CASE STUDY >
Emco: pre-packaged success
Written by: Kateřina Zapletňuková
Photo by: Jan Vágner

Zdeněk Jahoda

About 10 years ago Emco introduced a Czech name for cornflakes - now the company holds 35% of the local market.

IN THE BEGINNING of the 1990s, Zdeněk Jahoda didn't have a lot of money to start the import business he wanted to. But where there's a will there's a way. Jahoda, who had worked at an export company before the Revolution, started providing legal support to import/export companies, which gradually led him go into that line of business himself. In the beginning his company imported margarine and cereals from Europe - mainly from Germany - products that were quite new to the Czech market still bare after Communism. Jahoda focused on importing high quality products from famous trademarks, and in 1994 he realized that he could no longer sell German brands. "Czech customers were interested in foreign products, but eventually they wanted to have information about the products they buy in Czech," explains Jahoda. As a solution he came up with his own brand name - Emco, and sold German-produced cereals under a Czech trademark. In mid-90s Emco outsourced production from many European countries, including Slovenia, Slovakia and Poland. After a while, Czech-made cereals emerged on the market and Emco sold them as well. In addition, the firm imports such brands as Schwartau, Stollwerke, Carbonell and Panzani.

Step by step
In 1999 Jahoda decided that it was time to start his own production. "We realized that by making large orders to other Czech companies we are feeding our own competition," he says. "That was not a good long-term strategy." The same year Emco acquired its first production facility in Bohumín, which now produces the whole range of the company's instant products. The facility cost CZK 10 million, which Jahoda financed partially from company profit and partially through bank loans. The businessman never experienced serious problems getting loans from Czech banks. "Banks saw that our suppliers trust us and provide us with goods on credit - often more than we ask for. This served as proof that we are solvent," he recalls with a smile.

A second production facility emerged a year later in Brno, from former company warehouses. "We started from scratch in Brno and moved step by step, gradually acquiring equipment and people," says Jahoda. The factory in Brno specializes in production of musli and cereals. Last year Emco rented more production sites in Dobříš and equipped them with its own machines. This factory launched a brand new production line under the trademark Za minutku ("In a jiffy"). Sales of Emco-produced goods now account for 25% of the company's CZK 850 million annual turnover, while goods that they distribute make up 60% of turnover.

Advertising means educating
When Jahoda first started importing musli, local consumers hardly knew what it was. According to him, only about 12% of Czech households purchased musli. Several television advertising campaigns that targeted families with children helped raise this figure to about 30%. Jahoda says that now consumption of musli in the Czech Republic is higher than in the rest of Europe (and America), partially thanks to better taste. "Cereals were so unpopular among Czech consumers that it made us actively promote the product and come up with a Czech name," explains Jahoda. "We were the first company to start selling cornflakes under a the name "kukuřičné lupínky". Emco annually spends over CZK 50 million on television advertising, billboards and in magazines. The earliest campaigns for imported products were planned and co-financed by Emco and its foreign producers.

Highs and lows
Jahoda is convinced that his success is due to very cautious investment strategy and gradual expansion. This caution, however, is a result of hard lessons learned. In 1991 the entrepreneur invested CZK 20 million into a sales outlet that he bought in an auction. While interest rates for the loan he borrowed to finance his acquisition reached 20% annually, the store kept losing money. "I was the closest ever to bankruptcy," recalls Jahoda. This unlucky investment taught the businessman to be more careful considering acquisitions, and it also made it clear for him that supermarket chains are the best outlets for his products. Sales to chains like Ahold now represent 60% of Emco's turnover.
In order to avoid any conflict of interest, Emco does not distribute the same types of goods as those it produces, such as cereals and instant foods. Jahoda plans to preserve both parts of his business in the future. "We feared that with the EU enlargement, companies will want to operate on foreign markets directly. But meetings with my partners showed that the role of distributors will not diminish on the single market," says Jahoda. "Every country has its own peculiarities and distributors know them better than any producer," he adds.