Tchibo GmbH

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Tchibo GmbH

Überseering 18 22297
Hamburg, Germany
Telephone: (49) (0)40 6387 0
Fax: (49) (0)40 6387 2600
Web site: http://www.tchibo.com

Wholly Owned Subsidiary of Tchibo Holding AG
Incorporated: 1949
Employees: 12,796
Sales: EUR 4 billion (2005)
NAIC: 311920 Coffee and Tea Manufacturing; 454113 Mail-Order Houses; 454390 Other Direct Selling Establishments; 722213 Snack and Nonalcoholic Beverage Bars

Tchibo GmbH operates Germany's top chain of coffee shops. The parent company, Tchibo Holding AG, also controls Beiersdorf AG. Tchibo claims to be the largest purveyor (by value) of roasted coffee in several European countries, including Germany, Austria, Poland, the Czech Republic, and Hungary. In addition to more than 1,300 coffee shops of its own, Tchibo also sells its beans through the Internet, mail order catalogs, and via a "store-within-a-store" program at roughly 50,000 bakeries, drugstores, and supermarkets. Awareness of the Tchibo brand among Germans is reportedly 99 percent.

A defining feature of the company's business model has been the consumer goods its coffee shops started carrying in the early 1970s. Updated on a weekly basis (every Wednesday), these impulse-oriented offerings have included items as diverse as tennis racquets and lingerie (the latter of which has spawned a small chain of intimate apparel stores in Germany). Tchibo has also pitched mobile phones and airline tickets. The combination of coffee and well-priced, quality nonfood items keeps customers coming back, and helps the company weather the ups and downs of the coffee and consumer goods markets.

ORIGINS

Tchibo was formed in 1949 by Max Herz and Carl Tchilling-Hiryan. Its mission was to sell coffee by mail. The brand is said to be a contraction of Tchilling's name with the Bohne, the German word for "bean."

Tchibo opened its first coffee shop in 1955. By 1958, the company's Gold Mocca brand was Germany's top-selling coffee. A long-running series of television ads helped sustain the brand's momentum though the 1960s. Around 1963, the company began establishing outlets in existing bakeries, the beginnings of its "shop-within-a-shop" concept.

Tchibo opened a new coffee roasting facility in Hamburg in 1964. Max Herz died the next year; management of the company remained in the family, led by his son, Günter Herz.

BRINGING NONFOOD ITEMS INTO THE BUSINESS MODEL

Tchibo Café Service was established in 1972 to supply the office and food service market. (It would become an independent subsidiary of Tchibo Holding AG in 1994.) The company was finding novel ways to connect with customers. It launched what would become a popular consumer goods program with a cookbook, which sold 250,000 copies within a week. Tchibo soon moved on to items such as watches and shirts.

Tchibo bought a minority holding in Beiersdorf AG, maker of Nivea skin care products, in 1977. The company diversified further in 1980 when a controlling interest in Reemtsma Cigarettenfabrik GmbH was acquired. The moves helped counter slowing domestic coffee sales.

According to Britain's Financial Times, the German coffee market contracted by a quarter in the early 1980s. At the time, Tchibo had 500 of its own shops and a presence in another 8,000 independent bakeries. Total revenues were roughly DEM 2.3 billion, with one-fifth of sales coming from the consumer goods program, which had expanded to sports equipment (even surfboards) and discounted electronics, much to the ire of certain specialist retailers and stereo manufacturers.

HOLDING COMPANY STRUCTURE IN 1988

Tchibo Frisch-Röst-Kaffee AG was renamed Tchibo Holding AG in 1988. The coffee business was transferred to the subsidiary Tchibo Frisch-Röst-Kaffee GmbH (later called Tchibo GmbH).

Tchibo International was formed in 1991 to take the brand to new countries. Tchibo soon had 600 coffee shops across Europe, including the former East Germany, where Tchibo promptly built a leading position following reunification of East and West. The first Russian outlet opened in St. Petersburg in 1994. In addition to the shops, new roasting facilities were established in Hungary and Poland. In the Czech market, Tchibo began by contracting roasting to a local company (Balirny Jihlava) while supplying its own packaging equipment.

Tchibo's range of coffee products expanded notably around 1992. Previously focused on whole beans, it added vacuum-packed ground coffee, which proved instantly successful. So was its new instant coffee, sold under the Picco brand.

The marketing of non-food items was refined in the mid-1990s. Henceforth, the line-up of about two-dozen products would be changed every week, organized around themes such as "Beach" or "Office." The novelty kept customers coming back, while accelerating their purchasing decisions. An official told Britain's In-Store that demand for more products than the coffee shops could carry was what initially prompted the rotation of stock.

ACQUISITION STRATEGY LAUNCHED IN 1996

Tchibo launched an aggressive acquisition strategy around 1996. It acquired control of rival Eduscho coffee group in 1997. Eduscho brought with it a number of facilities in Eastern Europe.

Tchibo was also becoming an early adopter of the Internet as a sales channel for consumer goods as well as coffee. Within a few years, its site was established as Germany's second leading e-commerce destination after www.amazon.de.

After losing DEM 209 million at the unit in 1997, Tchibo closed 200 underperforming coffee shops to restore the coffee division to profitability. Parent company Tchibo Holdings AG ended the 1990s with sales of about DEM 19 billion (EUR 10 billion; $9 billion).

New sales territories breached in 2000 included England and Romania. The mail order catalog program was extended to Switzerland, followed two years later by the country's first Tchibo shops. The Netherlands was entered in 2004.

COMPANY PERSPECTIVES

Established by Max Herz in 1949, the name Tchibo has stood for freshness and quality in the coffee market for over 50 years. The original mail-order coffee company has grown into a multinational enterprise, active in many more sectors than just traditional coffee retailing. Over the years, Tchibo has consistently expanded its range and number of sales channels. Its strong brands guarantee variety and quality worldwide. The Tchibo GmbH is a wholly-owned subsidiary of Tchibo Holding AG, which leads and manages the Tchibo Group's portfolio of company participations and stakeholdings.

A weekly magazine was launched to support the consumer merchandise program in 2000. It had a circulation of about one million and featured general interest articles and a television schedule. According to the European Retail Digest, the company was soon counting more than 850 coffee shops and 48,000 "shop-in-shop" placements; a quarter of the latter included non-coffee merchandise as well.

A CHANGE OF LEADERSHIP IN 2001

Günter Herz resigned as Tchibo's chief executive in 2001 after 35 years at the helm. The move was said to be a result of differences in opinion with the rest of the family-controlled board over the company's future direction. Günter Herz and his sister Daniela left the company a couple of years later.

The board decided to ditch cigarettes in favor of cosmetics. Reemtsma, maker of the West, Davidoff, and Peter Stuyvesant brands, was sold to Imperial Tobacco Group Plc in 2002 for about $5 billion. Tchibo Holdings had increased its holding in Beiersdorf AG to 30 percent in 2001 and 49.9 percent by 2003. The next year, it attained a majority 50.46 percent interest.

Italian-style espresso drinks were becoming a worldwide phenomenon and Starbucks, the American popularizer of the trend, had its first stores in Germany by 2002. For its part, Tchibo was upgrading the Vienna roasting facility it had acquired with the Eduscho purchase.

In 2004, the coffee business, Tchibo Frisch-Röst-Kaffee GmbH, was renamed Tchibo GmbH. Tchibo was active on many fronts. The French catalog l'Homme Moderne was acquired in the same year. Tchibo began selling O2 mobile phones in its stores through its Tchibo Mobilfunk joint venture. It was also bringing its store-within-a-store concept to Britain via a successful partnership with the Somerfield grocery chain.

An instant coffee packaging plant was opened in Russia in 2004. However, the next year Tchibo shut down its Budapest roasting facility to spare the expense of upgrading the facilities there.

Tchibo brought out a new home coffee machine in 2005. Called the Cafissimo, it was billed as a single machine capable of different brewing methods. An instant coffee called Dueccino was also introduced.

By this time, the company had more than 1,300 coffee shops. It claimed to be the largest purveyor of roasted coffee (by value) in several European countries, including Germany, Austria, Poland, the Czech Republic, and Hungary.

Tchibo's coffee and retail business reached EUR 4 billion in revenues in 2005. It had about 13,000 employees, two-thirds of them in Germany. The parent company Tchibo Holding AG, which included a majority interest in Beiersdorf, reported total revenues of EUR 8.8 billion and 30,000 employees.

Tchibo was expanding sales of lingerie, which it had offered in its coffee shops, into a new series of stand-alone lingerie boutiques in Germany. However, slower consumer spending in the country made international growth a priority, officials told Frankfurter Allgemeine Zeitung.

PRINCIPAL COMPETITORS

Kraft Foods Inc.; Melitta Unternehmensgruppe Bentz KG; Nestle S.A.; Sara Lee Corporation.

KEY DATES

1949:: Tchibo is formed to sell coffee by mail.
1955:: Tchibo's first coffee shop is opened next to its Hamburg plant.
1963:: Tchibo begins supplying coffee through bakeries.
1972:: Tchibo Café Service is established.
1973:: Nonfood consumer goods are added to the product lineup.
1977:: Tchibo acquires minority holding in Beiersdorf AG.
1980:: A controlling interest in Reemtsma Cigarettenfabrik GmbH is acquired.
1988:: Holding company structure is formed.
1991:: Tchibo International is formed to take the brand to new countries.
1994:: Tchibo accelerates the pace of its consumer goods program, introducing collections of new items on a weekly basis.
1997:: Tchibo acquires rival Eduscho for a reported DM 200.
2004:: Tchibo begins selling O2 mobile phones in its stores; the retail coffee business is renamed Tchibo GmbH.