Interview by Yulia Dolzhenkova
Challenges and lessons of the corona crisis, price competition, expansion to other countries, as well as will, courage, passion, and more – Torsten Toeller’s, the CEO of Fressnapf Group, in his open interview to Zooinform.
– Torsten, we planned our interview before corona. That didn’t happen. Now the things to talk about are totally different. But first of all – all the same – congratulations!
30th anniversary is a great highlight for Fressnapf. You’ve built Europe’s #1 and the worlds 3rd largest pet retail company, what are your comments on the journey so far?
– It has been a really crazy journey (laughs). No one really believed in me back in the days round 1990 – except my family. And especially not my former boss at “Markant”, for whom I scouted business concepts in the U.S. What really triggered me were the PetSmart stores and I was pretty convinced, that this business could work out in Germany as well.
My former boss didn´t believe in that, so I quit and started the business by myself with the help of a small credit from my parents.
Well, as you know – things seemed to get to reality at first sight – I was nearly bankrupt after 6 months because of the wrong stock, wrong prices, missing marketing and so on.
So I sold my car, doubled the assortment, cut prices and invested in at least a bit of marketing. A harsh ride but it paid off.
One year later, we managed to open the second store with giving out franchise contracts and from that point on, it went straight ahead. Some years later we opened up more than 100 new stores which is nowadays way more moderate as we count more than 1,650 stores in eleven countries, have roughly 200 franchise partners in Germany, more than 13,000 employees and create an annual turnover of more than 2 bln Euros.
So I am very proud, very grateful and happy to have proven all critics wrong. And what is especially pretty cool: the former PetSmart CEO Bob Moran is today a part of my advisory board. So the Fressnapf story is ready to be written further.
– Can’t but ask you, what is the impact of corona times on Fressnapf? Did you have to close stores? Now when some countries are slowly getting out of the lockdown, can you estimate the effects?
– We have had countries that had been very much affected – such as Italy and France. It started there and came to all other countries. And for sure corona had a big impact on all the countries we are working in and on all our employees. In the whole there were about 25 infected people, and we are grateful, that we haven´t had any personnel losses during the crisis. Health always goes ahead of profitability.
We pretty quickly established a Covid19 taskforce in the end of February here in Krefeld, which is still in full effect. They are monitoring all news channels and developments few times a day and at weekends.
The first emergency was to stay in touch and in close communication to all the governments. I was working literally day and night and I was really involved myself. Because we had to be in contact with e.g. Sebastian Kurz in Austria, Victor Orban in Hungary but also to the more local authorities, like in Germany only, we have 16 federal state governments.
We and especially I myself had to convince them, that we should be classified as “system relevant” retailers. They assumed it would be enough to get pet food via food retailers. But we convinced them that there are a lot more demands when it comes to allergies, diet-demands and so on. So finally we were classified “system relevant” all over Europe. Fressnapf|Maxizoo had to close few stores temporarily due to disinfection or when they were located in malls that had to be closed – e.g. in Poland.
The other issue we had was a supply chain. There were a lot of stock-piling. These huge volumes meant we had to deliver. In March the supply chain was working all around the clock. Usually we have two shifts, we had to add the third shift in the night and we needed all our suppliers to deliver much larger volumes. But we reacted quickly in building up stock at a very early time.
At the same time we had problems with China, because of Chinese New Year and the shut down – in the end all goods from there came with a delay and with even higher demand. There were some out of stock.
I have to say that in the end all our employees along the supply chain and logistics, in the stores and everywhere have done a tremendous job! I am very proud and grateful for their commitment and performance and how they buried their very own fears and sorrows to keep our business running. Surely this is not to be taken for granted. I can´t say “thank you” often enough and we can all be happy and grateful that we are coming out of that crisis with a way lower impact than other retailers or companies.
– How did sales perform? In terms of different countries – where was the situation the worst and not so bad?
– We have seen kind of a rollercoaster ride. We had some “panic buys” when the corona virus started to hit Europe in full effect. In mid-March we had more than 60-70%+, in some countries we doubled the turnover in two weeks. March, in terms of turnover, was a little bit like December, like X-mas. In April we suffered turnover wise – it went down after stock-piling. But sales were still on a good level. We had a minus, but not a big one. Slightly under the plan. But accumulated in the end of April and accumulated end of May we will have much better sales than the previous year and much better than planned. The situation has especially been difficult in Italy and France and Austria. We have seen lower impact in Denmark or Ireland.
Nowadays we are seeing, that accessories and other non-food have a very high demand and sales are developing in a more normal and season-like way. The real highlight at the moment are toys and treats – people are more home, more with pets, so they are lucky. Live animals are in trend, all the shelves are empty, people adopt more pets, they buy more pets. Other retailers like Pets at Home benefit from it too.
– What is your forecast and, most important, Fressnapf’s plan for the year 2020? Have you changed your strategy or tactics? What have FN already done and what still needs to be done to compensate the effect of corona?
– We assume that we won´t necessarily reach our sales-goals due to corona. On the other hand we reduced a lot of costs due to a cut in marketing-budgets. Also we had lower travel expenses and other costs. So all over all we will stay profitable on the bottom line which would be an enormous effort. But we stay humble, as we know Corona could have hit us way harder than it did – so far!
What we learned of corona (and that will affect our tactics) – there is a shift to on-line. Although we had good like-for-like in stationary.
Fressnapf’s core business has always been having more market share and to be as profitable as we could. In the long term we’ll see if it was right or wrong strategy, but so far we were quite slow in developing our online business. That’s why we decided to invest in our digitalization to roll out on that. The money we saved on marketing gave us an opportunity to change the warehouse and the automatization in the warehouse, and our software. We’ll spend more money to speed up our digitalization and hire more people with the right competences.
We invest more money on omnichannel activities as well, like we tested a new employee mobile assistance device MIA, it helps customers to order online if something is missing in the store. We are going to use it for driving cross-channel sales.
Fressnapf is also actively developing the ‘ship from store’ and other services – pet insurance, tracking pets, digital vet, the dog walker. We invest more money to create the ecosystem.
The other thing, and very important one, we are going to change because of the effect of corona crisis – we’re going to move more from mass marketing to online marketing. People are more at home and more in the internet, so we spend more money of our marketing budget to online marketing. But we’re back with all offline activities as well.
– One of the effects of the pandemic is that online sales rocketed in the past two months. Did Fressnapf’s faced the same trend?
– Fressnapf’s on-line growth is higher than expected and planned. However, we didn’t feel the significant shift from off-line to online in our turnover. Like-for-like sales are the same. Basically, what we lost in stationary sales, we gained online. And we could have done much more, but our warehouse service provider wasn’t able to perform as needed. Pure on-line players benefited from the lock-out, like Zooplus benefited from it and announced that they are expecting more turnover for the year.
– What is your current on-line share of sales? Is Fressnapf’s online-business profitable? How do you see the future over the next three years?
– We are nowadays counting 1,650 stores and six Online shops (DE, LUX, DK, AT, CH, PL) and thus are more and more a true Cross Channel Retailer. Let´s have a closer look on our financial figures from 2019:
A total turnover of 2.3 billion euros means a plus of 9.7 percent, like-for-like growth has even more than doubled to 6.1 percent compared to the previous year. The sales development in the ten international markets also reflects this trend: sales of 900 million Euros represent a plus of 13.4%.
In Germany Fressnapf had sales of 1.4 billion Euro and can show a profit of 7.5%. In on-line business as well the Fressnapf Group with 110 million Euro conversion and thus a plus of over 21% could increase clearly.
Shares always depend on the country. In Germany the share of on-line is more or less 7–8%. But the target is to reach 20–25% over the next year or so and we expect just right now to expand in many countries as well.
So, as we are talking about the future there will be a “hand-in-hand” between all customer relevant channels and not a differentiation in on-line or stationary. We want to connect every channel into our ecosystem but definitely ‘yes’, we want to be profitable over all – on-line as well, he smiles.
– Many cross-channel retailers have an issue with pricing vs pure on-line players. What’s Fressnapf’s philosophy and how do you execute that? Are there any adjustments in the ‘new reality’?
– The program of having more aggressive prices in on-line and retain margin from brick-and-mortar sales is a general problem we face in the last 6–8 years. And our strategy was clear. At that time the online share was small, and we’d started to build-up a high exclusive brands share. Their share of 50–60% allows us to reduce the perception of price comparisons. Our high exclusive brands share is a protection against margin losses vs the on-line share. It takes years to build up great exclusive brands and while you’re increasing their share, it allows you to reduce step by step the prices of the branded products to the benchmark level of Amazon, Zooplus, and other pure players.
Fortunately, online players who look for market share not for profitability raise their prices while stationary retailers must decrease their prices, and then somewhere they meet. That’s great!
– Your exclusive brands are one of your outstanding performance factors. Why are they so successful? During the lockdown, do you see any change in shares of exclusive brands? And if so, why?
– For the first time the brands exclusively available with Fressnapf I Maxi Zoo sold more than a billion euro in the past year. 1.04 billion euro correspond to a plus of approximately 11%. Meanwhile five of the 16 exclusive brands (AniOne, MultiFit, PREMIERE, SELECT GOLD and REAL Nature) sold more than 100 million euro annual turnover. The sales share is over 50%. We will keep our strategy on-going as we believe in quality and value of our exclusive brands – and so do the customers.
Germany, Austria and Hungary have the highest exclusive brands share. But even there we saw a decrease 2–3% in their share, however the sales got higher. The reason for share decrease is not the price or demand shift. Due to corona crisis, we got a lot of new customers from grocery, because at the stock piling and panic buy phase, grocery was empty of pet food. We managed our supply chain much better than grocery did and converted their customers to us.
The second reason is – the biggest trigger for exclusive brands sales is advice, and with a phase of panic buys, insecurity of employees, with the phase of distancing and wearing masks, advice is not the same. It has been more challenging to “convert” customers from well-known brands to ours. And right now, we need to focus on getting their share back up again.
There is no shift so far from super premium to premium in Western Europe. Long term, what the downside of corona could be in our business – there will be less purchase power in the countries where we are. But that will impact big purchases – people won’t go on holidays, they will not buy a new house, a new car, a new TV, so they will spend more money on their pets, unless corona hits us so hard like for example Russia. There were two countries, France and Italy, where we had the biggest hit – after stock piling weeks we had 5-6-7 weeks in a row of negative sales. But it all came back. In recent weeks we had higher week-on-week sales than the year before and higher than planned.
– I believe, Fressnapf will overcome all the problems caused by coronavirus and will keep its leading position. What’s the secret of your success as a company and a person, apart from hard work?
– I never worked for being #1 in Europe or for getting rich. That’s nothing I had in mind when I had started. I always worked for success, for fun, for having fun with people by having great success.
I’ve always been passionate about what I was doing and I’m proud of the company, I’m proud of the people, I’m proud of myself to develop the company to that stage. And I’m looking more forward to prove that we are able to reinvent it for the next ten years of success.
One of the most important things for me is to grow people. Starting with franchising we made so many people rich and wealthy and gave them a good life, and that’s a big success factor for me and a great motivation.
I truly believe in our vision “Happier Pets. Happier People”, our mission and our corporate strategy.
But above that I truly believe in – and keep stressing our common values. Our values build our culture and is the main driver between a good company and a purpose-giving, great place to work. We are “open and honest”, we are “willing to adapt and act internationally”, “we are courageous and act in different ways from others”, we are “passionate and hungry for success”. These seem to be “just” values but if you are not just saying but living those values, you create a great spirit, an excellent culture and an atmosphere where employees unfold their full effectiveness, creativity and energy. And that is what I want to keep up – during crisis but also every day.
As a remark for retailers – right now I would start in a different way. I don’t believe in pure play. I believe in the combination of both – in omnichannel. But even that is not enough because of more competition on price. I believe you need what we call the ecosystem, with much better know-how in IT, data driven – this will play a much bigger role in the nearest future.
– Remember your presentation almost 20 years ago in St. Petersburg in 2001 for a Russian audience? You shared that initially you had invested 50,000 Deutsche Marks in your Fressnapf business, and your dream was to have 100 stores. You’ve gone far beyond that. What is your dream now for the next 20 years?
– That was not a target, just a milestone. My personal dream, my passion and my ambition now is, as I sketched the history with you at the beginning, – I want to prove that we’re able to reinvent Fressnapf to a new digital world, to build our ecosystem.
We are now strongly working on building the place where pet lovers and their pets get in touch with us as a company and a brand. But also coming together with each other. We want to connect them in a unique way, in all customer relevant channels.
We have always adapted our company to the current competitive conditions, have a clear, expanded vision, build up our ecosystem piece by piece, establish and expand our product range, products, services, consulting, information. We want to become the fulfiller of needs or even problem solver for everything to do with pets. The basis for this is our service promise to the customer and operational excellence along all customer channels. The same applies to topics such as Emotional Customer Loyalty, Big Data, CRM, Cross Channel and our innovative strength, so that we can not only get to know our customers and their pets better and better, but also address them in a made to measure manner and thus inspire them.
To this end, we have continued to develop our CHALLENGE 2020 and transformed it into functional strategies that align our way of working and thinking with the company’s goals. We made the Fressnapf Challenge the CHALLENGE 2025, grow stationary as we grow on-line, dock new countries to our on-line shop and grow over plan. We have built an extremely solid basis for our business and our work in the coming years together.
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