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Turnover at the holding, one of the largest wine groups in continental Europe, was up 10.3% to €334m in 2007, with an operating result (EBIT) of €18.3m. What makes this all the more surprising is that this growth is taking place in a market that is at best stagnant.
Having invested a great deal of time and money to enlarge its clientele base in 2007, Alexander Margaritoff, the group’s chief executive officer, now expects to profit from that investment and increase his presence beyond the border.
Meininger’s: We are meeting in your offices on the outskirts of Hamburg. Is this where it all began?
Alexander Margaritoff: No, the company was started by my father in the basement of a two bedroom apartment in the heart of Hamburg. We moved here 20 years ago.
Meininger’s: Your name sounds Slavic. Is your family German?
Margaritoff: My father left Bulgaria for Berlin just before the war to study architecture. Unable to go back because Bulgaria had turned communist, he stayed in Germany.
Meininger’s: Why does an architect start a wine business?
Margaritoff: After the war, he began to produce stockings. At the end of the 1950s, he was Germany's largest manufacturer of women's hose, with 7 factories and almost 10,000 employees. Unfortunately, he went bust and started Hawesko in 1964.
Meininger’s: How big is the company today?
Margaritoff: We have approximately 1,200 employees, if you include our partners at Jacques Weindepot, and sales of roughly €335m.
Meininger’s: Hawesko was originally a mail order business, but has now morphed into a wine business giant. What do the corporate parts look like today?
Margaritoff: Hawesko started off as a mail order business for spirits. That changed only when we began selling wine in the 1970s. Over time, we added the retail business with Jacques Weindepot and wholesale with Wein-Wolf and others.
Meininger’s: When did that take place?
Margaritoff: In 1998 and 2000. Today, we have 18 companies in the holding, but each is run fairly independently. At the head of each there's a person who is in more or less complete control. The idea is to be as close to the final customer as possible, which cannot be done from headquarters.
Meininger’s: You have moved beyond the German borders. How much of your business is offshore?
Margaritoff: Just under 11%.
Meininger’s: In what other countries do you operate?
Margaritoff: We have a small operation in the Czech Republic together with Heinemann, the people who run the |
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duty free shops. In Austria, we have a wholesale business, which is now the third largest there, and a few Jacques' outlets. In Bordeaux, we own Chateau Classic, which is doing very well.
Meininger’s: With 270 stores, your wine retail chain, Jacques Weindepot, has no serious competition in Germany. Is that a concept that you can repeat elsewhere?
Margaritoff: You are right in saying that we are far ahead of our competitors, but all competition has to be taken seriously. Our concept has been refined over the last 30 years and, given certain adaptations to local markets, could also be successful in other countries - perhaps not in all, but in a number of important wine drinking countries.
Meininger’s: With Multiwein you recently launched a competing chain at more aggressive price points. Why? And has it worked?
Margaritoff: Between 2001 and 2006 premium wines in Germany had a rough time. With prices falling, we thought it might be a good idea to target those people who were buying cheap wine from discounters like Aldi and Lidl, both of which are very strong in Germany. Albeit at a very low price, every second bottle of wine drunk in this country is sold by discounter. That said, our concept was not very successful, so we either closed the Multiwein outlets last September or folded them into Jacques Weindepot.
Meininger’s: Were margins difficult to generate at those price points.
Margaritoff: It wasn't only that. Margins are lower in the €2-€4 segment, but it was more a question of attracting enough people to our shops.
Meininger’s: You have famously stated that Germans have no wine drinking culture. What did you mean by that?
Margaritoff: When people shop in Germany, the first question they ask is what is cheapest. In France, Switzerland or Belgium, they look for quality. This difference is particularly acute for food and wine. The average retail price for wine here is just €2. The elite in German society, which was responsible for cultivating food and drink 100 years ago, has disappeared. Two world wars, hyperinflation and a divided country have all had an impact. We must rebuild our consciousness for good food and drink.
Meininger’s: Then hasn't it been difficult for your group to operate in that environment?
Margaritoff: Frank Sinatra would have said, ‘if you can make it here you can make it everywhere’. Yes, it is more difficult in Germany, because you have to explain the merits of a bottle of wine that costs more than €10 - and the market for wine above even €5 is very small.
Meininger’s: It is said to be about €1bn.
Margaritoff: Yes, but in tiny |
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Switzerland it's €600m. In Britain, the market at the top is several times larger than in Germany.
Meininger’s: You say the average price of a bottle in Germany is €2. What is yours?
Margaritoff: It depends on the segment, but it ranges between €6 and €7.
Meininger’s: What have you done to make that happen?
Margaritoff: At Jacques Wine-Depot, customers are able to taste the wines, so you can make them aware of the difference between a cheap wine and a more expensive one. At Hawesko, we have an informative catalogue, but generate sales through carefully crafted brochures sent selectively to our customers 18 or 20 times a year. We have four employees managing our clientele data base to target each individual’s preferences and 40 sales people well educated in wine, who can explain the products to our customers by phone. At Wein-Wolf, we have 100 salesmen that travel the country. Two thirds of all people working at Hawesko are explaining wine to customers - and I think that is the secret of our success.
Meininger’s: What wines have worked particularly well?
Margaritoff: Over the last 30 years there have been a number of trends. In the 80s, the trend was towards French white wines like Chablis. In the 90s, Italian whites and then reds became popular. Now we are seeing a strong growth in German wines.
Meininger’s: You say that you are very strong in Bordeaux. Have the rapidly rising prices there made it difficult to move the volumes you were doing in the past?
Margaritoff: For many people, the word Bordeaux is a synonym for quality. When they think of Bordeaux, they think of the names like Mouton and Lafite, but Bordeaux also consists of very good wines in the range of €5-€15. There has been a strong movement, almost a revival, towards these wines in the past two years. Yes, the top wines in Bordeaux are extremely expensive, but the group of customers willing to pay more than € 100 is very, very small.
Meininger’s: You talk about being mail order, wholesale and retail. If we take vertical integration to its logical extreme, you should also be producing wine. Is that part of your vision?
Margaritoff: It's perhaps part of the dream, but it would not make much sense for us to go into wine production. Our expertise is buying bottled wine and selling it to final customers. Making wine is a completely different ballgame. There are lots of people in this world doing that well - and they don't need us. Further, if we bought a vineyard, we would be fixed to that area. Part of our philosophy is to be nimble.
Meininger’s: You do, however, have brands like Zar Simeon that refect your Bulgarian heritage. Do |
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you have other products like that in the group's portfolio?
Margaritoff: Most of what we sell is somebody else's brand. Our own labels account for less than 15% of total sales.
Meininger’s: Coming back to your core business, how has mail order been affected by the Internet?
Margaritoff: The Internet is revolutionising the way people purchase things - and I believe that the mail order business is in a process of dramatic change. Currently, about 15% of our mail order sales are generated through the Internet, but I could well imagine that in less than ten years, half of it will be. We are ideally placed to benefit from this development. Apart from having a good website, we have numerous exclusivities, quick and efficient logistics and direct marketing knowledge, which is very important when you are selling at distance.
Meininger’s: Are you trading traditional clients from fax to Internet customers? Or is this developing new business?
Margaritoff: It's both. Many people receive our catalogue and then buy their wines on the Internet. It’s faster and more convenient for them. But we can also target new customer groups and the younger generation is very open to good wine - and a large majority of these people are simply used to the Internet.
Meininger’s: If we were doing a SWOT analysis of your group’s current position, what are your strengths
Margaritoff: Wine is still a growing business in Germany, at the expense of beer and spirits – and we're number one in Germany in the three distribution channels we service: mail order, wholesale and retail. With 40 years of experience, we have good systems, a long term strategy of service and quality as well as highly motivated and very skilled people working for us.
Meininger’s: Competition doesn't sleep. What are your weaknesses?
Margaritoff: I don't see many in our own company, only those generated by the German market. As I mentioned before, Germans are reluctant to spend a lot of money on perishable goods, so that’s a weakness associated with the country itself, not so much our company.
Meininger’s: What opportunities do you see beyond the Internet?
Margaritoff: Apart from the constant development within Germany, there are opportunities abroad. Although the market grew by only 1% last year, we grew more than 10%, 4% in retail, 9% in the mail order and 16% in the wholesale business. If you look at the world wine market, the top segment could be as much as €25bn, but is only €1bn in Germany, so there is a lot of scope for us to expand, both here and abroad.
Meininger’s: And |
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threats?
Margaritoff: The most serious threats are the new ideas being generated in Berlin or Brussels, such as new laws concerning labelling and distribution.
Meininger’s: You've expanded into Austria and the Czech Republic. How much further east might your business grow?
Margaritoff: The Eastern European markets are still changing rapidly. Once things have settled down, they will become interesting for us. I could well imagine Hawesko active in Poland or Russia within the next 10 years; but at the moment we are looking more towards West European countries.
Meininger’s: For example?
Margaritoff: I think that the smaller European countries like Switzerland, Belgium, Holland are very interesting.
Meininger’s: Do you currently sell wines there?
Margaritoff: Not at the moment, but we're looking at these countries carefully to see if there are opportunities that we might seize.
Meininger’s: Many people dream of the Chinese drinking wine. Could you imagine expanding your business into Asia?
Margaritoff: Yes, I think the next generation might look at that carefully, but at the moment that is still very far away.
Meininger’s: Producers are talking about going global. Is it conceivable that a wine distribution company, be it as a wholesaler, direct marketer or retail chain, could go completely global as well?
Margaritoff: There is no reason why that should not happen, at least in the major wine drinking wine nations of the world. After Eastern Europe, we, for example, could very well go to the United States or Asia, but each country has its own rules and opportunities. That said, our short and medium term focus is still Europe.
Meininger’s: You've said some of this would be the work of the next generation. You've been at the helm since 1981. Are you already making plans for your succession?
Margaritoff: I'm only 55 - and feeling like 40! I hope to be around for another ten years. Anyway, it is not my role to plan my succession, but that of our supervisory board.
Meininger’s: That brings up another interesting subject. Hawesko is a publicly traded company. How have your business decisions changed since you have been required to report back to shareholders on a quarterly basis?
Margaritoff: When you go public, there is more attention paid to what you are doing on a very short term basis, but we've always tried to base our policies on long term considerations - in particular on the high quality of the products we sell, an excellent service and investing in the future.
Meininger’s: Is it conceivable to treble turnover to €1bn?
Margaritoff: Absolutely! Yes, that's a good goal to aim at and not unrealistic. In the last 27 years we were able to increase sales by a factor of about 70. Trebling sales in ten years should not be too difficult.
Meininger’s: Is there some other dream that you have, something else that you would like to do, when all of this is said and done?
Margaritoff: I’ve been in the business for so long that it's difficult to imagine a life without an active participation in the wine trade. I've grown fond of it and I wouldn't like to miss it.
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