‘Let’s increase demand for kitchens together…’
Kirk Mangels, managing director of German kitchen lobby group AMK, tells Tim Wallace why European kitchen markets need closer cooperation and warns of the threat posed by Chinese manufacturing giants
This month’s issue puts a special focus on major international industry associations that have similar roles to those in the UK – but anyone seeing parallels between the AMK in Germany and our very own KBSA would be wide of the mark.
Rather than being a retailer association, the AMK is an industry-wide lobby group set up and run mainly by manufacturers, but with retailers as associates. A parallel in the UK would be a body like Amdea – the Association of Manufacturers of Domestic Appliances – or the BMA. But, as KBSA corporate chair Malcolm Scott explains, it’s really a coming-together of various bodies with manufacturers agreeing to “pool resources for the good of the whole sector”.
An annual ‘Kitchen Day’ is organised, for example, where manufacturers agree to run similar advertising programmes and fund ‘in-store’ promotions on the same day. This is supported by the retailers – most of them in buying societies working closely with manufacturers to strongly promote the day.
There are almost no genuine independent retailers in the German kitchen sector. Instead, they’re all signed up to one of the few very large buying groups. They all sign agreements, so individual retail members are expected to participate in any activity supported by their particular buying group.
“UK business culture, and indeed that of France, Spain and Italy, is really very, very different. Which is why Der Kreis [The Kitchen and Bathroom Buying Group] have simply not been able to export their formula to the UK,” Scott explains. “Buying groups in Europe are not cooperatives, as is the traditional model here – Sirius for example. They are privately-owned and very profitable management service providers.”
Combined buying group purchases in Germany are estimated at €460 billion, with groups representing 45 different sectors and 230,000 German companies. This is unique to Germany, with buying group purchases running at 15% of the country’s entire GDP. In many sectors, up to 70% of all purchases are through buying groups.
“The AMK is a great thing for the German kitchen market, but relies on a couple of dominant manufacturers setting an agenda several big buying groups sign up to. Then every other player in the market simply has to sign up to,” Scott continues. “In the UK, I cannot see the time ever arriving when Symphony, Crown, JJO, Sigma 3, Moores and Omega will sit in a room with Electrolux, Whirlpool and BSH and agree to work together to create general consumer demand – and then in turn get Howdens, B&Q, Bunnings, Wren, in-toto, Ikea and the independent sector to participate. Our culture is much closer to the US model, where individual players are not willing to give up a chance to beat down a competitor for the greater good of the industry.
“We like a good ‘bun fight’, while the Germans prefer order. We like the ideal that the consumer is king and must have choice, while Germans believe a more orderly market is better for consumers, because large amounts of choice only confuse them. We believe consumers control the market; the German model proposes manufacturers must control the market to maintain order.
“I sometimes wish we were more like the German model. As a commercial director I’m a full-time trader, buying and placing stock in a very volatile, fast-changing, consumer-driven market – with suppliers who have absolutely no discipline.”
So, can UK suppliers and retailers learn anything from the German business model? AMK managing director Kirk Mangels was happy to tell us more about the association, compare and contrast the two markets, and examine the threat posed by the rise of Far East manufacturing…
Q: Why has it taken so long for buying groups to take off in the UK?
A: At the very beginning, the buying groups had big problems, because retailers were buying direct. They were not aware of the advantages of working in a buying group. It will take time. Buying groups are growing, but not as fast as people imagine. But if UK retailers get a big advantage, they will step in.
Q: Are you surprised it’s taking time?
A: Yes, but maybe manufacturers don’t want strong partners on the other side. For the industry, it’s easier to negotiate with a retailer than a big buying group. Suppliers have a lot of advantages that as a retailer you can’t have. But I don’t know the situation in the UK market to explain why it’s not working.
Q: How could German manufacturers go about becoming more successful in the UK market?
A: Most importantly, listen to the market and learn what to do. Admit that in other markets people want to buy differently. When UK people are buying German kitchens, they mostly want a high-level design. So the big demand is in a small price range. That makes it difficult to have some kind of UK retail structure to be able to sell enough kitchens. I think the German companies can learn a little more about having a retail structure there that’s accepted by the market.
Q: There’s a view that the German kitchen industry prefers order and cooperation – Hausmesse and ‘kitchen days’ – but the UK prefers more competition. Is that true?
A: Yes and no. We have different interests. AMK’s special interest is to increase the demand for the modern kitchen. So, even though they are strong competitors, they are thinking about increasing the demand together.
We have a subsidiary in China and we also want to increase the demand for the modern kitchen there, but all companies are competitors.
We’re not just Germany-based. We have a lot of other foreign members – Austrian companies, French, Swiss, Dutch, Turkish… We want people to buy better kitchens and more of them, and we are doing a lot of standardisation together.
Q: Does the UK have something to learn about working together for the greater good?
A: I think this would be very, very helpful – to develop the market together. And if some of the UK companies want to be members, or step into our meetings, they are happily invited. Maybe it’s a smart way to build up their own association in the UK, doing comparable work to what we’re doing. It’s also a good way to cooperate with other associations.
Q: How worrying is the Brexit process?
A: German kitchens sold in the UK are mostly in the upper price range, so they’re not so price-sensitive as they would be if they were in the big competitive area of the market. But it will depend on the exchange rate. We’re slightly concerned, but we have no big concerns. We’re confident it won’t have a big impact.
Uncertainty over deliveries may make some German companies slightly decrease their focus on the UK. Then you will see a little bit of impact, but retailers and partners for the likes of Häcker, Nobilia and Schüller are working together and there are no big concerns that it will change. It could be that German kitchens are more expensive in the future, because of the exchange rate.
European products in general will be more expensive, but this will not change much. We have to see how the exchange rate will develop. In German election years, demand calms down, but we’re very confident that towards the end of the year we’ll have equal sales to last year.
Q: Do you anticipate other players failing?
A: I don’t think so, no. For some companies there has been overcapacity, but there are other companies who are enlarging their capacity this year – two of our big players are expanding production.
Q: Should UK companies broaden their scope?
A: Europe is very competitive and there won’t be any big new markets developing there. So we have to discuss markets like China, India and Russia, where income will increase and a lot more households will be able to buy a proper kitchen.
In China, market research suggests there will be nine million kitchens sold with a cost higher than $5,000 dollars. This market will be bigger than the whole of Europe is now. If we’re not successful, there will be companies selling these kitchens – very big companies.
We all have the same interests. We want the Chinese to buy more European kitchens. If we don’t do it, big manufacturers will deliver them in China and in 20 years’ time it will be the other way round. They’ll say, ‘now let’s conquer Europe’.
The market is changing fast. The Chinese are developing a lot of their own kitchen retail stores. Some companies have more than 2,000 of them in China. Chinese kitchen manufacturers are growing very fast, 30% to 40% a year.
Q: Are they copying German designs?
A: Yes, but you can’t stop this development because they’re using the same machines. The Chinese are smart and will get smarter, and in the end they’ll have the opportunity to build to the same quality. But at the moment, for the next five or six years, we have a big advantage, because our quality and knowledge is higher. But we need to take this chance, because afterwards it will be very difficult.
Q: We’re already seeing their influence with the takeover of Siematic…
A: Yes, they’ll be able to buy some market share to buy some companies. At the moment, Haier is doing it with GE in the US. Haier realised it’s very difficult to get market share there, so they decided to buy a market share with about 10% from GE.
This is the same outlook we have for furniture businesses as well.
Q: What are the likes of Nobilia, Häcker and Schüller getting right?
A: They have a very good size, they have good capacity, they have very good production-oriented processes, they have very good logistics working with the retailer, which is very important – and they are delivering a fantastic service. So they’re doing a good job working with their partners and that’s what makes them especially successful.
Q: Despite the problems for in-toto, will franchising be a growing trend?
A: Yes, franchising helps the retail side to move easily into the business and for suppliers to keep up the quality from the other side. So, especially for markets like China, where it’s difficult to get perfectly educated people, it’s easier to do it as a single brand or franchise.