echo-interview with Ralph Siegl, Managing Director, Läderach Chocolatier Suisse

elipsLife echo:  Given the increasingly health-conscious times we live in, it looks like sugar could soon become the new nicotine. Chocolate consumption seems to be unaffected. How do you explain this phenomenon?

Ralph Siegl: Sugar becomes the target of criticism, above all, when it’s found in food where it doesn’t belong. Chocolate, however, is something to be savoured and here sugar is an important ingredient, also in superior-quality chocolate. That said, we do take particular care not to add sugar to any of products where this is not warranted.

Founded in Glarus in 1962 as a confectionary company, Läderach was for a long time a supplier to the confectionary industry as a whole. It was only after its acquisition of the Mekur chain in 2004 that it began to build up its own network of outlets. What prompted Läderach to make this move?

As a family-run business, Läderach always wanted to remain independent. At the beginning, the founders did not have the funds to establish their own sales organisation. Consequently, the company developed as a successful B2B player that supplied high-quality semi-finished and finished products. The dream of setting up their own retail outlet in Glarus did not become reality until the 1980s. The focus remained on B2B operations however. The changes in the structure of the retail trade, including the demise of the corner shops, underlined the company’s dependence on sales intermediaries. This development strengthened the desire for independence and to open their own stores, something which culminated in the acquistion of the Merkur chain.

But there’s far more to it than just purchasing a chain of stores...

Indeed. Following the acquisition, there was Jürg Läderach with 46 shops and a great deal of knowhow but no consumer brand, And because the Merkur suppliers refused to deal with the new owners for competitive reasons, the newly acquired shops were unable to offer a full range of products as had been the case in the past. At that time, Läderach had neither the product capacity nor the brand to make up for the gap in supply. So there was a need for a consumer brand. When in 2006 I joined this family business from Nestlé, one of my tasks was to develop the brand that was wanted. Through combining retail competence, experienced craftsmanship, superior product quality and successful consumer goods marketing, we’ve managed to create the brand experience as we know it today.

In 2012, Läderach opened its own chocolate factory in Bilten, making the move from confectioner to chocolate maker. Does Läderach produce exclusively in Bilten?

We produce the chocolate mass exclusively in Bilten. The reasons for wanting our own production were the success of our brand and our freshly made chocolate as well as the need to stay independent, this time in respect to the raw material used. Every confectioner buys in the raw material and benefits from the value added that comes from processing this material. For decades, Läderach also purchased the chocolate mixture, the so-called couverture, from specialist Swiss producers. However, we realised the more successful the company became, that we had become dependent on the suppliers of our main raw material. Bold entrepreneur that he is, Jürg Läderach consequently resolved to produce the couverture himself. Our handcrafted products for our consumer brand are produced exclusively in our headquarters in Ennenda. Since the 1980s, we also have a facility in Dillenburg north of Frankfurt. From here, we supply semi- and fully finished products to the German and international B2B markets.

Doesn’t having your own chocolate factory require completely new knowhow?

Buying and processing chocolate as a semi-liquid raw material is one thing. But handling eveything yourself,  from the cocoa bean to the end-product, is quite another. There were new things to think about, like finding the right kind of cocoa and identifying suitable source of supply. We were faced with questions ranging from technology, sustainability and product quality to agricultural conditions, fermentation processes and drying methods. Back in 2012, we were still purchasing cocoa beans on the world market. Since the end of 2015, however, we’ve been getting almost 99% of our beans directly from qualified cocoa farmers in Latin America and West Africa. We want to develop long-term partnerships with these growers based on personal contact.

From cocoa bean to retail outlet, you are the only verically integrated chocolate maker in Switzerland. Please expain.

As you infer, we handle everything ourselves, from the cocoa bean to our own retail outlets. We control all stages in the process and always live up to our philosophy as a “chocolate familiy.“ Läderach is tiny; in the trade we’re huge but compared to the industry as a whole we’re minnows. The world market produces 5 million tonnes of cocoa beans annually. We just about manage to process 400 tonnes.

Where are Läderach’s most important markets?

The most important are in Switzerland with 40 retail outlets and Germany with 12. New stores are regularly added to the familiy. Our “Swiss sensitive“ markets are also important. Among these are Asia, especially Japan and South Korea, where we’ve been active for years now. In the US, we’ve been working for more than 25 years in the high-end food service sector. Currently, we’re also growing strongly in the Middle East.

And how do you service these regions?

Apart from the US, where we’re only involved in B2B business, we have retail stores everywhere. In Germany and Switzerland we manage these  outlets ourselves and in all other markets we do it with partners. We take great care that our brand appears in a consistent way in the world market. In the beginning, it was important to establish a strong brand recognition in Switzerland. We were gratified to learn that the most recent survey on our brand recognition showed that almost 10% of all Swiss name Läderach as their favourite chocolate.

The competition in Switzerland is enormous. How do you manage to stand up to your famous rivals?

Läderach positions itself through freshness and chocolate expertise. If you’re going to demand over 100 Francs for one kilo of chocolate, you shouldn’t have to distinguish yourself through quality. This is a given. The brand experience is the key. Our target customers are urbane with sophisticated tastes. I like to make the comparison with the torn Armani jeans. We are really high-end but want to stay approachable. I know this is a balancing act but it is directly connected with our fresh chocolate value proposition: Simple recipe – perfectly executed. It’s no coincidence that nowadays Italian cuisine is the only one that’s gaining market share worlwide: best raw ingredients, excellently prepared, simple. This approach generates approachability, warmth and authenticity. I believe our brand positioning and our fresh chocolate offering has enabled us to successfully deliver on this promise.

How many people does the Läderach Group employ?

In Switzerland we have around 650 employees, of these over 400 in Canton Glarus.  In Germany there are approximately 100 people in the Dillenburg location and a roughly equal number in the various Läderach shops. Associates in the shops managed by our partners abroad do not have a Läderach employment contract.

In your view, what does an entrepreneur need to bring to table to be successful?

There are several factors: One of them, certainly, is the pursuit of an idea, the drive to undertake a project in company with others. Then you need the tenacity never to lose sight of this goal. And, of course, to derive enjoyment from what you’re doing  and the courage to take a risk. Lastly, entrepreneurs need the requisite modesty to surround themselves with the right people at the right moment.  There’s the well-known saying about heroes always knowing where to get help.

Does the topic of old-age provisioning come up when Läderach interviews job candidates?

We have to differentiate between management and other staff members. In the case of management, pension questions are a major topic, whereas with 80% of our staff they play a surprisingly minor role. This difference could also be explained by the fact that in Glarus we employ many lower wage-bracket people with migrant backgrounds. For these employees, their wage packets at the end of the month are front of mind and not how much pension they are going to draw 30 years down the road. That said, provisioning for old age remains one of the strategic pillars of our employer brand. This is significant because at the beginning of this year, Läderach adopted a new structure, which integrates the four divisions we used to have into one entity. It’s in this context that we’re also considering which kind of scheme – comprehensive insurance or an in-house, semi-autonomous pension fund – would be more sensible for our 650 employees in Switzerland.

With its 3-pillar structure, Switzerland has a highly developed old-age pension system that combines government and private schemes. How do you see the future of this system?

My personal opinion: the more private the better! The more time goes by, the less we’ll be able to rely on the state. For my part, I don’t anticipate getting anything more from the AHV.  If you look at the AHV projections up to 2030, a hike in value-added tax seems very probable. I believe that more incentives need to be created to develop private provisioning for old age and to lighten its tax burden. It doesn’t have to be an anglo-saxon type, share-based scheme. But we need something like a fourth pillar that you can buy into on a private basis.

Private implies individual responsibility. So you’re saying that developing the AHV as the first pillar is not an option as far as you’re concerned?

You have to differentiate between legacy management and introducing the young genration into a new system. Merely handing over 70 Francs to every pensioner  is not a viable way forward. From a demographic standpoint, the contract between the generations, as we know it today, is no longer going to work. The youngsters now beginning to pay their contributions should pay into a new system. To manage the “fading out“ of the old system will require a different way forward.

Currently, the redistribution towards increasing government involvement enjoys a lot of popular support. The prospects for private solutions don’t look good because there’s too much intermingling of the two models. Using a“shotgun approach“ to find one solution that suits everybody no longer cuts it. Demographic developments clearly demonstrate that the old system based on the contract between the generations is no longer feasible. So we can’t beat this problem with universal, generic means. On the contrary, we must take far more sophisticated, nuanced approaches to finding the right solutions.

What’s your view on more flexibility in respect to the reirement age?

Personally, I would support total liberalisation. If someone wants to work up to the age of 70, then he or she should be free to do so. And I don’t see any reason why women and men should have different retirement ages. The flexibility principle should be enforced as far as possible, not least because of the new working models.

Is the reform of the 2020 proposal on pension provisioning a topic in your company?

Not yet. I’m beginning to study the matter in more detail also because of the restructuring of pension provisioning at Läderach that I’ve already mentioned. I’m not focusing on technical questions here but rather on the mindset and philosophy behind it. The trend towards more government involvement in these matters is getting out of hand in my view. I’m not a supporter of the “nationalisation“ of this topic. It can’t be a good idea to take away an individual’s own responsibility and have this managed by the state instead. Moreover, I have great respect for the contract between the generations. Young people are justifiably no longer prepared to finance a standard of living benefiting the older generations that can only be maintained with the help of indebtedness at their cost.

Our ageing society and low interest rates are putting pressure on pension funds. Are they – and indeed all of us – going to fall victim to promises of benefits we can’t finance?

Theoretically, the pension funds could look at placing their money in investment properties. We, too, received offers from investors who wanted to build our factory in Bilten and make it available to us on the basis of a 30-year rental agreement. This would have been a smarter way to invest their money than paying negative interest. The pension funds’ performance mandate stipulates what they’re permitted to do and what not. And this is where we get back to individual responsibility: There would be less money sitting with the pension funds if more people took it upon themselves to make their own privisions for old age. I don’t think the pension funds will fall victim to their business model, provided they’re allowed to exercise their entrepreneurial freedom. But as far as their investment options are concerned, they’re stuck in a very tight government corset.

Should recipients of old-age benefits also help to recapitalise the pension system – or are already acquired pension rights a taboo topic?

Intuitively, I would say that already acquired pension rights are taboo. These were promised and the recipients did pay their contributions in return. If we want to arrive at a politically viable solution, we’re going to have to leave pension rights as they are. But I certainly wouldn’t think about raising them.

If you could give the pension funds a piece of advice, what would it be?

They should lobby for more entrepreneurial freedom in order to achieve their goal of serving the needs of an increasingly individualised clientele. It’s been my experience that in most cases everything turns out well provided you leave entrepreneurs to get on with it.