Since joining Oettinger Davidoff as CEO almost four years ago, Hans-Kristian Hoejsgaard has been on a mission to transform the company’s culture and lift its performance – delivering a record fiscal year for the Davidoff cigar brand in 2013. He talks to Dermot Davitt about that process of transformation, about the role of travel retail and about the next phase of growth.
The Moodie Report: You are almost four years into your role as CEO with Davidoff and you have introduced a lot of change to the company in that time. How far along that road are you today?
Hans-Kristian Hoejsgaard: Change can be very difficult for an organisation to absorb, but it’s important you do it fast and that you communicate well about it. For us, it was about a cultural change, to globalise the mindset. It was not about understanding what is happening in Switzerland every day, but about what is happening in China, USA, the Middle East and elsewhere.
Also, in the past we had a very European, product-focused, export perspective. That was not unique to Davidoff. I remember at Seagram the division we worked in was called Seagram Overseas Sales, so it’s clear many companies have been through that process of change over the years.
Once we had introduced change in the culture, the attention turned to the mission – and we are around two-thirds into that journey – a journey first from product to brand, and now from brand to experience. It’s about how we can make the brand come to life at the point of sale.
 |
Hans-Kristian Hoejsgaard: “We want to make the brand come to life at the point of sale” |
That final third of this journey is where we are now, with an emphasis on the retail environments. We’re asking how we can best design our stores, and how they should look and feel. But also we’re talking about who we should align ourselves with in terms of sponsorship, what should we do digitally and in terms of social media. All of that feeds into the area of brand experience and it’s a very important next step.
Where does travel retail fit into this shift from product to brand experience?
Travel retail is very important and a huge area of focus for us. I have four senior regional managers – Christian Vonthron as head of travel retail but also regional heads of Americas, Asia and Europe. And when we all sit down and talk, I hear regularly from the domestic market managers that we need to put more resources into travel retail as ultimately that benefits the brand in their markets too. Those regional teams really understand the role that travel retail plays.
Is that principally about visibility?
It’s about that, but also about consumer engagement. Travel retail is at the crossroads of the business traveller, the leisure traveller, and reaches the core Davidoff consumer. We also have the opportunity to showcase what we do. We were the first cigar brand to do podium promotions at Dubai Airport, we have done more this year in Frankfurt and you’ll see more next year. Only travel retail can provide that platform of engaging a wider audience.
That also excites the retailer, especially as we introduce new products such as Davidoff Nicaragua. As you know, the shopper index among the cigar shopper is very high so even if cigars are 1% or less of total sales, the cigar buyer also spends well in liquor, perfumes and elsewhere.
Do enough retailers understand that connection and the role that cigar shoppers can play in the total store?
Not yet. It became clear to our partners in the Dubai and Frankfurt podium campaigns very quickly, because they could measure it. The cigar buyer who purchases US$200 to US$400 of product for himself is also inclined to spend heavily in other areas.
The role of cigars is also informed by the legislative agenda, where there have been some shifts over time. People are recognising that a premium hand-rolled cigar is not the same as a packet of cigarettes, and that is slowly being taken into consideration with exemptions for cigars in the retail environment. There are two key reasons for tobacco legislation and those are youth access and addiction, and neither pertain to cigars.
 |
The company is rolling out its new retail executions at more airports; pictured is Davidoff’s DFS-operated store at JFK T4 |
 |
 |
Ultimately, how would you like to see the cigar category treated in travel retail? Is there a mindset shift needed among airports and retailers?
The ideal for me would be that they buy into the need to create a retail experience, and I’m sad when I see the cigars just packed away in a corner, instead of trying to create that walk-in humidor feeling. It’s very similar to wines, where you have the cellar or cave dedicated to the category, and which you can create even in a small space.
Also, trained personnel make a big impact. Cigars and how they are sold used to be very different to P&C for example, but the gap is closing. We too have trained staff that know the product inside out, who speak the consumer’s language. That’s expensive as you are investing not only in the shop but the training of a retailer’s staff too – for each store with each operator in each airport. In the long term I would like to see us have our own staff selling in the airport stores.
Beyond that, we would like to test selling cigars in other departments. The obvious connection is with liquor, through Cognac, malts or premium rums. That could give an impetus to the category.
What is the strategy by geography today, and where you expect growth to come from in future?
There’s no question that Asia is an absolute anchor for us. We’re a looking at +13-14% growth in that region today compared to +7-8% overall, with the latter affected by the tough market in Europe, where business is flat at best. So Asia is part of our future, while the Middle East has potential but is relatively new for us. We only really became serious about it 18 months ago but now we have an office and a free zone warehouse in Dubai, from which we can supply our regional customers much more quickly.
In the Americas, we have invested, for example with our new store at JFK T4 with DFS – but the big growth opportunities will be Asia and Middle East in the coming years.
 |
The Davidoff Year of the Sheep 2015 Limited Edition aims to tap into growing interest among Chinese consumers for cigars; the edition is accompanied by a range of accessories (below) |
 |  |
What’s your China strategy today?
In our domestic stores in Beijing we feel the impact of the anti-luxury move but among Chinese travellers we have not seen any slowdown, except perhaps in Macau, where fewer people are going to gamble and spend money at the moment.
But we have done a lot of work with China Duty Free Group, remodelling 19 or 20 locations this year so far, and the business with them remains tremendous. Our three stores in Hong Kong Airport have been a huge success too. DFS is a key partner and we aim to continue that as they develop their new-look Singapore Changi operations.
Overall, you have to take the long-term view on China, which is a market of one billion people. For them, cigars are in the top three in terms of premium gifts they purchase – and we are tapping into that with our range of Chinese New Year gifts.
How will 2015 shape up for Davidoff, in terms of the roll-out of your strategy and your investments in the market?
It’s safe to say that 2015 will be our biggest year ever in terms of capital spending on new projects, covering retail expansions and renovations, as well as new stores. More and more retailers are coming to us about projects, recognising that we need more life in the tobacco department.
Finally, as you continue the journey to transform the business, how do you want Davidoff to be seen among your partners in the business and among consumers?
There are three key areas where we want to win. First, we want to be the innovation leader in our category, with a strong pipeline of new ideas and products. Second, it is about being the indispensable business partner, the category captain for the companies that we work with. And third, we want to win from a branding viewpoint. Davidoff should not just be seen as an origin, but as a brand that – wherever it is made – carries the hallmarks of quality and consistency.
