June 01, 2011
Vorwerk: Long-Term Success
by Barbara Seale
Achieving longevity requires that a company embrace change while remaining thoroughly committed to its core corporate principles. So maybe Vorwerk can school us.
Since Carl and Adolph Vorwerk founded the company in 1883, Vorwerk & Co. KG has grown and prospered by staying close to its customers, encouraging entrepreneurship and offering products of exceptional quality. When the company entered the direct selling industry in 1930, this method of distribution gradually became its core business. Today the company’s divisions sell in a variety of ways: party plan, person-to-person, networking and even door to door.
Vorwerk (pronounced vor-VERK) has remained family-owned throughout its 128-year history. Executives have carefully made every decision with a long-term mindset, steering the company to a leadership position on Direct Selling News’ list of largest companies. For 2010, it ranked as the fourth-largest direct selling company in the world.
So why doesn’t the name Vorwerk jump to mind when you think of industry leaders? Probably because it’s headquartered in Wuppertal, Germany, and does business primarily in Europe and Asia. But its global eye for opportunity led it to acquire California-based JAFRA Cosmetics in 2004.
Vorwerk was born as a carpet factory, but it has developed into a highly diversified, global corporate organization with operations in 61 markets and divisions in Switzerland, Singapore, Germany and the United States. Its extensive direct selling portfolio includes home care and household appliances, cosmetics and financial services. Executives were pleased with its 2010 revenues of 2.1 billion euros for the direct selling businesses.
“It was a good year for the company,” says Vorwerk Managing Partner Walter Muyres. “Overall, we increased revenues in euros by more than 5 percent. Our Thermomix Division was up double digits, which was a great result; our vacuum cleaner business was up 4 to 5 percent; and JAFRA was up approximately 15 percent in euros. Such increases within these very challenging times is something that we are very satisfied with.”
Managing for Results
Executives credit their success to a combination of factors that they have carefully managed over the years.
“There is a general observation that direct selling is experiencing more problems in mature markets,” notes Dr. Jörg Mittelsten Scheid, Chairman of the Supervisory Board and great-grandson of company founder Carl Vorwerk. “However, I personally do not think that this is necessarily true when you have smaller-ticket items or when you have a real direct selling product—meaning, it is innovative, unique and needs demonstration.”
Mittelsten Scheid points to Thermomix as a multi-function kitchen product so unique that it really has no competition. But he also notes that the strong Vorwerk brand and focus on quality has made its vacuum cleaner the No. 1 brand in Germany, Austria and Italy. Strong leadership is also key, he adds; the acquisition of JAFRA has helped stoke sales of lower-priced products. Muyres asserts that the sale of products such as cosmetics or nutritional items is expected to be much higher for the next five to eight years worldwide than for higher-priced products.
“Direct selling has so much to do with emotions and leadership,” Mittelsten Scheid says. “For me, direct selling is not really about responding to markets. It creates its markets.”
JAFRA: Vorwerk Owned, But Born in the USA
JAFRA has been in business since 1956, but it became part of family-owned Vorwerk in 2004. Its largest markets are Mexico and the United States, and it also does business in 15 other countries around the world.
When Vorwerk managers learned that they might be able to acquire JAFRA, they jumped at the chance. They believed that JAFRA would help them offer lower-ticket items to their world marketplace.
JAFRA hasn’t disappointed. Last year, with Vorwerk support, its revenues grew by about 15 percent in euros, including exchange rate effects; it opened a new manufacturing facility in Mexico; and it continued its international expansion.
Dr. Friedrich Kroos, JAFRA President and CEO, forecasts, “With growth from our existing markets and new business generated from future markets in Asia, Latin America and Eastern Europe, JAFRA is poised to reach its goal of becoming a billion-dollar company within the next five years.”
Blending the Best
The Vorwerk companies maintain the markets they create through a method that was unheard of just a few years ago: e-commerce. Executives think it blends beautifully with the traditional face-to-face direct selling approach.
“We strongly believe that e-commerce and personal direct selling work very well together,” Muyres says. “I will give you an example: In Europe, you can order a Thermomix over the Internet, but we will have a representative personally deliver the product.”
The representative demonstrates the features of the Thermomix—a mixer that can also cook, weigh, blend, grind, chop and more. That increases customer satisfaction and lets the consumer begin to use and enjoy it immediately without spending hours reading the manual. Then the representative takes the unique step that distinguishes direct selling.
“The representative will then encourage the purchaser to have a party so that others will have the opportunity to see and hear what the Thermomix machine will do,” Muyres explains. “This is how we believe e-commerce and personal direct selling can work very well together.”
Mittelsten Scheid considers e-commerce indispensable, and thinks it benefits both the direct seller and the consumer. It connects them in a very convenient manner, but it also offers the social contacts that he believes consumers crave.
“The movement of people into cities to live often isolates them in a manner that creates a desire for contact,” he says. “So I believe direct selling has a great future because we provide contact—not just the contact between the salesperson and the customer, but also the contact with a group of people. This contact can be very enjoyable and very good for self-esteem. I am a firm believer in this.” He adds with humor, “I am one of the dinosaurs. I have been doing this a long time, since I was 9 years old. I worked with my father, and I have found direct selling to be wonderful and rewarding from a money point of view, but also rewarding in terms of how the work is done.”
The Vorwerk Family
Vorwerk’s commitment is clear: It wants to lead the world markets in all its direct selling activities. Meet the Vorwerk direct selling family.
Division Kobold traditionally reports the highest sales within the Vorwerk group. Innovative home care appliances are offered by distributors in Germany, China, Austria, the Czech Republic, Spain, France, Switzerland and Russia; in Italy it operates under the name Vorwerk Folletto. Containing sophisticated purifier technology and integrated odor and hygiene microfilters, the Vorwerk appliances work well for allergy sufferers and create a pleasant, fresh atmosphere. More than 9,000 sales advisors sell the products at product demonstrations in customers’ homes.
Thermomix is a mixer that can also cook, weigh, blend, grind, chop and more, replacing multiple kitchen appliances. Vorwerk first launched the appliance in 1971. It was the first heatable, multi-functional kitchen mixer. Star chef Dieter Müller praised the all-rounder as “one of the most important kitchen appliances since the invention of fire.” More than 20,000 representatives sell Thermomix through the party plan. The main markets for this product are Italy, Spain, Germany, France, Portugal, Poland, Taiwan and Mexico.
Founded in 1956, JAFRA Cosmetics has been a member of the Vorwerk group since 2004. JAFRA uses high-grade raw materials and state-of-the-art technologies at its R&D facility in Westlake Village, Calif., to create its skin and body care products, color cosmetics, spa products and fragrances. In 17 countries around the world, its 550,000 independent consultants sell products at home parties as well as one-to-one. JAFRA’s main markets are Mexico and the United States, but in late 2010 it entered India and announced that it would open a new market annually, focusing on Asia, Latin America and Eastern Europe.
Lux Asia Pacific
The Lux Asia Pacific group joined the Vorwerk family in 2001, selling vacuum cleaners and the alva water purifier. The company notes that about 1.3 billion people have no clean drinking water, and each of their homes is a potential customer for Lux Asia Pacific’s innovative water purifier, the alva. The company’s sales advisors—1,600 strong—use test sets in customer homes to perform on-the-spot water-quality analysis. Lux Asia Pacific operates in Thailand, Indonesia, Taiwan, Japan, the Philippines and Singapore.
The Direct Selling Difference
Muyres contrasts a recent retail experience of his own with the one he would have preferred having with a direct seller. His wife asked for a new coffeemaker for Christmas, so Muyres bought her the best one he could find. He paid about 1,200 euros for it—more than $1,700—in a retail store. Unfortunately, the salesperson couldn’t explain the expensive machine’s capabilities and simply assured him that it was the best one the store carried and that it came with a book full of instructions. At Christmas, the Muyreses had to pore over a confusing instruction manual while they waited for their caffeine fix.
“If I had purchased from a direct seller, they would have been able to teach me all I needed to know about the machine,” he says.
Muyres believes the Internet enhances much more than the selling of expensive items. It can also introduce products to customers, help explain hostess benefits and connect people through social media, even when product selling prices are well below the cost of a coffeemaker.
Dr. Friedrich Kroos, President and CEO of JAFRA International, believes that websites and a social media presence are important tools that complement the face-to-face selling that their consultants do so well. And he insists that the benefit of those tools crosses all consultant demographics.
“Facebook alone has over 600 million participants,” Kroos reports. “Even the segment over 35 is growing rapidly. So we need to provide the new tools to all generations. We will never, ever, use these e-commerce tools in competition with our consultants. All sales are always connected to a consultant. This is what will make a difference.”
He notes that many e-commerce businesses, such as Amazon.com, focus on discounts and new products, and not on any type of personal contact.
“I think direct sellers have to combine the personal with the tools,” Kroos says. “This is our opportunity—our duty—to give them the right tools to be successful.”
Expanding the Experience
JAFRA U.S. President Connie Tang adds that the company’s Internet presence is actually an extension of the exciting experience customers have at a JAFRA party.
“We are fortunate that JAFRA products are extremely emotional. Cosmetics, fragrances, color are all emotional, and they are very personal, very much a part of an experience,” Tang says. “What we are trying to do is to keep that experience going so that it has a life beyond the event. The event starts and it finishes, but the experience then continues through the Web. It also extends our messaging and keeps it clear and consistent and available. It allows us to send out a very clear branding message that overcomes the boundaries of distances.”
Branding, messaging and even culture can be consistent among all Vorwerk businesses because company managers make consistency a priority, and they take the time to ensure that decisions are made thoughtfully.
“If you are a family company like we are, we can really think and act for the long term,” Muyres says. “For sure, we want to earn money for the company, but if you compare us to a stock-listed company, they are under pressure to produce results every three months. When we acquire a company like JAFRA or open a new company like Thermomix, we are not under pressure to make profit in the first two months. Yes, we want to earn money in the long term. But we get to think long term, not in monthly results.”
Vorwerk’s thinking in terms of longevity has served it well for 128 years. Today’s executives are the seventh generation of family members to run the company, and they are clear on their intent to maintain that style. They plan to continue their steady expansion through the growth of their existing divisions as well as through their investments in a variety of young companies that use direct selling either exclusively or as one of several methods of distribution. They believe that they can learn a lot from those out-of-the-box thinkers, even as they contribute the benefit of their decades of experience and expertise.
“We have always been a family-owned business, and we will remain that way,” Muyres says. “We look forward to celebrating our 180th year together!”
Mittelsten Scheid adds, “We really believe that we are living in a fantastic world because there are so many open markets. I think our opportunities for expansion are enormous because there are so many places for us to go.”