What doesn’t kill us, makes us stronger — an interview with Krzysztof Pawiński, CEO Maspex — blog.kotarbinski.com
[KP] Krzysztof Pawiński, a graduate of the AGH University of Science and Technology in Kraków. Co-founder of the Maspex group, a leading Polish and Central and Eastern European producer of juices, nectars and beverages, as well as instant products and pasta.
[JK] Jacek Kotarbinski, founder & CEO w kotarbinski.com. Experienced economist, expert, marketer since 1990, author, MBA lecturer, engineer, marketologist. A recognized authority in marketing, brand management, innovation and sales management.
[JK] — It is no secret that Maspex is said to be the Polish Nestlé. I would like to ask about your ambitions. Do you think about the company in the context of the fighting for market share in Central and Eastern Europe, or beyond? I must tell you that I once found Kubuś in Egypt. I even asked the seller by which channels it got there. How do you imagine Maspex in the context of expansion?
[KP] — This graphic and these companies really stimulate the imagination. However, if we look at the companies behind these brands, most of these global food concerns have been in business for more than one hundred years. You have to temper your intentions. But I don’t think that, over the last 30 years, we have done badly [laughs].
We have a sense of a job well done, given the conditions we operate in and our capabilities — especially at the beginning. On the other hand, if I was doing a backwards analysis, always effective [laughs], I am fully aware of the mistakes we made.
- But it’s always like that. Is there any one product that didn’t work out?
- Innovations are part of our business, but it must be remembered that when introducing new products, and thus testing new trends, perhaps 10% to 15% of consumer tastes are met. In the food industry, which is very conservative, a permanent listing is rare. In our 30-year history, we have had cases where we have failed. We did research — it showed that the market was waiting for such a product, we spent significant resources on its preparation, we developed a communication plan, etc., and life showed something completely different. We cleaned up after ourselves and continued looking. Such situations are part of running a business.
But back to the question. We feel good on the Polish market and in Central and Eastern Europe. We are both at the age when we remember the early nineties. Empty shelves, but also a good place and the right time to create brands. And I think it was crucial for our development — that is, we focused on brands relatively early. I do not know if we understood then what it meant to create a conscious brand policy, but we knew for sure that you have to somehow distinguish yourself on the market. We started on the local market, then went further afield . When we gained a leading position in Poland, we started looking for business development opportunities abroad. Hardly anyone remembers that, in the first half of the 90s, it was practically impossible to sell products to the countries that now make up the European Union. In 1993, we concluded an association agreement that opened our country to the presence of Western products, and we practically prohibited trade in those markets. In other words — we were played. At that time, we used the tool at our disposal to defend ourselves — customs. The European Union has basically reduced tariffs to zero, and we thought we were getting something served on a tray. But the EU used three instruments to protect its market, such as the sugar duty. For example, the effective protection of the German market was at the level of over 50%, which is, as I mentioned, basically a ban on trade. That only changed in 2000, 2002. On the other hand, with countries such as Slovakia, the Czech Republic and Hungary, we had completely different trading conditions. You could say that it was a “hallway” in which we waited to enter the “rooms” of the European Union. The customs duties were around 3–4%, which was a minor nuisance, but did not prohibit trade. Therefore, the second half of the nineties were attempts to do business outside of Poland — where it was not forbidden. These were the facts — you could not always trade where you wanted. These were the beginnings.
- Yes, I remember the first 30 years from my point of view. First, these food markets very heavily managed by international corporations. For a Pole, in those days everything that was foreign was great.
- Yes, we took advantage of this trend ourselves [laughs].
- In addition, it all worked on double-digit loans. Polish companies did not have brilliant external financing. Maspex, on the other hand, chose the business model of acquiring brands in terms of development, rather than expanding new brands, based on the means of production. Why did you choose this course of action?
- I think this is a kind of simplification. Certainly, acquisitions are an integral part of our development and play a large part in it. The first we carried out in 1995, when acquisitions were not as common as they are today. Nowadays, everyone wants to develop their business in this way, but at that time our operation was very innovative. Don’t forget that our portfolio includes a wreath of brands that we have created from scratch. I never, let me repeat that, never let go of this organic development path, where we were focused on the cost discipline of manufacturing, on the development of what we have, on the organic growth of the market. Why? Since this can be planned, these are the processes that the manager has an influence on. Better or worse, but we can deal with it every day, we can work on it. This is not the case with acquisitions. You can’t plan anything here. There is no business store where I come and point my finger at what I want to buy.
- What was the idea of selecting companies for acquisition?
- Our acquisitions team is small. There were always two or three people, including me. We looked at various aspects, e.g., suitability to our distribution network, market potential, market position, etc. However, the rest of the company worked developing brands that were in our portfolio, or those that we had taken over and built their position. It was important that the target matched to what we had on offer, which was our market advantage and what we know. It’s important to we can trade on this. And it was an essential aspect — adjusting to our distribution network. We decided that manufacturing itself is important, but the driving part of business is marketing and sales, including our distribution environment. Especially in Poland, where traditional trade still accounts for half of the sales in the food segment. This is actually a perfect feature of this market. We respect it and strongly support it.
- This is obviously very difficult because traditional trade is subject to slightly different rules than distribution in modern channels.
- Yes, but thanks to this difficulty and complexity, many Polish companies have survived. For foreign companies it was easy to get along with several chains and quickly gain a large numerical share, but in our country it was only half the market. The other half is the challenge of building organic development focused on traditional trade. I can say that the majority of Polish companies started with sales in traditional channels, not modern ones. Only later did they develop their presence in retail chains. I think that many Polish companies have benefited from it.
- What is unique in Polish distribution systems?
- We do business in many countries with different distribution systems. Poland stands out in a very positive way. This is not just one distribution model or a predominant model — retail chains Here we have a strong position in traditional trade. So, we can say that we breathe with two lungs. There is many small, brave shops, around which a strong group of local or regional distributors has been formed. It is unique. I have always appreciated it and thought it was a very valuable part of our economy. Sure, you can build a distribution system with single partners, but that doesn’t mean it will be safer and more stable.
- Sure, I understand. How do you think the customer has changed over the last three decades?
- The food industry is very conservative. It is difficult to make a revolution in our behavior and eating habits.
- But we have the whole category of “food 2 go” for example …
- Of course. But I view it as a certain evolutionary process. In our multi-category business, I have seen revolutions maybe twice, but it took time to change. What’s beautiful — I was a participant twice.
- What were these revolutions?
- The first category that was created before our eyes was carrot juices. A product that has been present in Polish homes since forever. My mom used to make this juice for me in a juicer [laughs]. But it didn’t taste good, it had a bit of a clay flavor. We managed to combine fruit, mostly tropical, with carrots. The resulting mixture — excellent in taste, which is important for babies and, due to the vitamin content — healthy, which was important for mothers. Consumers of all sizes love the Kubuś brand, the market has gone mad, and for a long time, it was a challenge to keep up with the production.
From 1995 to 1999, our pursuit of meeting demand continued, but we managed. And even today, it is still the case that when someone wants to produce carrot juices, the name they chooses ends in “..uś”, to enjoy a little of the warmth of our flame. [laughs]. This shows our great contribution to building this market. Now carrot juices are a big category — over 15% of the juice, nectar and beverage market.
The second such revolution that we have been observing since 2003 is the change of the role of pasta on the Polish table. It was then that we bought the Lubella company with the “Makarony Lubelskie” brand — that was their name. The Lubella brand is our peculiar achievement. It sometimes is said that we were buying forgotten brands. This is not entirely true because we built the position of Tymbark and Lubella from scratch. The Lubella brand neither meant pasta nor was it in the minds of customers, and today many believe that it is one of the oldest Polish brands. Tymbark had only a single digit market share and was a regional brand. Today it is the undisputed leader. But back to the revolution. In those days, pasta was only an addition to soup.
- Exactly, soups are a Polish specialty.
- Yes, but to see pasta as the main dish, you had to go to Southern Europe on vacation. Today, every restaurant menu has four, five or more pasta-based main dishes. And now there is the phenomenon of “ potatoes pushed off the plate by pasta”. This revolution is slower but absolutely embedded in our reality. Lubella also did a lot for this category, when it was still uninteresting, not advertised and poorly presented. It used to be just such a “soup batch”. Thanks to our work, our advertising budgets, all our marketing efforts, we’ve made pasta “sexy” today. Currently, after big purchases made by Poles in March and April, I think that this trend will strengthen even more. If someone bought a few kilos of pasta a few weeks ago, he will experiment in the kitchen. If their dish works out, and I’m calm about the result, they will love it [laughs]. Pasta dishes are tasty, convenient, quick and easy to prepare. There is no option that this will fail.
- Yes, it was a fascinating social experiment because at that time it was visible on the shelves which products are strategic for the Pole. Pasta, canned food, toilet paper….
- Flour, our sauces, jams …
- Yes, a real Armageddon …
- Please also note that while all categories of fresh products previously valued, there was a complete reorientation in the crisis. Fresh product? And here, in the present situation, a thought appears — who was touching it before me? If I can’t go to the store, I want to buy something that is durable, tasty and suitable for storage. A wonderful renaissance of processes, good products have appeared, which can create a kind of protective barrier for domestic reserves. We have witnessed this change.
- And in the case of financial results? You have recorded a big peak for sure.
- It is not that simple. We have different product categories. Now we talked about those that noted this peak, such as pasta, jams, sauces and flours. But on the other hand, a giant part of our business is the juice and beverage part. In this category, a significant amount of consumption is built on human mobility. It is about drinks in small packages that we buy on the way, have in a backpack, purse, take to school, etc.
- Yes, products bought at gas stations or for school children …
- That’s right. These products — at gas stations, in HoReCa, Vending, those available for purchase at schools or packed in children’s backpacks for lunch. We recorded painful drops in this category. Fortunately, our brand portfolio is diversified, and we balance each other. We do not qualify for any aid program and let it stay that way. We perceive this as a good, positive sign.
These are challenges that we can safely manage in the food sector — it is in the field of management. However, we see other industries that are heavily damaged by the pandemic, such as tourism, the aforementioned HoReCa, or Vending, and many others. Their managerial challenges vary, but I don’t remember anyone having such challenges and managing it. When the light goes out day by day and the law requires you to close your business — this is a huge problem. This crisis is also a bit unfair because it is not really anyones fault. In general, other crises were woven of greed and fear. The aforementioned industries were not responsible, they conducted normal activities, did not go crazy, did not take out any loans. There is no moral doubt here that has emerged with other crises. Then, there was greed, guilt, and dual morality in the financial industry. However, in the case of the current crisis, I believe that protective measures should be taken, and it is good that they are. We must maintain these sectors of the economy, these entrepreneurs cannot be left alone.
- Something lighter to end with. What have you been reading lately?
- You said that supposedly leading entrepreneurs read 50 books a year. It turns out I’m not a leading entrepreneur [laughs]. But I happen to read a few. I found a nice thing. “European leader of growth” by Marcin Piątkowski. An interesting item, I recommend it. It shows in what optimum welfare we are as a state. As everything that we have witnessed for 30 years has developed Poland into a specific golden age.
- We just have to use it well
- Yes, last week I read “What after Europe?” Ivan Krasteev.
- Yes, it’s a good book.
- Remarkable topic, right? The fact is that I haven’t asked myself some questions yet, and some I have already answered.This is an in-depth analysis of Europe, the crisis, it is neither pessimistic nor optimistic. Just real, I highly recommend it. Of course, there were some classics along the way: Yuval Noah Harari and his “Sapiens” or “21 lessons for the 21st century”. I still have to catch up when it comes to Olga Tokarczuk. The name is gigantic, and I have a lot to do here. [laughs]. But my wife instructed me to start with “Primeval and Other Times” and avoid “Books of Jacob” for now. Nowadays I listen to more in the car — “Leonardo da Vinci” by Walter Isaacson, a very nice book, “Theory of Everything” by Hawking, or “The Traps of Thinking” by Daniel Kahneman. And classics like, “The Art of War” by Sun Tzu.
- I recommend “The Art of War. The Art of Marketing” by Gary Gagliardi. He transformed The Art of War into classic marketing language.
- We were just talking about Sun Tzu. Then I will repeat Confucian one last time and tell you what doesn’t kill you, makes you stronger.
- Thank you very much for the interview.
Originally published at https://kotarbinski.com on January 18, 2021.