About the development of franchise chains, the effect of the pandemic on supply chains, the quickly developing market of storage areas, and the current economic hazards – an interview with Krzysztof Tokarz, the President of the Specjał Capital Group.
The pandemic has changed the situation of many production and trade companies. How has it impacted your business?
The beginnings of the pandemic were hard for many of us, there was much fear, uncertainty, sometimes panic. Some shop owners decided to close their businesses. GK Specjał – perversely speaking – gained on the pandemic. Rational action helped us handle the chaos appropriately. The maximum safety of our employees came first. All of them were given face masks, safety gloves, disinfectant liquids, and other disinfectants. Secondly, we decided not to interrupt our operations. Our consumers were served on an everyday basis, of course, in compliance with all principles of safety.
Furthermore, GK Specjał trade representatives were present at trade establishments every day. If not in person – as there were some stores that did not accept such visits – they fulfilled their duties by telephone. Such activities made our turnover rise significantly at the beginning of the pandemic, especially since we had support from both warehouse personnel and drivers. Of course, later months brought legal restrictions of trade, such as senior citizens’ hours or reduction of the acceptable number of people in stores. However, the category of small and medium grocery stores gained a lot during that period. Thus, our company has recorded growth as well.
Most importantly, we have gained the trust of our customers. The consumers knew they could rely on us in that difficult time, where other companies could not rise up to the task. They failed to deliver the goods, trade representatives of many producers did not visit the shops… At the same time, our employees were performing their duties with the due diligence.
May 2021, you have opened your 10 000th franchise store under the Specjał group of companies. What number of shops do you currently have in individual trade brands?
Indeed, our 10,000th store was an important achievement, also because we have actively participated in its modelling. This is a large establishment in the town of Górno, owned by the Eko Górno company. The owners are greatly satisfied with joining our chain; upon the conversion of the store, its turnover grew by as much as five times. Although they were surprised by such a high profit, we had anticipated such a result.
We currently have more than 10,700 stores and we plan for all of our franchise chains, i.e. Livio, Rabat Detal, and Nasz Sklep, to have 11,000 trade outlets by the end of the year. It is common knowledge that the period before Christmas is a difficult time for contract signing, because everybody is focusing on the sales of goods and customer service. However, I believe we will manage to implement all of our planned projects.
2021 was a time of very intense development. This might be due to the fact that the previous year (of a highly pandemic nature) had greatly weakened any changes. For a store owner to decide to accept the franchise, prolonged talks and signing of an appropriate contract are necessary. First, however, you need to show the benefits to a franchisee joining our chain. The pandemic highly limited any interpersonal contacts. In view of this, although the previous year had seen an increase, it was not as high as this year.
You intend to open 11,000 stores by the end of the year. What will the next year be like? Do you plan any visual changes, or maybe technological changes in stores?
We are working all the time to make our franchise stores look better and better. A shop has to change and to attract, not just by prices and assortment. Visual issues and additional services are important too. This can be seen in Western countries where a shop is not just a place for shopping but an institution where you can settle many important everyday matters. We have a range of projects we implement at our own establishments (we own 60 such stores); this is where we test them in a sense, checking the level of customer satisfaction, to introduce the proven solutions to franchise networks as the next step. We intend to operate and develop our stores according to this scheme.
Our plans are certainly very ambitious, as we have already set forth our objectives for the next two years. One of them is to open 14,000 stores. This is a truly ambitious task, since this scenario will make us gain approx. 1,500 stores annually. At the same time, it is worth keeping in mind that, unfortunately, we are losing many shops as well. They shut down for different reasons – competition, the age of owners, bad financial results… The fulfillment of our plans means much intense effort, so we have to prepare for it very well. We are also working on supplying our stores with a very wide range of products.
In what new categories would you like to expand it?
Our assortment is wide and varied. Looking globally at the entire company (19 branches across Poland), we offer 20,000 SKUs on store shelves. At the same time, we strive to support local producers and their goods, also because customers look for such an offer. It would be a grave mistake to overlook this.
We surely want to develop. Several years ago, we entered the category of alcohol and now we are among major market players. We intend to repeat this success, we can see much room for development. We are also developing the dairy category, which is difficult – largely due to short shelf lives – but crucial. We have introduced packaged products in the cold cuts category, but we are still trying to develop in this segment. Given the fact that we already have cold stores and refrigerator lorries in almost all branches, it would be a shame not to use such technological resources. We are watching the fish segment closely and are thinking about fish in jars with longer expiry periods. Our franchisees expect such changes, so we are do everything to handle them.
Coming back to your plans – I think opening of 14,000 stores under a franchise sign is feasible, given that Specjał has performed a couple of successful acquisitions. How attractive is the retail trade market today in terms of investment?
I would begin by explaining how to determine the attractiveness you are talking about. Namely, some distribution companies have benefitted from the coronavirus situation, so the attractiveness of the investment market is quite small. The conditions on the market are too good for someone to want to sell their shares.
We would like the volume of small and medium stores to grow all the time. We know there are stores that will unfortunately shut down, especially the poorly-managed ones. However, we can also observe an increase in volume. We are dynamically developing, having achieved virtually 100% growth over three years. This is a very high increase, characterized by growth that is higher than the market dynamic. Many distribution companies are interested in leaving this market, which is not good. We like competition because it means stimulation to act. It is important that companies improve their quality and I believe a great deal of them do so. This market has many Polish distribution companies that are doing great.
This is something to be proud of, as almost all companies had begun from scratch, and now they are building organizations that compete with large potentates with vast capital. We fare similarly, as we have built a very large organization over those 31 years, employing 5,500 people.
Coming back to the question – we conduct many talks, but no spectacular transaction has been completed yet. In the previous year, we bought the company of Mr. and Mrs. Kolonko from Wągrowiec, yet that was a small investment we had decided to make in view of our area of interest. I hope we will soon reach consensus with a large company and complete an acquisition.
Nationwide retail trade needs excellent organization in the area of permanent supplies. How do you develop the storage area, logistics and transport? What investment outlays in these areas have you incurred recently? What are the objectives and amounts?
The expansion of our assortment and the increase of the turnover would obviously be impossible without investments. This year, approx. PLN 30 million was invested to increase storage areas. I mean the purchase of new shelves, warehouses or vehicles (we have contracted as much as 120 of the latter). Of course, we are still erecting new warehouses, e.g. in Ostrowiec Świętokrzyski, where the floor area has been doubled. In Pruszcz Gdański, we are at the stage of constructing a warehouse increasing the surface area by another 1,000 m2. In Leszno, we have additionally built approx. 500 m2.
The case was similar at our warehouse in Krapkowice, where, apart from the area expansion, we have added a canopy and wind protection. Last year, we built more than 1,000 m2 of additional storage area and offices in Rzeszów. In Czeladź, we increased the storage area as well, and there were quite a lot of such projects indeed. Our warehouse rental stage had ended and we increased the floor space by 1,200 m2. A similar situation was in Warsaw where we have added the same amount of space.
To sum up, we are constantly expanding our storage areas. This also makes us an attractive partner to developers who own warehouses. We also plan investments worth PLN 30-50 million annually. We are thoroughly analyzing the investment market.
The pandemic has made e-commerce popular, especially in the area of FMCG, and the prognoses are impressive. Do you intend to use e-commerce in your operations?
Yes, we have such plans and we are implementing them. We are completing the project of opening our first online store in Rzeszów. Upon testing, this project will be introduced in other cities. I think that in six months, we will be offering this solution to our franchisees.
You repeatedly stress that GK Specjał is in an excellent financial situation. Please tell us how it translates into cooperation with suppliers and what are the benefits for your franchisees and trade partners.
On one hand – we do have very good financial results, and for many years. They are mainly connected with the trade sector, but the security and medical sectors that we have been developing have their shares too.
On the other hand, we can also boast a very rare phenomenon – profits have not been taken out from the company for 31 years. We have invested all of our capital in development, and money is used, among other things, to make cash purchases. We buy as much as 70% of the goods for cash, and sometimes we even make prepayments to support manufacturers who struggle with the fulfillment of production. This is very important, the producers appreciate it a lot, because there are few companies on the market today that achieve very high turnover and are reliable at the same time.
Due to our financial stability, we are a very good partner for cooperation. It is also because of our high flexibility, as our attitude to payment deadlines is not overly stringent. As much as we do want payments to be made within an appropriate time, a customer will very often agree upon an investment with us, then he builds a store, expands his store and stock… and then we jointly arrange for a longer payment term and a higher credit limit. We do so for the customers to have a smooth entry into the market, so they would not have to take out a loan from a bank. Actually, we are a quasi-bank for our customers, yet we are quite flexible in this regard. There is system of blocking right after a failure to pay the due amount. For this, we have a separate department of control of receivables, making decisions on potential unblocking of the given customer and on shipping the goods (even though the customer has not paid for them). All of it depends on whether or not the customer has any explanation for the entire situation. Of course, the case is different with customers who are repeatedly in default with payment. We act more stringently towards them, because common sense dictates so.
You are a 100% Polish company. Does it help the business?
I think it helps a lot. It might not be helpful with regard to producers, since most of them are international corporations. It is no matter to them if they trade with a Polish company or a foreign one. As for our customers, shopping patriotism is highly noticeable. It seems to me that the development of our company is caused by the fact that customers trust us. We can communicate in Polish, we can tell each other sincerely what is good and what is bad. Another very important thing is that many customers have my telephone number and know they can always call me. It is also highly important that any problems occurring in cooperation are resolved on an ongoing basis.
We have talked a lot about development. What hazards do you see? Much is being said about manpower shortage, high inflation, transport problems.
These are truly serious hazards and we are surely not the only ones to experience them. Particularly puzzling is the shortage of drivers and warehouse staff – we have no such problems with other jobs. We are trying to react very quickly. We wait for no decisions from London or Lisbon, but we are able to respond here and now. Contact with me is virtually instant. We respond quickly because, above all, we have to deliver the products to our customers; this is our principal duty.
Many hazards to small-sized trade had been predicted as early as 2000. Yet I think the volume of small-sized stores will remain in Poland for many long years. This is unusual on a European scale, as there are no such stores anymore in many countries of the EU. Similar predictions have been formulated for our trade since 2000, and yet it is late 2021 and the market is thriving. The stores are making money and their owners are satisfied. This is a result of a great deal of work, commitment, not only in the physical aspect but also in the mental one, which generates enormous responsibility.
To wrap up, how do you think the retail and wholesale trade would be changing in Poland? What do you think about unassociated stores, do they have the right to exist, or are their days already numbered?
Franchise chains are the future of unassociated retailers. Sooner or later, I think many of them will face the decision: either close the store or enter a chain. Of course, I highly recommend and invite you to our chains: Nasz Sklep, Livio, Rabat Detal – they are waiting for you! Having joined a franchise chain, a retailer receives assistance in the form of better purchasing conditions and a broadly understood business support.
Sometimes it also entails critical remarks that we direct to poorly-managed stores, but we do so in good faith. It is worth following them and being open to changes. Simply speaking, the world is changing! The market is changing and every forward-thinking entrepreneur has to learn constantly and to follow the trends. Digitalization and customer communication are unquestionably among them.
Thank you for the interview.
Tomasz Pańczyk, President of the Fischer Trading Group Publishing House