Walmark is building an empire

Czech fruit juice, vitamin and dietary supplements producer Walmark owes its 13 years of success to well thought-out investments, strong brand support, and expansion abroad.


Valdemar Walach

Mariusz Walach

Adam Walach

THREE BROTHERS WERE present at the birth of Walmark – Valdemar, Adam, and Mariusz Walach – Poles with Czech citizenship from the picturesque Beskydy area of Český Těšín, where there is a sizable Polish minority. In 1990, without capital or a clear vision, they decided to quit their jobs and establish a limited liability company focusing on foreign trade. They imported and exported whatever they could – from computer equipment to toilet paper. In 1991 they decided to concentrate on three fundamental areas – trade in agricultural produce, imports of soft drinks from Great Britain, and imports of vitamins from western Europe. They took advantage of large price differences in different countries and enjoyed large margins. Therefore they financed their company themselves, not taking out any loans until 1993. At that time their office was in one room of their family home, they used their garage for a warehouse, and they had no employees. They went out searching for goods themselves and dispatched one truck after another under the curious gaze of their neighbors.
The fourth brother, Janusz, a physician living in Poland, gave them the idea that Czechs might want to copy the healthy lifestyle being promoted in western countries, and that demand for related products was sure to rise. Subsequent developments held up his predictions. “We had a feeling that our future lay in the production of vitamins and juices,” says Valdemar Walach, the general director and chairman of the board. In 1992 the company became the exclusive importer for Nature’s Bounty, the largest American vitamin producer. Two years later it started manufacturing its own dietary supplements under the Walmark brand on a new production line that cost the firm CZK 10 million, provided by its first-ever loan from Pragobanka (now defunct).

The competition never sleeps
In 1993 the firm made the decision to stop importing beverages from Great Britain at great expense, and instead set up local production of fruit juices and soft drinks. However, the owners were so occupied with the building of their plant that they stopped supplying the market. In the meantime the competition went to town. The production plant, which required investments of about CZK 45 million by means of leasing, was completed, and there were 70 employees working four shifts, but customers didn’t want the goods. Strategy director and vice-chairman of the board Adam Walach comments: “we hoped that lower prices would win out, but that didn’t happen. Because we neglected the market for six months we lost a huge competitive edge.”

Benchmark
– cautious financing of the company
– developing a strong brand image
– foresight of trends
– effective advertising
– foreign production facilities
– outstanding quality at affordable prices

The bitterness of defeat didn’t linger long. In one year the investment was returned, and the next year demand had already outstripped supply, which resulted in the purchase of another production line with twice the capacity. Today the grocery division has two plants at its disposal for the production of soft drinks – one is in Český Těšín and the other was built last year in Slovakia for an investment of SKK 225 million. Its ten lines turn out Relax brand products and the sub-brands Figo, River, and others, in various flavors. The annual capacity of both plants is about 3 million hectoliters. According to the Union of Fruit Juice Producers, in 2002 Walmark held a 20.1% market share in the juices, nectars, and beverages category, which put it at number two on the Czech market.
Throughout its existence the firm has been in the black and has recorded growth every year. In 1997 Walmark exceeded the magical one billion milestone with sales of CZK 1.3 billion. The firm’s enormous boom was supported by the building of foreign branches in destinations to which exports had been directed for several years. A subsidiary was opened in 1992 in Slovakia, and there are currently subsidiaries in Romania, Poland, Hungary, and Ukraine, with additional offices slated to open next year in Lithuania and Bulgaria. This year’s projected sales of the Walmark group, estimated at nearly CZK 3 billion, should again exceed last year’s sales of CZK 2.5 billion. All profits are reinvested in the company..

Ambitious plans
The pharmaceutical division’s marketing strategy consists of building the brand, strengthening its position, and increasing market share, which the company has long been succeeding at. It follows from an analysis by IMS Health, a market research firm, that Walmark has already taken over first place several times. During the first half of 2003 Walmark’s Marťánci brand became number one on the children’s multivitamin and multimineral market with a 59% share; in the segment with products containing vitamins A and D and Beta Carotene, Betakaroten Walmark led with a 42.5% share; and the total share of Walmark and Nature’s Bounty products on the vitamin and mineral market is 16.9%, which makes it number one in the field.
Out of a total number of 160 products on sale, Nature’s Bounty products account for only 25%, with the rest produced by Walmark. The pharmaceuticals division currently accounts for CZK 1 billion of the Walmark group’s total sales, and in 2007 the management wants to raise this figure to CZK 3 billion. The production plant that was built in Třinec last year should help meet this goal. This production facility complies with all SVP (correct production practices) criteria normal among European and global pharmaceuticals producers.
The firm now has 900 employees and invests hundreds of millions of crowns in its growth (last year, CZK 282 million) in order to meet its strategic goal – to become the largest producer of vitamins and dietary supplements in central and eastern Europe by 2007. “The Czech market is very small, and if we want the Relax and Walmark brands to exist even after a hundred years, we must become an international firm,” explains Adam Walach. “We cannot accomplish this through classic growth, we have to buy out competitors or create strategic alliances,” he adds. For now the company finances itself through bank loans and reinvesting profits. If its expansion continues at the same pace, Walmark will be listed on the stock market. “Because the Prague Stock Exchange isn’t functional, within two or three years we will approach the exchanges in Vienna, Frankfurt, or London,” he concludes.

Sharing the voteTOGETHER the founding brothers Valdemar, Adam, and Mariusz Walach are majority shareholders. Although they see the advantages of a family company in mutual trust, they admit that they also welcome the input and opinions of others. That is why they established a board of directors, which includes three more people with voting rights, as well as a so-called option program that the owners set-up with the assistance of Deloitte & Touche. This program stipulates that after certain conditions have been met, top management members can become shareholders. The program was launched last year, and five managers have already taken advantage of it. “It is a motivational element, and we can see its clearly positive results. The managers who were selected value it highly, and they are more tightly connected with the company,” says Mariusz Walach, the vice chairman of the board of directors. As there is no option law in Czech legislation, Walmark and Deloitte & Touche had to start the program from scratch.
Umbrella strategyUntil 1996 the company presented itself under the Walmark brand. However, marketing specialists convinced the owners that selling beverages and vitamins under the same brand is a mistake, so they unfurled the umbrella brand Relax for their fruit juices and soft drinks. Changing the existing brand and creating new advertisements with the well-known parrot was expensive, yet the expectation that sales of all beverages under one brand would increase didn’t materialize. It turned out that fruit juices are seen as typical products in a healthful diet, but the same doesn’t apply to soft drinks. So each product occupied a different space on the market and had entirely different target groups. While sales for Relax juices rose, soft drink sales stagnated, as those who had formerly bought Walmark soft drinks were unable to identify with the new brand.

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