Matth. Hohner AG

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Matth. Hohner AG

Andreas-Koch-Strasse 9
D-78647 Trossingen
Germany
Telephone: (49) 07425-20-0
Fax: (49) 07425-24-249
Web site: http://www.matth-hohner-ag.de

Public Company
Incorporated: 1857
Employees: 426
Sales: $68.2 million (2001)
Stock Exchanges: Stuttgart
Ticker Symbol: HOH
NAIC: 339992 Musical Instrument Manufacturing

Matth. Hohner AG is the oldest and largest producer of harmonicas in the world. The German firm also makes accordions, percussion, and woodwind instruments and distributes musical goods made by other firms. Hohner products are available worldwide, with the United States accounting for almost half of sales. K.H.S. Musical Instrument Co. Ltd. of Taiwan owns controlling interest in the firm, while the descendants of founder Matthias Hohner hold 9 percent.

19th-century Beginnings

Hohner’s founder and namesake, Matthias Hohner, was born in 1833 in Trossingen, Germany, on the edge of the Black Forest. Trained as a watchmaker, Hohner became interested in the musical instrument known as the mouth organ, which had been developed in Germany beginning in the 1820s, and began making experimental versions. The mouth organ (later known as the harmonica) was a handheld instrument that had a series of parallel holes which contained small reeds. When air was blown through, they vibrated to produce different tones. The reeds were tuned to a musical scale, and the instrument had two sets, which allowed a tone to be made when inhaling as well as exhaling.

In 1857, after months of experimentation, Hohner began producing mouth organs for sale, and, with the help of an assistant, he built 650 during the year. Hohner proved to have a knack for marketing, and demand soon outpaced production, which led to the hiring of more employees. In 1862 the rapidly growing company began exporting to the United States, one of a growing list of countries in which the firm’s instruments were becoming available.

Part of Hohner’s success was due to the nature of the instrument. The mouth organ offered a distinctive sound, was highly portable, and was inexpensive to purchase, which made it attractive to consumers. At the same time, music stores could easily stock them on a small upright display at the front counter, which yielded high visibility while utilizing only a small amount of retail space. Hohner’s instruments were emblazoned with an elaborate, engraved emblem which instantly identified his products and made them stand out from their competitors. He also realized consumers’ need for diversity, and his mouth organs were made in a wide variety of different musical keys and styles. The company’s offerings began to gain a reputation for quality, and in 1873 at the Vienna world exhibition the firm received the first of many honors for its harmonicas.

By 1877 Hohner was employing 86 workers at his factory in Trossingen who were making more than 85,000 instruments a year by hand. In 1880 the first machines were purchased to automate some aspects of production, which increased output. The company’s growth continued to be strong, helped in part by the many immigrants to the United States from Germany, who took with them an interest in the harmonica. In 1887 several additional Hohner workshops were opened in other villages around the area to meet the rising demand. During these years Hohner established a paternalistic relationship with his employees, which paid off with strong loyalty and minimal labor strife.

In 1896 Hohner created the Marine Band harmonica, named after John Philip Sousa’s famous musical group. The new model would become an enduring classic, favored by a wide range of musicians, especially in the folk and blues fields. Sousa himself was engaged to assist in the instrument’s promotion, and his endorsement was featured in ads and on the harmonica box itself.

Early 1900s: New Leadership, Continued Growth

In 1900, two years before his death, Matthias Hohner transferred ownership of the company to his five sons. By this time the firm was selling 96 percent of the 3 million harmonicas it made each year in the United States, and the turn of the century saw the company open an office in New York City. In 1906 and 1907 competitors Hotz and Pohl of Knittlingen were purchased, and in 1909 the company became known as Matth. Hohner AG. By 1913 the company’s 3,000 employees were producing 10 million harmonicas a year.

Popularity of the instrument remained high during World War I, and Hohner supplied instruments to armies on both sides of the conflict through its neutral Swiss branch as well as by using cover addresses and other tactics. By 1920 the company was employing 4,000 workers and producing 20 million harmonicas a year. At this time Matthias Hohner’s grandson, Ernst Hohner, was named chief executive.

The 1920s were a golden age for the harmonica, and Hohner was the leading brand name in North America, supplying the majority of instruments sold there. At the end of the decade the firm acquired rival harmonica makers Christian Weiss and Andi’s AG. In 1931 Hohner branched out into music publishing and also founded a musical conservatory and the German Harmonica Association.

The company continued to place a strong emphasis on marketing, which included encouraging schoolteachers to get their students to take up the instrument, as well as the creation of harmonica orchestras, schools, and clubs. Attempts were also made to develop the instrument’s appeal to classical musicians, though this did not succeed. Numerous popular musicians took up the harmonica, however, and many folk, blues, western, and hillbilly recordings of the era featured its familiar warbling sound. This exposure in turn helped increase sales, as did its use by celebrities (such as silent film comic Buster Keaton and boxer Max Schmeling), many of whom happened to have been given their harmonicas by Hohner.

1930s-40s: Accordions and the German War Machine

The 1930s saw the company making great numbers of accordions, keyed instruments that used air pressure created by squeezing to vibrate tuned reeds. The market for accordions was especially strong in Germany, where they were used as a solo instrument and in small ensembles. By 1939 the company had 5,000 employees.

With the rise of the Nazi party and the subsequent war in Europe, Hohner was enlisted to produce detonators for the German government. The company installed its first mechanical conveyor systems to facilitate this work, which was mostly done by women. Hohner had earlier made harmonicas imprinted with swastikas, though the Nazi party took issue with the practice, considering the symbol’s use on Hohner’s product a trivialization. The harmonica was dismissed by many Germans, due to its association with “degenerate” American jazz and blues music as well as its relatively primitive nature.

Still, production of harmonicas continued during the war years, and following Germany’s surrender the company again turned its full attention to instrument making. The partition of the country by the Allies was relatively painless for Hohner, as Trossingen was located in democratic West Germany, which recovered from the ravages of war more quickly than did the Communist-ruled East. The company did face a number of obstacles, however, including the consolidation of Hohner’s main competitors in East Germany and the subsequent closure of markets behind the iron curtain, as well as the expropriation of the firm’s Shanghai office by the Chinese. The Japanese also began to market harmonicas to other Asian countries, cutting into Hohner’s presence in that region.

Despite these challenges, by the early 1950s Hohner was again producing great numbers of its instruments for worldwide consumption.

Stagnation in the 1960s

The rise of rock and roll music in the latter half of the decade coincided with a precipitous drop in sales of harmonicas and accordions, however, and the company failed to adapt to the situation, resulting in a prolonged period of decline. Some attributed this to the leadership of Ernst Hohner, who after many years at the helm had difficulty seeing that the changes in popular music constituted a long-term trend, rather than just a fad that would soon die out.

In 1960 Hohner’s New York City office was moved to Hicksville, New York, where the cost of doing business was much lower. In 1962 Hohner began producing recorders, tube-shaped wooden instruments that users blew into while fingering a series of holes to make different tones.

Though there was a resurgence of interest in harmonicas during the early 1960s (both Bob Dylan and Beatle John Lennon played Hohners), the company’s response to the opportunity was muted. As a sign of its inability to connect with the teenage market, Hohner’s Beatle harmonica misidentified Paul McCartney and George Harrison on the instrument. In 1965 longtime CEO Ernst Hohner retired after 45 years in charge of the firm.

The continuing depressed state of harmonica sales led the company to pursue other areas of production, and in the mid-1970s it began serious work on developing electronic instruments. Hohner also began to make some harmonicas in the United States at this time, the first being a 64-reed model designed by virtuoso performer Cham-Ber Huang.

Company Perspectives:

Successful companies have a guiding principle. In the case of Matth. Hohner AG, this principle combines over 100 years of experience and awareness of our own tradition, with the capability and competence to be innovative and creative. The wishes of our customers define our actions. This has enabled our company to develop from its modest beginnings in 1857, into a firm which today is synonymous with high-quality musical instruments, skilled craftsmanship and technical expertise.

1980s Challenges

The year 1982 saw Hohner’s U.S. base of operations move to Richmond, Virginia, from Hicksville, closer to incoming shipments of German instruments. In 1986 the U.S. division formed Hohner/HSS with instrument makers Sonor and Sabian to distribute musical instruments such as guitars and cymbals. Hohner/HSS also later began selling guitars under its own name.

With revenues shrinking and losses piling up, the company reached a crisis point during 1986 and 1987. Hohner was forced to make sizable layoffs, and the total number of workers dropped to 1,000. In 1989 controlling interest in the company was acquired by Kunz-Holding GmbH & Co., a wood products manufacturer with sales of approximately $1 billion. Kunz obtained 67 percent of the public firm, with the Hohner family retaining an 8 percent stake.

Despite this turmoil, Hohner was having some success with educational musical instruments, marketing items like the Rainbow Harmonica, introduced in 1994. This product featured four color-coded holes and was designed to enable elementary school students to quickly learn simple tunes. Other rhythm instruments for schools were marketed under the Play & Learn name.

Late 1990s and Beyond

In 1997 Kunz-Holding sold most of its stake in Hohner to HS Investment Group, Inc., a Virgin Islands-based arm of K.H.S. Musical Instrument Co. Ltd. of Taipei, Taiwan. K.H.S., which had been founded in 1930, had factories in Japan, Taiwan, China, and the United States, and employed 1,000. The firm had annual revenues of $90 million. Hohner had experienced two consecutive decades of annual losses at this point, with red ink totaling DM 4.5 million on revenues of DM 177.2 million during its most recent fiscal year.

Though the company still produced the majority of harmonicas made worldwide, it was feeling the heat of competition from Japan and China, and it soon began looking to those countries for cheaper sources of parts. Following the K.H.S. takeover, the company’s board had been stocked with its appointees, and in late 1997 they voted to transfer some production to K.H.S. plants overseas. The company’s less expensive, “entry-level” harmonicas would be made there, with the professional grade models continuing to be assembled in Trossingen. Other efforts to bring Hohner back to profitability saw the work force slashed from 858 to 598 during 1997, with the staff at Trossingen cut from 493 to 200.

More job cuts were made the following year as the struggle to get back on track continued. Other restructuring moves included streamlining the organizational hierarchy, combining production and administrative operations in Germany at a single site, and revising product offerings to bring them into line with consumer demands. Units that sold electronic products and pianos in Europe were divested, and an infusion of cash from both K.H.S. and Kunz-Holding helped the company pay down loans of DM 20.5 million. The restructuring also saw Hohner experiencing turnover at the top, with several changes in board members and executives.

In early 2000 Hohner moved its U.S. subsidiary into a new headquarters in Glen Allen, Virginia, just north of Richmond. The U.S. division subsequently announced a joint venture with Playful Harmonies, a six-year old company specializing in musical products for children, to produce a combined line of instruments and activity materials. The company’s fortunes were starting to improve, with sales in both France and the United States picking up. At this time percussion instruments accounted for nearly half of revenues, with wind instruments 37 percent and other types 17 percent. For its fiscal year ending March 31, 2001, Hohner posted its first profit in more than 20 years, making DM 4.76 million on sales of DM 151.7 million.

Recovering at last from a long period of decline, Hohner was nearing its 150th birthday in better shape than it had been in decades. Though the world market for harmonicas would likely never again approach the heights of the early 20th century, the Hohner name and reputation for quality were still strong, and the reconstituted company faced the future with good prospects for continuing profitability.

Principal Subsidiaries

Sonor GmbH; Hohner, Inc. (United States); Hohner/HSS Inc. (United States); Hohner U.K.

Principal Competitors

Boosey & Hawkes plc; Roland Europe SpA.

Key Dates:

1857:: Matthais Hohner begins making mouth organs in Trossingen, Germany.
1862:: First Hohners are exported to the United States.
1880:: New machinery boosts manufacturing efficiency.
1887:: Annual production tops one million.
1900:: Matthais Hohner passes control of firm to his sons; the first office opened in the United States.
1907:: Company acquires competitors Hotz and Pohl.
1920:: Ernst Hohner takes over as CEO; production of harmonicas hits 20 million.
1930s:: Growing numbers of accordions made, largely for the German market.
1940s:: Hohner produces detonators for German military during World War II.
1950s:: After a postwar recovery, market for harmonicas enters long decline.
1965:: Ernst Hohner steps down as CEO.
1980s:: Company focuses on production of electronic instruments.
1986:: Hohner’s U.S. subsidiary forms distribution arm HSS Inc. with Sonor and Sabian.
1987:: Company cuts work force to 1,000.
1989:: Kunz-Holding GmbH purchases two-thirds of Hohner stock.
1997:: K.H.S. Musical Instruments acquires majority ownership and restructuring begins.
2001:: Hohner reports first profits in two decades.