2. ACCELERATE NORTH AMERICA
A few years ago, Scandinavian Tobacco Group’s US business General Cigar Company was losing market share in the US as its organisation and offerings had become outdated. Now, increased focus, flexibility and efficiency have resulted in a significant improvement in performance.
It was getting harder for Gene Richter and his team to interest retailers in General Cigar’s products. The product offering was uninspiring and sales reps did not have the authority to take flexible decisions to respond to customers’ needs.
Just a few years later, General Cigar – Scandinavian Tobacco Group’s US business for premium handmade cigars – has changed its mindset. The organisation is now more flexible and sales reps have the authority to take the best decisions in their markets, with the result of a clear and impressive improvement in financial performance.
“We would be walking in with trade promotions that just weren’t relevant and competing brands had more flexible offers. There was no reason for a retailer to push our brands anymore,” says Richter, Vice President of Sales in General Cigar.
“We weren’t listening to the industry. Our culture was old school in its approach and too top-down in a changing environment. Now there’s a new level of trust and people are empowered from the bottom up.”
Listen to customers
Essentially, the market was shifting but General Cigar stayed the same - consumer palates were changing, customers wanted more flexibility and the company needed to respond.
Over the last three years, General Cigar has cut 70% of its stock keeping units (SKUs) in the portfolio – a huge simplification which has led to a lowering of inventories worth around USD 40 million. The cash flow acquired from being more efficient, funds flexibility in the company’s offers to customers and consumers.
“We listen to our customers and give higher trade margins, and this has to be funded,” says Régis Broersma, President and Senior Vice President, North America Branded Division and Region Smoking Tobacco & Accessories Division. “General Cigar had to listen to consumer wishes and evolve, with more flexibility in blending, different taste profiles and less complexity.”
The strategy was reorganised around three pillars – key brands, key states and key customers – with the overall idea of focusing on the biggest and most important of each. Brand designs, which hadn’t changed in 40 years, were overhauled.
This increased focus and simplification contributed to a bottom-line improvement of approximately 50% in EBITDA over a three-year period.
Taking the handcuffs off
Part of the process of empowering the team to take decisions was to encourage them to act as mini CEOs and consider if this was their own money, how they would act. Incentive programmes were changed to emphasise the importance of performance, based on monthly targets.
“It was a very natural process,” says Broersma. “Most of the team was really open for the journey and they were hungry for the change, so that took out a big obstacle.”
General Cigar has also been successful with its use of brand ambassadors – people who are passionate about cigars and talk directly to consumers. It’s the kind of direct connection which just isn’t possible with printed material or a promotion.
“We’re all now marching to the same beat. Every month, when we’re making good decisions in the market, we’re getting rewarded for that activity,” Richter says. “The core nucleus of the business is intact but we took the handcuffs off and allowed our teams to take the right decisions.”