By Bettina Wassener
Financial Times; Dec 18, 2002
Kahla, a sleepy eastern German town with a population of 8,000, seems an unlikely home for a company that has snapped up 27 design prizes since 1994.
But 12 years after Germany's unification, Kahla's main employer, porcelain-maker Kahla/Thüringen Porzellan, has emerged as a design trendsetter that is managing to produce double-digit sales growth in an industry facing the most difficult market conditions in decades.
Kahla was once a sprawling and over-staffed communist-era conglomerate. But it has managed to survive the collapse of the former Soviet bloc and its established trade links to become a lean, efficient and profitable outfit, with sales last year of €22m (£14m).
The expected growth is no mean feat in a saturated industry that is plagued by frail economic growth and by German consumers' reluctance to dig into their pockets.
Changing social patterns are also weighing on the industry, for wedding gifts of full 12-person dinner sets are becoming a thing of the past. With more and more single-person households, the trend is towards accessories and small or partial sets that can be easily combined with existing possessions.
Kahla's success stems from its ability to adapt to these changing social trends through an uncompromising focus on design and function and its new owner's conscious decision to position Kahla as a company that appeals to consumers' demands for more versatile tableware.
"When I arrived in Kahla 10 years ago, we had nothing with which to build a future in the changed market: we had neither up-to-date production facilities nor a market for our products," says Günther Raithel, who bought the former conglomerate's core household goods business in November 1993.
"It was clear that if we were to survive, our design would have to become highly innovative, to set us apart from the rest of the market. And we'd have to invest in the machinery that would allow us to implement our design concepts competitively."
Kahla, which began life in 1844 as a company producing dolls' heads, pipes and porcelain cups, had by the 1950s been transformed into east Germany's largest porce-lain manufacturer. With 18,000 employees just before Germany's unification, the Kombinat Feinkeramik spanned tableware as well as porcelain for use in the medical and other industries. For decades it sent wagon- loads of mass-produced floral patterns and traditional blue-and-white "onion pattern" china to the vast markets of communist eastern Europe and the Soviet Union. The economic backwash from unification meant that demand for these somewhat dowdy products collapsed virtually overnight, pushing the company into insolvency by 1993.
Mr Raithel, a former board member at Rosenthal, a better-known purveyor of upmarket Сhina, rapidly invested some €15m to bring in state-of-the-art machinery, revitalise the company's image and rebuild a client base through new marketing and sales networks.
The first obstacle he encountered was a physical one: 4,000 tonnes of communist-era rubble, scrap iron and machinery were removed in the process of modernising the production site. Today, three railway engine sheds and track remain as relics from the days when bulk shipments went by rail straight from the factory to the eastern bloc.
With its staff numbers down to just 330, Kahla saw double-digit annual sales growth in 1994-2000 and returned to profit in 1997.
The turnround in its design output was equally dramatic. "If you'd told me 10 years ago that we'd win 27 design prizes by 2002, I would have thought you recklessly optimistic," Mr Raithel smiles.
While Kahla still produces traditional pre-unification patterns, these now account for only a third of sales. The new designs, says Mr Raithel, are aimed at people who "think" young. "Our design vision is tableware that is easygoing. We're trying to apply the magic formula of design - and combine functionality for the user with efficiency in the production process."
The result is a series of ranges that are sleek, elegant and up-to-date but, flexible and multi-functional - lids double up as side plates and jugs and bowls could equally well serve a purpose in bathroom cabinets.
Kahla's "Update" collection is a case in point. It includes only a few pieces but these can be stacked and combined like building-blocks. It is deliberately not conceived as a full formal coffee or tea service, says designer Barbara Schmidt.
There is, for example, no "Update" coffee pot, while the cups lend themselves to any type of drink, or can double up as sugar bowls. The Update range marked Kahla's breakthrough, earning it recognition on the domestic and international markets in 1998. Like Kahla's other new designs, it tends to appeal to shoppers who are young enough to want to set up their own households (a "pierced" cup is particularly popular with teenagers) but old enough to want affordable tableware that is elegant and usable.
The new products are also selling well with older people who may be fed up with "gold-edged cups and saucers", says Yvonne Puschatzki, marketing manager. "It's not so much about age but about fitting around people who live on their own, or in small households, and who are mobile. And by making the designs simple, we also fit in with modern eating trends. People eat Asian food one day, Mediterranean or Bratkartoffeln the next." Kahla's selling point is that the neutral designs work with everything.
The new ranges have opened up new markets for Kahla. The hotel and restaurant trade, which Kahla has been targeting since 1996, now makes up about a fifth of its turnover. The products have also found their way into retailers, including Karstadt department stores in Germany, Crate & Barrel in the US and John Lewis in the UK.
The company now exports about half of its products, to 55 countries. This, too, sets it apart from competitors, many of which suffer from the fact that fashions and tastes tend to show more national distinctions than they did 10 or 20 years ago, says Lutz Graser of the German VKI ceramics industry association.
Internationally, Kahla is still small and relatively unknown compared to industry grandees such as Rosenthal and Villeroy & Boch. But it is now easily among the top 10 in Germany. Just as importantly, it has also become a model for what can be achieved through innovative design and focused management in even the most unpromising of industries.