Tim Gosling in Prague -
For a brand to cross the divide to become generic is a sign of a rare level of success – and Sellotape, Hoover and Aspirin have all made the grade. In the Czech Republic, you're as likely to hear an order for a “Mantonka” as a mineral water.
To get to that point, Antonio Pasquale had to deal with hundreds of shops, bars and restaurants as he resurrected Mattoni – the mineral water brand from Karlovy Vary – just after communism fell. “There were no distributors in 1991 when my father came here from Italy,” explains Alessandro Pasquale, the current CEO of Karlovske Mineralni Voda (KMV) and son of Antonio. “There were no products to distribute.”
KMV has introduced a large range of other bottled waters and soft drinks in the intervening quarter of a century. However, it's still the mineral water brand from the spa town in the west of the country – a cherished client of Czech TV stations and avid supporter of public events, whose giant eagle-shaped billboards guard Prague along the main roads coming from all directions – that has seen KMV retain top spot in the Czech bottled water market throughout the years.
However, the company is keen to take more crowns. It is now leads the wider Czech soft drinks segment, and claims recent acquisitions in Hungary have made it “the largest producer of bottled mineral and spring waters in Central Europe”. KMV also has a plant in Austria, where it ranks second in the water market. It enjoys a similar position in Slovakia, and today exports to Poland, Germany, the US and UAE.
Pasquale Snr was hardly alone when he arrived in the Czech Republic in 1991; Italian investors were amongst the first to arrive when the Iron Curtain fell. However, the crowd landed in Prague and concentrated on snapping up real estate.
Having already run a successful water producer at home in “the most developed water market in Europe”, Pasquale says his father saw it as a natural expansion to head to Karlovy Vary, where Heinrich Mattoni first tapped the spring in 1873. Pasquale Snr was such an early mover that he initially had to run the company as a joint venture with the state and wait for privatisation law to catch up.
Just like the huge client list from the early days, KMV had to deal with thousands of shareholders thanks to the messy privatisation process in the country. The Italian owner had to hire a gigantic hall in Karlovy Vary's famous Pupp Hotel to host annual general meetings. It took until 2005 for the family to take full ownership, achieved thanks to a temporary window simplifying squeeze-outs. KMV is now fully owned by Alessandro via a Netherlands-based holding, his father having retired in 2013.
Alessandro Pasquale is busy building on his inheritance, expanding the company's portfolio of mineral water brands and soft drinks, and growing into new markets via acquisitions. KMV remains the market leader at home, with a share of 47% last year, according to a report on the segment from Euromonitor International.
Pasquale claims KMV's lead has consistently increased in recent years, despite the economic crisis suggesting cheaper bottled water might erode its advantage. Neither has a conservation controversy surrounding the now abandoned spa built by Heinrich Mattoni around the spring appear to have hit sales.
First-half results reflect the economic recovery in the region as consumer confidence returns. KMV saw record sales growth of 31% year on year in the six months to June, with revenue reaching over CZK3.5bn (€130mn). And this growth should accelerate through the rest of the year, Pasquale hopes, thanks to a searing hot summer in Central Europe and the recent acquisitions in Hungary. KMV expects to sell 1bn litres of water and soft drinks in 2015, and boost turnover to CZK6.3bn.”The crisis is behind us now,” the Italian insists. “Confidence is returning, but not as before. It was unhealthy in the boom years, with many people taking on huge debt, and I don't think we'll see that again.”
On top of the return of consumer spending, some suggest the Czech bottled water segment will get an additional boost from recent legislation demanding that at least one drink in bars and restaurants should be cheaper than beer. Full of disdain, Pasquale shrugs as he says the legislation may or may not help KMV's sales, calling it an empty political gesture. “They claim it's part of an effort to reduce teenage drinking,” he scoffs. “People know whether they want a beer or a water when they walk into a pub. A few crowns won't make any difference. They should look at the underlying causes for teenage drinking.”
The awkwardness of the legislation also appears to stem from an effort to avoid the third rail of Czech politics. “Beer in the Czech Republic is like the baguette in France,” Pasquale laughs. “You can't touch it.”
However, he suggests, the ongoing emphasis on a healthy lifestyle is helping consumers switch to water. Indeed, Euromonitor International points out that, “Czech consumers purchased more functional bottled water and natural mineral bottled water in 2014 with the developing health and wellness trend in the country”.
In the DNA
In seizing that opportunity, Pasquale appears confident that his “relatively small company” can continue to see off competition from multinationals such as Coca-Cola, Pepsi and Nestle. He also claims rising competition from local firms in the region is a good sign.
Kofola – producer of the eponymous communist-era Czech cola substitute – is particularly keen. Having bought Slovenian mineral water producer Radenska earlier this year, the Warsaw-listed company says it is looking for acquisitions in the Czech and Slovak markets, as well as others. “I like the local competition,” Pasquale asserts. “The only expansion Kofola is carrying out is in the water segment. It tells you something about the future of the market. Water is the perfect answer to building health concerns.”
Meanwhile, respect for local flavours is key to fighting the multinationals' advantages of scale and product portfolio, he contends. “They try to convince the consumer to take a standardized product,” he says. “We go from the opposite end to respect local tradition. We don't offer orange-based beverages in the Czech Republic, but forest fruit flavours.”
“I'm Italian,” Pasquale adds with passion. “It's in my DNA to preserve local flavours!”
The small size of the Central European markets is another bonus, the CEO suggests. “We're small, fast and flexible,” he points out, noting that KMV has also consistently pumped earnings back into technology in order to raise productivity. The Mattoni plant in Karlovy Vary has seen output rise by a factor of 20 since 1991 while retaining around 200 staff throughout. “We're not a super modern family,” he laughs, “but the factories are all completely new.”
He points to KMV's new Hungarian bottled water producer Kekkuti Asvanyviz – producer of the Theodora brand – which was bought in March from Nestle, as an illustration. “We've held the company for eight months,” he says, “and in the first half of the year it reported a profit for the first time in nine years.”
A month later, KMV bought soft drinks producer Szentkiralyi Asvanyviz, a move that saw KMV take top spot in Hungary for mineral water, Pasquale claims. He wants to double the size of the business in the country over the next five years.
The acquisitions – which followed the 2008 purchase of Austria's Waldquelle – will likely take some time for KMV to digest, therefore. They also complete Pasqaule's “primary target” to take a leading share in four “similar” markets. For the future, Pasquale would likely seek a larger pool – suggesting Germany, Poland or even Italy – although he bemoans a lack of good targets across the region.
However, he insists KMV stands ready for any opportunities. The company's retained earnings are “huge” he says, citing a conservative approach to spending by both KMV and the family behind it. On top of that liquidity, private equity has long been keen to hook up with KMV, and Pasquale says he would be happy to look at any deal should it be needed.
Meanwhile, KMV is in the midst of trying to offload a small plant in Ukraine. “It has never really worked,” says Pasquale, with the crisis only sealing the factory's fate. “The economy is not developing, and you have a frozen conflict. Investment is about expectations,” he adds ruefully.
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