Hans-Peter Fricke – The Agricultural Machinery Unicorn | checkout zone

If you want to repair your tractor or plow, you can't avoid Hans-Peter Fricke's company. Over the past 30 years, he has built up one of the world's leading agricultural machinery dealers from a small medium-sized company, which continues to show impressive growth and profitability rates. In 2021, Fricke will be able to show sales of more than one billion euros and in the podcast we discuss where the next billion will come from and how the market is developing overall. An absolute must for fans of agriculture!

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Agricultural machinery (also digital) with Hans-Peter Fricke, Managing Director of the Fricke Group

Alex has been working towards this interview for a long time - and he has been looking forward to it for a long time! A classic German hidden champion, based between Bremen and Hamburg, who, despite not being well known to the general public, achieves amazing things in the field of agricultural machinery technology. With 3,000 employees, the company manufactures, sells and trades in spare parts and machines and maintains them in the field. If, like Alex, you're more than just casually interested in how to build and repair tractors - or if you just want to know how to break the billion mark in sales in the niche - you've come to the right place.

"So we're talking about big square money!"

4:00

Alex: In 2021 you will make more than a billion in sales for the first time.

Hans-Peter: Yes, our markets are doing well and we didn't have any problems with Corona because agriculture is extremely relevant and we didn't have to close any areas. It's also a stable market, so we're stable in agricultural engineering and commercial vehicles.

Alex: In the digital scene, the billion is important because with a valuation above this threshold you are traded as a so-called "unicorn". But you have a billion real sales! And behind that is a corresponding return. Measured by the standards of the digital scene, you would be a "multi-unicorn" - one of the most valuable companies that I have ever had in my podcast. But that's not how you measure success in your industry, is it?

Hans-Peter: No, we are old economy and basically two-thirds wholesalers for agricultural machinery (spare parts, construction machinery, commercial vehicle parts, etc.). But we do that to a large extent (96%) digitally. All B2B of course.

Alex: How can I imagine that? Something breaks on the farmer's tractor and he then orders digitally from you? I would have thought he would call his trusted dealer first.

Hans-Peter: It is not the farmer himself who contacts us. In agriculture there is a division of labor and the farmer is responsible for milk production, pig fattening and arable farming. The agricultural technology partner takes care of the technology. So the farmer drives his tractor to the workshop, which then analyzes it. She then orders the spare parts from us in our web shop – 96% of the time, which is enormous. Nevertheless, we have sales people all over Europe - from Portugal to Poland and Norway - who can be contacted, who will give advice and look at problem cases if necessary.

(Before going into the details of the business model, Alex asks Hans-Peter to tell you something about his career to date. In 1988, while still young, he joined the Fricke family business, which was founded in 1923 as a simple forge workshop, before his father Wilhelm handed over the management to him in 1992 "He outlines the most important milestones of how his father turned the small forge into a nationwide relevant company for agricultural engineering in the 1950s. After a daring entry into the spare parts business in the 1970s, the company then grew rapidly. In 1996, the company's own Granit brand was launched. )

11:10

Alex: You already produce the spare parts that you sell under the Granit brand yourself, right?

Hans-Peter: We also work with manufacturers and sometimes have them produced. But around 55%-60% of products are sold under private label. You can introduce us as a "generic manufacturer".

Alex: And what were the buyers doing before you started selling them the parts? How did the market work?

Hans-Peter: Well, we helped to consolidate the industry. But we seized the opportunity and introduced new price structures and transport systems: We had a standard price for overnight transport within Germany back in the 1990s. The next morning at 7 or 8 the spare part is with the customer. Before that, the senders said: “To Bavaria? That costs DM 14. If you leave it in northern Germany, it costs DM 6.” With our innovation, we have broken through various concrete walls. Because neither the manufacturers nor the agricultural machinery dealers wanted us to go this route. But in the end we prevailed. In addition, we pursued an internationalization strategy in purchasing: we started shopping in Turkey, China and India early on. That brought us advantages.

Alex: And almost all of your range is used in agriculture, right?

Hans-Peter: Yes, although "agricultural engineering" is an extremely wide range. So we're not just talking about tractors here: the cultivator, the maize layer, the hoe, the crop protection equipment... For comparison: a car parts wholesaler might have 80,000 to 100,000 items in stock; we have two and a half times as much. And there are hardly any fast movers among them.

14:55

Alex: It is well known that in Germany there are many regional differences in agriculture, but let's take an average farmer who farms 100 hectares and concentrates on grain. What kind of machinery does he operate?

Hans-Peter: A lot depends on the intensity of farming. Large-scale agriculture in the new federal states would lead to annual machine costs of 6,000 to 8,000 euros for 100 hectares. But it is different when it comes to animal husbandry and different again when it comes to growing vegetables or even vines. It's extremely different. What I can say in general terms: In Bavaria and Baden-Württemberg, more parts are sold than in Mecklenburg-Western Pomerania or Thuringia because of the small-scale structured agriculture.

Alex: In the digital industry we speak of the total addressable market – TAM for short – for the theoretical maximum market size. If we then take 6,000 euros per hectare as the calculation value... Well: 100 hectares are quickly over on the autobahn! I don't know how many million hectares of cultivated land we have in Germany, but would that be the TAM?

Hans-Peter: Yes, although it's not easy for agriculture in Germany. The pressure from the public and politicians is increasing - especially with regard to sustainability.

Alex: But doesn't sustainable agriculture mean better business prospects for you? Does that mean you don't have to work more with mechanics and less with chemistry?

Hans-Peter: Glyphosate will probably be banned next year and we probably won't be able to avoid a few more bans. And yes, that means more mechanical weed control. But on the other hand, more diesel is consumed because the fields have to be driven on more often. Production then becomes more expensive as a result of this and other factors – and under certain circumstances migrates to countries such as Spain or South America, where people don’t look so closely. That's negative for us.

(Hans-Peter leads through globalized agriculture: Glyphosate will continue to be permitted in Brazil or Argentina; and as long as the transport of food is so cheap, farmers in such countries will be competition for local competitors. Then follows an illustrative horror story from the Chinese pig fattening…)

20:35

Alex: Due to consolidation in German agriculture, it is not that rare, especially in the new federal states, for up to 8,000 hectares to belong to one farm. What does that mean for you? I would naively assume that such companies would first buy larger machines? But you sell less of it?

Hans-Peter: A decade or two ago, a combine harvester cost up to 200,000 euros. But if we, as an agricultural machinery dealer, sell a large Claas combine harvester today, we do so at a price of almost 600,000 euros. So we're talking about big square money! But such machines are incredibly powerful. Such a combine harvester runs around 20 days a year in the new federal states. Not like an excavator, which comes to about 250 days. But this combine harvester can harvest 80 to 90 tons in one hour. And that's enough grain for a city like Leipzig or Dresden for a week.

Alex: So an hour to a week?!

Hans-Peter: Yes, in basic care. The Dresden Christstollen is included. These are insane productivity advances, which can be seen from the fact that in the 1950s and 60s you spent up to 30% of your income on food, but today in Germany, the world champion in savings, you only have to make 10% to 11%. This was only possible because agriculture made these leaps in productivity.

Alex: Let's stay with the combine harvester for 600,000 euros. As a global company, Claas will probably depend on dealers like you everywhere. You know the farmer in Mecklenburg-West Pomerania. But what about the business that comes afterwards – i.e. with repairs or software updates. In the future, Claas would certainly like to take over that itself, right? That will be nothing other than the Tesla strategy.

Hans-Peter: But in agricultural technology you have to be represented in the area. And the availability we offer is a great value. The manufacturer is simply too far away to be able to do this everywhere. And if this gigantic combine harvester stands for five or ten hours on harvest day waiting for an individual part, the downtime is just as gigantic. We're just closer! With my Tesla, I get a rental car if it's been parked for three days or is in the workshop. That's not so bad then. But I can't just replace such a giant machine...

(Only 20 days in use, Alex thinks for a moment. Didn't manufacturers like Claas come up with the idea of ​​renting such combine harvesters to farmers for short periods? Yes, says Hans-Peter, but not yet in the regions that are important for the company. Enforced The main reason why the rental of such machines has not been successful is that - in contrast to commercial cars - they are not available everywhere in large numbers.)

27:45

Alex: You've been in the business as traders for so long: have you never felt the temptation to make the machines yourself? The "Fricke tractor" or at least the "Fricke plow"...?

Hans-Peter: There is no plow, but with our company SAPHIR Maschinenbau we already have our own cultivators, blades and shovels. But we were about to buy a factory in Ukraine - but that didn't work out because the negotiations about Corona dragged on and then a neighbor came around the corner with more money than we were willing to spend... Only in Ukraine Incidentally, it is the welders that we need for some devices and machines, which is why we are considering building a plant there. But now Putin is standing at the border... Let's just wait and see. But the planning process is ongoing.

However, this will not be your own tractor. It is a very consolidated market that is highly fragmented. There are four or five major groups worldwide - and the fur is already distributed. The decisive factor here is not the agricultural machine itself, but the dealer network. In this market, there aren't that many well-funded traders who can take on this business. We must be able to buy machines that cost hundreds of thousands of euros. This is where we have our strength.

Alex: From my point of view, there is a completely irrational brand loyalty, especially in the tractor sector. Many farmers consider themselves part of the "Team John Deere" or the "Claas League" or are Fendt people... On YouTube there is the genre "tractor porn", where you can watch drone videos for hours on how tractors till fields. It's like in the automotive sector: the Opel warehouse, the Mercedes admirers... Although the Opel warehouse has probably gotten a little smaller over the years. Couldn't you try to bind customers to you with brand steel power?

Hans-Peter: Well, we are already trying to put our Granit brand in the foreground in the spare parts business. That's what we do marketing for. For example, we have seen that more and more of our suppliers are also selling their products on Amazon and eBay. Our reaction to this: do something of our own. So we hired people in Taiwan – south of Taipei there is a cluster for high-quality hand tools (screwdrivers, socket wrench sets, etc.) – and we sell the products under the “Granit Black Edition” brand. This is a smash hit! And our own workshop masters also praise the quality of the tools. So we're already realizing our own ideas with our own brand - and incidentally we're avoiding price competition.

(Alex generally asks about the competition from Asia. He has heard the wildest stories about agricultural equipment sold on Alibaba, which are very cheap to buy, but break after the third use and cannot be repaired. Maybe that's it Now a first attempt before a broad-based attack comes in. Hans-Peter is relaxed: Even if, as happened recently, Chinese manufacturers try to buy into the European market through takeovers, they simply lack the dealer network : "Without the dealer network, you're in a fix here."

In addition - to get back to emotional brand loyalty - the John Deeres and Claas of this world are also firmly in the saddle because agriculture is an extremely tradition-conscious industry. Farmers, who even work part-time to keep their small farms alive, also liked to remain loyal to ancestral brands.)

36:20

Alex: So you're not afraid of the $20,000 Alibaba tractor. What about electrification? My neighbor Jens has now got himself an e-tractor from Weidemann - and I'm a bit jealous. Do you think that is a key development in the coming years? Will there soon be many more battery-powered devices and machines in agriculture?

Hans-Peter: That will certainly come. Combustion engines will probably be phased out in the long term. For trucks, electric trucks are promised for shorter ranges from 2024 and for longer ranges from 2028. But of course you ask yourself how you want to charge these huge batteries!

In Neumünster, for example, we have a large customer with just 100,000 square meters of space, which already has a 50,000 square meter hall. He now intends to buy three battery-powered trucks and has asked the public utility company about a suitable line. Answer: “Three trucks? You can connect a maximum of two at the same time!” But the customer has a total of 180 trucks…

Alex: The sun has to shine for him to do that with his solar cells!

Hans-Peter: And then we come to the off-road area. We sell tractors with 300, 400 hp that need full power for 12, 18 or even 20 hours. That's not possible with today's technology: You can't attach a 10-ton battery to it! However, that could all change dramatically. To put it mildly, the current lithium-ion battery may not be the end of the story. Especially since you have to think about how deep you want to dig for rare earths and damage the environment in this way. It's a yin and yan: positive versus negative aspects.

(Nevertheless, according to Hans-Peter in conclusion, sooner or later the combustion engine will be phased out simply because agricultural machinery is following the automotive industry, which is now pushing ahead with the phase-out with all its might.)

40:00

Alex: How are you positioned worldwide? You have described how important personal sales presence is in order to gain trust in a market. So how easy is it to expand to other countries?

Hans-Peter: When it came to spare parts, it quickly became clear to us that Germany would be too small in the long run. We're in a niche where we're talking about eight or ten items a year per market for certain items. By chance we met a Dutchman who had worked for a subsidiary of John Deere that had closed. We hired him and held a 40% stake, and he then built up our business there. Then a few Austrians came around the corner, then a Belgian and then a Frenchman….

In the case of France, it was: “Oh, very difficult market! Very nationalistic! Only buy French…” But we made it there. At first, however, we were terribly unprofitable there. It took many years and a lot of work on the pricing model before we were in the black there. In the end, we also asked significantly higher prices there than in Germany, but it was clear to me: either the market accepts that, or we have to withdraw again.

Alex: What does "done" mean in the European spare parts business?

Hans-Peter: That there are still a few competitors – one is even bigger than us and that's how we measure ourselves – but that we're number one, two or three. And that we work profitably. The only market that has set us back is the UK. Brexit hurt, even though we were very well prepared. In all other countries, however, we swim above water.

Alex: If you look ahead: Where will the next billion come from? Is that geographic? The population is growing in Asia and Africa, and agriculture there probably needs to become more efficient.

Hans-Peter: We are already planning to expand geographically. We are currently planning our entry into the US market for 2022, because it is more comparable to Europe, but is still under enormous dominance by John Deere. The market for spare parts is not yet as strongly consolidated as it is here, so we have good chances as a medium-sized player to achieve sales of 100 million euros in this segment. We see potential there.

(Alex wants to know how the logistics work in a new market. For example, whether the entire warehouse is already mirrored in the USA. The warehouse value is so enormous, Hans-Peter replies, that Fricke always has a three-digit million sum of tied-up capital in his inventory So start small and get used to the market first.)

47:00

Alex: What role do digital channels play in your expansion? Do you sell products through Amazon in the US? There will probably be a search for your products in the US market.

Hans-Peter: When it comes to car parts, Amazon is already by far the largest marketplace and retailer in the USA; also in DIY/handicraft needs. The thing is, Amazon is our number one enemy -- and with the capital they have at their disposal, they can conquer any market. Because they can accept losses in any niche for years.

That means for us: We try to keep them at bay! Because there is a great danger that they will also enter our European markets. However, we also sell heavy, bulky parts: This can be a corrugated profile that is 6 meters long or a slurry pump that weighs 150kg. At the moment, Amazon's strategy is still "small and expensive"; The partners should sell “big and voluminous”. But in the end it is clearly a huge octopus that wants to grab everything. And which will deal with niche markets simply because the growth figures cannot be maintained otherwise. What we're already doing: Looking around to see if there aren't digital retailers that are already on the market that we can take over.

Alex: Good news from the e-food market: Amazon is now on the losing side there! So the market is huge, but special - and Amazon isn't making headway there.

Hans-Peter: I'm glad! But let's face it, you can try again and again! They can learn - and have a veritable army of analysts, programmers, etc. Never say never, so always be on your guard. Incidentally, it's no glee on my part that Amazon's online grocery retail business isn't doing so well. But we have to make sure that we continue to have companies like Fricke in this country that also employ people here in Germany and do a lot of other things that make sense.

(Key word employment, Alex asks for a rough list of the areas in which the 3,000 Fricke employees are divided. Hans-Peter guides you through the structure. The Fricke Group includes a mechanical engineering company, where traditional production is carried out with pre-products from Eastern European partners; here “ how you imagine it" is welded and bent. The other large area is spare parts, where little is produced in-house; here Fricke is in the role of a dealer and tries to buy the best goods as cheaply as possible. The variety of products here is simply far too large than that you could start your own production like Fielmann.)

53:00

Alex: You are located in Heeslingen, about halfway between Hamburg and Bremen. How is the staff situation there? Many of the people I speak to in the podcast say: "We could actually grow even more, but we're missing so many people..." At Sport Tiedje in Schleswig, for example, there are 150 vacancies...

Hans-Peter: We come from agricultural engineering - and this doesn't primarily take place in Hamburg or Berlin, but in the countryside. Families have lived in a village for generations and don't just move around. We also need agricultural technicians in product development – ​​not just in the workshops. There always have to be people who are enthusiastic about ploughs, tractors and other machines. And I find these people in the countryside.

However, you have to see that areas like digital are different. Here we are very open. We have a small hub in Bremen where our data specialists are based – we also have one in Hamburg. It just developed that way. Or in the Netherlands: we have a data specialist who used to work at Cap Gemini and lives in The Hague. This is 250km from our Holland head office. "He'll probably have to work from home," I said when I was hired. We are willing to compromise.

Also in other respects: Our fitters now work a four and a half day week (four days 9 hours, one day 4). For many it was unbelievable at first: "Someone always has to be in the workshop by 6 p.m.! We have to offer that to our customers!” In the meantime, however, everyone has realized that the bait must taste good to the fish, not to the angler. We come up with so many ideas so that we can keep people.

56:50

Alex: How do you feel about the topic of smart/data/predictive maintenance? Is it an advantage for the farmer if his machine reports for maintenance automatically, or would he rather just be able to call someone if something is broken and otherwise have peace of mind with smart devices?

Hans-Peter: No, it is already standard with us that farmers can book machine monitoring with us. With tractors and combine harvesters, we are inside the machine and can say something like: “The cooling water temperature is too high. Be careful now!” You have to keep up with the times. Companies like BMW and Mercedes are a benchmark in the automotive sector. The dream is: When the brake pads are off, an appointment is automatically made at the workshop. But that still doesn't work.

Alex: It doesn't even work at Tesla.

Hans-Peter: Exactly.

(Towards the end, Hans-Peter goes through all the areas in which Fricke is looking for employees and – very important: – working students and trainees. Because: “Anyone who comes at a high price will eventually go at a high price.” As a medium-sized company, Fricke likes to invest in the Training and bind his employees early. At the very end, Hans-Peter explains how responsibility in the family company is now being passed on to the fourth generation.)

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