BusinessMagazin

Tag: Crisis

  • Cheese puffs go well with crisis

    The two have known each other for over 31 years, and have managed to turn an apparently modest industry – production of cheese puffs, into a several million-euro business. Their company is the second largest producer in Romania, and the largest local supplier. With no very visible presence, the business grew over a period of more than 10 years, and owners still feel they have reason to be optimistic, even in a time of crisis, or maybe thanks to the crisis, if economic difficulties prompt consumers to turn to cheaper products. ”Cheese puffs could see significant sales in the next two years, which are expected to be under the shadow of the crisis,” believes Adrian Iordache.

    After several years of operating an ice cream business in their native city of Ploiesti, which started with the secondhand purchase of an ice cream cart, in 1996, they had a plant that produced 40 tonnes of ice cream a day. It was then that the two business partners decided to move on to a new product category – cheese puffs, because they wanted a product that, unlike ice cream, would not be seasonal. They bought an old cheese puff maker from an old bakery in Cluj and got down to work. Initially, the cheese puff plant functioned in the old location, in the centre of Ploiesti, but soon its production capacity, of 200,000 bags of puffs a day, proved to be insufficient, not to mention the fact that it was rather inefficient to have a plant in the middle of a city. The two then decided to relocate production from the city centre to the outskirts of Ploiesti. For a while, the two plants, the one in Ploiesti and the one in Baicoi, functioned in parallel, but as of 2006, only the second one has remained functional.

    Currently, the Baicoi plant employs 300 people, with the plant’s production capacity amounting to 1 million bags of puffs a day, according to the two partners. Although they set up the company 16 years ago, the idea of producing Gusto puffs has brought them more visibility, especially lately, when sales exceeded their expectations. ”When we started making puffs, we were using a rudimentary technology, like everyone else. We would put the puffs on the table, sprinkle them with oil and salt, and then package them. Now everything is computerised,” says Apostolescu.

  • Crisis shoping list

    There is already a crisis-related psychosis in many circles, fuelled by the pessimistic news about the soaring unemployment and salary declines, says Mircea Kivu, sociologist and general manager of the Marketing and Polls Institute (IMAS). Under the circumstances, he says, ”the consumer behaviour cannot but change, even though the individuals are not affected in any way by the crisis on a personal level.”

    Though analysts and various institutions are pessimistic about the Romanian economy, the overall state of mind among the average consumers seems closer to cautiousness rather than anything else. Two thirds of the respondents of a survey conducted by market research company 360insights between January 15-February 15, 2009 on a sample of 800 people living in cities say they have no concrete information and do not know exactly what the crisis is, while more than half of them believe even now that everything might be just a momentary exaggeration of the media, because they are not feeling its effects directly.

    A key element that makes people more cautious about their spending is the concern for their job.

    Retailers confirm the decline of traffic in stores. Ilan Laufer, general manager and principal shareholder of Retail Group (the rental broker of Cocor Luxury Store), says that the retailers with which he has discussed lately have noticed a change in the overall consumer spending trends – especially on the electrical and IT, clothing, footwear or accessories segments. ”Sales are much lower in the first two months of this year than in the same time of 2008, with declines ranging from 20 to 50%.”

    The higher the price, the faster the sales decline, which explains the order in which retailers are affected.

    Real estate consultants say such changes occur especially outside the capital. Razvan Gheorghe, general manager of Cushman & Wakefield Romania said a little while ago that those who had opened stores outside Bucharest were the hardest hit, which is especially true for the fashion, restaurant and coffee shop businesses. ”Consumers are no longer going out as often as they used to; everything more expensive than the massmarket isn’t selling any more.”

    Durable goods, electronics and home appliances started to show signs of a slowdown in sales as early as the end of last year, says Ciprian Moga, managing director of iQuest Consulting, a retail advisory firm. Once among top sellers, home appliances are not doing any better on hypermarkets’ shelves, either. Tjieerd Jegen, chief executive of the Real Romania network says that when it comes to non-food products and especially home appliances and IT products, customers focus on promotional offers mostly.

    The fast moving consumer goods market is the least affected by the crisis psychosis and is not experiencing dramatic changes. 360insights’ research director Mihaela Alexandru says that the products consumers are unwilling to give up, for which they plan the lowest expense cuts, are food (11% of the respondents), utilities (24%) and personal care products (28%).

    Shachar Shaine, chief executive of United Romanian Breweries Bereprod, the bottler of Tuborg and Carlsberg brands, is one of the few happy managers, because he can boast a 3% increase so far this year compared with the same time last year. The growth, however, comes from the retail segment, because the on-premise segment is seeing stagnation, as people prefer to drink at home rather than go out to do it.

  • Thirsting for loans

    ”After a long time of significant growth, businesspeople are still feeling the urge to go directly to a bank when they want to develop or when they need money to fix a problem,” says Lucian Cojocaru, head of the network commercial department of BRD-Groupe Societe Generale. Bankers fought tooth and nail for years on end when the economy was growing at a fast pace and businesses were running almost unattended in any industry, to finance companies and individuals, in a fiercer and fiercer competition.

    Things radically changed last October, when it became clear to everybody that the Romanian economy would not be able to avoid the effects of the financial, and especially of the economic crisis, that has been shaking the entire world. ”Banks were the first to feel the effects of the crisis,” Cojocaru says, considering most of them are part of international financial groups that were affected on their home markets and their problems spread to the branches in Romania like a domino effect. When problems started in the Romanian economy last autumn, bankers abruptly revised their lending policies, moving from a very lax to a very strict attitude, BRDís manager explains. ”Companies, on the other hand, were hit in the second wave,” having grown out of inertia for a while and started to feel the problems more acutely towards the end of the year, when payments from the state budget were frozen, commercial and financial flows slowed down, consumer spending plummeted and entire industries collapsed.

    ”Businesspeople did what they knew how to do best from the past then: they came to the bank to compensate,” says Lucian Cojocaru – an entirely natural habit after so many years of fast-paced lending growth. At the bank, however, they found something they had not been accustomed with: bankers no longer wanted them as clients; on the contrary, they were reluctant to give them any more money (…), Cojocaru says. After the abrupt slowdown in the last few months of last year, the annualised growth pace of non-governmental lending went down from to 25% from 55% in January 2008.

    How the shift from the general exuberance to this almost completely frozen financing market occurred is quite obvious for everybody now, especially when looking back at the succession of events. The reasons that continue to keep the market locked, six months from the onset of the crisis, are less clear, though. As a paradox, the confusion is not generated by the lack of logical explanations, but on the contrary, by their sheer number, diversity and development from one day to another.

    Towards the end of last year, bankers seemed unanimously convinced that the Romanian banking system was faced with a general shortage of cash, as a result of the increase in the price of money on international markets. Fears that the parent banks would limit or even completely withdraw lines of credit they had used to keep their branches in Romania going (loans that total 10 billion euros, according to the NBR data), turned out to be unfounded, too, given that it was proven that over 90% of them would be renewed, according to NBR governor Mugur Isarescu.

    At the end of the day, the ”disease” cannot be treated in any other way than by starting from the causes, because, as already proven by other Western economies, throwing money at the economy does not do too much good eventually.

  • Tourists in the country of the crisis

    On a daily basis, the press from around the world paints the situation in the United States in bleak colours. Consumption has gone steadily down over the last six months, the most famous shopping avenues (Fifth Avenue, Rodeo Drive) are empty, restaurant owners long for the times when Wall Street execs would spend impressive sums in their restaurants and – an utterly unconceivable fact in regular times – Wall Street wives have forgotten all about 500-dollar dinners, and have started to take… cooking lessons. On the other hand, the United States has turned into a destination coveted by tourists, who, stimulated by the still weak dollar, choose to spend their holiday there.

    Business Magazin has talked to Romanian managers who spent their holiday in the famous travel destinations in the USA, and were able to feel the pulse of the crisis in its very core. Alexandre Eram, general manager of SonyaMod, a company that distributes international brands such as Peggy Sue on the Romanian market, and owner of the Z stores, travelled to New York for Christmas. ”Surprisingly, I found a normal country, especially since I was expecting things to be much worse, given the way the press had reflected the crisis. But when I saw the huge queues in stores, I started to wonder where the crisis was,” recalls the manager. However, the manager does not rule out the possibility that things may have changed after the holidays.

    ”I have talked to several American friends, and they told me that one cannot really tell if there is a crisis or not at Christmas time.” Sorana Savu, managing partner at communication agency Premium PR, who spent a two-week holiday in Miami in January, says that the American response to the crisis depends a great deal on the city and the region. Savu has chosen Miami and Fort Lauderdale for her holiday this year, an area she says is favoured mainly by American senior citizens. ”I think it’s absurd that in a city where you see Lamborghinis, Bentleys and Ferraris on the streets, which are expensive by American standards, employees of luxury shops should be very surprised to be dealing with receipts worth several hundreds of dollars. They said the only ones still buying were Europeans and Brazilian tourists.”

  • The offensive of discounts

    Whereas retailers in the United States have been betting on significant discounts even for new collections, the answer of the European groups, which adamantly reject this policy, was to revive their secondary lines of business. Between American discounts and European’s stubbornness to keep the traditional sale periods, is the consumer that can be lost in the low price spiral. Raluca Banciu, general manager of Alliance International, which operates the Paul & Shark store on Calea Victoriei recalls that she has lately happened to see some clients, especially foreign ones, demand a discount for buying a product from the spring/summer collection of the brand.

    ”We only offer loyalty discounts for frequent shoppers or for those that buy high-value products, but we cannot offer discounts for one or two products of the new collection,” the manager says. The type of consumer the Paul & Shark manager is talking about has been educated lately on a market where repeated sales, outside the traditional periods, have been promoted as a way to overcome the crisis. Still, this can have a boomerang effect, because the discount policy has also changed the consumer’s behaviour, who, once accustomed with permanent discounts, will have a hard time accepting – if ever – the full price. Scott Malkin, chairman of Value Retail, who built a one billion-euro business by selling products of luxury brands in outlets, says that discounts in the US are example of panic and desperation that can drive consumers away.

    After a recession, consumers tend to revert to the practices of the past, but in the case of such a crisis, they simply reject them. Retail specialists in turn are now wondering whether shopping was changed forever by the policy embraced in the wake of the financing crisis – the strategy to drive sales has relied on discounted price tags even for new collections, an approach that has never been seen before.

  • Crisis manager for Tiriac

    Petru Vaduva met the two Tiriacs, father and son, on December 22, 2008 at the recommendation of head-hunter Radu Furnica. On January 7, Petru Vaduva was already in his office, having replaced the former CEO, Anca Ioan, who left the position in October.

    The new manager is calm and recounts the facts plainly, like a surgeon, about his business expertise abroad and about the challenges of the new job. He does not grin, he does not frown, he does not rush it. He speaks as confidently about bankruptcies of tens of millions of dollars as he speaks about philosophy and the restructuring of the business he has been running for only a few weeks.

    His appointment came as a surprise to the business environment in Romania, because few people had heard about or met the manager to whom Ion Tiriac decided to entrust the group put at 2 billion euros last year. Furthermore, Ion Tiriac is thought to be a businessman who likes to have the final (and most important) say in strategic decisions. And strategic decisions are what is needed in what looks to be the most difficult moment of the last ten years for the consumer and financial fields, where most of Tiriac group’s businesses are grouped. With a keen interest in molecular biology, Petru Vaduva left Romania alone to go to college in the United States in 1982. After college he started doctoral studies at Columbia University, but three years into it he realised it would never fulfil his American dream.

    ”Considering the situation back home, and the fact that my duties to my family were much more important than those of a young American studying biology and wanting to save the world from cancer, I decided to change my path,” Petru Vaduva recalls. At first he thought he would do business in biotechnology and worked for a year on neuro-research projects in a specialised company. He also got into an MBA at the Yale University (one of the most prestigious such programmes in the world) and was hired by JP Morgan after graduation.

    During his JP Morgan tenure he spent four years and a half involved in the Latin America ”project”, which had him live in New York but regularly fly to the Latin American countries 40% of the time, where he experienced both a boom and the crisis of 1994. The crisis in Mexico was just the beginning and Petru Vaduva went from crisis to crisis, which he considers to be part of the nature of his job of specialist in developing countries. He was in Asia for the following crisis, and then in Moscow and was no stranger to the dotcom crisis either.

    His return to Romania started in the second half of the nineties, when he got a job offer in Russia. Convinced he was getting closer to Romania this way, he took the job with an investment banking group in 1997, which did not survive the crisis in that country. Back in Romania at the first signs of crisis with plans to start an investment fund, he accepted Ion Tiriac’s offer and now would not provide figures about what or how will happen. He admits, through, that the strategy of the group will be focused on two pillars from now on: not losing money and keeping the market share.

    Restructuring is another key element of Petru Vaduva’s strategy at the helm of Tiriac Holdings, although he admits it may sound a bit negative somehow. ”The company grew – as many businesses in developing countries did, a bit chaotically and the challenge of this job is precisely restructuring. When crisis comes, you start seeing all the holes that had not been visible before. (…)”

    In brief, Vaduva’s plan is as follows: the group will not enter other fields of business over the coming period, will not sell any of its existing divisions and will not start a real estate project in the coming months.