With the construction sector losing steam in the UAE, ancillary industries such as paints and interior design too have been affected in terms of lower sales volume and delayed payments. However, for Jotun Paints, a leading manufacturer and supplier of paints, coatings and powder coatings, a diversified expansion strategy, a broad base of customers and a long-standing pedigree in the region have helped it emerge relatively unscathed, with its order books intact. Enthused by the increase in demand from the decorative paints side of the market, Trine Finnevolden, general manager, Jotun UAE, however, expresses concern at the rising cost of raw materials and eroding margins.
In an interview with Property, she elaborates on how effects of the market meltdown will slowly percolate to the paint industry and how Jotun plans to survive the storm. Here are excerpts from the interview:
How has the paint industry been affected by the construction slowdown in the UAE?
We have been affected as far as new projects are concerned. But, paint is also utilised for maintenance. A lot of people have been refurbishing their homes either because the property deserved it or to keep up with colour trends. Also, paint is used in different business areas such as industrial applications, marine coating, and so on.
We have also expanded geographically in Bahrain, Qatar and Kuwait and these markets haven't been affected in the same way as Dubai.
Jotun is known to tailor-make products for local conditions. How challenging is it to make paint products for the Middle East's inclement conditions?
We have been in the region since 1974 and know the climate and customer requirements quite well. In 1994, we moved our R&D centre to Dubai. We test new products in the Middle East and send them to different regional sites, such as Riyadh, which is known to have a tougher climate. When we are in the market, it's easier to understand customer needs, than if you are a producer based elsewhere. It's not more difficult to develop products here as compared to the cold climate.
Has there been a decline in demand for paint products from the projects or the retail sales market?
From the projects market, demand has reduced. The total size of the projects market has declined considerably. However, we have been taking market shares even in this climate and that's quite typical. Well-known, strong brands gain market share in times of difficulty. We had decided internally to focus more on R&D work and innovation, as we had done before. Having our own factory here is also advantageous compared to companies that import products from elsewhere.
Are people increasingly investing in home decorations?
Yes, and that's a worldwide trend. We co-operate with furniture shops in Dubai and the Middle East. We have tied up with THE One, Ikea and Pan Furniture to showcase our paints. When they get new furniture, we often paint the backdrop to match the furniture. It gives customers a total solution. We launch colour trends every year and we are coming up with a new one for 2011. We split it into three to suit different cultures and personalities. For instance, last year, we had Mystic Elegance to suit Middle Eastern tastes, Pure Nature for European style and Jazz Up for young, funky people. These colours are always presented along with furniture, so that the style and colour of furniture matches our colour trends. The redecoration market has not been affected by the recession. People are willing to spend money on redecorating their homes in order to make a new impression.
What products did Jotun launch last year?
We launched Lady Effects under the Jotun's Lady brand. It offers four unique finishes — Lady Effects Pearl, Lady Effects Metallic, Lady Effects Glaze and Lady Effects Stucco Antica. The Lady brand is easy to clean without peeling off the paint. Meanwhile, Jotashield offers thermal insulation properties that result in reduced interior temperature and cooling costs. The Fenomastic range includes Fenomastic Enamel, a lead-free and non-yellowing enamel paint, and Fenomastic Gold, which boasts of antifungal properties.
Is Jotun embarking on expansion plans in the Middle East this year?
We opened a new factory in Saudi Arabia last year, taking the number of factories to three. In the UAE, we have two factories in Dubai and one in Abu Dhabi. We also have plants in Oman, Yemen and Egypt. We don't have plans to open new factories this year, but want to increase our sales capacity. We are actively looking at exports and are exporting our products from Dubai to Africa. We are also building a factory in Libya, which will open in 2012. We also have two Jotun sales companies in Morocco.
Does Jotun also offer eco-friendly paints? Is there demand for these paints and are they cost-effective?
The trend for green paints has been prevalent in Europe and Norway for many years. In Dubai, we are the founding member of Emirates Green Building Council. We have products that help clients acquire Leed (Leadership in Energy and Environmental Design) points. We have met the demands of residential, marine and industrial development for cost-effective paint solutions. Our Fenomastic Gold and other paints in the Fenomastic range are water-based and have very low levels of organic solvents. Jotashield Thermo is an exterior coating that deflects heat and saves energy. Projects using these products can acquire additional Leed points. Our green products are selling more in the projects market, both in Dubai and the Middle East. These products are a bit more expensive, but result in energy savings and hence offer a good payback. Demand for green paints is currently more from the projects market and less from homeowners.
Has there been an upturn in construction activity in the UAE, going by the number of leads from your clients?
Paint is a late cycle business. After the 2008 crisis, we didn't feel the impact immediately, since many large projects were ongoing and paint was still in demand. We painted the Dubai Metro and the Burj Khalifa.
Now, it's no longer about so many big projects, but developers are restarting small phases of a big project. However, activity levels are not back to the 2007-2008 levels.
Are clients looking to cut corners and opt for less expensive paint in their frenzy to finish projects and hand them over?
There are many contractors who are asking for cheaper paint. But, we try to convince them of the long-term benefits of using higher quality paint. The end-users opt more for high-quality paint. Homeowners are spending more, taking inspiration from television programmes and magazines. The quality of paint varies, depending on the project. Prestigious projects such as the Burj Khalifa will always use the best products.
How much does Jotun earmark for R&D activity every year?
We earmark $130 million annually and the amount increases every year. We are growing organically and are also one of the fastest growing paint companies in the world. We have an internal measure where we re-invest a certain amount of our annual turnover in R&D.
What were the challenges of working on the Burj Khalifa?
The main challenge was to secure the contract. When we began communicating with the client about project specifications, it involved a lot of travel, since part of the project organisation was based in the US, Singapore and Dubai. We needed to co-operate with architects and consultants on many different aspects.
Structurally, we used well-tested products on the Burj Khalifa. We used a special product on the spire which is normally applied to protect steel offshore. It is guaranteed for 20 years.
Can you name major projects in the Middle East that you are supplying products to this year?
We are supplying paint to Concourse 3 at the Dubai Airport. We have several ongoing projects in Abu Dhabi too.
Has Jotun witnessed an increase in demand from any export market?
Qatar is a booming market. We also see interest from Jordan and Syria. These markets are actively involved in home decoration. Dubai is our main factory in the Middle East with most export activity originating from here.
Has the reduction in prices of raw materials helped Jotun increase its profit margins?
The prices of key raw materials are increasing now, and that is challenging when it comes to gross profit margins. For instance, there is a shortage of titanium dioxide, as suppliers worldwide closed down factories, as soon as the recession hit. All through 2010, there was a steady increase in the price of titanium dioxide and we expect it to continue next year.
Has there been any new trends or painting techniques in the world of decorative paints?
People opt for paints that offer more shimmer and shine, especially in the Middle East. Another trend is to use eco-friendly paints. This has been prevalent in Europe and Scandinavia.
What's the purpose behind Jotun's multi-colour and inspiration centres? How many do you have in the UAE and the wider region?
We have more than 1,000 multi-colour centres in the Middle East and nearly 100 outlets in the UAE. The idea is to help people choose the exact colour they want. Customers can draw inspiration for their specific paint requirements from the Inspiration Centre, which also offers themes and environment models, comprehensive product information and colour consultancy.
1920 Jotun's origins can be traced back to a paint distributor's shop, opened by Odd Gleditsch in Sandefjord, Norway.
1962 A major expansion strategy sees Jotun set up its first production plant outside Norway, in Libya.
1968 Enters Southeast Asia with a new paint factory in Thailand. This was the first of a series of successes in the Asian market.
1975 Jotun UAE in Dubai is founded and becomes Jotun's second company in the Arab world.
2009 Jotun ColourAdvisor is launched. An online colour visualisation tool, it allows users to upload photos of their homes and ‘paint' them online.
For information on the real estate sector, within the UAE, please visit our sister site, GNProperty.com.