Sweet dreams
The holidays are a sweet season and veteran chocolate maker Ferdynand Terlecki is betting his sales will double in the next few weeks.
But that's a small gift for Terlecki, whose chocolate factory in Zychlin in western Poland now struggles with big international firms in a marketplace that once was a halcyon for domestic producers.
The way companies look at themselves has changed, Terlecki says. Chocolate makers have to think of marketing, advertising and distribution. That's what this 30-year veteran in the candy business is doing, and with help from Swiss investment, he might succeed.
"Chocolate is my life," says Terlecki, who started in the business in the 1960s, when times were good.
"You have to remember that you had to have special cards to buy chocolate," says Terlecki. At that time Terlecki was president of Jutrzenka, one of the top ten Polish chocolate producers.
Chocolate was rationed, because supply was limited and demand was high. Under the burden of state debts, every company had only a certain amount of foreign currency to spend on importing cacao beans and equipment.
But, Terlecki says, it was an ideal situation for producers, because they only had to make a certain amount of chocolate and then could go home.
No longer. When Terlecki left Jutrzenka six years ago to start up the Union Chocolate Ltd. factory in Zychlin, he entered a new, unprotected world.
After the Polish market opened up in 1989, large multinational players moved in and now dominate the chocolate market.
Pepsico bought Wedel, Nestle got Goplana and Kraft Jacobs Suchard took over Olza, which makes the well-known Prince Polo chocolate wafer bars. Other world players, such as Cadbury, German company Stollwerck and Mars/Masterfoods, have chosen greenfield sites. Wedel, Goplana and Masterfoods themselves control 55% of the market here, according to figures from a recent market survey by AmerNielsen Research.
The chocolate squeeze
While competition has grown, the market has generally declined since fall 1994, with market volume declining about 18% in the two-month period August/September, according to AmerNielsen.
For the market to grow, eating habits and attitudes will need to change. But potential exists as the economy strengthens.
"People must have money to buy 13 kilos of chocolate a year," says Terlecki. "This is the figure in the West. Here (consumption) is between three to four kilos."
Under such market conditions, foreign investment could be the deciding factor for Union Chocolate. In June the factory was bought out by UNIA Industrie Holding AG, the Polish subsidiary of Ost Commerz Holding, a Swiss strategic investor.
The arrival of the Swiss group "should guarantee our existence on this market," Terlecki says. "Poland simply doesn't have the money (to invest in the market)," Terlecki explains. To be strong on the market, you have to keep investing in machinery and new products, he says.
The Swiss brought zl. 13 million ($5.3 million) in founding capital, technical knowledge and Swiss chocolate recipes to a factory with a production base and an established client-base.
"We are trying to modernize to make the quality better," Terlecki says.
Building a name
Terlecki knows that he's in a hard position up against the foreign companies. "They spend much more money on marketing and advertising, it's hard to compete," he says. The company has spent zl. 1 million ($400,000) altogether on marketing since Ost Commerz took over the factory in June.
But the amount of money the company spends is a paltry sum compared with the big companies. Marketing is a very competitive field in the chocolate industry, says Robert Narojek, marketing director for Cadbury in Poland. He said his company spends less than $5 million, a figure he attributed to other major players.
The big Polish companies, like Wedel, can market themselves through brand recognition, and that is what Union Chocolate is aiming for, as well marketing itself through an Ost Commerz-owned company, Pomorzanka. Pomorzanka acts as Union Chocolate domestic distributor selling Union Chocolate chocolate bars to wholesalers and retailers. The bars are wrapped in bright red packaging with Pomorzanka labels across the top. Union Chocolate is using the Pomorzanka name to develop brand name recognition, Terlecki says.
The Pomorzanka name is now appearing on TVP 1 during prime time. It's the most expensive time for advertising, but "we want to be on the market," Terlecki says.
Small is beautiful
Union Chocolate has at best only a few percent market share here. But Terlecki says that small producers like himself have an advantage. They can be more flexible than the big players, as they quickly can change product lines to meet the changing market.
And Terlecki aims to up his factory's market share by diversifying the products. At the moment the factory produces 2,500 tons of chocolate bars a year, making several kinds of chocolate bars including milk chocolate, bitter, nut and fruit-and-nut chocolate bars. The company is planning to bring out a new chocolate bar filled with coconut. Terlecki also wants to increase production of chocolate filling for sweets and chocolate covered jellies as this part of the chocolate market is less competitive than the chocolate bar market. His strategy is to make his products stand out from the competition by offering hand-decorated sweets.
Price also is a deciding factor. Terlecki wants to target a niche market of middle- and high-class consumers with some of the most expensive chocolate products on the market.
The factory also produces between 7,000-8,000 tons of chocolate filling a year. But that side of production is coming under pressure with the arrival of Cacao Barry SA, a French-Polish joint venture in Lodz producing chocolate filling. Nevertheless, Terlecki hopes new arrivals on the market next year, like candy makers Ludwig and Witor's, will be new clients and provide additional income for Union Chocolate's chocolate filling.
The bigger, the better
Union Chocolate's Swiss parent company currently owns four other companies in Poland: ZPC Pomorzanka, a sweets manufacturer and distributor located in Slupsk; Rarytas, which makes crackers and biscuits in Stargard Szczecinski; and Spolem Zatoka in Gdansk and Spolem AG Gdynia, which are both food retail outlets.
The acquisitions were a strategic move to extend Ost Commerz's product range in Poland.
"Now we are really competitive," says Reiner Vierling, Ost Commerz's director.
Ost Commerz's main competitors on this more diverse product market of candies, biscuits and chocolates include Goplana and Wedel, Ost Commerz officials say. Overall, Ost Commerz has invested about $21 million in the Polish market in the last two years.
Owning different companies in similar sectors is a strategic move and a position the Swiss company has developed internationally with subsidiaries in the food sector in Germany, Switzerland, Mexico and Hong Kong. The strategy, officials say, is to work together to find and develop new markets. For example, Union Chocolate makes and packages chocolate bars for Parklane, an Ost Commerz-owned company, based in Germany. Parklane then exports Union Chocolate's chocolate around the world.
While the short term in Poland may be a struggle, Terlecki is confident about the future. "We can compete with the strong companies all throughout the world and in Poland," he says.
Dorota Dabrowski in Wroclaw contributed to this article.
But that's a small gift for Terlecki, whose chocolate factory in Zychlin in western Poland now struggles with big international firms in a marketplace that once was a halcyon for domestic producers.
The way companies look at themselves has changed, Terlecki says. Chocolate makers have to think of marketing, advertising and distribution. That's what this 30-year veteran in the candy business is doing, and with help from Swiss investment, he might succeed.
"Chocolate is my life," says Terlecki, who started in the business in the 1960s, when times were good.
"You have to remember that you had to have special cards to buy chocolate," says Terlecki. At that time Terlecki was president of Jutrzenka, one of the top ten Polish chocolate producers.
Chocolate was rationed, because supply was limited and demand was high. Under the burden of state debts, every company had only a certain amount of foreign currency to spend on importing cacao beans and equipment.
But, Terlecki says, it was an ideal situation for producers, because they only had to make a certain amount of chocolate and then could go home.
No longer. When Terlecki left Jutrzenka six years ago to start up the Union Chocolate Ltd. factory in Zychlin, he entered a new, unprotected world.
After the Polish market opened up in 1989, large multinational players moved in and now dominate the chocolate market.
Pepsico bought Wedel, Nestle got Goplana and Kraft Jacobs Suchard took over Olza, which makes the well-known Prince Polo chocolate wafer bars. Other world players, such as Cadbury, German company Stollwerck and Mars/Masterfoods, have chosen greenfield sites. Wedel, Goplana and Masterfoods themselves control 55% of the market here, according to figures from a recent market survey by AmerNielsen Research.
The chocolate squeeze
While competition has grown, the market has generally declined since fall 1994, with market volume declining about 18% in the two-month period August/September, according to AmerNielsen.
For the market to grow, eating habits and attitudes will need to change. But potential exists as the economy strengthens.
"People must have money to buy 13 kilos of chocolate a year," says Terlecki. "This is the figure in the West. Here (consumption) is between three to four kilos."
Under such market conditions, foreign investment could be the deciding factor for Union Chocolate. In June the factory was bought out by UNIA Industrie Holding AG, the Polish subsidiary of Ost Commerz Holding, a Swiss strategic investor.
The arrival of the Swiss group "should guarantee our existence on this market," Terlecki says. "Poland simply doesn't have the money (to invest in the market)," Terlecki explains. To be strong on the market, you have to keep investing in machinery and new products, he says.
The Swiss brought zl. 13 million ($5.3 million) in founding capital, technical knowledge and Swiss chocolate recipes to a factory with a production base and an established client-base.
"We are trying to modernize to make the quality better," Terlecki says.
Building a name
Terlecki knows that he's in a hard position up against the foreign companies. "They spend much more money on marketing and advertising, it's hard to compete," he says. The company has spent zl. 1 million ($400,000) altogether on marketing since Ost Commerz took over the factory in June.
But the amount of money the company spends is a paltry sum compared with the big companies. Marketing is a very competitive field in the chocolate industry, says Robert Narojek, marketing director for Cadbury in Poland. He said his company spends less than $5 million, a figure he attributed to other major players.
The big Polish companies, like Wedel, can market themselves through brand recognition, and that is what Union Chocolate is aiming for, as well marketing itself through an Ost Commerz-owned company, Pomorzanka. Pomorzanka acts as Union Chocolate domestic distributor selling Union Chocolate chocolate bars to wholesalers and retailers. The bars are wrapped in bright red packaging with Pomorzanka labels across the top. Union Chocolate is using the Pomorzanka name to develop brand name recognition, Terlecki says.
The Pomorzanka name is now appearing on TVP 1 during prime time. It's the most expensive time for advertising, but "we want to be on the market," Terlecki says.
Small is beautiful
Union Chocolate has at best only a few percent market share here. But Terlecki says that small producers like himself have an advantage. They can be more flexible than the big players, as they quickly can change product lines to meet the changing market.
And Terlecki aims to up his factory's market share by diversifying the products. At the moment the factory produces 2,500 tons of chocolate bars a year, making several kinds of chocolate bars including milk chocolate, bitter, nut and fruit-and-nut chocolate bars. The company is planning to bring out a new chocolate bar filled with coconut. Terlecki also wants to increase production of chocolate filling for sweets and chocolate covered jellies as this part of the chocolate market is less competitive than the chocolate bar market. His strategy is to make his products stand out from the competition by offering hand-decorated sweets.
Price also is a deciding factor. Terlecki wants to target a niche market of middle- and high-class consumers with some of the most expensive chocolate products on the market.
The factory also produces between 7,000-8,000 tons of chocolate filling a year. But that side of production is coming under pressure with the arrival of Cacao Barry SA, a French-Polish joint venture in Lodz producing chocolate filling. Nevertheless, Terlecki hopes new arrivals on the market next year, like candy makers Ludwig and Witor's, will be new clients and provide additional income for Union Chocolate's chocolate filling.
The bigger, the better
Union Chocolate's Swiss parent company currently owns four other companies in Poland: ZPC Pomorzanka, a sweets manufacturer and distributor located in Slupsk; Rarytas, which makes crackers and biscuits in Stargard Szczecinski; and Spolem Zatoka in Gdansk and Spolem AG Gdynia, which are both food retail outlets.
The acquisitions were a strategic move to extend Ost Commerz's product range in Poland.
"Now we are really competitive," says Reiner Vierling, Ost Commerz's director.
Ost Commerz's main competitors on this more diverse product market of candies, biscuits and chocolates include Goplana and Wedel, Ost Commerz officials say. Overall, Ost Commerz has invested about $21 million in the Polish market in the last two years.
Owning different companies in similar sectors is a strategic move and a position the Swiss company has developed internationally with subsidiaries in the food sector in Germany, Switzerland, Mexico and Hong Kong. The strategy, officials say, is to work together to find and develop new markets. For example, Union Chocolate makes and packages chocolate bars for Parklane, an Ost Commerz-owned company, based in Germany. Parklane then exports Union Chocolate's chocolate around the world.
While the short term in Poland may be a struggle, Terlecki is confident about the future. "We can compete with the strong companies all throughout the world and in Poland," he says.
Dorota Dabrowski in Wroclaw contributed to this article.
