Big is beautiful. . . but small is successful!

Private label is Wepa’s bread and butter. The German producer has built a strong business on the back of the rapid growth of private label tissue sold through the retailers. Here we get the story from the company’s CEO.

Perini Journal

Martin Krengel, CEO of the German tissue maker Wepa, clearly enjoys telling a story from an industry meeting several years ago where the manager at a large multinational tissue company concluded his speech by declaring proudly that ‘Big is beautiful’.

“Suddenly,” says Krengel, “from the back of the room I could not resist shouting out: ‘But small is successful!’”

That, in a nutshell, is the story of Wepa: a continuous, and successful, struggle against the big multinational tissue companies.

Starting out in 1948 on a very small scale as a paper trader and eventually a producer of tissue paper in the Sauerland region of Germany, the company has grown into a 250 million Euro tissue company today.

INDEPENDENCE IS THE KEY. While Wepa has seen very solid, and steady, growth in sales over the years, Krengel gives no indication that he wants to grow simply to become bigger. Discussing the company which was founded by his father, he has another goal in mind. With Wepa today equally owned and run by a senior management team that includes himself as well as his two brothers Wolfgang (Management, Engineering and R&D) and Jochen (Management, Purchasing, Logistics and IT), Krengel is very clear about what his number one priority is.

“We want to remain a family company, active in the local community, making a very important contribution to the regional economy. That is our overriding goal. We see all the other objectives as contributing to this most important goal. The aims to be a low cost producer, make high quality tissue, offer superb customer service, invest in the latest technology and protect the environment are all closely related to the primary goal. We have to be the best to remain independent, so we invest continuously to achieve that”.

Wepa, which takes its name from the words Westphalian Paper Mill, reflecting the Westphalia area in Germany in which it is located, today has a tissue capacity of about 220,000 tons per year. The company operates seven paper machines at three mills in central Germany. The mill locations are at the headquarters in Arnsberg-Müschede, which started in 1948; Marsberg-Giershagen, which began in 1961; and Kriebethal/ Sachsen, in the former DDR, which was brought into operation in 2001.

The company’s market share in Germany is about 18%, with a small portion of its tonnage being exported outside Germany.

Consumer tissue accounts by far for the largest part of the business, at 75% of turnover. Away from home tissue is 15% of sales and sales of jumbo tissue rolls and deinked pulp account for 10% of the turnover, which in 2004 was more than 250 million Euro.

STAYING AHEAD WITH TOP TECHNOLOGY. Exploring, and using, the latest technology is a means that Wepa has used very successfully to grow the business. To be able to offer a full product line in tissue including toilet, kitchen, hankies and facial in a very wide variety of formats and specifications, Wepa has installed very modern and flexible equipment. It is the owner of numerous extremely modern converting lines including the Sincro LX line that was installed in 2004 and the TIME line that is now being installed, both by Fabio Perini S.p.A..

To get the most out of the machinery, Wepa works very closely with its suppliers such as Fabio Perini S.p.A. to develop its technology and products. “We use the supplier’s competence and knowledge to help us with both product and process development,” explains Krengel. “We are not a giant company that can afford a big R&D staff, so we find it extremely practical to rely on the supplier’s resources to help us. They are doing basic research for us, and we can benefit from that”.


Wepa has a tradition of being very careful with its finances. “To start this company,” comments Krengel, “my father left the secure position as CEO in the nearby Sundern paper mill. He took a risk and basically started with very little. When in the late 1950s he decided to make paper instead of just trading it, he bought two old second hand paper machines. He was always very prudent with capital spending. That tradition of financial discipline and caution lives on today. While we have some extremely modern and flexible paper making and converting equipment, we continue to be very cautious about investments. In a small company like ours, you may not survive if you make a bad investment decision”.

The technology, and the possibilities it gives Wepa to produce very high quality products with enormous flexibility, has been a key tool used to gain even further market share at the expense of brands. Krengel explains: “Today, we work hand in hand with the retailers. Private Labels (PL) are certainly no longer just a cheap alternative for brands; they are the driving force in innovation. The retailers cooperate with us very closely on the product and package development phase to see which formula is just right for them. We can try a very wide variety of solutions to find the right one. They value the competence we can offer as they develop their own store brands”.

PARALLEL DEVELOPMENT IN RECENT YEARS. Instead of being ‘me too’ products, PL have become very respected quality products in Germany, says Krengel, due to the parallel increase in both quality and market share. As PL has gained market share, PL producers have invested to make better products, which in turn led to further gains in market share. This cycle has continued with PL gaining market share and improving quality up to the point where it is, at around 80% of the market in Germany now. As far as Martin Krengel is concerned, producer brands don’t have a very good future in Europe. As mentioned, private labels or retailer brands already average about 80% of the market in Germany and around 55% in Europe as a whole.

Krengel does not think that tissue brands will disappear but that PL will continue step by step to gain market share.

“What are the brands doing these days? Nothing, as far as I can see, except cutting prices to try to gain market share. I can’t think of a single example of a breakthrough innovation by the brands recently. The innovation these days is really coming from the PL side where we can match and even exceed the quality that the brands have to offer”.

Private label consumer tissue is the heart of Wepa’s business. The focus on PL has been a very important vehicle for growth as Germany has become a market dominated by private label tissue products, brought about mainly by the enormous growth of the hard discounters such as Aldi and Lidl over the past decade or so. “I think the retailers will continue to invest in their own store brands with big efforts in marketing to support those products”.

KRENGEL IS, NOT SURPRISINGLY, CONVINCED THAT THE ADVANTAGES OF A SMALL COMPANY FAR OUTWEIGH THE DISADVANTAGES. As far as the strengths that Wepa has, he names high level of investment; closeness to customers; fast reaction time; and low production costs as the major factors giving it an advantage over the big multinationals.

“As a private company, we don’t have to give a big share of the earnings to the shareholders. My brothers and I are happy with the salaries we get and don’t need to take out the earnings for ourselves. So we can reinvest at a very high level. We can also react and move very quickly when necessary, taking decisions on the spot instead of going back to headquarters thousands of miles away. We also have always had a tradition of technical innovation, working closely with the machine suppliers, to make the best products at the lowest cost”.

One of the weakness or threats that Krengel cites is the risk that comes with big investments. “For all the advantages that a small company has, one weakness is that we really can’t afford to make a big mistake. Big companies can make big mistakes and live with it, but if we make a bad business decision we are exposing the company. That keeps us very sharp and makes us work very smart”.

One decision that he has pondered very carefully over recent years is the possibility of making Through-Air-Dry (TAD) tissue.

When the company added its latest paper machine, the number 9 at Kriebethal, it very carefully considered TAD. In the end, it decided against TAD because it could not see that the payback was there, due to higher production costs and, most importantly, no perceived advantages for the customers.

JV WITH GOMÀ-CAMPS. As an important part of the strategy to remain independent, Wepa is now working to become a more international player. It was recently announced that Wepa has formed a joint venture with Gomà-Camps of Spain. The fit is quite natural as Gomà-Camps is a family owned company specialized in AFH tissue in the Spanish and Portuguese markets.

Under the 50/50 joint venture, the new company, called GC&Wepa, is building a new converting plant which will start in April this year at a site in Ejea de los Caballeros near Zaragoza, in northeast Spain. GC&Wepa will concentrate on consumer tissue for the Spanish, Portuguese and French markets.

“We see it as a very good fit, as they get more into the consumer sector and we spread our European reach”, Krengel says, adding that the wider reach is needed to follow their customers, the retailer groups, who are spreading over Europe.

“Our customers are becoming more Pan-European, so we must be there too. At the same time we, as always, have to make sure that it makes economic sense. The deal with Gomà-Camps does that and the chemistry between the companies is very good”.

EAST IS NEXT. Eastern Europe is also on the agenda for Wepa, as the company has a sales office in Poland and is looking to expand further in the East. “We need to do something in Eastern Europe. As the big retailers take larger positions in the East we need to be there with them so we can offer them the volume and economies of scale needed to keep costs down. We are certainly considering projects there”.

When asked about the timetable, Krengel looks at his watch and says: “It is a little too early to announce anything but we should have something further to say in the next few months”.

As the CEO of the only family-owned and managed tissue company still operating in Germany, Krengel is certainly proud of that fact. But he says it is sad that there aren’t more. “We are truly a family company as we have a personal relation with every employee. This is far different from the global giants that are more driven by quarterly earnings, and see their share price rise when they lay off thousands of people. Our motivation is to remain independent and to eventually transfer the management to the third generation. I should add that my brothers and I are young and in no hurry to move on! But our dream is to be a stand alone company for future generations. It is very satisfying to prove that we can challenge the global players and succeed”. •

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