Chocolatiers seeing red this Xmas with exports still down
Chocolate producers with visions of fourth-quarter sugar plums dancing in their account books are afraid that a cool wind from the north will spoil their traditional holiday sales spurt.
The oft-cited Russian crisis of 1998 is still being blamed by Polish chocolate producers for squashing their once-strong export markets there and in Ukraine, according to several company representatives. This could have dire consequences for their Christmas sales season, the representatives said.
Chocolate makers can normally make up to 50% of sales or more in the fourth quarter, thanks in large part to the increased purchases of holiday candy, chocolate Santas and other cocoa-covered delights. But with sales to Eastern markets down to only a third or less of what they were just two years ago, chocolate makers here are being hard pressed to expand sales elsewhere. (See also The List, page 15.)
One of the worst-hit chocolate companies here has been Lublin-based confectioner Solidarnosc. "This is not a happy holiday for us," said Sergiusz Kuczynski, export manager at Solidarnosc. He is the sole survivor of a culling in the company's export department, which watched helplessly as sales to Russia and Ukraine plunged to a mere 5% of sales this year from more than 25% before the crisis.
This drop-off in sales to the East hits especially hard in the holiday-filled fourth quarter, Kuczynski said. "We used to send two or three containers of chocolate candy to Russia each day" in previous years' fourth quarters, Kuczynski said. "This year, it's more like one per month." Kuczynski said this Christmas is without a doubt the worst for Solidarnosc in the three years he has worked there.
Another chocolate maker suffering this year is Krakow-based Wawel. "We lost a lot in the Russian crisis," said Dariusz Tabaka, press spokesman at Wawel. Its exports there fell to 5% of sales from more than 20%, Tabaka said.
While he did not yet have projections for the all-important fourth quarter, Tabaka said Wawel was counting on Q4 sales to be up to 100% higher than Q3, traditionally the worst season for chocolate sales. Sales through the first three quarters of this year reached zl. 70 million ($17.5 million), while sales for all of 1998 were zl. 135 million ($38.6 million), Tabaka said.
But Wawel's problems run deeper than a fall off in export sales. Its domestic market share is also decreasing, and it reported a zl. 16.5 million ($4.1 million) loss for the first three quarters of this year, on top of a zl. 11.2 million ($3.2 million) loss for all of 1998, Tabaka said.
Wawel, which is traded on the Warsaw Stock Exchange (WSE), shares have traded recently at zl. 18.2, near their year low of zl. 14. The company cites competition from better-financed Western competitors as the reason for its hard times.
Wawel, a 90-year-old veteran of the Polish chocolate industry, "doesn't have the money to compete with Wedel," owned by British confectionery giant Cadbury Schweppes, Tabaka said.
Cadbury Wedel representatives refused to comment for this article.
Wawel, owned by insurer Powszechny Zaklad Ubezpieczen (PZU), BIG Bank Gdanski (BIG BG), and AmerBank, had been in talks earlier this year with potential strategic investors, but the board now says those talks are on hold "until the company gets back on its feet," Tabaka said.
A new board was chosen in June to turn things around, and a third of the 1,500-strong work force was let go, Tabaka said. The new board, led by Lech Wojcicki, has also begun restructuring the company's distribution system, which until now has been largely limited to the southern parts of the country.
"If we were distributed nationwide and we had these financial results, I'd say we're in trouble," Tabaka said. "But most of our sales are in the south, so we still have many possibilities" to expand distribution.
The new distribution network is expected to be up and running in the first quarter of 2000, Tabaka said.
The company has also launched a zl. 800,000 marketing campaign to increase awareness of its brands, such as Danusia, Jacek, Malaga, Tiki-Taki and Kasztanki, Tabaka said.
Of course, the domestic market isn't the only game for chocolate producers. But selling to the West has not been a cure for the industry's Eastern woes, Kuczynski said. "Our products are not very competitive" in the United States, Germany or Canada, Kuczynski said. "Those markets are already full of such products." Kuczynski has been told by the Solidarnosc United States distributor in Chicago that "he doesn't see the help, money and advertising" forthcoming from Lublin that would be necessary to move products off foreign shelves. For Solidarnosc's part, management seems to have given up on any hope of salvation through exports.
"They cut the export department from five people to two, including me," Kuczynski said. "The directors' interest is here in Poland, they are not thinking seriously about exports."
