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Country Commercial Guides
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CHAPTER IV. MARKETING U.S. PRODUCTS AND SERVICESA. Distribution and Sales Channels
Austria can be divided into five marketing areas:
1) Vienna, the capital and vicinity;
2) pre-alpine provinces: Styria, Lower Austria, and Upper Austria;
3) alpine provinces: Carinthia, Tyrol, and Salzburg;
4) Vorarlberg in the far-western alps; and
5) the eastern flatlands of Burgenland.A variety of distribution channels are open for U.S. goods to enter the Austrian marketplace, including traditional wholesale distribution and retailing, less traditional catalog and direct marketing methods, as well as franchising, joint ventures and licensing agreements.
Many Austrian firms also distribute to the neighboring markets of Central and Eastern Europe at the wholesale level, and some Austrian retail chains are beginning to build up networks in those countries as well.
B. Product Pricing Structures
Pricing structures vary significantly between and within product groups. Even when concentrating on importers of U.S. products, there is no uniform structure. Importers typically receive U.S. products from central distribution centers in the EU, directly from the United States, or from third countries in Asia. Products are then either used by the importing firm or distributed to wholesalers, retailers, or end-users. The number of resellers depends on the size of the market and the nature of the product.
Not surprisingly, the greatest profits are made with such products as cutting-edge instruments for medicine and industry; the lowest margins are on perishables at the big supermarket chains. In some cases, an additional reseller can actually result in a lower price: for example, buying advertising space directly from a newspaper is significantly more expensive than going through an agent, who can take advantage of volume prices.
C. Retail Trends
Austrian retailing is well into a long overdue modernization process. Austria's accession to the EU in 1995 was a major factor in this change, bringing reforms in the regulatory environment, giving consumers the freedom to shop in neighboring EU countries, and opening the borders completely to the retail giants of neighboring Germany. What was once a highly regulated and protected environment that supported thousands of small shops and boutiques (with restricted opening hours, a limited selection, and high prices) is now on the way to becoming a modern, consumer-oriented and market-driven retail environment that favors major chains and mega-stores. Price competition is ferocious and concentration in most retail sectors is high and increasing as the giants either merge or buy each other out in their battle for market share. Losers are the small shops and boutiques that make up nearly 90% of all retail enterprises but give up more of their market share from year to year.
In a word, small businesses are in big trouble in Austria. Not surprisingly, this has spawned a movement to protect small retailers from the ravages of the free market. This group recently celebrated two victories with a law that seeks to prevent the new construction of mega-stores and shopping malls, and a crackdown on businesses that dared to open their doors on Sundays. The last word in this battle has not yet been spoken -- a recent study lists 32 shopping center projects currently being planned despite the so-called "shopping mall law", which is currently being examined by the Austrian constitutional court (Verfassungsgericht).
Concentration: These figures from a recent market study demonstrate the extreme concentration in many retail sectors:
-electronics: three firms make over 50% of sales
-clothing: five firms have around 28% market share
-shoes: three firms account for over 50% of total sales
-sporting goods: three market leaders make over 70% of sales
-toys: one firm accounts for 25% of total sales
-books: the top three retailers have 12% market share
-druggist and drug-markets: three firms make over 55% of sales
-DIY: four firms have captured 70% of the market
-furniture: one firm makes 32% of total salesShopping Malls: The latest figures (1998) show that Austria's shopping malls have a total of 1.3 million square meters of selling space, and with the new law, it is likely that growth will come through the expansion of current centers rather new construction. An example is Austria's first American-style outlet mall, which opened last fall at Parndorf, just off a highway about 35 kilometers east of Vienna. Less than one year after opening, they have nearly doubled in size with nearly 50 outlets, and the expansion is continuing.
Opening Hours: One of the most important influences on consumer behavior in recent years has been the pressure to liberalize shopping hours. Consumers can now spend more time comparing products and prices. Shopping hours in Austria are still much more restricted than in the United States: most stores may only stay open a maximum of 66 hours per week, and that between 6AM and 7:30PM Monday through Friday, and 6AM to 5PM on Saturdays; with a few exceptions, all stores must stay closed on Sundays and holidays. A few brave store-owners in the Vienna area have tried to challenge the Sunday closing requirement, but stiff fines have prevented this movement from gaining much momentum.
Direct Marketing: Within limits set by Austrian law, telephone and direct mail solicitation are very much in evidence in Austria. For interested U.S. firms, a list of Austrian direct marketing firms is available from CS Vienna. Some U.S. companies, including Tupperware and Amway, have established themselves in the Austrian market with multi-level marketing systems.
Catalog Shopping: Catalog shopping is very popular in Austria, where per capita catalog spending is ranked fourth in the world (after Germany, USA, and Switzerland). Catalog sales reached about $1.5 billion in 1996 (which amounts to per capita spending of about $190), the last year for which figures are available. By removing from the calculation products not generally available through catalogs (such as tobacco, food, and pharmaceuticals), this form of shopping accounts for about 5% of total retail turnover. Seventy percent of catalog sales are for clothing, 5% each for books, shoes, and furniture; electrical devices 4% and sporting goods 3%. Four major catalog companies dominate the Austrian catalog market: Quelle, Universal Versand, Otto Versand, and Neckermann have between them captured 60% of the market. This year they will have a new competitor, the French La Redoute, which started Austrian operations in May.
Electronic commerce: e-commerce can be considered a form of catalog shopping, and it is the fastest growing shopping form in Austria. Catalog firms report monthly doubling of orders received per internet. Though actual sales figures are still relatively small, with triple or even four-digit growth, that will soon change.
D. Use of Agents/ Distributors; Finding a Partner
Qualified Austrian agents and distributors can be found for nearly every kind of product. In Austria, all enterprises must register with and maintain membership in the Federal Economic Chamber (FEC), the official trade and manufacturer's organization. The FEC is divided into six main sections: small-scale service and production (for example, plumbers, electricians, mechanics), trade, manufacturing, credit and insurance, transportation, and tourism. Each industry association has either a newsletter or a publication, and most gather industry-specific statistics and compile a list of members.
Contact information:
Federal Economic Chamber
Tel.: (43 1) 501 05-0 (ask the operator for the section you need)
Fax: (43 1) 502 06- (fax extension according to the section)
Web: www.wk.or.atFinding Austrian partners for U.S. businesses is a central aim of the U.S. & Foreign Commercial Service in Vienna (CS Vienna). This office, part of the U.S. Embassy in Vienna, is an ideal starting point for any partner search in Austria, be it for an agent, a wholesaler, licensee, franchisee, joint-venture partner, or end-user. CS Vienna can be contacted directly (E-mail: vienna.office.box@mail.doc.gov; Fax: +43.1.310.6917; Tel.: +43.1.313.39.2243) or through a Department of Commerce Export Assistance Center in the United States.
Two special programs have been developed by the Commercial Service in order to assist U.S. firms in their search for foreign business partners. The Gold Key Service is designed for U.S. business visitors who would like to meet potential business partners personally. With brochures and price lists supplied by the U.S. firm, CS Vienna contacts the most qualified Austrian firms, introduces them to the products in the German language, assembles background information on the Austrian firms (such as turnover, years in business, number of employees, regions of operation, etc.), and then schedules up to six appointments per day for the U.S. visitor with industry experts and firms interested in distributing your product. U.S. visitors may also choose to visit several countries in a region with back-to-back Gold Keys. You can request an application form directly from the CS Vienna office (address above).
The second program is the Agent-Distributor Service (or ADS) and is also designed to help U.S. firms find potential business partners. As with the Gold Key, CS Vienna sends brochures and price lists to the most interesting potential business partners in Austria, introduces them to the products in the German language, assembles background information about the selected firms, and then reports the results back to the U.S. firm, either directly or through the Department of Commerce. Any appointments or travel plans are then handled directly by the U.S. firm. The ADS program is administered through Department of Commerce Export Assistance Centers in the United States.
CS Vienna also supports trade missions, information seminars featuring U.S. technology, special events, and joint "USA" stands at trade fairs, all of which have produced excellent results for U.S. firms entering the market. CS Vienna can provide interested U.S. firms with information about planned events and upcoming trade fairs at any time. Be alert for CS Vienna's missions of Austrian Buyers visiting major U.S. trade shows.
E. Franchising
Franchising is a small but growing factor in the Austrian economy. Franchising accounts for just over 2% of total retail sales (compared to almost 50% in the United States). The past ten years have seen the total number of franchise systems in Austria increase dramatically, from under 50 at the end of the 1980's to over 250 today. A corresponding increase in the number of franchise owners can also be reported, from under 500 in the late 1980's to around 3,600 in 1998. Current growth in franchise owners is around 10% annually. The growth in the number of franchise systems is somewhat slower at between 3 and 4%.
Around half of the franchise systems operating in this country is of local origin. The top foreign participant in the Austrian franchise market is Germany, with around 25% of the franchise systems, followed by the United States, with about 10% of all the systems operating in Austria. While most German operations either set up a company headquarters in Austria or franchise directly over the (EU internal) border, most American companies choose to expand their operations in Austria through a master franchise partner.
U.S. franchising companies that decide to start operations (or sell master franchise rights) in Austria should be prepared to start slowly. Because this is a country whose traditions and history are very much a part of the individual mentality, most new products and services tend to be met with initial suspicion. This means that the start-up time for a new business is often considerably longer than in other markets -- even McDonald's needed over a decade before they felt they had established themselves securely in Austria. Finding franchise partners who understand what is involved in a franchising contract and are willing to take the risks involved is also difficult, first, because the very idea of franchising is often misunderstood and, second, because the barriers to starting a business in Austria are significant.
That having been said, it must be emphasized that the Austrian market holds truly great potential for U.S. franchising companies. Per capita income is ranked 8th in the world according to World Bank figures, around $26,000 in 1997. The economy is going through a period of liberalization and consolidation as European integration moves forward. Retail opening hours have been extended, creating greater competition and forcing smaller businesses to consider new strategies in order to survive. Warehousing and logistics practices are rapidly changing as the EU-internal borders disappear. Modern information and communications technologies are dramatically changing the way people work. In short, this is an environment in which U.S. franchising companies likely will find opportunities. Some of the best prospects for franchising companies include business services, schooling and training, retailing, and ethnic food.
The largest franchising systems (in terms of operating units) in Austria are:
1. Ankerbrot (Austria) only recently started selling franchise rights. They are the biggest food-service chain in Austria, with 326 bakeries (including 8 franchise units).
2. Palmers (Austria) is the largest Austrian clothing retail chain, with 292 lingerie shops, 179 of which are franchise units.
3. Gazelle (Austria), a second chain of lingerie shops, has 175 stores, of which 70 are franchise units.
4. Quelle (Germany) is a leading mail-order house that also runs specialty retail stores. They recently began selling franchise rights for small shops that display catalog products and take orders for products. Quelle has 200 outlets in Austria, of which 121 are franchise units.
5. Quelle subsidiary Foto Quelle (Germany) also has operations in Austria. This company specializes in film, including cameras and development. The most popular contract is a photo-corner as an extra source of revenue in a small shop. There are currently 165 such franchise agreements in place.
6. McDonalds (USA) is rapidly expanding, opening around 20 restaurants annually. They now have close to 120 restaurants, nearly all of which are franchise units.
7. Wienerwald (Austria) is a well-established restaurant chain which began selling franchise rights several years ago. They have 57 restaurants in Austria, 21 of which are franchisees. Interestingly, Wienerwald has a larger presence in Germany, where there are 155 restaurants.
The Austrian Franchise Association is managed by Ms. Waltraud Frauenhuber, whose company Syncon specializes in franchising consulting:
Austrian Franchise Association
c/o Syncon Franchise-Beratung GesmbH
Bayerhamerstrasse 12/1. Stock
A-5020 Salzburg, Austria
Tel.: (43 662) 87 42 45-0
Fax: (43 662) 87 42 45-5
E-mail: office@syncon.atF. Joint Ventures and Licensing
Joint ventures and licensed production arrangements in Austria offer U.S. firms several advantages, including free access to the European Union market, improved access to Central and Eastern European markets, reduction of transportation costs to European destinations, and high quality production. Joint ventures may be formed as companies, partnerships, or other legal entities.
Austrian companies are receptive to licensing arrangements, especially as a source of technology. Royalty and license fee payments may be freely transferred out of Austria.
In addition to the assistance offered by CS Vienna, U.S. firms seeking joint venture or license partners in Austria will receive valuable information from the Austrian Government's investment organization:
Austrian Business Agency
Opernring 3, A-1010 Vienna, Austria
Tel. (43 1) 588 58-12
Fax: (43 1) 586 8659
Manager for North America: Dr. Robert Budiman
Web: www.aba.gv.at
E-mail: r.budiman@aba.gv.atG. Steps to Establishing an Office
Establishing a business in Austria is a bureaucratic maze, despite recent efforts to reduce the paperwork involved. Some regions have moved to set up one-stop shops for entrepreneurs, but the jury is still out on how much of the red tape these new offices can really eliminate. The basic process is as follows:
The legal existence of a business begins with its registration in the commercial register (Firmenbuch). This is normally done with the assistance of an Austrian lawyer or notary public, at the appropriate section of the offices of the district management (Bezirkshauptmannschaft) or the magistrate (Magistrat). The registration materials are forwarded by the magistrate to the Federal Economic Chamber; if the materials are complete, the registration process is thereby concluded. Costs associated with the registration of a company include corporate tax, court costs, fees for incorporation, an announcement in the semi-official Austrian newspaper Die Wiener Zeitung, and the fees of an attorney or Notary Public. Total costs of about AS 30,000 must be expected, or between 5 and 10% of the capital stock.
Most business activities in Austria are regulated, and require that a separate application be made for a business license (Gewerbeschein). Evidence of proficiency is required for most businesses; usually a passing score on an examination or evidence of prior experience in the field is sufficient. For business activities that do not require proof of proficiency, the business license is granted automatically upon registration of the business. Information about which businesses require proof of proficiency is available from the Economic Chamber of the province where the business will be operated (for Vienna, that is the Wirtschaftskammer Wien).
There are several options available to the investor when deciding on the legal form of an Austrian office, including public corporations, limited liability companies, limited or unlimited commercial partnerships, silent partnerships, branches of foreign enterprises, cooperative societies, and sole proprietorships. Most foreign-owned businesses choose to operate in the form of a limited liability company (Gesellschaft mit beschraenkter Haftung -- Ges.m.b.H.).
H. Selling Factors and Techniques
Although both price and quality are important considerations for Austrian industrial and private consumers, there seems to be a greater willingness in Austria than in America to pay more for perceived better quality. Thus, focusing too much on price competitiveness could be read as an admission of inferior quality and actually hurt sales.
I. Advertising and Trade Promotion
While less sophisticated than advertising in America, the local advertising industry has grown about 10% annually for the past decade. In 1998, total spending on advertising reached $1.78 billion, up 8.84% over 1997. Spending on television advertising accounted for just over 22%, while print media accounted for over 52% of total advertising outlays. The reasons for this somewhat unexpected emphasis are at least partially explained by the following look at Austrian media:
Print media: Austria's most widely read newspaper is the tabloid Neue Kronen Zeitung, which offers readers sensational headlines, pin-ups, and a heavily populist-slanted reporting style. This paper enjoys an average daily circulation of over one million, which is astounding considering that the population of Austria is only just under 8 million. A relative newcomer on the daily newspaper scene is Taeglich Alles, a full-color tabloid that sells for a discount price. Their average daily circulation is just under 400,000.
The Kurier (www2.kurier.at) is something between a tabloid and a quality newspaper, and has an average daily circulation of around 310,000. Their weekly classified edition is very popular. The more educated and affluent readership will read (often in addition) either the slightly more conservative Die Presse (www.diepresse.at), the highly respected Salzburger Nachrichten (www.salzburg.com), or the somewhat more liberal Der Standard (www.derstandard.at), all of which have average daily circulation figures around 100,000.
The daily Wirtschaftsblatt (circulation around 40,000) concentrates exclusively on business and economic reporting, and is widely read in the business community.
Broadcast media: Austrian television is a state monopoly. The Austrian Broadcasting Corporation (ORF) operates two television stations, both offering programming with content similar to that of private stations (because they compete with the private stations available by satellite or cable): news, movies, sports, talk shows, and the inevitable reruns of American sitcoms. There is less advertising than on the average private U.S. network, usually during breaks between programs. Interestingly, the ORF cannot finance its programming through advertising income alone, thus each television owner in Austria is required to pay a television tax (around $20/month). Nothing comparable to PBS exists here.
Allowing private television broadcast networks is a highly sensitive political issue that is under consideration by the Austrian parliament. At present, there are three possible broadcast slots, one of which is theoretically available. The liberalization act proposed by the federal chancery was put on hold by the parliament while an expert commission determines whether permitting a single analog private broadcaster would eliminate the potential for digital broadcasting. Once that has been determined, the process of making the third slot available for private broadcasting (digital or analog) will begin. We expect this step to be taken shortly after the national elections in October 1999.
Even before that decision is made, the state broadcast monopoly is being challenged by cable and satellite television. Over 65% of Austrian households are capable of receiving either cable or satellite television, both of which offer private German and other European broadcasters, as well as international services, including CNN and MSNBC. A company advertising on German television can probably assume that their ads are being seen in many Austrian households.
After its embarrassing conviction under the European Convention on Human Rights in 1993 (for violating the right of free access to information), Austria moved to liberalize some aspects of the broadcast media. Since August 1996, cable companies have been able to insert local programming and advertising, and several regional radio broadcasters started services in 1997 and 1998. All the currently operating private radio stations are owned by large media conglomerates, that are also involved in print media. The ORF operates several national and regional radio stations, including the English language Blue Danube Radio. The market leader is the state run pop-radio station ö3, with over 30% market share.
Other advertising venues: Billboard advertising has remained a constant feature of Austrian marketing, and in 1998 accounted for 6.4% of advertising spending. Billboards are displayed along highways and roads, in post offices and phone booths, on public transportation, and on outdoor pillars along public routes and other heavily frequented places. Sites to place such a billboard may be hard to find, as many advertisers retain the same place year after year.
Store displays and commercial samples also play a significant role in retail promotion (due to the regulated opening hours in Austria, "window shopping" is a literal phenomenon). Displays can be found in shop windows, train stations, streetcar terminals, and airports.
Truth in Advertising: In keeping with the general trend toward better representation of consumer interests, a Consumer Forum has been established in the Austrian Economics Ministry. The forum comprises representatives of political parties, business organizations, labor unions, and business associations. A ministry subcommittee concerned with commercial advertising examines posters, TV, radio, newspaper ads, and entire sales campaigns with regard to their truthfulness, information value, and ethnic sensitivity. The forum can institute proceedings against advertisers who make false claims. Anyone transgressing established commercial usage laws may be sued.
The Government recently lifted the regulation against comparative advertising, thus enabling advertisers to make direct comparisons between their products and services and those of their competitors.
Trade Promotion: National and international trade fairs in most every industry sector can be found in Austria, where between 100-150 fairs are organized every year. Most of the Austrian fairs are open to the general public, and thus take on an advertising function. Austrian importers to a large extent also attend the major European trade fairs. A comprehensive list of Austrian trade fairs and exhibitions is available through the WIFI Austria (Tel: +43.1.501.05.3124, Fax: +43.1.502.06.270. Web: www.wk.or.at/wifi/).
J. Pricing Products
Nearly five years after Austria's entry into the EU, the promised fall in consumer prices become a reality for many products, especially home electronics, computers, and many food items. Several high-profile price comparisons with EU neighbors in the Austrian media brought prices down for some products, including automobiles and blue jeans. When the Euro becomes a common currency, prices are likely to again fall as companies in the EU move toward a single pricing policy. Because Austria is a high-price country, this single price will likely be to the benefit of Austrian consumers.
Austrian prices remain among the highest in the EU, a situation that can be traced back to the high social costs of labor (including mandatory health insurance and pension fund contributions for employees), extensive agricultural subsidies, the small size of the market, and high taxes. The value-added tax (VAT) on most products and services is 20%. In addition, special taxes are levied on luxury goods, fuel, drinks, and many other items. These taxes quickly add up, and should be taken into consideration when pricing products for sale in Austria.
K. Sales Service/ Customer Support
Customer service and support is weak in Austria. The unlucky customer who purchases a defective product, for example, cannot expect to bring it back to the store the next day for a replacement, but must wait weeks while the product is shipped for repair! While it is true that brand-name sellers generally have extensive customer service networks in Austria, they tend to be unfriendly and difficult to approach. Publicizing American-style guarantees and customer service should prove an excellent marketing tool here.
L. Selling to the Government
The Austrian Government adheres to the WTO (GATT) Agreement on Government Procurement. Austria's Federal Procurement Law was amended in January 1997 to bring its procurement legislation in line with EU guidelines, particularly on services. Austria does not have buy national laws, and the principle of the best (not necessarily the lowest) bidder is usually maintained. However, some major contracts are negotiated by invitation, and limited tenders and offset requirements are common in defense contracts.
M. Protecting Your Product from IPR Infringement
Austria is a member of all international intellectual property rights agreements. To begin the process of registering a patent in Austria or in the EU, contact CS Vienna or the Austrian Patent Office directly:
Oesterreichisches Patentamt
(Austrian Patent Office)
Kohlmarkt 8-10, PF 95
A-1014 Vienna, Austria
Tel. (43 1) 534-24
Fax. (43 1) 534-24-535
Web: www.patent.bmwa.gv.at A list of patent attorneys is available through the Austrian Patent Attorney Chamber:Oesterreichische Patentanwaltskammer
Museumstrasse 3
A-1070 Vienna, Austria
Tel. and Fax: (43 1) 523 4382
E-mail: pak@patentanwalt.at
Web: www. patentanwalt.at
N. Need for a Local Attorney
Some Austrian law firms can conduct business in English and are familiar with U.S. law. Some are members of the bar in the United States. A list of English-speaking law firms is available at the U.S. Consulate, and through CS Vienna.
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[end of document] Note* International Copyright, United States Government, 1998 (or other year of first publication). All rights under foreign copyright laws are reserved. All portions of this publication are protected against any type or form of reproduction, communications to the public and the preparation of adaptations, arrangement and alterations outside the United States. U. S. copyright is not asserted under the U.S. Copyright Law, Title17, United States Code.
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