The Hawesko wine trading group has been generating respectable profits for years. Nevertheless, long-standing shareholders are likely to be dissatisfied because the share price fell to 29.20 euros in Xetra trading last month. That was the lowest level since April 2020. At that time, the price was just beginning to digest the market-wide slump due to the “corona panic” in the previous month. Leaving aside this short-lived crash, you have to go back to 2010 to find a lower price. This makes it clear how much Hawesko had fallen out of favour with investors since mid-2021, when the record high of 65 euros was reached.

It is not difficult for CEO Thorsten Hermelink to find an explanation for the bear market: “We don’t have a huge growth story,” he admits in an interview with Börsen-Zeitung, “and we have a relatively small free float.” This is disadvantageous in the current market environment. “But the price can also turn up again very quickly if investors become aware of our intact business model and our potential and notice our undervaluation,” he encourages the shareholders and immediately follows up with a recommendation: “For me, the share price of Hawesko has a clear buying path at the moment.”

Hawesko's majority shareholder is Detlev Meyer, who holds 72.6% of the Hamburg-based holding company. Meyer is chairman of the supervisory board. In some companies that are listed on the stock exchange but are predominantly owned by a family or individual, the majority shareholder is heavily involved in day-to-day business without having a corresponding role. Not so at Hawesko: “None of the supervisory boards have any say in the operational business,” explains CEO Hermelink.

The price weakness is also likely to be primarily related to the large increases in the first two years of the corona pandemic. These raised expectations among investors that were not fulfilled. “The pandemic year 2021 was an exceptional year for us with an EBIT (earnings before interest and taxes; editor) of 53 million euros,” emphasizes Hermelink. “We barely had to spend any money on marketing back then, and people still ordered like crazy. Those were paradisiacal conditions.” Almost in the same breath, the Hawesko boss makes it clear: “This result will no longer be achievable in the foreseeable future.” The management is targeting an operating profit of more than 40 million euros for the next few years. “This should also be possible when the period of strong cost pressure is over.” As for the level of the record results from 2021: “We will only see the 50 million euros again when we have continued to grow,” says Hermelink.

Hawesko responded to the increased costs - “On average, the price increases for our purchasing range in the first nine months of the year were 8% to 10%” - by increasing wine sales prices. Hermelink reports a change in customer behaviour: “In the entry-level price range, loyalty to the wine is much lower than loyalty to the price you have to pay for wine. We have found that when the price increases for wines under 20 euros per bottle, customers prefer to change the wine rather than spend more money on the same wine.” However, the price-sales function should be taken into account here. Customers in the upper premium range have already accepted price increases.

According to Hermelink, “during times of high inflation, less is stockpiled; “Customers buy more as needed.” In addition, customers often forego spontaneous purchases, which are more common on the Internet than in brick-and-mortar stores. “So they are not so easily seduced into impulse purchases.”

This explains why, despite noticeable price increases, the value of the average shopping cart only rose by 1 to 3% in the first nine months of the year, “depending on the format,” as Hermelink adds. And yet he remains optimistic: People treat themselves to the little pleasure of wine “even in economically difficult times. People are more likely to postpone the purchase of a new television or a set of new car tires or wear their winter jacket for a year longer than to give up their wine.”

Hawesko has three sales channels. In the retail segment, the “Jacques’ Wein-Depot” store chain is by far the most important and best-known format. There is also “Wein & Co.”, which is primarily active in Austria. The brands in the B2B segment include “Wein Wolf”, “Abayan”, and “Grand Cru Select”. The e-commerce segment is primarily supported by the subsidiaries “Hawesko”, “Vinos” and “WirWinzer”.

The latest interim report stated that slight growth in the retail segment and positive developments in the catering industry (B2B segment) could not compensate for the reluctance to buy in online retail. The recent weak development in e-commerce cannot really come as a surprise, as sales in this area had grown enormously over many years. “During the pandemic, the maximum possible e-commerce share in the overall market was probably evident in many areas – including the wine trade,” says Hermelink. “It was 40 to 50%.” Now, after the pandemic, “less wine is drunk at home, but more in restaurants.”

According to the Hawesko boss, sales distribution across the different demand channels will normalize in the next few years. “I don’t expect e-commerce to resume the growth rally of previous years.” After all: “The dry spell in e-commerce has ended since mid-October, and we are now more or less at the same level as last year,” says Hermelink.

“We are seeing growing customer and sales figures in stationary retail,” reports Hermelink. On average, three to four bottles are bought here. Significantly more, 12 to 15 bottles are ordered via mail order on average.

According to the CEO, the average shopping cart in e-commerce is usually between 120 and 150 euros, “depending on the format”. At Hawesko, it is 120 to 130 euros, and at Wein & Vinos, it is a little less than 100 euros. At the fine wine retailer Tesdorpf, on the other hand, the average shopping basket is between 250 and 300 euros.

“Winter business got off to a very positive start,” reports Hermelink. “For the fourth quarter, we expect sales and EBIT to be at the same level as the previous year.” This is particularly important for Hawesko because “we earn good money every quarter. But we generate almost half of the annual profit in the fourth quarter, i.e. in the Christmas business,” explains Hermelink. In addition, in the final quarter, more sales are made “with higher-margin red wines, in contrast to the summer with lower-margin white and rosé wines”. Overall, the management board expects a sales development of up to minus 3% compared to the previous year and an operating result of EUR 32 million to EUR 35 million in 2023.

The group built a new e-commerce warehouse in the year that ended and largely commissioned it in October. Nicolas Tantzen, Head of Corporate Finance, cites increased capacities and an increase in efficiency as reasons, among other things. “This warehouse will ultimately cost 25 million euros plus X,” says Tantzen. Hawesko financed the investment largely through a KfW loan. “As a result, at the end of the year, we will for the first time have net debt of perhaps a factor of 1 compared to Ebitda (EBIT before depreciation; editor),” estimates Tantzen.

The fact that the holding company has net debt is atypical and has primarily to do with the investment in the new e-commerce warehouse. “Hawesko was completely debt-free until the beginning of this year,” says Tantzen. “During the year, in the second and third quarters, we finance our operational business via short-term credit lines, of which we then utilize around 50%. The background is that we have to stock up for the next twelve months. In the fourth quarter, we will completely repay this debt.” At least until this year. “I expect a ratio of net debt to total assets of 10 to 15% in the 2023 annual financial statements,” adds Tantzen. “We fundamentally don’t want any debt or major dependencies,” Hermelink makes it clear. “We draw our red line at 1.5 times Ebitda.” However, the warehouse construction was a strategic decision that the management made in 2020 to be able to control the costs in e-commerce in the long term and not depend on them to become service providers. “And the financing of 2% is still quite cheap because we secured it before interest rates rose,” says the CEO.

Hawesko is active in the M&A market: “In recent years, we have made an acquisition on average every 18 months,” reports financial expert Tantzen. “We often finance M&A transactions bilaterally with the help of a banking consortium, usually with a maximum term of five years, so that we can keep an eye on our debt.” CEO Hermelink is more fundamental: “The German wine market is extremely fragmented; However, it continues to consolidate.” In the premium segment, according to Hawesko’s definition of wine from 6 euros per bottle and up, the group now has a market share of over 20% in Germany.

“Our business focus is on the German-speaking region,” says Hermelink, “but internationalization is one of our strategic focuses.” The company has a particular eye on Eastern Europe – such as the Czech Republic and the Baltics. The wine markets there are currently undergoing dynamic development. There is a black sheep among the takeovers made: “With the exception of Wein & Co., it was never a restructuring case that had to be brought back into the profit zone,” says Tantzen.

The Austrian retailer Wein & Co. was bought in 2018 - as a restructuring case; “We knew that too,” explains Tantzen. “The company was making losses at the time and was significantly over-indebted on its balance sheet.” Initially, Hawesko’s restructuring concept was fruitful, and Wein & Co. was operationally in the black. “But then the pandemic slowed us down. And just as the corona crisis was subsiding, we in Austria – where Wein & Co. is active – were confronted with particularly strong price increases and, this year, a declining e-commerce business, which exacerbated the cost situation across the board,” so dancing.

“This has put Wein & Co. operationally in the red for the second year in a row,” adds Hermelink and admits: “The Wein & Co. restructuring case has not yet been resolved. So far, we have not succeeded in leading the company to sustainable profitability." He adds: "But we will manage that."

Tantzen picks up the thread: “We only tolerate losses by companies in our group to a very limited extent - namely if a concrete growth case for a short period of time speaks in favour of continuing the business despite being in the red.”

For the next few years, Hawesko has, among other things, committed to accelerating the expansion of the Jacques' Wein-Depot wine retail chain. There are currently a total of 336 Jacques’ stores. “In the long term, we can operate up to 500 Jacques' stores profitably in Germany,” says Hermelink. The reason is that the branches on the outskirts of large cities and in smaller towns have developed very positively. “We are striving to increase the speed of expansion somewhat, from currently an average of seven new Jacques' stores per year to perhaps 15,” explains the CEO. As far as the time frame is concerned, he adds: “We won’t be able to do that next year, but we are definitely planning on doing it in 2025.” The limiting factor is not renting possible properties – “that still works quite well” –, but that Hawesko or Jacques' partners (franchisees; editor) find “whom we can trust to run these stores well”.