Chief Executive Officer (Vorsitzender der Geschäftsführung), OBI Group Holding SE & Co. KGaA
Obi CEO Sebastian Gundel wants to sell photovoltaics and other products in DIY stores
Almost everyone knows the DIY chain with the orange beaver logo – but that doesn't protect the $8 billion company from attackers like Amazon and others. In the OMR Podcast, new CEO Sebastian Gundel reveals why Obi will become a solution provider in the future, what role franchise partners will play in the future, and which product has seen a dramatic increase in demand due to rapidly rising heating costs.
🎧 The OMR Podcast with Philipp Westermeyer is available on all podcast platforms 🎧
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About Sebastian Gundel
In a February 2023 podcast appearance, Obi CEO Sebastian Gundel discussed the company's strategic shift toward becoming a "solution provider" rather than a traditional DIY retailer. He stated that the German DIY market is worth 20 billion euros, but the broader market for home and garden improvements is ten times larger, at 200 billion euros. Gundel attributed this potential to the age of Germany's housing stock, noting that over 60% of residential buildings were constructed before 1949, creating a renovation backlog. He indicated that Obi plans to address more complex customer needs, such as making homes smarter, installing photovoltaic systems, and setting up garden irrigation, which require bundled products and implementation services rather than simple shelf sales. Gundel also noted that Obi's private labels account for about 30% of its revenue. He mentioned that the company's founder, though retired, continues to travel and speak as a guest lecturer, sharing his values and perspectives.
Transcript (90 segments)
S
Sebastian Gundel0:00
In Germany, over 60% of the housing stock was built before 1949, so it's really old, leading to a renovation backlog. This opens up new markets that you can't handle the same way as the classic hardware store model, where you buy a product, put it on the shelf, and the customer picks it up. Topics like making a home smarter, installing a photovoltaic system, or setting up a garden irrigation system are more complex and require solutions, not just products. That's our growth field, because the hardware store market in Germany is 20 billion euros, but considering customers' homes and gardens, it's ten times larger at 200 billion.
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Philipp0:53
Hello, we at OMR have never talked about hardware stores before. But you can buy things there to prepare for the apocalypse, or you can make money with hardware stores. So dear preppers and economics friends, here comes the new CEO of OBI in the podcast. Let's go! Hello Sebastian.
Hello Sebastian.
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Sebastian Gundel1:09
Hello Philipp.
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Philipp1:11
You haven't been at OBI for very long, have you?
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Sebastian Gundel1:13
No, I've only been here since the end of September, so it's still very fresh.
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Philipp1:16
But you're not fresh; you've been here for a while.
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Sebastian Gundel1:18
That's true, I've been here for over 10 years.
It's actually an interesting story that I developed from within. I started at OBI in early 2012.
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Philipp1:34
Let me briefly explain to everyone: you studied economics in Münster, got a PhD, then worked in consulting, and then you ended up at a hardware store instead of the typical path like investment banking or a digital firm.
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Sebastian Gundel1:48
Yes, I studied economics, the rest is correct. But what was classic was that after consulting, if you don't end up in investment banking, you at least end up in corporate development. That's what I did at OBI. I started in corporate development without any employees, as Head of Corporate Development but head of myself. That was good in hindsight because I could really understand OBI and listen without immediate responsibility.
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Philipp2:27
Can we assume that everyone in Germany knows OBI?
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Sebastian Gundel2:27
Yes, you can assume that. We have a brand awareness of 95%. We are one of the best-known brands. I would say everyone knows OBI, and most have probably been to one. We have 650 stores in ten countries, 350 in Germany, which is about 50% of our revenue. Germany is our main market, but we are also in other countries, though smaller. We are a relatively large company: over 8 billion euros in revenue, over 40,000 employees, active in ten countries, and over 50 years old.
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Philipp3:17
How many business models are you dealing with? You often talk about new business models. You celebrated OBI's 50th anniversary in 2021. Where did OBI come from? Manfred Maus founded it with Mr. Lux. Manfred Maus ran the company for the first 30 years, then sold it, and Tengelmann came in. You also have a second shareholder, the Luke family. Are they the Lukes from Essen who are also in the auto parts business?
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Sebastian Gundel3:48
Yes, exactly. They are an entrepreneurial family. OBI would probably be in the DAX if it were listed, but the valuation of stationary retail is not that high.
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Philipp4:41
What is an asset value? What do you mean?
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Sebastian Gundel4:46
Well, Hornbach, one of our competitors, is listed. Its market capitalization is around 1.34 billion euros. We are larger than Hornbach with OBI, so it would be in that range.
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Philipp5:12
Why did they hire you back then? Ten years ago, were you worried that the hardware store model needed to be transformed?
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Sebastian Gundel5:24
No, when I was hired, I did classic corporate development, reporting directly to the CEO. It was a small strategy unit for all kinds of questions, like expansion into which countries, portfolio management. That was a classic strategy job that fit my profile. The questions about how the customer is changing and how we stay relevant came later. I remember when we started talking about market shares and revenues, and Amazon kept rising in the rankings and eventually overtook us in pure hardware store sales. That was the moment we started thinking about what that means for us in the long term.
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Philipp6:32
Tell me a bit about how you started making OBI more digital years ago.
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Sebastian Gundel6:38
The real starting point with my team was in 2017 when we founded OBI Next. That was our answer to the need to find ways to stay close to the customer beyond stationary retail. We built a new unit deliberately separate from OBI, moved to Cologne to access different talent, and created freedom to do things differently in terms of working methods and technology. We built new things from scratch, not attached to existing technology. We looked at how Spotify works and decided to build modern products from the ground up. The main product was the Hey OBI app, which we wanted to be the customer's constant companion in their home journey.
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Philipp8:08
What can you do with it? Give some examples.
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Sebastian Gundel8:11
With the app, you can do classic shopping, but also digital consulting. You can be in your garden and call an OBI consultant digitally, show them your terrace, and get advice on how to build it. Then you can go to the OBI store, plan the terrace, and the plan is saved in your app. We also have care plans for lawns, and an in-store navigator to help you find products in the store. We have over 4 million customers in the app, achieved in the last two and a half years. Over 50% are active monthly. The app is our way to differentiate from Amazon by offering services and expertise.
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Philipp10:20
So the idea is to differentiate from Amazon through services that Amazon doesn't offer. You say the service layer is what OBI does better.
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Sebastian Gundel10:40
Absolutely. The home and garden space is fascinating because the customer's engagement starts long before the purchase. For example, before a customer buys terrace tiles, they spend three months thinking about the project. We want to address that because DIY home and garden presents many questions and challenges: skills, feasibility, budget, construction methods. We can provide more value than Amazon, which could do it but probably doesn't prioritize it. Our employees are very competent, and we connect them with customers via video telephony. That's a big differentiation.
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Philipp12:26
Hardware store topics are among the most googled. You decided to solve that through content and people, which doesn't directly generate revenue. It's a speculation that it leads to more purchases.
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Sebastian Gundel12:52
Yes, it's about understanding the customer and providing more value, which leads to more touchpoints and customer loyalty. We can measure that. When I started, we knew from GfK studies that customers buy 5-7 times a year. Now, with our 4 million app customers, we have an average of 50 interactions per year via email, app, or consultant inquiries. That doesn't mean 50 purchases, but we provide value and understand them better, which hopefully leads to better purchase support. That's the bet we're making.
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Philipp14:05
Have you grown in recent years? Probably a lot during the pandemic.
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Sebastian Gundel14:08
Yes, in 2020 and 2021 we grew strongly, but otherwise in a saturated market like Germany we had growth rates of 2-3%. In Eastern Europe, growth rates are higher because the economy grows faster. Overall, OBI Group grows in the mid-single digits. During the pandemic, it was over 10% because people stayed home, built things, and invested in their homes.
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Philipp15:27
How much does a typical German spend at OBI per year?
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Sebastian Gundel15:36
According to GfK, about 650 euros per year. But the art is how much of that is spent at OBI. With our data, we know that customers who have more than 50 interactions spend more, around 1,200 euros. Customers who buy both online and in-store and use the app spend more. So we see the effect of customer loyalty.
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Philipp16:35
I thought the main argument for hardware stores is proximity. OBI has 350 stores in Germany, so you are the most well-known brand. If a competitor builds a store next to you, that's bad.
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Sebastian Gundel16:54
Yes, proximity is crucial. If Hornbach or Hagebaumarkt builds next to us, it's not good, but it happens. The dynamics in Germany have slowed down a bit. In other countries, it's still higher. The market is still very fragmented in Germany, unlike France or England. There are many local players because transporting heavy goods is expensive.
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Philipp18:11
Some of your stores are company-owned, some are franchise. How do franchise partners feel about your digital initiatives? Initially, they might not have been happy because it costs money.
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Sebastian Gundel18:36
Initially, they were not so positive, but now they understand that 50% of customers visit obi.de before going to the store. They benefit from the digital traffic. We have the most visited website for home and garden after IKEA. Our franchise partners now see the necessity and we integrate them into the digital world. We provide them with technology like video consulting and the app. They are on board.
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Philipp20:30
Have you considered buying content websites or magazines, like some American companies do?
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Sebastian Gundel20:51
Yes, we have built our own content site, which has increased our SEO traffic. We also have partnerships with publishers like 'Mein schöner Garten' and 'Schöner Wohnen'. We might consider buying a magazine if the price is right.
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Philipp22:02
Do you do a lot of paid advertising?
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Sebastian Gundel22:04
We still spend a lot on Google, but we also have direct traffic due to our brand awareness and SEO. Paid is less than 25% of our traffic. We don't do much sports sponsorship anymore; we stopped after the 2006 World Cup. But we still do TV advertising, which is part of our media mix, along with streaming.
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Philipp23:25
It's interesting that many companies with a long heritage change their mascots. OBI has the beaver. You reduced its presence for a while, but now you're bringing it back.
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Sebastian Gundel24:04
Yes, we reduced the beaver for a time, but when we examined our brand values, we realized that OBI is the three letters, orange, and the beaver. The beaver communicates so much more quickly and emotionally, with a sympathetic, hands-on maker mentality. So we will definitely keep the beaver and not reduce it.
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Philipp24:45
Let's talk about franchise partners. Your largest franchise partner has 15 stores. That's a million-euro business.
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Sebastian Gundel24:59
Yes, you can become a millionaire running OBI stores. An average store does 10 million euros in revenue, with about 1 million profit in good stores. Our franchise partners are local entrepreneurs. They manage 60 employees, inventory, and capital. They are a source of innovation and entrepreneurial development. We haven't added new franchise stores in the last 20 years, but in our future strategy, franchising is a key part. We believe we can achieve our growth ambitions better with partners. If anyone listening wants to open a store, they can contact us, probably more in Eastern Europe than Germany, but also in Germany.
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Philipp26:59
OBI started in Hamburg-Niendorf in 1970. How did it get to Wermelskirchen?
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Sebastian Gundel27:07
Wermelskirchen is the hardware store capital, in the Bergisches Land between Cologne and Dortmund. Many tool manufacturers are from that area, like Remscheid and Solingen. The tool manufacturer Emilux, which was the co-founder with Mr. Maus, was based there. That's why OBI is headquartered in Wermelskirchen.
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Philipp27:46
What is the most frequently sold product at OBI?
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Sebastian Gundel27:52
Probably moving boxes and paving stones. Things you need a lot of and don't have many variations. Paving stones are likely the top seller.
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Philipp28:10
Do you have many private labels?
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Sebastian Gundel28:16
Yes, private labels make up about 30% of our revenue.
Private labels are already a big part of our business. When you look at Amazon, you see what works well, and if something is particularly attractive, you build your own version. But the hardware store assortment isn't as dynamic as other categories like clothing, where trends change. It's a more steady assortment where you know the margins, you know which brands exist, and there are hardly any well-known brands in the hardware store segment. So it's a longer-term decision where you choose private labels, either alongside a brand or where no brands exist, to occupy price entry points. For example, we have private labels for garden furniture, paint and paint accessories, and power tools.
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Philipp29:45
I hear from the food industry that hardcore buyers say, 'I don't care whether it's Nutella or Haribo, we have to bring the price down.' Do your purchasing colleagues have similarly tough negotiations?
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Sebastian Gundel30:15
Fundamentally, we want to approach this whole topic in a partnership way. Cultural change is something that occupies us at OBI—over 50 years of history brings different things. We want to enable our customers and also achieve many of our goals partnership-wise with franchise partners and other partners. That's how I see cooperation with suppliers. But clearly, if prices go up, we say prices cannot go up because then our customers' prices go up. That creates a tension field, but I think it's normal in business as long as it's fair, transparent, and based on rational grounds.
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Philipp31:09
When you go to your website, it has many modern elements: the communication, the service concept, and also brand shops. You can click on a brand and they have their own shop under OBI. That's interesting.
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Sebastian Gundel31:33
We did that because our goal is not to expand our private label business, but to deliberately give brands space to present themselves to our customers. We see our role as a platform—we have access to customers, we understand them better (we have 4 million customers we understand very well), and we share that knowledge with our suppliers so they can make better assortments and offers. On our website, we offer the possibility to open a brand shop so that your assortment is perceived more strongly within your brand. That's part of our OBI Media Group, our retail media business, which we started four years ago. Suppliers are very satisfied because when a customer searches by brand, they move out of pure product comparability and can showcase their brand. We are expanding this business—it's the largest retail media offering in terms of brand shops—and we are also developing other marketing tools like algorithmic search results and customer insights. That's incredibly exciting for manufacturers who spend a lot on market research.
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Philipp33:33
You're 44, not that old. I'm about the same age. But you are now the CEO of OBI. What was your secret or magic source for this career? Were there mentors? What was the path?
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Sebastian Gundel33:55
I think you always need a bit of luck—to be at the right place at the right time. Early on, I listened well and tried to understand OBI. Then passion took hold, like many people at OBI. At some point you feel that more is possible. The mission we wrote into our strategy—'enable you to create your home and garden'—drove me on. That's what this conversation has been about: there is much more possible than just buying products. That moved me from one task to the next. I think I did them reasonably well, but I also made a lot of effort. I also ran a few stores—that was probably the biggest learning curve. The next one was when we started OBI Next, and I was responsible for Austria, where we had about 35% market share and €700 million in sales. Shortly before, bauMax, a local player, hadn't made it, and we took over 40 of their stores. A year after that integration, I took over the country, operationally responsible for the markets. That was a super learning curve because that's where our access to the customer is, where our goods and markets are, where customer contact happens.
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Philipp35:36
I imagine when you run a hardware store, many strange things happen. You wonder what people buy. You must have a series of experiences that a normal person can't imagine.
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Sebastian Gundel35:49
Well, I have a better anecdote. When I started—you have to know that in a hardware store sales operation, a lot of it is about product placement. You always have the white paint on pallets in the middle aisle, moving from right to left, then the sun comes out and you move the flowers to the entrance. You play with the goods. On my first store visits in Austria—I didn't have the training to know which product to move where—I went in and just listened to the employees, asked what they felt, what customers wanted. I realized I came across like an alien asking completely different questions. When I left, they were irritated that I hadn't moved goods from right to left like usual. That showed what happens daily in a hardware store: how hands-on you are, always moving, talking, pitching. It's a significant uplift—if you put the flowers outside, you notice immediately (or you notice if you don't, you take a hit). Weather plays a huge role; if the sun comes out early in March, there's an immediate uplift; if it's too hot and nothing grows, you sell no more grass but maybe watering equipment. That makes inventory management challenging.
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Philipp37:23
Are there innovations apart from digital things—like new categories that didn't exist before? Are people buying solar panels from you to install themselves? Any other innovative products, new markets, new concepts you want to move into?
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Sebastian Gundel37:43
I think if you look at the customer's home and garden not just from a single sales channel perspective but from the end customer's perspective—what the customer is dealing with at home—then the topics you mentioned come up: making the home more sustainable, reducing energy consumption. Over 60% of German residential buildings were built before 1949, so there's a renovation backlog. New markets open up that you probably won't serve in the classic hardware store way (buy product, put it on shelf, customer picks it). Topics like making the home smarter, a photovoltaic system on the roof, or a garden watering system are more complex and require solutions, not just products. That's the growth field we see. The hardware store market in Germany is about €20 billion, but if you consider the entire home and garden market, it's ten times larger—€200 billion. When you ask customers who could be a partner for their rooftop solar, they today have no brand, no provider. Customers often think of OBI because we've been present in their homes for many years. That's a future market for us—more services with new products, perhaps with a different personnel structure. Also, working with partners like franchise partners or local service providers could be a model. For example, we're in contact with people like Mario from Empire or Philipp from 1.5 Grad, thinking concretely about partnerships.
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Philipp39:58
Let's talk about quick commerce. I saw that you're planning something like Gorillas to deliver quickly. In Hamburg you have a project. But better to partner than try to do it yourself, I think.
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Sebastian Gundel40:16
We have an innovation unit, OBI Squared, where we explore such topics and enter venture partnerships to understand how things work. For quick commerce, the use case is clear: someone on a construction site needs a tube of something and it's empty—they want it fast. So we started a project to understand it, but we haven't decided to jump in ourselves. Those quick commerce startups are very capital-intensive. We need our capital for our technological transformation—we have a lot planned and are hiring many people. We also need to invest in our markets to keep them fresh. So many other investment fields mean we're not going to invest in quick commerce additionally right now.
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Philipp41:17
Another communication moment: around fireworks. You deliberately communicated that in your stores at least, you decided not to sell fireworks anymore. Some franchise partners still did or decided differently. How does that work?
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Sebastian Gundel41:40
We decided not to sell fireworks. The discussion about fireworks and their environmental impact is well known. As OBI, with 95% brand awareness, we have a social responsibility. It was easy for us to argue that we want to forgo fireworks. But you made money from it? Yes, we had revenue from it. That's an entrepreneurial decision to give up that revenue. Similarly, we decided to exit the paper flyer business—we used to print millions of paper handouts that went into mailboxes and then into the trash with an open rate below 10%. We decided against that in summer, for sustainability reasons and marketing effectiveness. We ask ourselves whether we need to position our company more contemporarily. I think we still have a long way to go, but we face that challenge.
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Philipp43:21
And franchise partners who say, 'We see it differently, we want to continue selling because it's cash money'?
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Sebastian Gundel43:27
We try to bring our franchise partners around with our arguments. The majority go along with it. There are always individual cases that get more attention, but most partners follow. In the end, they are independent entrepreneurs, and that's often an advantage. It would be nicer if everyone followed this logic, but they are independent.
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Philipp44:03
Do you worry about the coming months and years? Maybe a lot of consumption was pulled forward—all the hardware store purchases of the last few years happened already, so future demand might be lower, plus the recession looming over us. How does that look for you?
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Sebastian Gundel44:21
Well, 2023 is not the year where everything comes together—post-COVID, everyone already bought a second grill, spent holidays at home, and now may want to travel, if the budget allows. There's inflation and purchasing restraint, which we feel. I think the coming months are less attractive. That makes it all the more important to continue our transformation process and not pause, because it shows how markets and demand change. We have to stay close to our customers.
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Philipp45:17
How many customers do you have, independent of the app? Normal monthly numbers? You mentioned 4 million via the app over the year?
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Sebastian Gundel45:25
It's difficult to answer exactly because customers buy anonymously in the store. But we have over 10 million customers per year, somewhere between 10 and 15 million. We process over 100 million tickets. On the website in Germany, we have over 250 million visits. So it's a lot.
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Philipp46:01
What's happening in society? Do you notice certain changes that you think are still under-communicated? For example, at an event, the CEO of Rewe said he strongly senses people moving more to discount. Is that also the case for you?
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Sebastian Gundel46:20
Yes, we see that too. We see more traffic from price comparison sites like Idealo. We see people buying entry-level products instead of brands. We see when crises happen, customers come to consult about generators—many were bought because people worry about blackouts. We regularly survey our customers to understand sentiment. Two or three years ago, the focus was on making the home beautiful; now it's about making it more efficient or repairing things yourself because handymen are expensive or booked out. That DIY attitude is back. We see that relatively quickly.
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Philipp47:19
Has the prepper trend increased?
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Sebastian Gundel47:23
Definitely. There was surprising turnover in gas canisters and generators. Also, in Hamburg where we are, mold has become an extreme issue because people ventilate less to keep heat inside, leading to more mold, which then requires painting walls. We see that. I wish we could use such insights communicatively to guide customers better—we see things, understand them, but need to translate them for customers who aren't actively searching. I think we can do that better.
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Philipp48:22
Are there any brands or retail concepts that particularly impress you, especially in the online-offline world? Like Walmart or others you look at intensively?
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Sebastian Gundel48:41
There are elements I like. For example, how Apple runs its store with consultation at a specific spot and absolute customer orientation—I always find that impressive. But with our 10,000 sqm stores, we can't achieve that across the board, but maybe at certain places. We know from our analysis how much happier customers are when they get advice from our staff. Our employees in contact with customers are a huge asset. How we can get better at that—I'm always looking for inspiration. Also, the whole topic of customer lifetime value can be seen in fashion retailers like About You or Zalando—how they tailor offers to CLV is inspiring.
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Philipp50:05
What about the exchange with the owners at Tengelmann? There seems to be a lot of dynamism there in recent years. Are you involved?
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Sebastian Gundel50:11
Yes, of course. Tengelmann is our main owner, so there's close and good exchange. The strategic direction is shared. It's important to have absolute commitment in these wild times—to stick to the strategy even when revenues aren't flowing as much. That's why exchange is important.
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Philipp50:41
OBI has traditionally had long-tenured CEOs. Your predecessor was there for 20 years. Are you mentally preparing for the next 20 years?
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Sebastian Gundel50:49
No, I haven't. I'm preparing for a bit less. I think in times of such change, it's not even possible to think 20 years ahead. How will the economy, trade, and technology look in 20 years? You have to stay close to the times. I don't want to think that far; it's enough if I implement our strategy well, stay successful with customers, and achieve our goals. I think more in five-year cycles.
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Philipp51:25
Executive board contracts are usually three to five years.
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Sebastian Gundel51:31
Yes, we had a professional process with both the Tengelmann owners and the minority shareholders. I had discussions about the future direction of OBI—the business model change, organizational and cultural change. Then there was also something like an assessment center. It was professionally accompanied, even though I was known. I think that's appropriate for such a position.
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Philipp52:22
You brought in a bit of culture change—I heard you appeared on Instagram and LinkedIn in an orange pullover during your first address. That wasn't typical before. Is that a conscious effort to change the culture?
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Sebastian Gundel52:39
Yes, I consciously try to create openness and transparency. Whether it's the store employees or the data engineers we're hiring in Cologne, we all follow a big vision. At that first address, I introduced the informal 'du' (you) form—everyone can use it, and I use it too. No one has objected. I also distributed the orange pullover to everyone as a signal: we all stand for the brand OBI, one direction, one strategy for the future.
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Philipp53:41
Revenue-wise, you've already reached a relatively high level. What's your target? For example, you said in the five-year cycle you want to definitely get over ten billion?
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Sebastian Gundel53:47
Yes, we want to get over ten billion in the five-year cycle. Given the pulled-forward consumption, we need some new ideas, but we have five years, so it's not about 2023 immediately.
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Philipp54:10
Last question: is it true that OBI comes from the French word 'hobby'?
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Sebastian Gundel54:18
Yes, OBI comes from the French 'hobby'. It's a genius name: three letters, orange, the beaver—marketing experts couldn't have done better. Someone thought of OBI and they took it. I spoke with Mr. Maus about it; he's still alive. I had lunch with him when I started—an inspiring personality, rooted in values.
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Philipp55:30
Alright, I'm curious to see what innovations OBI brings in the hardware store segment next year—maybe photovoltaic or similar. Thanks for coming, good luck with your new role, many years ahead. And especially in May, when you'll be at our festival—OBI is presenting there, that's new for us. We're excited.
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Sebastian Gundel55:51
We're excited too. We'll show some products we offer for our business partners. Anyone coming to the OBI booth in May can see hands-on exhibits, maybe even a beaver or an orange pullover. Perfect. Thank you.