“Albaad is a classic example of a company that has positioned itself as one of the leaders in its industry, thanks to having defined a coherent strategy. Because it recognizes that the competitive environment is constantly changing, both in its industry and in general, it undertakes continuous strategic positioning which is then followed up through rigorously-implemented plans,” says Noam Gonen, founder of Trigger-Foresight, a consulting firm.
Such an accolade would be high praise for any company. Few firms manage to get their strategic thinking right and then execute their plans effectively, while surmounting the inevitable mistakes and mishaps that occur in the course of corporate activity. But Albaad, which makes 20 kinds of wet wipes in six product categories, did not merely achieve an unusual measure of success; it was also born unusual and had unusualness thrust upon it. The result is an industrial company with a remarkable history as well as significant future potential.
Albaad is located on a small kibbutz — or collective rural community — called Massuot Yitzhak, not far from Israel’s Mediterranean coast, south of Tel Aviv and near the Gaza Strip. Some 60% of Albaad’s equity — which exceeded $100 million in June 2012 and comprised more than one-third of the company’s balance sheet — is owned by the membership of Massuot Yitzhak. The company has a policy of distributing 40% to 50% of its profits as dividends, and this income stream makes the kibbutz one of the most successful in the country, belying the commonly-held notion that the kibbutz movement is either dead or bankrupt.
It sometimes confuses outsiders that the other 40% of Albaad’s equity is owned by the general public, via the Tel Aviv Stock Exchange. The company went public in 1993 and raised capital again in 1998 and 1999. Albaad’s profits enable the members of Massuot Yitzhak – one of a handful of religious kibbutzim, making it a part of a small minority within what is already a marginal group – to maintain their collectivist ethos. This ethos is reflected in areas such as decision-making and income and expenditure. Most other kibbutzim have had to privatize part or all of their economic and social structures.
More recently, over the last decade, Albaad has developed into a multinational company, with large-scale production facilities in Germany – covering the European market – and the U.S. A mixture of organic growth and strategic acquisitions has boosted annual sales from some $40 million to $50 million at the turn of the century to $327 million in 2011. Total revenues are expected to be considerably higher in 2012, following another acquisition in the U.S. last June.
Despite its collectivist heritage, however, Albaad is widely agreed to be the achievement of one man – Amnon Brodie. He is the architect behind what Albaad has become, and is responsible for Albaad being on Massuot Yitzhak in the first place. Yet, ironically, he did not found the firm and was not its original investor, owner or even manager. He rescued it from an early demise and persuaded everyone around him to share his vision of what it might become – and then led the way.
Fortunate Fire, Booming Bourse
Brodie’s association with Albaad began in 1982, when he was a restless 32-year old. He had already made it clear to his parents and their peers among the kibbutz’s founders that he was not interested in agriculture — which was, at that time, the kibbutz’s sole source of income. Keen to hold on to the dynamic young man, the kibbutz leadership trained him as an electrician and sent him to university. The economics degree he earned led him to become involved in Massuot Yitzhak’s efforts to establish an industrial enterprise – as many kibbutzim were doing in the early 1980s.
A banker pointed Brodie toward a company called Eftan in Tiberias, on the Sea of Galilee, which had acquired American know-how and machinery to make “spunlace” non-woven fabrics – then a new field just taking off in the U.S. and virtually unknown in Europe. Eftan, however, was teetering on the verge of bankruptcy, and its investors were either unwilling or unable to rescue it. Brodie persuaded his fellow kibbutznikim to do so. Massuot Yitzhak bought the plant in 1985 for $700,000 and in February 1987 had moved it, together with its key personnel, to the kibbutz – achieving the goal of diversifying from agriculture into industrial production.
The plant’s output of wet wipes — today a consumer staple, but then an innovative product — was directed mainly to the domestic market, although early export contracts included such unlikely places as Australia and Costa Rica. But the best thing that happened to the young Albaad, as the company was now called, was a fire that consumed most of its plant in December 1991. At the time, of course, the silver lining was obscured by the smoke and flames: “I had just returned from a marketing trip to the U.S.,” Brodie recalls, “and I watched helplessly as the fire engulfed the plant. I just broke down and cried — it looked like the end of the road for the company and all our dreams.”
But while the fire destroyed Albaad’s offices and warehouses, the production facilities mostly survived. Brodie traveled to Europe, where in a display of Israeli chutzpah, he persuaded some of Albaad’s competitors to sell him their excess stock. “I told them, ‘This could happen to anybody. We should help each other in these circumstances.’ And many of them did.” Back at the kibbutz, everyone pulled together and, within two weeks, Albaad had resumed production. Customers were suitably impressed by this show of grit and determination, but the fire generated a lot more than goodwill. It brought a $4 million check from the insurance company, which financed the installation of a spanking new production line that gave Albaad a competitive edge.
Two years after the fire, the company marked another milestone. It joined what was then a trend among kibbutz-owned firms and launched an Initial Public Offering on the Tel Aviv Stock Exchange, raising NIS 30 million (then about $10 milion). The idea of going public was not an easy one to sell to the kibbutz membership, whose approval via a majority vote in a general meeting is needed for the company’s strategic decisions – and whose distaste for capitalism stemmed from a combination of conservative and socialist attitudes possible only in an agricultural kibbutz.
Brodie understood, though, that the funds needed to maintain Albaad’s expansion were beyond the kibbutz’s own resources. He was persuaded that firms should raise capital when conditions were suitable, not when they happened to need the money. That Brodie was able to persuade his peers to overcome their suspicions and take the plunge says much about his leadership even at that relatively early stage in Albaad’s development.
Yet even Brodie could not have realized in 1993 how ‘early-stage’ Albaad then was. After all, the company was expanding rapidly, developing its domestic and export markets and, thanks to the money raised in the IPO, was primed for years of continued growth. However, by the turn of the century, the company was facing unprecedented strategic decisions that would determine its future and very survival.
To help Albaad address these challenges, Brodie turned to Gonen of Trigger-Foresight, whose comments about Albaad appear at the beginning of this article. The two hit it off so well that Gonen and his team have become an ongoing and crucial element in Albaad’s development.
Gonen well remembers the assessment he made of the wet wipes industry in 1999, and what the implications were for Albaad. “We found an industry comprising a few large players, with annual sales in the hundreds of millions of dollars, quite a few medium-sized players in each geographical market had sales in the tens of millions, and numerous small firms,” he says. “Our main conclusion was that the medium-sized players would not survive. We told Albaad, ‘You have to join the big boys in your industry or exit it and find another line of business.’” This prediction proved to be accurate. None of Albaad’s then-competitors exists today; they have all been acquired or have closed down.
According to Gonen, “Only one player [in the wet wipes industry] in the entire world succeeded in metamorphosing from a medium-sized to a large player over the last decade, and that is Albaad.” Today Albaad has emerged as the third-largest of the three major companies in the wet wipes industry after Nice Pak of Orangeburg, N.Y. and Rockline Industries of Sheboygan, Wis.
Gonen notes that Brodie “felt instinctively that this was what Albaad needed to do, but he had to have an external, objective entity make that assessment. There followed long and complex discussions within Albaad and in the wider kibbutz forum to approve the strategy of becoming a global company. Then they proceeded to the actual implementation, which is much harder. To take the decisions and see them through – that requires leadership. Of course, not everyone agreed with the decisions, but once they were taken they were accepted and implemented.”
Brodie agrees. “I am not smarter than other people, but I can make tough decisions when they are needed,” he says. Brodie demonstrated that ability during Albaad’s IPO in 1993, which he says “was and remains the right decision.” He also believes Albaad made the correct decision when the company chose to “go global” in 1999 despite the harsh implications, in terms of revamping the corporate structure and having to reassign or even remove some of the company’s loyal and long-serving executives.
Expansion overseas tested Brodie’s leadership skills as never before. If issuing shares on the stock market was difficult for the kibbutz membership to swallow, buying a company in Europe was even tougher. The fact that the company to be acquired would be in Germany was the bitterest pill of all for people who had themselves, or their parents, fled Europe before the Holocaust or, having somehow survived, had arrived in Israel in its wake. Yet, in a microcosm of the larger Israeli experience, Brodie persuaded his friends and neighbors that the business logic involved in building the future must trump the emotional trauma and scars from the past.
The Weight of History
Even today, a decade after Albaad bought a German company for 12 million euros ($15.4 million), Wolfgang Tenbusch, who has been CEO of what is now Albaad Deutschland since 2004, identifies what he delicately refers to as “the weight of history on our shoulders” as one of the cultural issues coloring relations between his company and its management team and between Albaad group headquarters at Massuot Yitzhak.
But Tenbusch, like Brodie, while acknowledging “the weight of history,” doesn’t let it prevent him from doing his job well. During his tenure, the German operation has expanded considerably, with sales rising at double-digit rates every year “and much faster in the last three years,” compared to growth of only 5% in the overall market. Sales currently exceed 150 million euros ($193 million) while the company’s workforce has risen from 80-odd to more than 400 today. In a fascinating vignette on the wider European economy, Tenbusch notes that his main production constraint is to find qualified personnel – although he is situated in the Rhineland, the heart of German industry, near the Dutch border. A suggestion that Dutch or Belgian workers might solve the problem is brusquely dismissed as “even worse.”
Despite these problems and Tenbusch’s frustration with the tortuously slow decision-making process of the Israeli parent company – a polite way of describing the extraordinary socio-political structure of the kibbutz and its institutions – he and Brodie have fashioned a strong partnership that is delivering the goods, literally and figuratively. The same cannot be said for Albaad’s American venture, and Brodie admits as much:
“By the end of 2002, shortly after the German acquisition, it became clear that there was an urgent need to penetrate the American market, which was then dominated by two large players.” But no suitable acquisition prospects could be found at reasonable prices, so Albaad reluctantly decided to build its own plant from scratch in North Carolina. According to Brodie, “It has proven very hard to be in the U.S. We had to climb a steep learning curve.” Albaad’s CEO, Boaz Roseman, makes it clear that the group has had a tough time in the U.S., to the point that the entire local management was replaced in 2010. Only now is the operation beginning to achieve profitability. Still, Albaad’s American subsidiary has had some victories, such as winning sole supplier status to major retailers including Walmart and CVS.
Meanwhile, Albaad has made another far-reaching strategic decision and is deeply immersed in its implementation. “By 2009, it was clear to us that we needed to add additional areas of activity to the wet wipes sector in which we were a leading player,” says Brodie. With Gonen’s help, the company decided to enter the feminine hygiene business, and this has been achieved via acquisitions in Israel, in 2010, and in the U.S. In June 2012, Albaad acquired Hospeco, a Kentucky-based manufacturer of female hygiene and adult incontinence products, for $14.9 million.
Along the way – in 2005 – Brodie stepped down as CEO, but remains a very active chairman and president. Roseman, himself kibbutz-bred and with experience as a manager of kibbutz-owned firms, has been CEO since 2009 and is fortunate that his predecessor established the ground rules defining the CEO’s responsibilities versus Brodie’s new and more limited role. The two men have a good working relationship – and that is going to be crucial in the coming years, as Albaad sets its sights further afield geographically. Eastern Europe and East Asia are on the agenda as is the range and sophistication of the company’s product array.
Albaad will need to keep responding to what Gonen of Trigger-Foresight terms “the challenge of re-inventing the company every few years.” Successful as the company has been in the past, the rapidly changing world of consumer products requires constant innovation and change. Those who fail to adapt could well face a wipeout.