SPAIN: Spanish practices

When Xavier Bernat announced last week that he intended to open 5,000 Chupa Chups outlets world-wide, he was taken very seriously. It’s part of a growing trend where Spanish entrepreneurs are beating big brands at their own game by reproducing

As European leaders met in Barcelona last week to discuss the liberalisation of markets, one of the city’s top entrepreneurs was outlining his own plans for market domination. It was hard to decide which of the comments made by Xavier Bernat to Spanish business newspaper Expansion was more surprising.

Bernat, president of Chupa Chups, told the paper that the company was developing a “retail format” to sell its products through airports, train stations, department stores and shopping malls. But this would not be one or two outlets in key locations – Bernat said he was planning to open 5,000 stores around the world (MW last week), increasing turnover by 15 to 20 per cent. He told the newspaper: “Chupa Chups wants to do something similar to what Swatch has done.”

The watchmaker opened a chain of shop-in-shops and kiosks selling its products, and it seems the idea will be copied, but with lollipops and other sweets on sale rather than state-of-the-art watches. Swatch says it has about 1,000 of these outlets around the world, so Chupa Chups plans to dwarf even the Swiss watchmaker.

In a world of hi-tech, third-generation mobile phones and the Internet, there is something comforting in the success of an old economy product like lollipops. Chupa Chups has managed to inject creativity and branding into the selling of sweets, and last year reached a global turnover of some $490m (£343m), with operations in 170 countries. It claims to be world market leader in sugar confectionery, holding a 34 per cent share. The family-owned company has built its business over the best part of 40 years into one of Spain’s most successful exports and best recognised brands.

It is one of a clutch of Spanish brands that are attaining success around the globe, shaking up the markets they operate in and redefining their sectors. Since clothes retailer Zara arrived in the UK in 1999, it has, according to retail observers, done much to shift the balance of high street fashion – away from the dowdy clothes of Marks & Spencer or even Gap – towards value pricing and high fashion. The Mango chain, which arrived in the UK at about the same time has done much the same. Hello! magazine launched in the UK 14 years ago as a carbon copy of the Madrid-based original ¡Hola!, and created a market in celebrity publications.

Catalonia’s Freixenet Cava took the brand values of champagne, grafted them onto the sparkling wine, and now has sales approaching 100 million bottles a year. It may be too early to tell yet, but the Spanish home delivery chain Telepizza, which has 800 outlets in seven countries, has dipped its toe into the UK market and could soon be threatening the might of Domino’s Pizza and Pizza Hut.

Overseas expansion

The expansion of Spanish businesses overseas is attributed to the country’s heady economic growth over the past 20 years, and saturation of the national market. Javier Oliver, president of BBDO Spain and a professor of marketing at IESE business school, says: “The big boom in Spain started in the Eighties. We have been eager to be somebody, because Spain had been lagging behind for years. Greece, Portugal and Spain were always at the bottom of the list in Europe. The Spanish said, that’s it, we have 40 million inhabitants, but we are number five in Europe, we should get up there and do it better. Private investment went up, public investment went down and we started to be influential in the European Union, and you started to see Spanish managers in very big companies.”

He says that sectors such as banking, oil and telecommunications were protected from foreign competition during the Franco era and enabled them to consolidate to a sufficient size to be able to expand abroad and search for alliances and takeovers. He denies that there is any characteristically Spanish approach behind the overseas success of certain brands, but agrees that they have become more visible recently because Spain is the largest of the previously struggling European economies, which have all benefited from growth.

But the entrepreneurs share some attributes. The brand-led retailers and food and drink companies are driven by compact family management structures or individual entrepreneurs, giving them an individuality and personality lacking in many of the service companies that have made it big in the UK or the US. And while Richard Branson has adopted a “branded venture capital” approach, and Stelios Haji-Ioannou has been helped by his wealthy father, the Spanish entrepreneurs have generally been working for many years at refining their businesses before launching internationally.

According to Instituto de Empresa in Madrid (business institute) deputy general manager Antonio Diaz Morales, big corporations that dominate in the UK and the US tend to go all out for product launches, back them with heavy advertising and wait for the profits to roll in. But in Spain, where multinationals dominate most sectors and the peninsular is seen as an add-on for international product roll-outs, it is usually down to independent business people to launch local products.

Fast opening

Diaz says: “Trade distribution is key. Within five years of launch, Chupa Chups had 300,000 points of sale, which is an enormous achievement in terms of trade. At first, Zara put all its efforts into opening stores quickly, rather than advertising. It placed the emphasis on consumer values.”

He adds that the Spanish brands have been successful at encouraging fashions. For instance, Chupa Chups made a lot of the fact that Barcelona Football Club manager Johannes Cruyff was a constant consumer of their lollipops.

Zara’s founder Amancio Ortega is credited with turning fashion retailing conventions on their head. While most chains design products, then source them from different countries around the world – which often means it takes up to eight months for products to find their way onto shelves – Zara’s team of designers imitate styles from high-fashion catwalks and then have them produced at the company’s factory based in Asturias. This has enabled the chain to have up-to-date fashions at value prices, and achieving a turnover of $2.4bn (£1.7bn) last year.

According to Mintel retail analyst Richard Perks, last year Zara’s 11 UK stores turned over about £22m. He says: “Zara has hit the market at the right place at the right time, offering value for money and fashion when consumers are looking for just that. So many UK retailers are not responding to that demand, and that is why they are doing badly.”

According to UK publishing director Sally Cartwright, when ¡Hola! first launched in the UK in May 1988 as Hello!, many believed the magazine would fail. And she says that it struggled at first and would have probably been axed if it had been published by a big corporation. But the Sanchez family, which launched the magazine in Spain in August 1944, was prepared to carry the UK losses until the magazine became a success. Its last ABC audit put weekly sales at 526,000. The UK edition is Britain’s biggest magazine export, and is available in 68 countries. Cartwright says: “Hello! has genuinely found a gap in the market, which is very rare these days. The magazine enables people to gratify their sense of curiosity about wealthy people, without feeling guilty.”

Keep it in the family

She adds: “There are a lot of cultural differences. The family culture is very strong in Spain and it is a paternalist culture. A lot of the decisions remain in the hands of the owner.”

But she says it is not so different from working for a UK entrepreneur such as Felix Dennis. There are differences in what is acceptable in the UK compared with Spain – while Catholic Spaniards are more used to seeing dead bodies at open-coffin funerals, this is inappropriate in the UK. One picture that ran of the boating accident that killed Stefano Casiraghi, former husband of Princess Caroline of Monaco, showed his corpse lying in the water next to the boat. It ran as a small picture in the UK and generated more complaints than any other to feature in Hello!. But in Spain, it ran as a double-page spread without a murmur. Cartwright says that while pictures of celebrities or royalty being stretchered into hospital are inappropriate in the UK, they are acceptable in Spain, where the wounded often wave at photographers from their stretchers.

BBDO’s Oliver points out that a big difference between these Spanish entrepreneurs and others such as Luciano Benetton, Richard Branson or Stelios Haji-Ioannou, is that the Spaniards tend to be far less interested in promoting their own personalities behind the brands. He says: “They are usually private people, they are humble, they do not like to be in public places. It is difficult to know who is behind Zara or Mango. They work very hard, but do not show off.”

Names behind the brands

Zara – founded in 1975 by Amancio Ortega Gaona – now one of Spain’s richest men – of whom only two photos exist in public.

He began his working life as an errand boy for a La Coruna shirt maker, where he observed the high costs which accrued to having different companies undertaking different tasks in the production process.

He set up the fashion chain and sought to keep as much of its operations in-house as possible to keep costs down. He created holding company Inditex, which went public in May 2001, and is rated by analysts as having stronger stock than Gap and H&M. It has 1,100 shops under five fascias – Zara, Massimo Dutti, Pull & Bear, Berksha and Stradivarius. Its turnover for 2001 was $2.4bn (£1.7bn).

Mango – Set up by secretive entrepreneur Isak Andic, who began selling clothes in Barcelona’s street markets. The first store opened in the city in 1985 and the chain started international expansion in the early Nineties. In 2001, its turnover was £557m. It has 555 stores in 62 countries, including ten in the UK. It opened 80 stores last year. Its positioning is similar to Zara, with street styles at reasonable quality and low prices, but it has relied heavily on advertising and image building – it spends some Ptas2,000m (£7.4m) a year on ads.

Chupa Chups – founded in 1958 by Enric Bernat, it is family owned and run by Bernat’s son, the president Xavier Bernat. Some 90 per cent of its sales are outside Spain. It has used celebrity endorsements for its products – Madonna is a fan of them – and sells into the children’s and youth market, where it has achieved cult status among certain club goers.

Freixenet – Set up by the Ferrer family in 1861, it first started the Cava business – sparkling wine – in 1914. It began exports to the US in 1975, though it has taken the family some 20 years to establish a presence in the UK. Now run by president and family member Josep Ferrer Sala, it claims to have an 80 per cent worldwide share of the Cava market, and last year exported some 6 million bottles to the UK, 6 million to the US and 48 million to Germany.

¡Hola! – founded by Antonio Sanchez Gomez, editor of Barcelona regional paper La Prensa, in 1944 during Franco’s fascist dictatorship. It is now the third-largest circulation Spanish magazine and claims leadership in terms of advertising sales. It is run by the founder’s son Eduardo Sanchez Junco, who is editor of the Spanish edition and chief executive. His mother, Mercedes Sanchez Calderon, is president of the company and ¡Hola!’s art director.

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