“We must go with our products to where the customer buys”

Germany’s biggest baker earned a 2.7% increase in revenues in 2017. Hans-Jochen Holthausen , Managing Partner of the family business, explains how and why.

Keil: Mr. Holthausen, a brief look back on 2017 – how did Harry-Brot fare?

+ Holthausen: We grew in all categories, and will close the year with revenues of EUR 978m. Personally, I was delighted with the growth of around 4% in brand business because it shows that brands also have potential.

+ Keil: Where were these potentials for Harry to be found in 2017?

+ Holthausen: They lay mainly in sliced sandwich bread and mixed bread. Baked products for baking-off also sold very well. Movement in the self-service area is achievable again and again with new product innovations.

+ Keil: Market growth, or joy for one and grief for another?

+ Holthausen: The total market is no longer growing, but our sales have risen from EUR 300m to 900m in the past ten years. That answers the question. However, one thing must be clearly understood, namely that the concentration in the past few years and decades was not a zero-sum game. Sales have disappeared. Let me illustrate that with an example. When Rugenberger Mühle declared insolvency in 1995, the turnover recorded there was DM 220m. One year later, when we totaled the revenues of all the other suppliers, we were only able to trace DM 160m of it, and the remainder was nowhere to be found.

+ Keil: What is the reason for these vanishing turnovers?

+ Holthausen: There are various causes. Not for nothing is it said that competition stimulates business. Moreover, there are niche products that only this company (Rugenberger) produced and which disappeared from the market with its insolvency. Rugenberger had some real cult products in its range, like their gugelhupf cakes or small toast slices for canapés at Christmas and New Year. These don’t exist in Germany any longer. One or other artisan baker will certainly have sold a couple more bread rolls as a result of the Rugenberger insolvency, but you won’t find the DM 60 million again there either. The same phenomenon re-emerged after the disappearance of Löwenbäcker and Müller-Brot.

+ Keil: Isn’t it possible that some exports also fell by the wayside at the same time? Didn’t the market also become very much more European, if not more global, in the same period?

+ Holthausen: That may certainly explain part of the vanished sales. Another possibility is the shift from shelf to prebake, i.e. baking stations, as well as to central warehousing business.

+ Keil: Going back to Harry-Brot and the year 2017. What did it look like at the baking stations?

+ Holthausen: Slight growth occurred there last year.

+ Keil: Does that mean baking stations have reached their limit?

+ Holthausen: I don’t think so, but growth is greatly dependent on two factors, product innovations and operator quality.

+ Keil: As a supplier, you have little influence over operator quality.

+ Holthausen: The retail has an interest in optimizing their fresh product range, and thereby to bring more frequentation into the markets. Baking stations still offer considerable potential in this respect. Aldi is currently providing clear impetus with its new concepts.

+ Keil: Innovations enliven business – but do they achieve that on a permanent basis, or do they just create small “additional turnovers” again and again?

+ Holthausen: Take high-protein bread. Many people thought it was a passing fad that would die spontaneously. Five years ago, we really entertained this topic only at the request of customers. Today it is one of our permanent success items, we supply double digit millions of packs of it every year, and it is enjoying sustained growth.

+ Keil: What does the situation look like with other trendy fashions like ancient cereal varieties, chia seed etc.?

+ Holthausen: Consumers are open-minded about such things. Chia seed has been talked about for around four years, is enjoying growing popularity, and significant amounts of it are used and sold, either in sandwich bread or in mixed bread. Customers feel good when they buy bread with chia seed. Spelt is another trend product in sliced bread, and anything that sells off the shelf also sells in the prebake area. With topics like emmer wheat or einkorn etc., we naturally hit the limits of communication and distribution sooner or later.

+ Keil: And sooner or later the batch sizes baked with them will probably also become too small and therefore inefficient for industrial processors.

+ Holthausen: In the frozen range, goods go into a deep-freeze warehouse and the required amounts are distributed from there. Large batches are needed in the freshly-baked area to guarantee quality. If I want to market smaller batches, I need deep-freeze in the middle. Our business in Harry is quality and freshness in big batches, and as a result cost leadership as well. Business with small batches is the reserve of the corner baker who nowadays, like a restaurant chef, creates enthusiasm by what he writes on the menu. He is unbeatable and will remain so, because he knows his clientele personally and bakes what they want.

+ Keil: Is the sales ratio of off-the-shelf goods relative to baking station stable, or is there still a trend from the shelf to the baking station?

+ Holthausen: As I said already, at Harry we had growth in both areas in the past year. The baking station-shelf relation is stable for us at present, but pre-bake as a proportion of the total market is growing. Overall, however, consumption is not rising.

+ Keil: Efforts are currently ongoing at a European level to reduce the salt content of bread. There is an initiative by various retail groups in Austria to reduce the sugar content in own-brand products. Others don’t want any glyphosate in cereals etc. Do you feel patronized by such campaigns?

+ Holthausen: Healthy nutrition should be taken seriously, but it should be enjoyable and should also taste good, otherwise people will move away to other products and the aim will be missed. Self-commitment on the part of the retail is currently beginning in Austria, and everyone has the right to operate his businesses as he sees fit. I don’t feel constrained. We follow our customers’ wishes in the private brand business. We have a free hand in the brand name business, and we do work proactively in these matters instead of waiting until a customer asks. It’s no accident that Harry enjoys the trust and confidence of customers and end consumers.

+ Keil: The retail everywhere is currently involved in expanding its business from the shelf via the baking station and into catering. Do you sense that as a supplier?

+ Holthausen: That’s actually an old topic, but it is gaining momentum. I consider the growth potentials in the catering direction to be very high. Whether any independent retailer will earn money from it still remains to be seen, because a good product range is very service-intensive and highly raw materials intensive, and end consumers remain very price-conscious. But there are exciting design concepts with fresh dishes and fresh baked products. It’s an ongoing trend and offers high growth potential. We must ensure we are there with our frozen products.

+ Keil: More out-of-house consumption means less eating at home – what will suffer as a result of that, prebake or the shelf?

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+ Holthausen: Prebake stations are more likely to profit due to the snack elements, while the self-service area will tend to fall. At the same time, however, it must be remembered that modern products such as baguettes or slices of bread topped like a pizza and sold as self-service products are also a part of bread consumption. These markets show that with good concepts, it is entirely possible to counteract the potential attrition. However, we must be there with our products wherever the customer buys, and that can also be the delivery service or a business that carries out further refinement.

+ Keil: The retail is fighting over the out-of-house market –does that threaten concepts like Back-Factory? What more has Back-Factory to offer as a USP (Unique Selling Proposition) if there is a retailer with a snack stand alongside?

Kräftiges Roggenmischbrot nach „bayrischer Art“ mit Kümmel gebacken. Würzig-aromatische Krume mit deftig-herzhafter Kruste. und Frischhaltung.

+ Holthausen: In the first place, Back-Factory also operates proactively, and as far as the USP is concerned it offers a broad product range, operator quality, quick purchasing, atmosphere and last but not least location, location, location. We take the format wherever there is a large customer footfall. But when a retailer who also offers good snacks opens across the road, we naturally feel it. Anyone who does their shopping there will possibly also buy a snack there.

Sehr kräftig ausgebackenes Brot mit langer Teigführung. Dadurch sehr aromatisch-würzig im Geschmack mit rustikaler Porung in der Krume.

+ Keil: How many Back-Factory locations are there today?

+ Holthausen: We have reached the “round” hundred. We open bigger formats and systematically close smaller ones to keep the outlet quality high. Back-Factory records growth in every respect.

+ Keil: Is there any thought of upgrading Back-Factories into convenience shops?

+ Holthausen: We certainly do already have convenience elements in them. But we don’t want to earn our money by selling chewing gum. On the other hand, I can entirely imagine elements like sliced fruit in our outlets. The question is when or with which product offer will we reach our credibility limits. On the other hand, ten or twenty years ago no-one would have believed that some day Aldi would offer apartments.

+ Keil: Mr. Holthausen, thank you for the interview. +++

The Harry industrial bakery signed a contract with Frank Kleiner (46) as Managing Director for Sales and Marketing, effective as of April 1. Hans-Jochen Holthausen is delighted with the succession plan for the business area for which he was responsible for more than 25 years, and says “Harry has always brought in the best to have the greatest success.” According to the company, graduate business economist Frank Kleiner enjoys a very good reputation in the baked products market and in food retail. He was Lieken AG’s board member responsible for food retail sales until 2013. After that, as Overall Managing Director for Europe and Asia/Pacific, he trimmed the international baked goods group Aryzta AG for growth. The decision to appoint Kleiner was taken with farsightedness: Holthausen agrees with Harry’s managing directors and shareholders that “Frank Kleiner represents continuity in the fresh produce service, potentials in the frozen food market and the company’s further international development.” Hans-Jochen Holthausen (62) will continue to back the company unreservedly as a Managing Partner. +++