Recently PKGT Audyt completed an assignment for one of Poland’s oldest family owned businesses of more than 100 years standing. The company was until recently fully family owned but due to succession planning issues and problems with adapting to a more competitive business environment, and in particular the move of foot traffic away from traditional high street to shopping centres, the company was facing bankruptcy. A financial investor was found at the 11th hour and a professional turn around team appointed. At the time of investment the company had a production plant far too large for its needs and insufficient depth of distribution through own and franchise stores to cover fixed costs occasioned by over enthusiastic investment expenditure some eight years previously.
The sector in Poland is highly fragmented with a reported more than 30 thousand café and cake shop locations. Most of these are not part of any chain and hence cannot benefit from economies of scale and in particular centralised marketing and new product development. As part of the investment plan the financial investor, based on the experience of the Patisserie Valerie chain in the UK, planned to take the existing 25 locations to more than 120 within a period of three years with a view to IPO at the end of the rollout.
The company had a traditional client base which was ageing rapidly. The company had never had to actively market the brand having relied through the communist period on scarcity of reasonable quality outlets and subsequently did not to actively market the brand having relying instead on client loyalty “stickiness”. However the signs were there for the family to see, turnover having fallen in real terms by more than one third over a period of 15 years and the company burning cash at an alarming rate.
The first task of the appointed turn around team headed by PKGT was bringing financial accounting in house and implementing proper management accounting systems (management accounts produced by an outside accounting bureau had shown wildly different gross profit margins month by month) and to conduct an audit of the brand itself and areas for potential growth.
The accounting project was in many respects “text book” but problems were encountered in being able to ascertain the true cost of production of individual product lines not least as recipes and formulations were out of date and the company had a far too large product range with more than 200 products produced on a regular basis. The bench mark adopted was the recently floated Patisserie Valerie chain in the UK which has a product range of no more than 35 product lines and had grown exponentially prior to IPO.
However the sales and marketing part of the assignment was far more complex not least as an early day brand recognition survey found that although the brand itself was well known it was known only for one product, which product being a staple hardly fitted the family’s conviction that they had inherited a luxury brand. More importantly the brand recognition did not translate to sales with few respondents being able to name where their nearest store was located. And worryingly the younger the respondent the lower the spontaneous and aided brand recognition.
It very soon became clear that the main problem was the fact that the family had failed to understand that the world had moved on and it was no longer sufficient just to be in the marketplace, clients needed reasons to buy. In view of the dramatic financial situation of the company and limited funds made available by the financial investor until the business model was proved the assignment soon became a battle with time.
Within six weeks a very long list of identified marketing problems was compiled highlighting amongst others:
- Failure to define the brand and to make it relevant to younger consumers
- Retail points – tired, not stylish, inconsistent, often in wrong locations
- Lack of external visualisation apart from logo
- Brand visualisation stuck in 1960’s and 70’s “socialist chic”
- Retail staff not pro active, no cross selling and very low conversion rate. At some stage staff had been told not to smile as this showed disrespect for the client!
- PR and marketing strategy ad hoc and mainly designed to serve particular personal aims and aspirations of family. General reluctance of family to promote business per se, concentrating on family values
- Family belief that brand was in the luxury category whilst in reality both products and shopping experience hardly reached premium levels
- Lack of marketing support at POS
- Website did not fulfill its role (brand positioning, internet shopping, product range, message to franchisees, description of products stressing quality ingredients, how to find stores, easy access to sales staff)
- Ineffective e-shop
- No presence in Social Media
- Ineffective marketing cost – expensive sponsoring of events leading to no incremental sales just a feel good factor for family
- Very high cost of reaching consumers targeted at very narrow constituency
- Existing customers drifting to competition
- Marketing message did not take into account changes in consumer behavior
- Failure to communicate fact that products are hand made using (in the main) traditional natural ingredients
- Lack of price pointing of products leading to very high respondent view that brand is expensive (as much perception as reality)
- Lack of effective message to shopping center managers of brand as a “must have” anchor tenant in the cake and cafe sector
- Complete lack of support to existing and potential franchisees.
Working with existing staff, a new management team and outside specialists PKGT developed a six month work plan with the following short term goals:
- Develop and implement brand identity and store visualization
- Increase and unify the marketing and PR functions with particular emphasis on web based communications
- Providing active promotion by POS differentiated by store location and locally identified consumer preferences
- More click through on company website
- Stimulate shopping on e-shop
- Restart communication standard, providing brand online, SM and in new media
- Rationalize marketing expenses and implementation of campaign metrics
- Develop a unified offer to franchisees
- Communicate core values of traditional recipes based on natural products with new range of more health conscious products (replacement of buttercream fillings with lighter cream but retaining traditional flavor)
- Build brand awareness among shopping centre owners and operators
- Development of brand core values to allow for licensing of brand to complimentary product manufacturers
- Building of in store presence in retail multiples (both local ‘c’ stores and supermarkets.
Working closely with the client’s staff PKGT has achieved:
- Brand identity and visualization developed in association with leading architectural firm relating back to inter war years rather than 60’s and 70’s and rolled out in new stores and revamped existing stores, new website and new e-shop
- Product range rationalised, price targeted and differentiated between everyday products and special occasion
- Repositioning brand as having relevance to all age groups building on celebration (building loyalty)
- Reducing the cost of reaching existing and potential customers through store front and social media marketing campaigns
- Bringing POS design in house reducing lead time from a previous 4 weeks to two days from inception to print run
- On the job training of store staff in customer care and product knowledge
- Implementation of staff bonuses based on realistic targets
- Increase of over 20% in number of sales per outlet and increase of average spend
- Increasing production plant utilization from a low of 30% to a current 50% utilization
- And last but not least a working budgeting, financial and management reporting system supporting the company’s aims and ambitions.
PKGT was able to support the company both in repositioning the brand and in building in house capabilities to drive further change. Although the company is still far from achieving its target of at least 120 stores nationwide it is now well placed to take advantage of opportunities to open new stores as these arise. The company hopes to launch its franchise program shortly.