Sweet prospects
Polish confectionery producers are licking their lips at the prospect of a 36-percent drop in sugar prices within the next three years, as a result of European sugar-market reforms. Spicing up the industry is Ziołopex, originally a seasonings producer, which recently gobbled up three of Poland's strongest confectionery brands: Jutrzenka, Goplana and Kaliszanka. Now, with a 15-percent share of the market, the group is hungry for the top spot currently held by Cadbury Wedel - traditionally the favorite of Poles with a sweet tooth.
Jan Kolański, the CEO of the Ziołopex group, is a difficult man to pin down. Every day he commutes between his old headquarters in Piątek Mały, the Jutrzenka office in Bydgoszcz, and the Goplana plant near Poznań. Two years ago he was known as the man behind Appetita, a seasonings producer, but after a series of takeovers in the confectionery sector last year, he is now the owner of a real sugar-and-spice empire. His eye for tasty business prospects has helped catapult him onto the list of the 100 wealthiest Poles, with the total value of his assets estimated at some zł.225 million.
Kolański began his empire's expansion in 2004, when he bought the listed wafer, biscuit and jellybean producer Jutrzenka. Several months later he purchased chocolate maker Goplana from the Swiss concern Nestlé for zł.63.5 million. Last October, Ziołopex brought the Kaliszanka brand into its ranks, which meant the well-known Grześki bars were added to the capital group's sweet portfolio.
"The time has now come to opt for the organic development of the Ziołopex group. I'm really looking forward to the completion of our logistics center in Kostrzyń Wielkopolski from which we will serve our customers," Kolański says. The new zł.30 million headquarters will be ready towards the end of this year, but Kolański is not going to rest on his laurels. The main reason he got involved in the confectionery business was to give his original business more room for development.
A bitter-sweet combination
"The confectionery market is 10 times bigger than that of seasonings and I didn't want my business to be based on a single pillar. However, domestic sweets consumption, even though on the rise, is still rather limited. That's why we are already having a look around foreign markets," says Kolański, who estimates that next year the revenues of the Ziołopex group will be between zł.500-600 million.
Building a giant is one thing, but managing it is a different story. Not everyone within the company was happy with the changes and Kolański could not avoid the usual complications associated with acquisitions of this size.
Hard candy
Jutrzenka, Goplana and Kaliszanka now have a common sales and distribution network, but at the end of 2005 the situation was chaotic, after the sales director tendered his resignation and four regional directors followed in his footsteps. Moreover, a drastic decrease in the overall sales of Goplana's products attracted a lot of attention in the press, and Kolański raised eyebrows when he sank zł.100 million into the company so that he could go head-to-head with industry giants Cadbury Wedel and Mieszko.
"Much of the released information was absurd," Kolański retorts. "A decrease of a couple of percent and not 60 percent in Goplana sales stemmed from changes in product offers and we definitely didn't pay too much for Grześki, as the offers of our competitors were 20 percent higher than what they later claimed. As for the changes in the sales department, they did the company good as the old team didn't put enough effort into selling Goplana products, and we planned redundancies anyway."
Growing appetites
In 2005 the net profit of Kolański's confectionery empire amounted to zł.15.047 million - 116.2 percent more than in 2004. In 2005, Jutrzenka went through some serious reforms and the company splashed out on promotions, spending zł.18 million on TV commercials alone. This took its toll on the yearly results - in Q4 2005, net income was zł.1.071 million, compared to zł.21.38 million in the same period of 2004.
Kolański was also considering floating the Ziołopex group on the Warsaw Stock Exchange (WSE), but has since put the idea on ice: "Ziołopex is situated in a Special Economic Zone and we could only float 25 percent of shares so as not to lose tax breaks. All in all, it's not profitable enough."
On average, Polish consumers spend zł.9 billion on candy and sweets every year, which is nearly 50 percent less than the Austrians or the Irish. After Poland's accession to the EU, sugar prices increased considerably but now, thanks to the reform of the European sugar market, they are expected to drop by more that 30 percent within three years.
Candy land
According to Piotr Her, a market analyst with DM Millennium, lower sugar prices will boost the turnover of confectionery producers. Marek Moczulski, CEO of the WSE-listed Mieszko, said: "The reform of the European sugar market will hopefully enable confectionery producers to increase their margins. One has to remember that we didn't increase our prices after Poland's accession to the EU. The reform will also make Poland more competitive in markets outside Europe."
After hitting rock bottom in 2003 with a zł.15-million loss, Mieszko is now very successfully climbing up the market ladder and boasts the fastest growth in the sector. "In 2005 the value of Mieszko's sales grew by as much as 25 percent compared to the previous year, and we are still improving our position," stressed Moczulski.
Bitter beginnings
But the success didn't appear out of nowhere. Mieszko went through serious restructuring, going from an ailing family company into a well-managed, modern firm. It was bought from the Gajdziński family in 2002 by a private equity fund, Central European Confectionery Holdings. The newly appointed CEO, Marek Moczulski, had already saved the food company Agros from dire straits and he immediately started introducing changes to Mieszko.
The product portfolio was modified, 80 percent of the senior managerial staff was replaced and, most of all, Mieszko now spends some zł.40 million on marketing every year. The company was even seriously looking for takeover opportunities, and Piotr Her estimates that the searches cost Mieszko some zł.1 million. Eventually, however, the decision was made that none of the available entities was attractive enough.
"For the time being we're not planning any takeovers but we don't exclude them in the future should they provide extra value for our shareholders," Mieszko's CEO said.
Kraków's jewel
Until recently, the third of the listed confectionery producers, Wawel, consistently denied any takeover plans and focused more on organic development. But rumor has it that Dariusz Orłowski, the CEO of Wawel, is not excluding aquisitions.
Wawel projects that its new production plant in Dobczyce should start operating this year. The investment was worth zł.100 million and it will allow the company to double its production capacity.
"Wawel improves its margins in a very consistent way and grows on a regular basis. It is worth investors' attention," Her said, and recommended buying the company's shares.
On a diet
The only bitter taste in the otherwise bright future of confectionery producers is that the recent investment in Poland by Cadbury Schweppes, worth R100 (zł.390) million, was actually in the production of sugar-free chewing gum. Does that signal that chocolate is becoming passé, and that instead of sugar-filled goodies, the market movers will now focus on producing sugar-free treats?
By opting for sugar-free products, Cadbury Schweppes - known above all for chocolate - says it is simply adjusting to market trends. Gum is popular among weight-conscious consumers who use it to control their junk-food and sugar urges.
It's too early, though, for managers at Wawel, Mieszko or Jutrzenka to worry about these trends, especially in Poland, where during the long winter evenings, everyone needs a little chocolate treat to fight the winter blues.
