October 19, 2011

Spar Austria's Markus Kaser talks Interspar

Markus Kaser, MD Interspar (photo: Spar Österreich)
Markus Kaser: "We are not a big foreign group coming to Austria from who knows where" (photo: Spar Österreich)
If Asterix was a retailer and came from Austria rather than Gaul, he would be called Spar Austria (Österreich) and have his base in beautiful Salzburg.

And should you want a local hero standing proud against foreign might (Rewe Group and Aldi in the form of 'Hofer' from Germany), then think Interspar, Spar Österreich's hypermarket arm. In fact, Interspar's 66 first-class hypermarkets are rooted in home soil like stalwart pine trees.

If you then desire an MD that is as homely and authentic as the company he works for, then think Markus Kaser.

Small wonder that Austria's second-largest food retailer plays the local card for all it is worth.

Kaser is a retailer's retailer with a detailed knowledge of the stores and assortments. The main subject of this interview, the marketing magic of local and regional assortments, was therefore right in his neck of the woods.

Local hero, local strength

After all, it is here that Interspar has an incomparably close relationship with its customers and where the company derives its strength.

For those who only know Austria from their skiing holidays or the gracious streets of Vienna, the size of Spar Österreich will probably surprise. Last year, the group, which also operates in Italy, Slovenia, Hungary, the Czech Republic and Croatia, grew revenues by 4.4 per cent to €11.7bn.

The company is a privately-owned, non-quoted Plc which has existed in its present form since 1970. It is doubtless significant that members of the Drexel, Reich and Poppmeier families are still actively involved in the management today.

Above-average growth

Spar Österreich's Austrian retail division grew by 4.5 per cent to €5.2bn in 2010 , which looks particularly impressive given Nielsen's trade average of 1.5 per cent. This raised the company's share of the local food market by one percentage point to 29.5 per cent.

Spar Österreich spans a broad store portfolio ranging from petrol forecourt and convenience shops, via 'Eurospar' supermarkets, to 'Interspar' hypermarkets.

Just under 30 per cent of Spar Österreich's total sales are achieved by its big-box Interspar outlets. These vary in size from 3,000m² to 5,500m² (average 4,385m²) and often form the anchor stores of Spar shopping centres.

The art of big spaces

The ultra-modern, but by no means sterile hypermarkets are clearly signed and beautifully lit. The food and near food assortment includes around 20,000 lines, about 10 per cent of which are own label (own label penetration at group level has recently increased to 35 per cent).

Markus Kaser (40) graduated in construction and later business studies in Innsbruck. He met his current employers while coordinating a Spar shopping centre building project.

After working in group marketing, Kaser founded and entrepreneured the company's new media and e-commerce divisions (www.spar.at; www.weinwelt.at). He then ran Spar-Import-Export Ltd. while acting as no. 2 at Interspar. Markus Kaser has been the managing director of Interspar Ltd. since 2007.

"Regionality is a big
competitive advantage"

Herr Kaser, Interspar has already listed hundreds of local and regional suppliers. Why go on increasing the number and thus also the organisational hassle?

I wouldn't call it hassle. True, we have extended our supplier base to include some very small family companies and food artisans, thus increasing our complexity. However, I see this as a big competitive advantage because, unlike some others, we are more than able to cope with additional complexity.

But surely trying to supervise often very small producers and growers is a lot harder than having to deal with, say, a big brand manufacturer like Danone?
I admit that some local producers operate more like food craftsmen and artisans. They also don't have big IT and quality control departments working for them, but I can assure you that we have everything under control.

I think the real breakthrough in terms of organisation was the appointment of a "Local Products Officer". Our Frau Petra Kamleitner runs a small team in the merchandising department of our head office in Salzburg. Frau Kamleitner is dedicated to finding "local heroes". The whole team has an almost missionary-like enthusiasm when it comes to listing regional specialities in our stores.

But the more small producers you decide to list, the more you increase your cost base?
People often ask us this, but you must understand that "localness" is an integral part of our corporate culture. We are not an "either-or" company, we are a "both-and" company.

Presumably these local heroes are queuing up to be listed by you?
Some are incredibly enthusiastic, but others take some convincing. You must remember that there are a number of products which are only suitable for stores within, say, a 40km radius. Also, some producers just don't have the manufacturing capacity to meet our needs.

Has the creation of a new department at head office affected the decision-making autonomy of individual store managers?
Our Local Products Officer is permanently on the go and is in constant communication with our regional and store managers. This is essential because our store managers are deeply anchored in their respective localities and know the local producers very well. Our aim is to find the best of these within "hailing distance of the church spire".

How do the store managers participate in the actual listing procedure?
Head office has worked out a central concept defining exactly what we mean by local products. Thus the store managers know these criteria perfectly. This is incredibly important because only then will they find the right producers.

What happens once the store managers have made their choice?
Our Local Products Officer discusses the listing ideas with them and then we all get together with the suppliers in order to discuss the rules we intend to play by. Obviously, a product will only be listed when all parties agree.

By "all parties" you mean head office?
Of course the final decision has to be made in Salzburg, but it is part of our corporate culture to do so on a consensual basis. I have never known a situation where a store manager really wanted to list a good product and we refused to do so.

Where do you place local products within your stores?
In each category we put all the products together in one block so that our customers can see all the alternatives at a glance. This block will contain our economy "S-Budget" range, top brands, standard brands, our own "Spar Premium" range and our local product offer.

Aren't you compromising the sale of your local products by offering customers the whole price range in one block?
No. We have never had a problem selling our S-Budget value range right next to, for instance, our fresh-water fish from Lake Fuschl near Salzburg. After all, we are the only retailer who offers such local products. Our discount competitors simply don't have the space to do so.

Of course, our local fish will cost more than, say, sea perch farmed by Greek aquaculture. That's logical, and customers understand it.

Do they really? The discount segment continues to grow in Austria...
Customers don't always want the cheapest product. Even those customers who come to the store intending to buy as cheaply as possible end up buying our fresh-water fish from Lake Fuschl at six or seven euros a kilo.

The same customer then cooks this fish at home and garnishes it with S-budget lemon without even being aware of the apparent contradiction.

Is there something specifically Austrian about such shopping behaviour?
Most certainly. As you are English I can tell you a little secret: we Austrians are more choosy than the average German when it comes to food and eating. We really appreciate high-quality food. In fact, our customers are really grateful that they can buy everything they want from us without having to shop elsewhere.

So the hypermarket has out-convenienced the convenience store?
You could put it like that. Our customers can buy everything they need under one roof. They no longer have to travel to the discounter because they can buy both our discount ranges and premium ranges in the same store.

If you run an outlet with only 1,000m² of sales space, you have to say "either-or" to your customers, but if you have 4,000m² to play with, like us, then you can really emphasise a "both-and" proposition.

Presumably, the prices of your local products are similar to those of your premium ranges?
Yes, but we have negotiated "ex farm" or "ex factory gate" prices with our suppliers, especially for wine and cheese. Thus, our customers will never be the worse for coming directly to us.

Ex-farm means, however, that you have to carry the extra delivery cost?
No, most of the producers deliver our stores directly and therefore carry all the logistics costs. They are more than happy to do this because we offer them secure and reliable distribution. Remember that a lot of customers simply don't have the time to shop at various different farms and local factories.

Do you put your own label on some of  these local products, as, for instance, Waitrose does with fruit & veg in the UK?
No. Our local heroes always keep their names. However, we have our own slogan "Von dahoam das Beste!" (Austrian dialect for: "The Best from Home"), illustrated with a red apple, which runs like a leitmotif throughout our stores on posters, placards and advertising leaflets.

When a customer enters one of your Interspar stores, the first thing he or she sees is your so-called "locality wall". What was the thinking behind this new idea?
We want to make the customer aware of the local products we have on offer. The wall is approximately five metres (15ft) wide and three metres (9ft) high. Here we show photos of local producers at work. For instance, customers can see the baker baking bread in the bakery, the cheese maker in his creamery or the salad grower out on the fields.

Why go to all this effort?
At first, customers couldn't find our local products or weren't even aware that they were on offer. The new locality wall helps customers to recognise these products in the store and reminds them of our local credentials because many of these producers are often well-known locally. The producers themselves are, of course, delighted because it is free advertising.

How big could local and regional products become for you? What percentage of annual revenues do you think they could achieve longer-term?
We are currently in the midst of rolling out our new concept and are concentrating on specific categories such as bread, cheese, milk products, fruit juices and wine. Obviously, the percentage will vary from product category to product category. However, I could well imagine bread, for instance, eventually hitting the 20 per cent mark.

In view of the sheer size of the German retail groups in Austria, you have become a local hero in your home country. Presumably local sourcing is one of your competitive advantages?
I would go so far as to call it a trump card. Our local products tell our customers every day that we are not some vast foreign conglomerate from heaven knows where. These products remind our customers that we are a local player and part of the local community and not a foreign invader.

Lebensmittel Zeitung with its online sisters (photo: LZ)
Lebensmittel Zeitung with its online sisters
Read in German: 'Wir gehören hierher' by international editor Mike Dawson on pages 78 to 80 of 
Lebensmittel Zeitung, no. 40, 07.10.2011

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