INTERVIEW: Hansgrohe

European pricing is in turmoil – the margin chain has been blown apart

Are the heavy online discounts on bathroom brands being offered by German wholesalers threatening the survival of UK showrooms? Hansgrohe UK MD Martin Mongan, and head of strategy and business development Joanna Williams, tell Tim Wallace why manufacturers can no longer ignore the issue and explain what they intend to do about it

We’ve heard all kinds of dire warnings and doom-laden predictions from bathroom retailers just lately, mainly about wildly differing pricing across European markets. Their complaints aren’t exactly new, but the issue seems to be coming to a head. Or at least, manufacturers are finally facing up to the fact that they have a problem.

The root of retailers’ concerns can be traced to German wholesalers like Reuter Bad who are selling branded bathroom products online at lower price points than can be bought from the official UK supplier. Some fear it won’t be long before these same wholesalers, or others, set up trade-style warehouses on the UK high street, offering branded products at far cheaper prices than established showrooms. Others warn that British bathroom stores are only one Reuter TV advert away from disaster.

We can sit there and pretend it’s not happening or we can say we’ve got to address this. The Hansgrohe goal is to have price parity all over Europe, plus or minus say 5%, but we can’t change overnight, because it’ll have too big an impact on all of us

To Ripples managing director Paul Crow, it’s a huge problem with no easy solution. Showrooms simply won’t survive if customers can buy below trade price. And the ongoing CMA (Competition and Markets Authority) investigation into bathroom supplier Ultra Finishing suggests suppliers who try to restrict online discounting back here in the UK will end up regretting it. The customer remains king.

Until now, German bathroom manufacturers have tended to shy away from the issue, fearing they’ll only make matters worse. But fair play to Hansgrohe UK managing director Martin Mongan and head of strategy and business development Joanna Williams, who are now happy to explain their position and used their recent UK Retailer Conference, at the Grove hotel in Hertfordshire, to inform customers what their strategic approach will be.

Joanna Williams, Hansgrohe UK head of strategy and business development
Joanna Williams, Hansgrohe UK head of strategy and business development

“The biggest debate in the Hansgrohe business had been whether to just ignore it or not,” Mongan admits. “We can sit there and pretend it’s not happening or we can say we’ve got to address this, which is what we did at The Grove on February 29.”

He also highlights that this is far from just a Hansgrohe problem, but agrees there’s been an element of “sweeping it under the carpet” from the wider industry. Understandably though, he also seems eager to play things down: “Most European brands can all be bought online at low prices,” he insists. “We’re more visible because of the importance the retail channel plays in the UK business. But all in the retail channel should be concerned, because potentially the existing business model is under threat, even though retailers tell us it’s not an everyday occurrence.

“If a retailer loses a £40,000 order because someone has seen significant discounts, it’s an absolute clear and present danger. But our retail business grew by more than 20% in 2014 and grew 15% last year. So it’s not having a day-to-day effect on all of our customers. And it’s a big leap of faith for people to buy a product from Germany to be shipped to the UK to be fitted by a UK plumber.”

He refers to a “trusted panel” of 12 Hansgrohe retailers whom he meets on a quarterly basis. “Half of them hadn’t heard of these German websites,” he claims, “and half say if someone comes in with an online price, it’s our decision to match the price or we walk away.

“Hansgrohe UK can’t be growing at the rate we’re growing at for somebody to be walking into our retail partners talking about a German website on a daily basis. We’ve got retail partners who grew 40% last year and 50% the year before. You can’t do that if someone is continually undercutting you.”

However, Mongan is prepared to admit that the whole industry’s pricing structure in Europe is “in turmoil” and that the margin chain has been “blown apart” by internet dealers like Reuter. “The view from the online channel is that they are going to singlehandedly realign European pricing,” he says. “They see an opportunity and are forcing the debate that needs to be had. They are questioning a 100-year-old margin chain that arguably could be seen as no longer fit for purpose. In summary, they say that they are a force for good for the industry, because they are making us question an old route to market.”

Price parity

To begin addressing the issue, Hansgrohe has just announced a new pricing structure to UK dealers. But Mongan claims trying to level the playing field too quickly will be disastrous for both suppliers and retailers. “The nuclear option for the industry would be to recommend price parity all over Europe by April 1,” he continues. “But potentially we take huge chunks of revenue out of manufacturers’ pockets, and out of our retailers’ profits. They could lose 30% turnover overnight from our products. That’s the difference between making a good healthy profit and maybe not. The Hansgrohe goal is to have price parity all over Europe, plus or minus say 5%, but we can’t do it in one go. It has to happen in the next two or three years. Rationally, we can’t change overnight, because it’ll have too big an impact on all of us.

“I sit in meetings every quarter and the topic of European pricing dominates the agenda. If it’s not happening in every other European brand’s boardrooms I would be surprised.

Joanna Williams has been with Hansgrohe since last August and has a solid commercial sales and marketing background with the likes of Brother in an industry that dealt with this issue some years ago. She admits she’s surprised how far behind the bathroom market appears, but is now looking at how the principles that have been used in other industries are transferable.

“What I’m fascinated by is why there isn’t a bigger debate around the potential solutions and strategies we can take from other industries,” she says. “Our mantra is ‘listen, learn, grow’. Let’s come forward into the 21st century a bit more and not ignore this. It’s real, it’s been a challenge in all forms of retailing for many years and we can’t hide from it as an industry.

german-online-cheaper WEB“We’re also looking at the end consumer in a lot more detail. How they’re buying, what’s their decision-making process and how does that affect us and our retailers. So we’re thinking about the strategies we deploy and one of them is pricing, but there are so many things that are also important, like customer relationships and service.”

So the current situation can improve? “It can and it has to,” Mongan says. “As manufacturers, we’ve got too many European customers saying I’m paying X for it in Poland and Y for it in the UK, why is there an X% difference? I can’t believe other manufacturers aren’t having the same conversations.

“There’s nothing to stop German wholesalers setting up here, but it’s not their current business model. It could become that, and if that happens, our two- to three-year strategy might have to be an 18-month plan! But in five years, we expect the bricks-and mortar retailer to still be a key part of the buying decision. If you look at the five most important buying decisions, number five is price. It’s about service, and people and experience, and then they want a good deal.”

So how does he react to Paul Crow’s suggestion that Hansgrohe should state in its trading terms that its products can’t be discounted online? “It’s completely illegal,” Mongan smiles. “Paul is being particularly provocative there.

“Our advice to retailers is to accentuate the things that make them different. The difference for us is in the detail. Why do people buy from us and not other manufacturers? Great products, service, advice and training. Find out the bits you do really well and focus on those areas.”

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