Maintaining Profit Levels in Times of Crisis
When the CEO of Logista, Luis Egido looks back on the effect the crisis had on the logistics sector he recalls that "all of the news was negative". Manufacturers were focused on the short term and on cost reduction; competitors nervously struggled to survive by lowering prices as much as 70%; retailers, strapped with financial difficulties, were delaying payment. There was fear, lack of confidence, and insecurity in the sector. "We suffered a tremendous increase in robberies; 15 million Euros in 2009", said the CEO.
Speaking to a full audience on the topic of Management at Crisis Time, part of IESE’s Global Leadership Series, the IESE alumni explained how Logista relied on its core strengths in order to counter these fears, cover their budget and reassert their business model.
Differentiation and IT Solutions
Compared to other logistics companies, Egido says, "We are a little bit different animal, we are very simple. We buy and sell products but we don’t define prices; they are defined by the manufacturer. We are a logistics operator but we don’t move the products under the direction of our customers."
Using state of the art technology, the company manages the flow of goods from manufacturers to small retailers and hospitals. In 2013, Logista made a total of 35 million deliveries to 300,000 delivery points throughout Europe, and billed 47.9 billion Euros.
"Logista is not just a logistics company," Egido explained. "We keep in touch with customers at point of sales…We try to cover the widest value chain by being very deep in every link".
Staying Calm in the Midst of Crisis
In addition to the financial crisis, global market changes had a negative impact on Logista’s core sectors. Take for example publishing. Book purchases were not only affected by the crisis, but by the introduction of e-readers and Amazon, which have had an impact on physical distribution and book prices. Not good news for Logista, which supplies to bookshops and kiosks.
In the pharmaceutical sector, Logista’s evolution in 2012 dropped to levels seen seven years earlier, due in part to a decrease in state subventions and an increase in generic production. Lack of growth has affected the lottery and gaming industry, where levels are back to where they were in 2003. In the telephone pre-paid market, there were sharp declines in sales in the French and Spanish markets.
As declines were experienced across the board, manufacturers, retailers and competitors responded by lowering expectations and service. "People were getting nervous," recalled Luis. Competitors were proposing salary cuts of 10-15 percent. Some manufacturers were even subcontracting to companies without refrigerated trucks in order to save money during the winter months.
Egido discovered that "by simply doing our job" Logista was able to maintain confidence and assure client trust. While others lowered their level of quality, Logista made certain to maintain theirs. When the level of unpaid debt in Spain was reaching 10 percent, they ensured their payments were made by the end of each month.
Breaking the Negative Trend
Logista knew that, like other companies, they needed to take additional steps to manage costs. They adopted cost saving policies, restructured and became more flexible. They reduced fixed costs by outsourcing some of their activities to companies working under their direction. They sat with unions in an effort to maintain low levels of staff redundancies, 2% of employees a year, or 900 jobs over a five year period. As sales dropped 2.4% between 2010 and 2013, so did distribution costs (-2.5%), as did expenses of sales and marketing (-15.5%). "We have kept the level of profit," said Egido.
Just as significantly, Logista has put a third of its investments in IT, in what Egido referred to as "customer service solutions". Rather than backing down from innovation and investment, they are increasing their portfolio of new products and improving services and efficiency.
"We have been investing in IT tools at the point of sales in order to approach purchasing habits, substitutive products and typology of the customer. The combination of these three elements defines Logista," said Egido. None of their competitors are able to provide all three aspects to customers.
Logista is also taking advantage of momentum to seek out international expansion, going to Germany and The Netherlands to develop new business. They are investing in Human Resources and keeping a long term view and a positive attitude. Investors are seeing Logista in a positive light and they are in a good position to go to the stock markets later this year. "When you summarize this period, you see there was some good news in all this disaster," said Egido.
Finally, he reminded participants of the importance for companies to develop and maintain a good basic business model. He emphasized, the message is important, but trust must be backed up by action.