HiPP Gmbh & Co. Vertrieb KG

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HiPP Gmbh & Co. Vertrieb KG

Georg-Hipp-Strasse 7
Pfaffenhofen, D-85276
Germany
Telephone: (49 8441) 757-0
Fax: (49 8441) 757-402
Web site: http://www.hipp.de

Private Company
Incorporated: 1932 as Hipp Werk Georg Hipp OHG
Employees: 1,000 (2006)
Sales: EUR 300 million ($378 million) (2006 est.)
NAIC: 311421 Fruit and Vegetable Canning; 311514 Dry, Condensed, and Evaporated Dairy Product Manufacturing; 311821 Cookie and Cracker Manufacturing; 311422 Specialty Canning; 311230 Breakfast Cereal Manufacturing; 312111 Soft Drink Manufacturing; 325620 Toilet Preparation Manufacturing

HiPP GmbH & Co. Vertrieb KG is Germany’s leading manufacturer of baby food. The more than 130 organic varieties of cooked purees and meals for toddlers in little glass jars, as well as HiPP’s milk and dairy products, cookies, and soft drinks for small children, are mainly sold in supermarkets, drugstores, and pharmacies in Germany, Austria, Switzerland, the United Kingdom and other countries in Western and Eastern Europe.

The fruits and vegetables, grains, milk, juice concentrates, and meats used in HiPP’s products come from approximately 6,000 organic farms and undergo stringent testing procedures before and after they are processed by one of the company’s production plants in Germany, Austria, Hungary, Croatia, or Ukraine. HiPP also makes breakfast cereals for adults and launched a line of baby care cosmetics products in 2006. Exports account for roughly one-fifth of HiPP’s total sales. The company is managed and owned by descendants of company founder Georg Hipp.

RUSK FLOUR BECOMES BESTSELLER IN THE EARLY 20TH CENTURY

Georg Hipp could not have founded his baby food company in 1932 without the know-how his family had gathered over the course of the previous three decades. His grandfather, confectioner Joseph Hipp, had settled in Pfaffenhofen, Bavaria, where he took over a bakery. When his wife Maria experienced problems breast feeding the twins she had delivered in 1899, her husband provided an alternative. He baked Zwieback, German specialty crackers made from wheat flour which are baked twice and are therefore very crunchy, much like graham crackers but with little or no sugar. Using a large mortar and pestle he then converted the crackers into flour which he mixed with milk and water and a bit of honey. The resulting puree became the staple food not only for the twins, but also for the other five Hipp children who were born later.

Soon, Maria Hipp began selling her husband’s rusk flour at the bakery shop, telling her customers, friends, and neighbors how well it nourished her own babies. Within a few years the reputation of Joseph Hipp’s special baby food had grown. He began manufacturing rusk flour in increasing amounts and supplied it to other bakeries. Packaged in a distinct yellow-and-black carton that showed a baby stretching its little arms up toward the sky, J. Hipp’s Kinderzwiebackmehl enjoyed a steady growth in popularity. In the early 1920s, when the Hipp’s son Georg was about 16 years old, he started selling Hipp’s Kinderzwiebackmehl door to door in Munich. Within a decade the young man had drummed up so much business that demand for his father’s specialty had outgrown the family’s existing business. Thus, Georg Hipp spun off the baby food business and established Hipp Werk Georg Hipp OHG in Pfaffenhofen in 1932.

One year later, while Germany was undergoing the most severe economic depression in its history which resulted from the 1929 New York stock market crash, the National Socialist Party took over the political reins. Since there was no shortage in demand for affordable baby food, Hipp’s business grew considerably until 1939. He introduced modern manufacturing methods and employed some 100 workers before World War II. During the war some of Georg Hipp’s fellow citizens in Pfaffenhofen made things difficult for him because one of his brothers, who had been mayor of Regensburg, had forbidden Adolf Hitler to speak at a gathering in the city a few years earlier. His brother was thrown into a concentration camp and Georg Hipp moved to Munich and oversaw his enterprise from there until the war was over.

Although Hipp’s company survived World War II, it had to struggle to make it through the postwar years. The anticipated demand for his merchandise following the introduction of the new West German currency in 1948 did not occur, which proved disastrous for Georg Hipp, leaving him with a warehouse full of inventory he was unable to sell. A last minute deal with the American allied forces rescued Hipp from bankruptcy when he secured a contract to mix the food for school cafeterias. The Americans provided the precious raw materials such as milk powder and cocoa, but agreed to 1 percent “shrinkage”—a portion which Hipp would be allowed to keep for himself. It was this generous gesture that helped Hipp rebuild his business.

PIONEERING ORGANIC BABY FOOD AFTER WORLD WAR II

By the end of the 1940s Georg Hipp’s family consisted of six children. As his business grew as well, HiPP’s rusk flour helped raise a postwar generation of German babies and small children. Until the 1970s, Hipp’s Kinderzwiebackmehl was available for purchase in Germany. In the late 1950s Georg Hipp launched a second product line and began manufacturing precooked canned baby food, a product which was common in the United States. In 1957 and 1958 the company introduced four varieties—two made with vegetables and two with fruit.

However, an earlier bold entrepreneurial decision took the company on to a new path that laid the foundation for half a century of sustainable growth. In 1954 one of Georg Hipp’s managing directors became ill and saw a doctor in Zürich, Switzerland, Maximilian Oskar Bircher-Brenner. Bircher-Brenner prescribed a special dietetic cereal he had invented called Muesli. Freshly ground grains were soaked in water and mixed with freshly grated apples. The “medicine” worked well and a new idea occurred to Georg Hipp: manufacturing Bircher Muesli for the Swiss market.

The main obstacle to realizing this new idea was that Bircher Muesli had to be mixed from naturally grown grains that contained no artificial, chemicallyproduced substances. In the mid-1950s, however, this was common practice. Most farmers made heavy use of synthetic fertilizers and pesticides on their industrially mass produced crops. Again, the answer was found in Switzerland where Hans Müller, a former politician and farmer lobbyist, together with his wife Marie, a physician, and Hans Peter Rusch, a bacteriologist and soil specialist, developed the principles of organic-biological farming.

COMPANY PERSPECTIVES

The protection of the creation is becoming more and more important in our modern industrial society. Our primary attention is focused on our children. We as adults provide children with the foundation for a future worth living and at the same time serve as models. In order to leave a healthy and functioning environment behind for our children, we have integrated environmental protection as an institution into our total enterprise. With pure and safe products we assume responsibility: for the babies and children and the environment in which they grow up.—Claus Hipp

A farmer’s son himself, Müller had come to the conviction that growing produce of exceptionally high quality was a promising way to secure the existence of small family farms for future generations. Georg Hipp and his oldest son Nikolaus became Müller’s enthusiastic followers. Convinced that organic-biological farming would not only preserve the environment and yield healthier produce, but also create business opportunities, they set out to put Müller’s principles into practice. For that purpose, a new company, Somalon AG, was founded in Switzerland in 1954.

To realize his idea of organic farming, Georg Hipp bought an old farm near Pfaffenhofen in the late 1950s and started implementing Müller’s principles of organicbiological farming. Fields had to be located as far away from industrial sites or heavily frequented roads as possible. Soils were picked that did not require artificial fertilizers and they were thoroughly tested for possible harmful substances. The crops grown in one field had to be rotated annually; weeds were pulled mechanically, or even by hand, but artificial pesticides were never used on the crops. Instead, certain naturally occurring herbs, present at the edges of the fields, were used to keep away insects and other pests. Nesting spaces for birds were also provided to help keep insect populations low, and ladybugs, the natural predators of many pests, were cultivated. Starting out in 1956 with apples and grains—the Bircher Muesli ingredients—Hipp began to gain experience in his new field. From 1959 on, Somalon AG, which was later renamed bio-familia AG, started selling organic Bircher Muesli in Switzerland and soon began exporting it to Germany, Austria, the United Kingdom, and even the United States.

GERMAN MARKET LEADER AFTER GENERATION CHANGE

In 1960 Georg Hipp’s oldest son Nikolaus was put in charge of the family farm. Claus, as Nikolaus was called, was still studying law in Munich at the time, but took on the task of modeling the farm according to organicbiological rules with great enthusiasm. When he discovered that an employee was concealing sacks of chemicals, the 22-year-old Hipp fired the man. After completing his doctorate in law, Claus Hipp joined the family business in 1963. By then Hipp’s baby food was no longer being packaged in cans but in small glass jars, which were easier to open and more hygienic. Securing the necessary supplies of organically grown ingredients for the increasing volumes of baby food that left the Hipp factory became one of Claus Hipp’s main tasks. Tirelessly he visited the region’s farmers and attempted to persuade them to switch their production methods to organic farming at a time when this was a radically avant-garde concept. At first, most farmers showed him the door. However, Claus Hipp was fully convinced that the idea was correct and kept coming back. Over time, he was able to persuade a growing number of farmers. In return for switching their operation to organic farming, they received a supplier contract from Hipp.

Georg Hipp passed away two days before Christmas Eve in 1967 at age 62. Claus Hipp was 29 years old and, per his father’s will, he took over the leadership of the company. He and his younger brothers Georg and Paulus all became shareholders in the company and together would manage the family business for the following decades. Although Claus Hipp managed the company in a harmonious manner—he disliked confrontation—there were times when he fought for his ideas. One of these situations arose when the family had to decide on a new company logo. Claus Hipp favored the work of New York designer Francesco Gianninotto: the letters HiPP in red, blue, orange and violet, with a heart-shaped dot over the letter i and two hearts punched out of the middle of the two P s. Everyone else rejected the design, but, in the end, Claus Hipp asserted himself.

KEY DATES

1932:: Georg Hipp begins manufacturing a nutrient for babies.
1954:: Somalon AG is founded in Switzerland.
1956:: The company introduces organic farming methods.
1957:: Hipp starts manufacturing precooked canned baby food.
1967:: A production plant is set up in Austria.
1968:: Claus Hipp takes over the leading role in the family business.
1980:: HiPP is Germany’s number one manufacturer of baby food.
1993:: The company starts manufacturing baby food under the private label Bebevita.
1995:: HiPP organic baby foods are introduced in the United Kingdom.
1996:: A manufacturing plant is set up in Hungary.
1997:: Claus Hipp receives the Eco-Manager of the Year award from the World Wide Fund for Nature.
2006:: Baby care line Hipp Babysanft is launched in Germany.

In 1967, a production subsidiary was set up in Gmunden, Austria, which served as a distribution platform to eastern European countries such as Hungary. Later the Austrian subsidiary was equipped with special machinery for manufacturing HiPP’s specialty products in unusual packaging, such as cereals in heart-shaped containers. In the following decade the company’s product line was expanded to include juices, whole-grain-and-fruit mixes as well as dishes containing meat, whole children’s meals, and desserts. HiPP had also launched a number of dietetic products for adults. Throughout the 1970s the company enjoyed healthy growth as its distribution network was extended to some 30,000 drugstores and pharmacies in Germany, Austria, and Switzerland. By 1980 HiPP had become Germany’s number one manufacturer of baby food with a market share of 60 percent. Some 800 employees generated DEM 150 million in annual sales, with four-fifths of that stemming from baby food.

SETBACKS AND ENVIRONMENTAL OFFENSIVE AFTER 1990

In the 1990s HiPP continued to refine its farming and production methods and put an even greater emphasis on raising its environmental standards. Fungus on fruit trees was combated with natural herb extracts and other methods approved for organic farming. The bananas used in HiPP products were purchased from small farms in the highlands of Costa Rica that were monitored by satellite. Organic milk and meat came from free roaming cattle that grazed outside almost all year long. No hormones or other common feed like fish meal was given to the pigs or chicken.

The organic content of HiPP’s glass jars was communicated to consumers through product packaging and advertising. In 1990 HiPP launched a new advertising campaign centered on the testimonial of Claus Hipp, the organic farming pioneer, which was very successful. However, HiPP’s success came with a downside. When the company passed main competitor Nestlé Alete within six months after launching its new “biocampaign,” the latter responded with a legal assault on HiPP’s advertising claims, an attack that proved unsuccessful in the end. That HiPP charged a 10 percent price premium on its organic products was also a reason, after HiPP had refused to lower its prices, for the drugstore chain Schlecker—Germany’s largest baby food retailer—to delist the company’s products in 1993. Losing almost one-quarter of its business overnight was a serious setback for the company. HiPP laid off the majority of its production workers and cut production capacity in half. An investment program was launched to modernize production lines and boost productivity. Afterward, most production jobs that had previously been done by hand were mechanized and automated. Because the strong discounting trend in Germany could not be ignored, HiPP started manufacturing baby food under the private label Bebevita in 1993, which almost immediately gained a 10 percent market share, but did not take business away from the HiPP brand.

At the same time, even more effort was put into environmentally friendly practices. More stringent testing methods were introduced to insure that contaminated ingredients did not make it into the glass jars. No fewer than 260 tests were performed on the jars’ contents before they left the factory. In addition, a tracking number was printed on the top of every glass jar to identify the field from which the vegetables in the jar came.

In 1995 HiPP was awarded an official certificate for its environmentally friendly policies. Two years later Claus Hipp received the Eco-Manager of the Year award sponsored by the World Wide Fund for Nature (WWF) and German business magazine Capital, followed by an award for environmental protection from the German Industry Association in 1998. Within five years of launching the new Eco-Campaign, HiPP had increased its market share by six points, which by 1996 was back at 50 percent from the 42 percent it had sunk to following the Schlecker ban. By the mid-1990s, roughly 60 percent of the company’s raw materials came from organic farms; 43 percent of all organic farms in Germany had a contract with HiPP. Yet, the environmental initiative did not stop there. After 2000 the company switched its energy supply to renewable sources, mainly biomass and solar energy. The company’s in-house canteen offered at least one organic meal every day. HiPP even gave employees subsidies for using environmentally friendly transportation, promoted car pooling and offered driver training in gasolineefficient driving methods.

CONSTANT INNOVATION AND EXPANSION INTO NEW MARKETS AFTER 2000

The new millennium saw HiPP launch a flood of product innovations. From simpler meals in tinier but more colorful jars to low salt soups, gluten-free cereals, and puddings for babies, from microwaveable meals to international cuisine for toddlers, there were no limits to the creativity of the company’s product managers. By 2006, products that had been developed within the previous three years accounted for roughly one-third of HiPP’s total sales. In addition to its constant stream of product innovations the company modified its package design, tried to engage its customers through an interactive web site, and established a hotline for parents. The company’s main marketing channel, however, was sending product samples to new mothers.

While HiPP had successfully defended market leadership in the German canned baby food segment for many years, there was a disturbing trend that could not be ignored. The number of babies born in Germany over the previous decades had been decreasing continuously and was expected to continue dropping for the foreseeable future. HiPP had to look for new growth opportunities. One obvious option was geographical expansion, which had begun in the mid-1990s with the introduction of HiPP organic baby foods in the United Kingdom in 1995 and with the construction of a manufacturing plant in Hanságliget, Hungary, in 1996. From there HiPP already exported its products to ten countries in Central and Eastern Europe, the Middle and Far East, where birth rates were higher than in Germany.

To boost HiPP’s market penetration in Eastern Europe, the company established subsidiaries in Poland, the Czech Republic, and Slovenia, and built additional production plants in Croatia and Ukraine between 2001 and 2005. In August 2006 the company announced that it would invest EUR 40 million in a new baby food production site, including farming operations, in the Russian city of Mamonovo near Kaliningrad. By that time exports had grown significantly, accounting for about one-fifth of total sales. Another major consideration for HiPP was securing the necessary supply of organic produce. When the German government announced plans to weaken the stringent laws in regards to genetically engineered crops, Claus Hipp declared that he would look for contractors in other countries, such as Austria, Poland, and Hungary, that were able to guarantee the purity of their products. Market research clearly indicated that HiPP customers were not interested in feeding their babies genetically modified food.

A second strategy to secure future growth was selling the same products to other target groups or expanding into related markets. Although earlier attempts in the 1990s to sell fitness drinks to athletes and prepared dietetic meals to overweight adults and diabetics had failed, the company intensified efforts to establish itself in such new markets. Catering to the wellness trend, HiPP launched Hippness Crisp, a line of vitamin and mineral enriched breakfast cereals, in 2003. One year later, HiPP signed a licensing agreement with Swedish BioGaia AB to use one of their probiotic health bacteria in its products. In 2005 the company introduced Natal Aktiv, a product line for pregnant and breast-feeding women. A Munich-based advertising agency was hired to place HiPP juices in bars and clubs for mixing cocktails and long drinks. In another pilot project, HiPP organic products were sold in schools through vending machines. If the concept proved successful it could be extended to other public places such as hospitals or airports. Finally, based on market research that showed that up to one-quarter of HiPP canned baby food was bought by households without children, HiPP was planning to intensify marketing efforts to young and fitnessoriented women in Germany. Another future growth market the company was watching closely was senior citizens.

While repackaging the existing HiPP product range for target groups beyond the toddler age was the company’s main strategic focus, HiPP took another bold step when in 2006 it launched its own baby care line in Germany, taking on large competitors such as Johnson & Johnson and Nestlé. Starting with six products, Hipp Babysanft gained an 80 percent distribution and a market share of roughly 5 percent within only a few months. Despite these promising results, it was foreseen that competition would intensify in all of HiPP’s chosen markets. To meet that challenge and to preserve the strength of the HiPP brand would be the primary job of the next generation of the Hipp family, which had no intent to sell the company.

Evelyn Hauser

PRINCIPAL SUBSIDIARIES

HiPP-Werk Georg HiPP OHG (Germany); HiPP GmbH & Co. Produktion KG (Austria); HiPP GmbH & Co. Export KG; HiPP Kft (Hungary); bio-familia AG (Switzerland); HiPP UK Ltd. (United Kingdom); HiPP France; HiPP Polska (Poland); HiPP Czech (Czech Republic); HiPP d.o.o. (Slovenia); HiPP Ukraine.