We looked at the rise in the aggregation of companies for the sole purpose of raising funding and attracting ecommerce merchants. The Berlin Brand Group is also acquiring e-commerce companies. But its roots are different from those of most aggregators: it started as a seller of products.
Christian Salza is the managing director of Berlin Brands. He told me, “Our origins are on the product side, not mergers and acquisitions, finance or consulting. We are product people. I’ve been selling products since I was 19 years old. “
After selling electronic devices on eBay 15 years ago, the Berlin Brands Group (headquartered, yes, in Berlin, Germany) now owns and operates more than a dozen e-commerce companies with net sales of around $ 360 million in the Year 2020. The company is profitable and self-financed.
In our most recent conversation, Salza and I discussed, among other things, the challenges of the global dimension, the importance of infrastructure and the company’s approach to acquisitions.
Our entire audio conversation is embedded below. The following transcript has been edited for clarity and length.
Eric Bandholz: The Berlin Brands Group now manages around 14 brands. Is that it?
Christian Salza: There are actually more than that. We have a few big ones – Klarstein, Auna, Blumfeldt, to name a few. But we have a number of smaller brands. And we still buy brands.
Peter Chaljawski founded the company 15 years ago. He was 19. He was looking for disc jockey equipment, and it was all very expensive. So he ended up importing products from China. Then started selling them. That’s where it evolved. Fifteen years later we’re a big corporation with many brands and many countries, but it started with small DJ equipment.
Soon we added audio, microphones, alternators, and stereos. Then we tried out kitchen products and kitchen electronics. Now, Klarstein, who sells kitchen appliances, is our largest brand with $ 100 million in annual sales. Klarstein started small.
We finance ourselves and are always profitable. After about 10 years we have gained an additional investor. We are one of the largest Amazon sellers in Europe and definitely one of the largest digital brand builders in Europe.
Band wood: Has it always been an ecommerce game?
Salza: It was always e-commerce. Peter started selling products on eBay.
Band wood: What percentage of your business is based in Europe?
Salza: We do about 40% of our business on Amazon and 14% of it on Amazon Germany. Total German sales are greater than Amazon’s share. Total European sales are around 80% of total worldwide sales.
Band wood: What are the hurdles in serving the European market?
Salza: It’s complicated to sell in Europe. There are many languages and sales channels. And every country has different payment methods. You also have different logistics providers. You have to master everything to be successful.
We started selling more internationally, but in the beginning we built the platform that will allow us to bring these brands to market and distribute them through channels across Europe. Fortunately, we are in Berlin, which is very international with residents from all over Europe who speak the languages and can help us translate and create content.
We have built the technology and logistical infrastructure to serve most of Europe in a day. We have multiple warehouses and an e-commerce platform with access to more than 100 sales channels on which we can promote our products. And for all of these markets we will also be a dropship supplier. We have access to all of these channels and countries and are in control of the logistics and technology behind them.
This is how we are successful.
Band wood: Let’s talk about this technology. Did you build it from scratch or started with an open source platform?
Salza: It’s a combination of both. We use different tools for different specialties, but overall the whole mix is something we developed. We have a large IT team. We have not set up our own web shop system. We use existing e-commerce providers who can scale and connect to our middleware and backend. We also have SAP for our ERP and our finances.
Then we have tools that connect to different marketplaces. We have tools to operate the Amazon accounts and advertising portals. We bring everything together in one platform that we call the Launchpad.
Band wood: Do you regret taking this direction compared to a standard option?
Salza: No regret. We didn’t build a lot in-house. What we do well is to combine the best tools. We are constantly looking for tools to help us improve. We are good at incorporating these tools into our infrastructure. This is our strength.
We switched to SAP about a year ago. And we have a kind of middleware that sits between SAP and the other software apps. The middleware connects different applications so that they can communicate. These are also the skills we have.
Is it perfect Not always. But the speed at which we can adapt is pretty amazing.
Band wood: When I hear the words ERP, a shiver runs down my spine. I don’t want to think about it or implement it. Does SAP work for you?
Salza: It works for us. If you don’t have a real ERP, you pay for it later and you pay a lot for it. If you don’t have adequate IT management, inventory management, re-ordering, invoicing and billing systems, you will be burdened on the road.
But I recommend to anyone starting a business: Focus on the technology early on. To build a sustainable business, invest in infrastructure.
Band wood: How do you find brands to purchase?
Salza: We look for brands that are successful in their market or country. You should already have significant sales. So the sweet spot for us is annual sales between $ 3 million and $ 100 million. We can get $ 3 million to $ 25 million done easily and quickly. We will also consider smaller ones with a strong growth trajectory. We’re looking for strong reviews, rankings, and sales histories – as top sellers in this particular category, the Amazon endgame.
For direct-to-consumer brands, there needs to be a high-performing shop with relatively low ad spend that enables profitability.
But overall we are looking for top sellers and a very productive range of products. A shop with $ 5 million in sales and 150 SKUs is more attractive to us than one with 10,000 SKUs.
We want to buy top sellers, items that sell well, continue to scale, around which we can build something. Our origins are on the product side, not mergers and acquisitions or finance or advice. We are product people. Like Peter, I’ve been selling products since I was 19 years old.
Band wood: How do you integrate the acquired company?
Salza: It depends on the size of the company and also what the seller wants to do. Usually salespeople say something like, “I grew it. I am pretty successful. I am happy where I have it. But to take it to the next level, that’s a different skill. I love what I do, but I’m ready to start my next brand. “
To be successful in Europe, significant investments must be made in infrastructure, content production and translation. The VAT return alone is complicated; it is different in every country. This is often the case when founders say, “I’m out of here. I don’t want to do that anymore. “
We prefer to buy the assets from these owners – not the entire company, just the assets that are relevant to us. We want the Amazon account and the rankings, the patents, the inventory. We will integrate all of that into our platform.
There is usually a short transition period of less than six months during which we work closely with the founder. This is the normal acquisition process. Bigger companies can be different. Occasionally we buy the entire company.
On average, our integration is completed after three months for an asset deal. Larger deals, like buying stocks, could take up to 24 months to complete.
Occasionally we invite Founders to come on board, take advantage of our platform and funding, and expand his or her category.
Band wood: What ratings do founders get for their brands? I hear three to five times EBITA for smaller brands. Is that your reach?
Salza: That’s right.
Band wood: What about larger companies, say, $ 50 million in annual sales. Are these deals still based on EBITDA multiples?
Salza: Yes, definitely EBITDA. In smaller cases we sometimes take into account the discretionary earnings of the seller or SDE. But it’s EBITDA for bigger companies. The basic acquisition metric is always a measure of profitability.
Band wood: How do you build product competence when you acquire a brand in a category you are unfamiliar with?
Salza: First, let’s look at the supply chain. Do we understand? Can we get the product? Do we understand the product? And can we play this product on Amazon? Our Hong Kong office has a great quality team. We know we can evaluate pretty much anything – electronics, non-electronics, furniture, large, small, mechanical. So understanding the supply chain is the first big check box.
Next comes Amazon – how can the product be scaled on Amazon?
Then it depends on the brand. The brand is perception. Brand is how you present yourself, how consistent it is, the tone of voice. We have strong experts there who train others and can also change roles. They know how to build a sports brand versus a house or garden brand.
We have a number of strong brand managers that we have grown internally. We hire a lot of people, especially for brand management. We hire people from top-notch players – large electronics companies, sports equipment companies.
As we move into a new category, such as pets, we will find someone who has the passion, understanding, and knowledge for it. Then we make that person the captain.
Band wood: What is the overall vision of Berlin Brands?
Salza: Our goal is to democratize products around the world. We want to become a global player in building digital brands, a digital brand house.
Band wood: Where can listeners connect with you and learn more about the company?
Salza: I’m on LinkedIn, @ christian-salza. Our website BerlinBrandsGroup.com. Listeners can find out more about our offices and job vacancies. We currently have more than 150 job vacancies. There’s also a section on the website about our unique approach to branding.