of the existence of institutional framework in these countries as argued by the work of Daron Acemoglou (Why Nations Fail: The Origins of Power, Prosperity, and Poverty)?

Whatever the cause of the economic malice, the slow implementation or failure of the bailout plans may be attributed to mistakes in analyzing the problem in the first place both from technical but equally importantly from cultural and sociological perspective ie the doctor has to prescribe the right treatment before complaining that the patient didn’t respond, as well as not well managed expectations and communications if that was the case. In this article we will focus on the sociological/cultural perspective. Before proceeding however we have to caution that culture can become an uneasy topic as such discussions may raise concerns over stereotyping. However, cultures do exist and do interfere with life and business decisions same as corporate cultures, a much celebrated principle in management, that has been coined for many company successes or failures. It’s not that new of invention, after all the saying goes: “when in Rome do as the Romans do”.

Culture, when it refers to ethnographic aspects is a rather new addition to management topics mainly gaining attention with the rise of multinational companies. In such environments people from different ethnic backgrounds, often painfully, realize that what’s considered the norm in one culture is not so in another. Stories about egalitarian Americans using first name or hierarchy conscious Asians hesitating to ask questions or challenge a position have been abundant. The result is miscommunication and inefficiencies. Other instances in the context of cross-border M&As, are equally amusing but painfully costly. Once somebody mentioned a story about an investment in Eastern Asia; after closing a deal the Westerner went with signed contract in hand to plan implementation; the local executive laughed took out a bottle of wine and invited to start the real discussion about what’s to be done now that the legal part was out of the way…. In another instance in Eastern Europe Westerners and local investors were planning an investment. The tender called for cash and follow-up investment as part of the consideration. The local partner laughed: “that’s good. We can surely outbid anybody by promising a high follow-up investment”. But this is not possible” replied the buyers, “we can’t afford that”. “Don’t worry, we’ll just promise and never do it….” he replied. Off course the judicial system plays a role in enforcing such documents but sometimes it also seem to be accommodating or follow the traits of the surrounding cultures.

So how could culture play a role in the European economic crisis and the success or failure of the restructuring plans? Let’s analyze the theoretical background to that. To do so we will refer to the work of Max Weber, Geert Hofstede and even Samuel Huntington to name a few. To some extent they have used religion as a paradigm for peoples’ social psyche. In this respect European societies could be distinguished between:

a. Northern Europe that follow Protestantism/Calvinism/Lutheranism that lean towards individualism and embrace free market or regulated capitalism. North American and certain Commonwealth cultures follow these patterns too.
b. South and Eastern Europe that follow Roman Catholicism and Orthodoxy, which are characterized as collectivist in nature and lean towards corporatism.

According to Weber for example the Calvinist teaching calls for hard work as the road to business success while profits should be reinvested rather than spent in frivolous pleasures. The Protestant endorsement of usury, contrary to Roman Catholicism at the early ages might have affected economic development in some extent. Same effects mat be attributed to Orthodoxy’s mysticism and its apprehension towards materialism as also manifested in Greek philosophy’s Stoicism and Epicureanism.

According to Geert Hofstede’s famous Cultural Dimensions Theory (not accidental that was developed within multinational IBM) there are 5 traits upon which cultures can be characterized:

– Power distance (we’d call that in other words “respect towards hierarchies”)
– Individualism (or the “degree of interdependence” within the society)
– Masculinity/Femininity (we’d prefer to call that “materialism vs. spiritualism” )
– Uncertainty avoidance (we’d prefer to call this “adaptability” or “resistance towards change”)
– Long term orientation (pretty much self-explanatory: long term versus short term society focus)

In our case now: Greece is a collectivist culture where although business is conducted in a rather relaxed way, power distance is high and respect is important. In collectivist cultures more important than anything are relationships and accountability towards the person’s immediate social grouping be it immediate family, extended family, locality, ethnic group, company, union etc. Next to relationships, written communications might fade (especially when mandated by an outsider to the group). A Greek minister once even admitted that have not even read the bailout plan. There was no time for that or no purpose considering its supposed inevitability or stakes in hand. Obviously the details could be envisioned negotiable later, even after signing. Actually objections started soon after signing. It’s also well documented that statistics were falsified to achieve EU admission. Pretty much the same as ticking the box on Important Terms and Conditions before downloading a software. Who bothers? On the other hand Northern European cultures are in large individualistic where power distance is also high but relationships are not that important and communication can often be blunt. Written communications are respected and highly valued. There’s also a strong avoidance over uncertainty, which may be exacerbated with current financial problems and extremely high unemployment. These differences as illustrated by different scoring in Hofstede’s parameters are shown in the diagram below for Greece and a group of Northern European individualistic cultures.

Blog Graph Greece and Individualists

But let’s set aside the major manifestations of individualism and collectivism and focus, for the interest of brevity, to the issue of how decisions are taken and communicated in these cultures. For example in our case, what went wrong, at least in the beginning, with the restructuring plan? The EU officials have been frustrated with the low pace and erratic implementation. When shortcomings occur they note with disdain their discontent: the plan has been agreed and signed departures from its wording are not expected. In AngloSaxons societies it’s normal for written agreements to be kept; that’s why negotiations are long. On the other hand in societies such as Greece’s, written agreements are of limited value. These are places where one can hear more often the phrase “that’s how we do things here” or these things are not possible here” versus the expression “that’s the law” that explains actions in individualistic countries.

Blog Graph Greece and Collectivists

In individualistic countries is quite straightforward, even to the not educated, of how they should operate within the society. In collectivist cultures however it’s not always possible to understand how things work if not through upbringing and subconscious. Locals mostly can adjust to that it’s just an outsider that might feel lost. It takes empathy and inquisitiveness to prosper. As one said don’t get distracted with what the law says but what the people really do.

So what’s the conclusion, the moral meaning from this analysis regarding enforcement of the restructuring plan? For Troika: should place more attention to what people think than what say or sign. Monitor implementation. Identify power brokers, decision-makers and involve them. Respect sensitivities, be introspective, try figure out motives and hidden messages and agendas. For Greeks: don’t hope for leniency, for lenders giving up or being intimidated. Not that they don’t have feelings; it’s just that they keep them away from work and don’t let them affect the goal. Be upfront and clear on intentions and concerns. Discuss and argue constructively.

This article has been in the making for quite a while. In the meantime it’s good to see that Troika is pretty much adjusting their approach now monitoring evaluation setting gradual landmarks and acting based on progress. Communications from North has been toned down a bit too, it’s so much of an unnecessary distraction anyway. Greeks have also given up on talking, bluffing and protesting and doing more. But then again most people know what’s right or wrong, large parts of what’s happening in the past was illustration of Mental Exit (something that Hirschman refers to in his famous book Exit, Voice, and Loyalty). Mental or Physical Exit by playing along, evading, immigrating and much of the frustration is also put up for other purposes. Once a football(soccer) player was asked why complaining so vividly to the referee for a decision since there was little chance to change opinion. Well, he said, this decision is lost but I may make him think twice about the next one and even if that doesn’t happen and we loose then I’ll put up a good excuse to the fans in bad refereeing…”.

For sure the story unfolds on this crisis and it’s quite early to jump into conclusions. The purpose of the article is just to contribute towards decision making and action taking from a cultural perspective both in this or other instances.

By Pete Chatziplis, CFA, ACCA, MBA. The articles published here do not necessarily reflect the views of the Transatlantic Business Forum.

Pete Chatziplis, a finance and management consultant, is the creator of the Transatlantic Business Forum. Drawing on global work-experience he has been part of the Cultural Detective Organization (Intercultural Effectiveness, Increase Productivity-Strengthen Relationships) contributing to the development of a training manual about intercultural understanding.