echo-interview with Beat Hauenstein, CEO of Oettinger Davidoff AG

elipsLife echo: Mr Hauenstein, Davidoff enjoys a superlative reputation among cigar connoisseurs. Is this the result of first-class marketing or of an exquisite product?
Beat Hauenstein: As with many things in life, it's either the one or the other, but rather a combination of both. Marketing is important to drive the success story of the brand. But at the end of the day, it's not only the story that needs to be compelling but also, and more importantly, the quality of the product.

What distinguishes a really good cigar?
From harvesting to retail (crop-to-shop), all components have to be of the best. As an innovation leader, we attach great importance to using tobacco varieties from different sources, whether from The Dominican Republic, Nicaragua, Honduras or Brazil. This way we're able to surprise our customers with a wide variety of cigars with differing character nuances.

Oettinger Davidoff AG operates globally. What are your most important markets?
Currently, it's the US, the biggest market for cigars worldwide. Switzerland is important for us too, where we've achieved a very high market penetration. We're gaining market share in both these geographies. Spain, Germany and UK also show great market potential, as do some regions in Asia. China, although strongly regulated, has especially great promise.

Your company is committed to a crop-to-shop philosophy. What are the advantages of this approach?
Thanks to this crop-to-shop approach, we're able to control the quality of the seeds and the harvest through to the retail stage. For decades now, Davidoff cigars represent the very highest quality and consistency in respect to flavour profile, regardless of whether the year's been dry, too wet or too hot. The crop-to-shop philosophy means we have all components under control. This way, we're able to ensure cigar oficionados always have a pleasurable experience with our product.

Smoking is becoming increasingly stigmatised. The tobacco industry has lost countless court cases and is subject to ever stricter regulatory requirements. Does this only pose a problem for the cigarette manufacturers or is the cigar industry also affected?
Indeed, both the cigarette and the cigar manufacturers are impacted, and in equal measure. Since it manufactures billions of individual pieces, the cigarette industry can more easily cope with the additional costs generated by these regulatory requirements, costs which meanwhile have reached absurd proportions I might add. For us serving the pleasure smokers, it's far more difficult to absorb this impact since we only manufacture comparatively modest quantities of hand rolled premium cigars. The regulatory requirements arise from the WHO Framework Convention on Tobacco from the year 2005. These increase the complexity of business processes, which in turn drives up costs, with no added value either for us or the customer. They have a negative impact on our margin and, in the long run, reduce the attractiveness of the business.

How can you counteract this development?
We just have to accept that the trend against smoking is a fact of life.  That said, I do think that the need to smoke for pleasure will remain. We need to react positively to this negative trend. In the future, sophisticated cigar creations won't be the only way we at Oettinger Davidoff seek to satisfy our customers. To secure our commercial future, we intend to go on boosting the efficiency of our processes. "Efficient, compliant market access" is the order of the day. This approach will enable us to be active in as many different markets as possible. This is also an opportunity for us, especially since we've already begun at an early stage to lay the groundwork for more efficient processes, extensive documentation and a consistent supply of information, as per the regulatory requirements.

In your view, what are the ingredients of entrepreneurial success?
Crucial factors without doubt are the employees and their willingness to do their very best for the company. For me personally, employees' mindset is also important. There's little point if someone has excellent specialist knowledge but not the right attitude to enable him or her to commit to the company. Walking the talk is another key factor: You have to actually do what you say. This generates credibility, positive results and a healthy culture. And you also need innovation of course, not only with your products but also in respect to processes.

Oettinger Davidoff employs over 3,600 people worldwide. Does the topic of old-age provisioning come up during the recruitment process?
Indeed it does. This topic is front of mind for our employees. We try to meet this need by holding regular pension fund information events. This strong interest reflects people's need from a certain age to find out as much as possible about life after 65.

Even though old-age provisioning is one of the country's chief concerns, the last 20 years have not seen any reforms. Now it seems that the restructuring of the first pillar will be combined with a revamp of the corporate tax system. Is this a good idea?
I don't think so. You can't conflate two completely different subjects like this. It's a mistake to assume you can treat these questions as if they belonged together. Cross-subsidisation is not the way to solve this problem because costs should be covered where they arise. This is the only way to avoid unintended consequences. We're all living longer and enjoying a greater prosperity. This doesn't come free. Politicians find it difficult to be honest about this reality. They want to be elected to office again after all. Perhaps I'm seeing this in overly simple terms. But you just have to come to terms with the fact that a longer life has a higher price.

Demographics and low interest rates mean that the pension funds are under pressure with more and more of them cutting back on benefits. Could these developments undermine benefits promises and, in turn, the significance of the second pillar?
I definitely think so. This goes back to my earlier response: You've got to readjust the price tag. To ensure the sustainability of the first and second pillars, you'll have to raise contributions. Not everyone can afford private provisioning in the form of the third pillar. The fact is that following deductions for medical insurance, rent and child day-care centre etc, many people have nothing left for the third pillar. So in my view, the second pillar will remain very significant.

Should government do more to support the third pillar in order to take pressure off the first and second pillars?
I ask myself whether that's fair because, as I said, many people just can't afford the third pillar. It's about how best to structure the third stage of life. You should try to be fair and not only take stronger account of demographic realities but also of people's economic resources. We should try to avoid one-sided measures that just benefit those who can afford the third pillar.

Should pensioners also be asked to contribute towards the financial restructuring of the benefits system, or are already secured pension entitlements a taboo topic?
This is a politically sensitive issue. However, I am decidedly of the opinion that pensioners should be asked to do their bit as well. We all benefit from the warmth of the same sun, in the same way that we all draw benefits from the same pension fund. And also in regard to life expectancy and prosperity, we're all in the same boat and experience the same developments. If this restructuring is to be socially equitable, then all participants should play their part.

If you could give some advice to the pension funds in Switzerland what would it be?
All of them should retain as much of their autonomy as possible, so they can decide their own fate. In this area too, an increasingly heavy regulatory burden is driving up costs and the need for evermore specialised knowledge. So pension funds are joining collective foundations in increasing numbers. In my view, this trend is not in the interests of the second pillar. Employers can only then offer a system of benefits to employees, provided they're also able to introduce their own views and values.