July 9, 2015

Paolo Barilla talks pasta, sauce and crisp bread

Paolo Barilla, Vice-Chairman Barilla Group
Paolo Barilla: "You can't buy international experience at the supermarket"
Barilla Group is living proof that more than ham comes from the delightful northern Italian town of Parma, which has been home to the Italian pasta maker since 1877.

Vice-Chairman Paolo Barilla (51) is one of the three siblings who have majority control (85 per cent) of this privately-owned company. His older brother Guido is Chairman; his other brother Luca is a fellow Vice-Chairman.  

Having interviewed Guido Barilla almost six years ago to the day, it would seem that Lebensmittel Zeitung is gradually getting to know the whole family.

Admittedly, talks could have been more frequent as the brotherly trio has quite an entrepreneurial tale to tell. Like the three musketeers, they have had their fair share of bumps and bruises since deciding to go international in 1993.

Shakespeare once wrote: "Experience is a precious jewel and it hath needs be so, for it is often purchased at an infinite rate." For the Barillas this infinite rate was the purchase of German baker Kamps at the inflated price of €1.8bn in 2002. So how come they still like Germany?

Years of loss and heartache later, the spook was eventually exorcised by selling the company on, but here we should leave Paolo Barilla to tell his own tale.

Pasta for the world

Before we do, a few basic facts about the company for the general reader fresh off the corporate boilerplate. In 2014 Barilla Group made more than half of its sales outside Italy. Its 30 factories at home and abroad helped it to achieve an operating profit of €293m.

The family company states that it leads the market for pasta and pasta sauces in Europe, for baked goods in Italy, and for crisp bread in Scandinavia.

Products are sold in a total 100 countries under the following brand names: Barilla, Mulino Bianco, Harrys (France and Russia), Pavesi, Wasa, Filiz (Turkey), Yemina und Vesta (Mexico), Misko (Greece), Voiello, Academia Barilla.

France and Germany are Barilla's largest foreign markets in Europe. Here in Germany, where its Barilla and Wasa brands post annual revenues of around €200m, the company puts its market share at 15 per cent for pasta, 29 per cent for pasta sauces and 50 per cent for crisp bread.

 

"We want to be a smart company"


Signor Barilla, your company has invited the media today to the opening of your new shop & museum in Celle, near Hanover. The official corporate history on your press sheet makes no mention of the purchase of Kamps in 2002. What was the main lesson you learned from having to sell the company years later?

Firstly, I am proud of our corporate culture, which is not afraid to make, rectify and learn from mistakes.

If you look at our history, you can see that we are now 138 years old, but for the first century we were a purely Italian company. Even in the early 1990's, about 93 per cent of our annual sales were still national. So, apart from a few offices in neighbouring countries, we had virtually no experience of international operations.

Around 1993/1994, my brothers and I decided to become more international and we started to look abroad for suitable investments. After some smaller acquisitions in Greece and Turkey, we bought Wasa in 1999. In the US, where we now have two plants, we preferred to build our own operation.

So it was a very intense period of expansion where we tried a variety of different approaches and had to start from scratch. Lacking international experience, everything was new for us, and we had to learn how to establish foreign relationships.

Inevitably there is a ticket you pay for experience, and it is not something that you can buy at the supermarket. Obviously, there are many people who offer their services as corporate advisers, but in reality every organisation has to learn for itself.

What, then, did you learn specifically in relation to Kamps?

We were generally successful in those countries where we tried to replicate things that had been successful in Italy, i.e., pasta and sauce or baked products. An example of this would be Wasa. 

Our main mistake with Kamps was to enter the fresh products arena, which is a completely different business and where we had no historical expertise. This misjudgement was compounded by the choice of a financial partner with a completely different agenda. 

But it is easy to put the blame on others. At the end of the day, we were the buyers, and it was our mistake. We learned from this experience that, although there are many advantages in being a family company, we needed to strengthen our board with expertise from outside.

So we now have some outstanding people who have the strength to challenge our decisions as owners, where necessary, which only improves the quality of our overall decision-making.

In retrospect, the whole affair was a blessing in disguise because an outsider inevitably looks at a company from a completely different perspective. This has become even more necessary as we have begun to tackle such rewarding, but difficult markets as Russia and Brazil. 

Paolo Barilla, Vice-Chairman Barilla Group
Paolo Barilla: "We intend to stay in Greece and Russia"
One of your first foreign investments was in Greece, a country now in crisis. Will you stay there despite the turmoil?

Obviously our hearts go out to the Greek people in their current difficulties. We are very lucky in that we don't have to constantly report on our local financial situation, as we are not a public company. We can therefore be very long-term in our strategic thinking. 

Remember also that as pasta makers we have to put a lot of money up front when we invest in plant and that returns are very long-term. This is not a business or category where you can skip in and out at whim. 

Seen from a global perspective, the current turbulence in Greece is not dissimilar to the many ups and downs we have experienced and doubtless will experience in Russia and Brazil. Therefore, the essential thing in all these markets is to be absolutely sure that you have the right products in the right categories. 

So you intend to stay in Greece?

Clearly, when one can see there is going to be great difficulties on the market medium-term, caution dictates that you significantly reduce investment in new launces and innovation, but we will stay there for ever!

At the end of the day, it also has something to do with the entrepreneurial responsibility we feel as a family company. You can't just say: "Well I'm from Parma, and I don’t care about the people who work for us in Greece." 

Have the current geo-political tensions between Russia and the Ukraine affected your supplies of raw materials, and are EU sanctions on exports to Russia hurting your business?

The border conflict has not limited supplies of raw materials in any noticeable way. We have two production plants in Russia, so we manufacture within the country and are not experiencing any significant disadvantages.

Russia is obviously a huge market with lots of potential. Local consumers are becoming increasingly sophisticated and open to international products such as pasta. They are also becoming more interested in nutrition. As the quality of local competitors has often fluctuated, they appreciate the consistent quality of our authentic Italian brand. So we will succeed there.

To what extent have Nestlé's problems with allegedly contaminated noodles in India affected your business in South-East Asia?

We only export to India and do not manufacture there. But food safety is obviously an extremely delicate issue for the whole industry because it is of critical importance for consumer trust.

Paolo Barilla, Vice-Chairman Barilla Group
Paolo Barilla talking to Stefan Schroth, Plant Senior Manager & Procurist at Barilla Germany, at the new shop and museum in Celle
You have recently introduced gluten-free and other product specialties. How much impetus could they give to your business?

There is a small group of people for whom this is a real issue. However, it tastes good and is enjoyable for everybody, so that the whole family can share the same food. This obviously broadens its appeal and increases sales. 

However, we were surprised to find in the US that even people who don't need gluten-free products buy it because they believe it is healthier. All this only goes to show how much our industry still needs to do towards improving the level of consumer knowledge in nutrition. 

You aim to double 2014 annual revenues by 2020. What part will acquisitions, organic growth, and new products play in achieving this ambitious goal?

They will all play a part, but let me concentrate here for the purposes of time on acquisitions. Obviously because of past experience we want to be careful that what we buy has coherence within established corporate strategy, so we are more likely to make local fill-ins than a really big move.

But I hope that we shall have some good news on this front by the end of the year or in the first six months of 2016.

We are constantly adapting ourselves to our markets or to new trends – gluten-free pasta, Pesto Rustico and Wasa Delicate Rounds are the latest example of the new products launched in 2015 on the German market.

Our plan is to double the business around 2020, and for that Barilla will continue to push its internationalization ahead. In Brazil, the current growth rate is 50 per cent, in Russia even 93 per cent. Asia is more difficult but we have the chance to be a family owned company. We have time to find the best strategy in this region.

Moreover, Barilla wants to take the international strategy in Europe one step further. Europe turnover grew plus 5 per cent in 2014, confirming its capacity to further grow.

Germany played a key role with a growth of plus 7 per cent in 2014. Germany is a unique case in the group, with a constant growth last ten years that enabled to double its revenue. Our aim is to grow 25 per cent from 2015 to 2020.

But shouldn't you be thinking big, given, for instance, the recent mega-merger of Heinz and Kraft? Put another way: Are you a hunter or prey?

Neither of these; we want to be a smart company. We have learned not to diversify out of the fields where we have core competency. We have also learned to ask whether a potential acquisition will fit our operational model; whether it will provide synergies with existing operations; and whether it has know-how that we can learn from and improve upon. 

You have been tapping local and international bond markets fairly heavily over the last few years. Is this just normal refinancing, or can one also see this in terms of acquisition strategy?

Partly; it helps to establish good relations with the banks because one needs investment partners in the food sector and we can be therefore be ready to make a possible acquisition. However, nothing would be possible without a robust cash flow from on-going operations and a strong reputation as a reliable company. 

How open would you be to a bid from a larger company?

Obviously, like any other family company, this will depend on each new generation. Currently, the answer would be "no" because my brothers and I do not want to sell, and we are still only in our 50's. However, we don't want to decide for the next generation, it's up to them.

Our role is to bequeath a company with energy and ideas that makes healthy, tasty, and environmentally sustainable products. We also want that inheritance to include an excellent reputation as a good corporate citizen. 

Paolo Barilla, Vice-Chairman Barilla Group
Paolo Barilla (right) praises the doubling of sales in Germany during the ten-year watch of local CEO Claus Butterwegge (left)
Germany is, alongside France, your most important foreign market in Europe for pasta and sauces, where you have only now been listed by major retailer Kaufland. Would you call this a breakthrough with local retailing, similar in significance to your listing with Tesco in 2013?

Obviously we are delighted at the listing, and it is true that we struggled to understand the system for a few years after we entered Germany in the early 1990's, but I think there are other reasons for our increasing acceptance. Over the last ten years, our German CEO Claus Butterwegge has deepened relations with local retailers.

They have come to understand that our brands bring many high-level shoppers into their stores who increase overall spend. This success is reflected in our results: We have doubled sales in Germany, and over the last four years we have had nearly double-digit annual growth. 

But can you ever really have satisfactory pricing power as a brand in Germany, where discounters have exceptionally high market shares and own label is on the rise?

Obviously in Germany it is particularly important to get the balance right between discount and the rest of the trade as regards pricing and promotions. However all markets should offer good products for everybody at different price positions. 

When it comes to the pricing power of top brands, however, clearly much will depend on the category and the origin of the countries in that category, but all the rest is competition, which hopefully then is fair… 

So how do you intend to win that competition?
By positioning ourselves as category leader and sharing the values of pasta, the Italian cuisine and a Mediterranean diet. Pasta for us is not just a dish of spaghetti; it is a food with beneficial properties and a cultural history that inspires great creativity in gastronomy.

We believe that everybody should see the deeper meaning and beauty of food at a price that people can afford. 

Obviously we thrive on our authentic Italian identity and must never lose emotion as otherwise we would become a mere producer of commodities. We also want people to understand the origin of our products and our demanding quality control systems.

Last but not least, we want consumers to know that we are an ethical company: We nurture good relationships with farmers and try to understand their needs; we build factories and run our production facilities in a sustainable and environmentally responsible way; and we make solid commitments to the local communities where we make our goods; otherwise I wouldn't be here today.

Talking of emotions, why do you no longer use Steffi Graf as a testimonial?

Steffi was invaluable as our testimonial because she really helped us to get closer to the German people.

However, we have since internationalised our marketing approach, which used to concentrate on local stars such as Gérard Depardieu in France. Our advertising spots now show an Italian-type family enjoying the product and savouring moments of pleasure over the meal table; but Steffi is still a friend!


Related article in German: Interview by Mike Dawson in
Lebensmittel Zeitung, no. 28, 10.07.2015


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