The FINANCIAL — Global coffee and non-food product retailer Tchibo would welcome partnership with Georgians that are familiar with the retail, competition and consumer habits of the country. The company plans to extend its activities in Eastern Europe, providing political uncertainties do not delay things. In 2014, Tchibo generated EUR 3.4 billion of revenue. With over 5 million visitors to its stores and the same number of online shoppers per week, online sales are becoming the core of the company’s business.
“Our know-how of Georgia is very little, it is basically from what we read in the papers. We do not have people who have experience of working in Georgia. Accordingly, we need local people who know the retail situation, competition, and have an idea of how our product assortment will appear to Georgians. Non-food starts with consumer behaviour, with colours, sizes and other details. Everything is different in each country. Georgia is a market we are interested in. We really depend on local people and if they are interested in building up a business with us in Georgia, we will be very interested in doing that,” Markus Conrad, CEO at Tchibo, told The FINANCIAL.
The FINANCIAL interviewed Conrad in Berlin, Germany, during the annual meeting of the European Fund for Southeast Europe (EFSE).
Tchibo is the roasted coffee market leader in Germany, Austria, Poland, the Czech Republic and Hungary. The company combines its coffee expertise with a range of innovative consumer goods and services. In selling its products, the company uses a sophisticated multichannel distribution system with its own branded shops, a nationwide presence in retail, and a strong online business.
The company’s core sales markets are Germany, Austria and Switzerland. The markets in East and Southeast Europe are an important growth driver. Tchibo has operated its own shops in Hungary, the Czech Republic and Slovakia since 1991. These were followed by its entry into the Polish market and the Russian market. In 2001, Tchibo opened a sales office in Romania. Tchibo has also been expanding its footprint in the Turkish market since 2006.
“We started our expansion in Eastern Europe after the transformation period, at the beginning of the ‘90s. It was a unique opportunity to adapt to new markets. Today we are number one in coffee in Eastern Europe. The coffee industry is very strongly positioned in Poland, Hungary, the Czech Republic, Slovakia and also Russia. If we look at the worldwide coffee market, here in Germany we think in terms of beans, roasted and ground. The more you go into tea cultures, you find consumers who are fonder of instant. Our historic strength is bean, which is where we come from. Tchibo is a highly premium coffee. In all of these countries we have our operations and we export. With respect to Georgia we can grow a lot in the region. It is clearly part of our agenda – to become more relevant and to grow our business in your area,” Conrad said.
The company’s operations in Turkey started ten years ago when a Turkish lady came to Tchibo’s offices and asked for permission to develop the brand by opening stores in Turkey. “She had a very professional background in retail. So over the course of ten years our Turkish organization has been represented in more than sixteen outlets. We are also present online. Within the whole organization there has never been a German working in the Turkish branch of our organization. So it was really built from scratch with Turkish people, who knew their country and really transferred our brand to Turkey. This would be our dream model for countries like Georgia too,” Conrad said.
“We have one Turkish employee whose agenda is to start a business in Georgia,” he added.
Q. What are the main changes that you are witnessing among consumers?
A. It depends on the individual market and varies from place to place. Overall, we see that in developed countries like Germany or Switzerland, people are changing their buying behaviour. It also has something to do with families becoming smaller, as both parents are working, so convenience becomes crucial. People have started ordering from the office. The next generation has a different mindset towards shopping. Whereas ten to twenty years ago shopping was fun, now it is changing. A service where you can get everything 24/7 is really appreciated. Today in our core countries, like Germany, we are among the top five players in online non-food sales. So we are seeing these growing. We started very early on and we are seeing a big opportunity.
Q. You were appointed to this position in 2006. What has been the most challenging aspect for you?
A. Every following year has been very challenging. We are in constant transformation. The world is changing rapidly, especially when dealing with online and offline shopping. This is probably a natural attitude – that things that you have done in the past look easier, while things that you have yet to do look more difficult. The times when you could say that we have done this programme for years and can relax now for three years are over. Every year you have to select three to four key challenges and make mistakes and successes every year. If you are in a position for quite a while the key thing is transforming every year.
Q. How has the company managed to build up its customer loyalty?
A. Building loyalty with customers is key for us. We have about 5 million visiting our website every week. We have about the same number visiting our shops weekly. I strongly believe that trust is something that you build very slowly but you can ruin very quickly. Managing this relationship is key for the brand. These relations can be ruined not only by doing something disappointing, but also by simply a rapid change of something. The best thing you can do when managing a brand while serving customers is to always leave them with the feeling that something is staying the same despite some other changes. There are lots of managers that come to a brand and are eager to change it. The brand is not for the managers; the managers are there to support the brand, not vice-versa.
Q. Coffee, cotton, wood and other natural resources are central to your business. How do you work to counteract climate change, which is one of the main concerns of the developed world?
A. There are things which we can do, but we are not into the politics in that sense. We were the first company in Germany to do a balance-sheet of our impact on the climate. So, by knowing it, we reduced our carbon dioxide emissions by around 40% over three years. A lot for us was logistics. We took it very seriously. The effects of climate change directly affect Tchibo’s core business, as extreme weather and changing weather patterns can negatively affect crop yields of coffee and cotton. To counteract this dangerous development, we identify “emission hot spots” in our transport chains as well as at our sites, and develop effective measures to reduce greenhouse gases to the best possible extent. We see the greatest potential for savings and exerting an influence in the areas of transport and shipping, energy consumption and our fleet of vehicles.
Our transport strategy focuses on using sea freight, inland waterway craft and “intermodal transport” involving multiple modes of transport. In our sea freight, we rely on precise planning, which allows the ships to travel at lower speeds and thereby emit less CO2.
As part of the strategy, CO2 limits were introduced that provide for annual reductions in emissions up to 2020 in accordance with EU regulations for manufacturers’ fleets. The ongoing conversion of our fleet to more fuel-efficient vehicles has reduced average CO2 emissions for Executive Board members, managers and sales fleet to 120g CO2/km in 2013 (2012: 124g CO2/km), below the EU climate-protection target of 130g CO2/km for 2013.
With respect to global change we are active in a lot of coffee associations to understand the impacts. There are two main issues, the first is what can be done in agriculture itself and the second is what the impact of the agriculture is. Climate change affects the region. This is something that is very important for us. These are very much governmental issues. What we do is investing in and supporting research, and assisting farmers to understand the impact. However, we cannot change the geography.
Q. What are your expectations for 2016?
A. We are living in a very challenging time in your region, politically. My hope is that within Europe there will be more collaboration on each aspect. Political issues are not good for business. If we look at our road map, we are looking to extend our activities in Eastern Europe and we hope that it will not be impacted by those things.
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