CGS Take Over Successfully

The small Czech rubber group Ceská Gumárenaská Spolecnost (CGS) took over Continental’s agricultural business unit, Agrotyres, in November. As part of Continental the division demanded more attention to become truly successful, and CGS claims that it is now satisfying that. Of course, the moment the Czech company gained full responsibility of the business and its profit and loss statement, it was always going to receive its full attention. The newly acquired factory at Otrokovice is said to have transformed the business. Along with this and its new business ethic CGS is now in a position to focus on its core business.

Under Continental the unit was worth 100 million euros, yet its costs were so high that they ate into its profit and the agricultural business was not profitable until 2001; the year Thorsten Bublitz, CGS’ managing director of marketing and sales, believes the business truly “came into its own.” Under CGS the goal was to reach a double-digit profit by the end of 2004 and during an interview with Mr Bublitz in November he said: “It looks like we’ll make it.” In 2003 CGS’ turnover was 223 million euros, now, following the acquisition it is 320 million euros. The entire tyre sector turns over somewhere in the region of 230 million euros and tyres account for around 72 per cent of the company’s overall business. When it comes to the tyres, 60 per cent are agricultural products which rake in a turnover of around 130 million euros. The remainder of the company’s tyre sector is largely made up of industrial tyres.

The Czech company signed a license agreement with Continental giving it the right to use the Continental, Barum, Semperit and Euzkadi (sold only in Mexico) brand names. As far as its commitment to the Continental brands goes, it has signed a contract for the next 10 years, with a possible five year extension if it so wishes. The Conti and Barum brands are of the most importance to the company, followed closely by Mitas. The Barum brand is dominating its sales, and claims 80 per cent of the eastern European market according to Mr Bublitz. At present it still produces under the Uniroyal brand that belongs to Michelin and is licensed to Conti, but in CGS’ words the brand has a “short life.” The brands have been seen as lower quality in the past and CGS is tackling this quality issue by assuring the standard of the products in the market. The company wants the Conti brand to equal quality and will try to achieve this by stabilising its position in the market. By striving to improve brand image, it is attempting to gain more influence in the market.

With the amount of brands on the market increasing and the amount of shelf space decreasing, many retailers are concentrating on the premium brands and the higher margins that go with them. Because of this budget brands are being pushed off the shelves. Does CGS believe its budget brands will survive a reorganisation in the market? Mr Bublitz thinks so, as far as the tyres’ quality goes, he claims that the customer is getting “more than it pays for,” and he suggests that the decrease in customer claims against the tyres speaks for the improvement in quality.