Early warning, lasting success

We cannot rule out all risks from the outset, but we can minimise them. It is the responsibility of our risk management experts to regularly identify all risks facing our business and to then initiate appropriate measures to limit these risks. The hazard that comes with changing market prices, for example, can be diminished through intelligent derivatives and market reach policies, while an innovative product strategy prevents sales risks.

Standardised, networked and integrated into all business processes

Risk management is an important tool for successful business management, ensuring that risks are reported, analysed and evaluated. External, performance-related, financial and organisational risks are all considered, enabling us to make decisions with knowledge of the risks involved and to take advantage of opportunities. Our risk management experts immediately report information about acutely threatening risks to management. Current knowledge about risk development has an ongoing influence on our management and planning systems.

From inventory to reporting: The five steps of our risk management system

Aside from carrying out ongoing risk surveillance to detect defined early warning indicators and our efforts to identify new risks via the departments, we also have a structured risk management process, which we trigger each year to holistically document, analyse and communicate our risk position to management bodies. This process is organised into five stages.

1. Risk inventory: We first conduct structured interviews and email enquiries to identify and compile the risks facing the company. Based on this information we then create a “risk inventory”, which lists and describes all identified risks, measures to counter these risks and early warning signs.
2. Risk evaluation: The departments responsible in each case evaluate the risks identified qualitatively (“expert assessment”) or quantitatively (“calculation”). Finally, the overall risk position is calculated.
3. Validation: The Management Board checks the validity of the risk inventory.
4. Planning/Annual financial statements: Risks which have been identified and evaluated are integrated into planning (“top-down briefing”) and into the annual financial statements (“provisions”).
5. Risk report: The risk inventory is updated, that is, the risks taken into account in planning and in the annual financial statements are eliminated.

By dovetailing the risk inventory and planning processes, we are continuously developing risk management at Tchibo, fostering consciousness of risk throughout the company. It is crucial that our risk management system is not focused on standardisation or formalism. Instead, the system thrives on communication and on the information provided by every person and function in the company. The long-term success of our risk management system does not depend on how efficiently it is managed, but rather on how each and every employee in the company lives by it in everyday business.

The greatest risks – and how we face them

We are subject to the typical risks facing retailers, in particular the risk that individual markets will become saturated, which can lead to stagnating or declining sales. We face this danger with innovative product policies, but we also need to carefully monitor the possible risks associated with purchasing our raw materials and products internationally. This applies to coffee as well as to our consumer goods. For instance, we counter any price fluctuations in the base value of coffee with effected futures transactions which follow strict guidelines and with an effective market reach policy. Our partner maxingvest ag minimises currency risks related to purchasing consumer goods, especially US dollar currency fluctuations, within the scope of managing financial risks.

Keeping prices constant – and openly communicating price increases

We want to keep the price of raw coffee as stable as possible and even out short-term price fluctuations by means of futures transactions and an intelligent market reach policy. However, like our competitors, we cannot prevent long-term price increases. In the case of necessary price increases, our policy of open communication is in the foreground of our risk management system.

At the beginning of 2011, the price of high-quality raw coffee increased dramatically. Speculation in the commodities market was a contributing factor. Suddenly, Arabica coffee was as expensive as it had been 14 years earlier. However, staying true to our quality promise, we continued to exclusively use Tchibo Arabica for our Tchibo brand products. As a result, we were forced to raise our coffee prices as of 28 February 2011. We informed consumers about our processes and the associated price increases early on in an open letter.

Protecting the value of our brand through quality control and honesty

The value of a brand is also subject to risks. Our customers associate the Tchibo brand with a friendly image, expert knowledge and quality. This is a point of pride for the company, as well as an obligation. It is essential for us to keep our customers’ trust in stability of our values, for these values are the basis of our success. Incidents that could harm the Tchibo brand name pose a great risk. We keep brand risks at a minimum through meticulous quality control, comprehensive measures to ensure compliance with environmental and social standards, and open, honest communication.

Such a risk to the brand occurred with regard to the issue of child labour to harvest raw coffee in source regions. In 2010, there were reports in the media about cases of child labour used in coffee production. These stories created the impression that Tchibo purchased coffee from the farms in question, thereby indirectly tolerating or even supporting child labour. Reports like these can seriously damage our brand’s reputation. In the case of one specific film, we were able to prove to the media representatives concerned that we had not purchased any raw coffee from these farms. We wrote to and held face-to-face discussions with editors and responsible parties, outlining the basic problem of child labour in developing countries’ agricultural systems and describing the measures that we take as a company to prevent this problem. Although the film was broadcast, it was in a much more moderate form, limiting the damage to our brand’s reputation.