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MARWICK first-hand content

July/August 2016

FROM BRICKS TO E-COMMERCE Traditional retailers are discovering the internet • On-line stores are establishing store fronts • Data analytics will tell you where your next branch will thrive • The world’s best surf spots A magazine for clients and friends of KPMG Česká republika


Fingers crossed for Klรกra in Rio! As a proud supplier of the Czech Olympic team we support our talented hopefuls. KPMG. Helping you succeed.

Klรกra Spilkovรก Best Czech female golfer


editorial

Change or perish?

Above all, auditors should provide an accurate image of reality. As you might have guessed from its cover, the main subject of this issue of Marwick is the new reality of retail and consumer goods. Lately, this reality has been shaken up by the accelerated progression of traditional players into the online environment and the establishment of brick-and-mortar branches for e-shop providers. Merchants with an extensive network of traditional outlets have been able to ignore the internet in the past as they often really did not need it to continue to grow. Their ascent into the e-commerce sphere has more to do with a wider phenomenon, i.e. the transformation of consumer behaviour. Customers communicate with retailers and producers ever more often over the internet and only a digital approach can properly capture, record, measure and finally evaluate their actions and demands. It is the essential necessity to understand and to evaluate their customers’ needs that forces even the most conservative and successful merchants to establish an online presence. By contrast, customer data gathered on the internet have made those merchants who started out on the internet aware that their customer want to try out and touch the goods they intend to buy before handing over the money. Consumers provided with this possibility are bound to become loyal repeat customers. The transit from brick-and-mortars to e-commerce was also the main topic of the first annual KPMG Retail Forum, which brought together almost 100 of the Czech Republic’s top retail managers. Representatives from both worlds spoke at the conference, among others Ladislav Blažek, owner of the namesake fashion brand, and Tomáš Havryluk, vicechair of the board of directors of Alza.cz. Apart from other interesting articles, the following pages contain a transcript of a conversation with both dynamic businessmen. To close, let me quote a line from this highly inspirational interview: “There are two types of companies: those that will change and those that will perish.” I am sure that all our readers’ companies are in the first category. Finally, I sincerely hope that you will enjoy reading this issue of Marwick. Martina Štegová Director, KPMG Česká republika in charge of Retail Sector Services mstegova@kpmg.cz

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MARWICK

1. MÍSTO

July/August 2016

GRAND PRIX

commentary

Cyberspace’s Middle Ages We’re living in the Middle Ages of cyberspace. Trade routes are plagued by beggars, plunderers and fanatical heretics. All of them are interested in our valuables, be they financial or intellectual. page 5

topic

From bricks to e-commerce Traditional brick-and-mortar stores are discovering a new world on-line and are trying to compete with established internet players. They, on the other hand, are setting up storefronts as they have found that they cannot do without them. page 8

case study

Let KPMG do its magic, boss! Decision Science KPMG helps retailers double the accuracy of their revenue predictions for new branches, saving them hundreds of millions in investment and operational costs. page 16

CSR

Kids present their inventions The first year of the iKid competition in Czechia is behind us. Take a look with what kind of inventions children from Czech elementary schools competed for first prize and what their mentors had to say about it all. page 24

coffee break

The ten best surf spots in the world In recent years, surfing has made its way into the hearts of an increasing number of “land-locked” Central Europeans. We’ll tell you where to find the best waves. page 28

Marwick – a magazine for clients and friends of KPMG Česká republika. Published six times a year by KPMG Česká republika, Pobřežní 1a, Praha 8. MK ČR E 22213. On-line subscriptions available at www.marwick.cz. Editor in chief: Michaela Raková , art director: Štěpán Prokop, photoeditor: Barbora Mráčková, copy-editor: Edita Bláhová. KPMG Česká republika’s offices are located in Prague, Brno, Ostrava and České Budějovice. www.kpmg.cz. © 2016 KPMG Česká republika, s. r. o., a Czech limited liability company and a member firm of the KPMG network of independent member firms affiliated with KPMG International Cooperative (“KPMG International”), a Swiss entity. All rights reserved. Štěpán Prokop

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commenta ry

Cyberspace’s Middle Ages The previous industrial revolutions were consecutively powered by steam, electricity and computers. The current fourth one, which in its substance is rather economical, is being advanced by people surfing the internet on their smart phones. In the last five years, the developed world has learned to practically be online at all times. In the past, we went somewhere, took care of what ever needed to be taken care of, and left, but today, for all intents and purposes, we have come to depend on on-line information and services 24/7. For humanity, a new (cyber)space has opened up. Half of the respondents to a new study by KPMG Česká republika mention that as a result of being constantly online they have “stopped planning ahead and are instead dealing with situations as they occur with the help of their phone.” Three of the four pillars of the fourth revolution rest on the activities and needs of online people: the internet of things (IoT), the internet of services (IoS) and the internet of people (IoP), together the internet of people, things and services (IoPTS), forming the world online. Today’s internet is one huge cyberspace and any kind of separation into intranet and external internet has become obsolete. To better describe today’s circumstances, let me offer a simple historical analogy: We are currently living in the Middle Ages of cyberspace. These are crude times; cyberspace’s assets are hidden in fortified strongholds and every journey between them is fraught with peril. Trade routes are plagued by beggars, plunderers, bandits, scouts, mercenaries, knight-errants and fanatical heretics and their motivations are manifold. All of them, however, are interested in our valuables, be th ey f i na nc ial or in te lle c

. al tu

In contrast to the physical world, cyberspace knows no privacy and is very poorly regulated. Whereas in most cases, states regulate our tangible environment, in cyberspace their reach is severely limited. Solid and unchangeable state-issued identities in the form of identification cards or personal numbers have on the internet been replaced by entirely commercial freemail services, with email addresses happily traded in by their owners (i.e. users) for ever-new amenities. Unfortunately, we have yet to learn how to live in these medieval times. What’s worse, attempting to copy history by simply embarking on the exhaustive path to modern times does not seem like a good plan for present generations. We have to act much faster. Life might hence be much more bearable with the following three pieces of advice: 1. Concentrate on protecting what is really important: if they jump you in a dark forest, don’t protect your moneybags but your life. 2. React quickly. If they come to get you, tell the bandits to “take my silver, take my gold, but let me live.” 3. Make peace with the fact that absolute security is impossible. You can’t send 20 squires to accompany your wallet. Instead, send them to rid the forest of the way-layers. Jan Krob Director, KPMG Česká republika jkrob@kpmg.cz @KrobJan

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tax

Consumer contests – (un)intentional victims of the fight against gambling Judging from reports in the media, the Czech Republic in recent years has been waging a war against gambling. In an attempt to assure the peaceful coexistence of all citizens, city and town councils have been holding referendums, civic associations have been trying to eradicate all slot machines, claiming that there are danger to society, while the Ministry of Finance is even planning to block selected web pages dedicated to on-line gambling. It may thus not come as a surprise that the tax administration has been trying to get into the game as well. And again, its preferred target are consumer contests, which it steadfastly has been trying to get legally classified as illegal consumer lotteries. Recently, however, the tax administration has been trying to replenish state coffers by using the dangerous argument that consumer contests, frequently used by companies to support the sales of their services or goods or to promote their brands, are nothing but common lotteries and without the appropriate permits just as illegal.

What role does chance play? 6

Las Vegas in the Czech lands The Act on Lotteries and Other Similar Games contains a definition of lotteries as well as of so-called consumer lotteries. Contests which are neither lotteries nor consumer lotteries are not governed by the strict rules of the Act on Lotteries. A contest requiring the purchase of certain products or services or the participation in an advertising campaign and in which winners are selected in a  drawing or another form of random selection is considered a consumer lottery and only permissible after several rather limiting conditions (regarding the amount of winnings, notification of the tax office, etc.) have been met. A  lottery is in contrast a  game which may be entered by persons who pay a certain entry fee (the bet or stake) whose return is not guaranteed. Winnings occur based on chance or the unknown outcome of an event specified by the lottery provider within specific gaming rules set in advance. Neither random selection nor chance are in any way defined in the Act on Lotteries.

Poker considered a lottery by the court.


tax

Sanctions are harsh – up to CZK 10 million or a levy on proceeds. A smaller than small amount of chance The issue of chance under the Lottery Act has also been dealt with by the Supreme Administrative Court (SAC) when it attempted to rule on what role is played by chance in a card game of poker. The SAC came to the conclusion that poker is conditioned by the payment of an entry fee whose return is not assured and that the winnings of a  participant are decided upon also by chance, as “none of the players can influence the distribution of cards to any individual player.” Hence, according to the opinion of the SAC, poker tournaments are nothing but common lotteries and can thus only be operated on the basis of a permit. The SAC also dealt with the question of how big an aspect of chance a game has to have to be considered a lottery according to the Act on Lotteries. The act itself does not set the percentage amount of chance that has be involved in a game for it to be classified as a lottery or any similar kind of game. Hence, the SAC resorted to a conclusion reminiscent of the Judgement of Solomon, ruling that it would be sufficient if the game in question involved chance in “a non-negligible amount.” The SAC de facto refuted the definition of chance previously set by the Regional Court in Brno, which defined a  chance result as “a  result which becomes unpredictable without any recognisable human intention, whereas a win or loss entirely or mostly depends on chance and not on the ability of the contest’s participants”. The Ministry of Finance in turn believes that an aspect of chance is always involved when winners or losers are determined unpredictably and without any influence by the game’s  participants. The tax administration, on the other hand, decided to broaden its interpretation of chance. In its opinion it is aided by the fact that the only interpretation tool in this matter – a declaration by the Ministry of Finance titled “Prize events – game concepts not governed by the Act on Lotteries” – has been removed from the ministry’s web without any explanation. In the declaration, the ministry together with a number of associations active in the gaming area delineated several competition concepts not falling under the Act on Lotteries. Consumer contests, organised to support sales and missing at least one trait characteristic for consumer lotteries, were explicitly placed outside the reach of the Lottery Act. Be that as it may, according to the tax administration, this declaration has already been transcended, even though no amendment to the Lottery Act has been passed. By reassessing a long-standing interpretation of the provisions of the Lottery Act the tax administration is significantly interfering with established practice.

‘Mesdames et Messieurs, rien ne vas plus’ or you don’t need a token to bet Lately, the tax offices have indeed taken on an even stricter attitude towards consumer contests than in the past, when they were trying to get such sweepstakes classified as illegal consumer lotteries. They apparently have discovered the magic of another undefined term. In the eyes of the tax administration a stake or a bet, one of the conditions necessary for a game to be classified as a common lottery, can also be a SMS text (especially if it’s a “premium” one) or the purchase of a product with a game card attached. Board definitions of the terms of chance and bet thus have driven the organisers of consumer contests into a corner they will have a hard time leaving, as practically all so far applied competition concepts can now be assessed to have been either illegal consumer lotteries or, just as outlawed, common lotteries conditioned by bets. Sanctions for violations of the Lottery Act are harsh, to say the least: fines of up to CZK 10 million and even the possibility of a mandatory state levy on the proceeds from the competition.

So what does the new Act on Gambling have to say? The draft of the new Act on Gambling currently under discussion in the senate does not deal with consumer contests at all, as the conditions for their organisation have now come under the Consumer Protection Act. In theory, this could make the life of marketing contest organisers somewhat easier. However, in view of the current efforts of the tax administrators to classify consumer contests not as consumer lotteries but as common lotteries conditioned by bets, we cannot rule out that the organisation of consumer contests will continue to be strictly sanctioned even under the new Act on Gambling. Michaela Thelenová Senior Manager, KPMG Česká republika mthelenova@kpmg.cz Olga Těhlová Tax Consultant, KPMG Česká republika otehlova@kpmg.cz Martina Valachová Assistant, KPMG Česká republika mvalachova@kpmg.cz

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topic

One-click shopping

Traditional brick-and-mortar stores are discovering a new world online and are trying to compete with established internet players. They, on the other hand, are setting up storefronts as they have found that they cannot do without them. The retail world’s rapid developments were mapped at the KPMG Retail Forum 2016, a summit meeting of the best in the sector. Text: Pavla Čechová, illustration: Václav Havlíček

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topic

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topic

The frugal customer myth Shopping via the internet is becoming ever-more popular. As reported by the Czech Statistical Office, just ten years ago, only 5 percent of all inhabitants used the internet to purchase goods; last year, this figure had grown to 42 percent. Most often, people buy clothing and shoes, followed by concert and admissions tickets, cosmetics and health and medical supplements. Lately, Czechs have also begun to do their grocery shopping online. KPMG’s survey of shopping habits, published this March, found out that a fifth of the Czech population already has experience in buying food online, while a fourth are at least thinking about trying it. What makes grocery shopping online so attractive? First of all, it’s  convenient  – at least that’s  what 72 percent of the survey’s  respondents mentioned, ending once and for all the myth about financial considerations being the consumer’s first and foremost motivation. Indeed, only a quarter of all respondents admitted to buying food online because of lower prices. The retailers who at the end of March came together at the KPMG Retail Forum 2016 perceive their customers in a  similar way. For example, Michal Macourek, manager of BENU Pharmacies, stated that one of the reasons for BENU’s e-shop presence is the company’s already existing dense network of affiliated pharmacies.

Brick-and-mortars linked with virtual stores The traditional fashion brand Blažek, selling elegant men’s wear, opened an online shop for similar reasons. “The linkage of our brick-and-mortars with the online world is important to us”, said Ladislav Blažek, founder and director of the namesake company. Interaction between the two sales types is key – products ordered via the internet can be tried on at the branches, each of which has its own tailoring department, allowing for any kind of customerspecific alterations. The company’s business results for the last year are proof that this concept is working. Also due to the massively successful ad campaign with celebrity Leoš Mareš becoming the face of the brand, the firm’s  overall turnover rose by 4 percent last year. The year-on-year growth of internet sales was much more significant, however, as they increased by a whopping 44 percent. The mirror image of this has been Alza.cz, known for its progressiveness. The retailer has been selling via the internet since the last decade of the last century and with its CZK 14 billion annual turnover is the Czech Republic’s largest online shopping provider. When opening new brick-and-mortar stores, it makes sure that they are conveniently accessible for customers.

Empathy and data To be able to claim the biggest piece of the retail pie, business have to perfectly understand their customers. “Today’s customers are impatient, more critical, more demand-

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ing, less loyal, constantly online and, what’s more, immune to traditional marketing tactics”, says Tomáš Potměšil, manager at the Management Consulting department of KPMG Česká republika. Retailers have to adapt to this combination of characteristics if they want to succeed. A universally valid recipe for all merchants is made up of the six pillars of perfect customer experience: personalisation, integrity, expectations, empathy, time and effort, and resolution. An empathetic and personalised approach is the best way to gain and retain a customer. Data analytics, undergoing a tremendous boom, also stresses the importance of a personal client approach. Customers, today more than ever immune to traditional marketing, will most likely be less resistant to marketing that is directly and personally aimed at them. Data analytics hence offers a perfect method of how to get to know one’s customers with their needs and preferences. KPMG’s  David Slánský and Pavel Kohout have on many occasions vividly described how useful data analytics have proven to be. Internet stores like international boots.com, surprisingly selling cosmetics and health care products instead of shoes, try to collect an absolute maximum of information about every customer visiting its website. This lets the company assemble the customer’s perfect profile before extending its targeted offers. Another example is the American fashion retailer stitchfix.com, recently experiencing remarkable growth without having invested a single dollar into any customer acquisition campaigns. The shop follows and profiles its website visitors and based on their behaviour sends them a package containing clothing items specifically assembled for them. Customers keep and pay only for what they want. On average, only 25 percent of the sent-out goods are returned, which is a very decent result. Data hence help the company to significantly lower costs as well. In Great Britain, one of KPMG’s clients, opening 25 to 30 new natural fast food outlets every year, was having a hard time accurately estimating the daily demand for specific products at individual store locations. It was also impossible to predict the stores’ revenue so as to be able to make any kind of sensible managerial decisions. KPMG Česká republika was asked by its British colleagues to find a way how to predict the parameters with a much higher accuracy. To do the job right, it was necessary to take into account many factors and to reveal the specifics of every location. Important became, e. g., the distance from the location to the nearest bus stop or ATM, the opening hours of the competition, store traffic volatility, but also the average number of sunny, cloudy and rainy days. The results were very surprising – the predictions made by KPMG’s analysts were twice as accurate as those by the client and ultimately led to cost savings of CZK 950 million. We can thus expect that data analytics will soon significantly influence not only the strategy of retailers but also our shopping habits.


topic

Service charges under minute scrutiny “That’s for heating, housekeeping, security, maintenance, marketing and other items…” that may just be the answer given by a  shopping centre representative to tenants’ inquiries as to what all is included in their monthly service charge payments. In other words, included are costs connected to the operation of the shopping centre (the common areas) which are paid by tenants. Usually, service charges can be from EUR 5 to EUR 10 per rented square meter per month, depending on the location of the shopping mall and its performance (translating into 10–15 % of net rent). Most often, service charges also include fees for the marketing activities of the centre, but in some cases, this is invoiced separately at EUR 1 to EUR 3 per square meter monthly. The level of service charges has remained relatively stable in the last couple of years. Declining energy costs have been off-set by growing marketing fees and other items. Shopping centre owners tell us that no dramatic increases or decreases are being planned. In the majority of cases, retail tenants pay these charges in the form of advances, which in the following year are settled against the actual expenses incurred by the landlord. In the past, it was common that service charges were considered to be non-accountable expenses and hence fixed. Currently, we are seeing a  growing demand by tenants to verify the actual costs incurred by their shopping centre landlord and the invoiced amounts of their service charges. Increasingly, merchants are comparing the fees charged by different centres are wondering why they are paying different amounts for identical stores in Prague and in, let’s say, Ostrava.

Hence, shopping centres are presenting their invoices for housekeeping, for International Children’s Day celebrations (organised as part of the centre’s  marketing activities), maintenance, energy, etc., and demonstrating how specific charges are divvied among individual tenants. These, either themselves or represented by their advisors and auditors, check, calculate and approve. Now, a smallsized shopping centre will have 80–100 tenants, with the big malls often having 220 or more. If only a fifth of these asked to see all invoices and other documents, the administrative burden on landlords would indeed be extremely time-consuming. Shopping centres have thus started to engage auditors to verify their service charge calculations and the expenses connected with them, and to subsequently inform the tenants of their audit results. In closing I  would like to point out that for merchants the overall rental costs for their space in a shopping centre is much more important than the amount of the individual cost items, as any managerial decisions are most likely made with an eye on occupancy costs, or the total of all expenses the tenant pays for their retail space in relation to sales. In general, this ratio lies 15 % and differs depending on the retailers’ segment – a trendy clothes retailer’s occupancy costs will not be the same as those of an electronics store or a grocery chain. Pavel Dolák Senior Manager, KPMG Česká republika pdolak@kpmg.cz

Shopping centres’ tenants are demanding the verification of actual costs

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topic

Fashion in 2025 In the past, we needed neither mobile phones nor automobiles and who knows, in the future we might even get rid of them again, but most likely we will never walk the streets in the nude. A recent extensive study by KPMG Germany titled Fashion 2025 analyses the development of the clothing and fashion industry in Germany. The trends it describes are certainly worth a more detailed look. Sebastian Pass of KPMG Germany presented the most important ones at this year’s FashionTech Berlin. Source: Study Fashion 2025, 2015, KPMG Germany. Available at kpmg.de.

Fast fashion vs. fairness

New retirees

Two current trends in fashion seem to be diametrically opposed to each other. On one side is the growing preference for fast fashion, i.e. cheap but up-to-date clothing, while at the same time more emphasis is being placed on fairness and sustainability, which in turn adds to the price tag presented to the final consumer.

Aging baby boomers will have the strongest effect on the fashion industry. Today’s 50- and 60- year olds do sports, go clubbing and are not about to give up these habits at an even more advanced age. Most likely, they are also not going to be limited by their economic situation. This population segment will appreciate and demand fashionable clothing which at the same time will accommodate their advanced age and deteriorating bodies.

Brand preferences according to age groups

Distribution of population age groups

300 H&M 250

15 mil.

Zalando

12 mil. 200

9 mil.

Esprit 150

6 mil. 100

50

C&A

Galeria Kaufhof

3 mil.

Peek & Cloppenburg

0 mil. 14-19

0 14-19

20-29

30-39

40-49

50-59

60-69

70+

2014

30-39

40-49

2020

60-69

70+

2025

Import prices

In the next five to ten years, investments into on-line sales will continue to grow and the situation on the rest of the developed markets will not differ from developments on the German market. The fashion industry also has definite expectations about who or which brands will continue to play a major role in the fashion world in the year 2025.

Consumer prices

Expected major players on the German fashion market in 2025

110 eur

105 eur 100 eur

Internet-Pure-Player 68 % (Amazon, Zalando etc.) 2014

2013

2011

2012

2010

2008

2009

2007

2005

2006

2003

2004

2001

2002

2000

90 eur

Electronic markets 38 % (Amazon, eBay, Stylefruits etc.) On-line sales of brick-and-mortars (H&M, C&A, Peek & Cloppenburg etc.) 24 % On-line sales 14 % (Esprit, s.Oliver, Gerry Weber etc.)

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50-59

On-line segment far from saturated

Development of import and consumer prices for textile goods

95 eur

20-29


cs oes

topic

Chinese luxury online In cooperation with Mei.com, a Chinese luxury goods online shop, and the social media platform Weibo, KPMG in 2105 conducted an extensive survey among more than 10 000 customers about their purchasing behaviour and the preferences in the luxury goods segment. Many European companies are eyeing the Chinese market. What kind of customers can they expect there? Source: China’s Connected Consumers 2015 survey, sample: 10 150 customers from 90 Chinese cities representing all provinces, aged 18–50 years, who in the last 12 months at least once have bought luxury goods on line. Author: KPMG China. The entire study is available at kpmg.com/cn.

Almost a half of our customers buy most luxury goods online

45 %

How much are Chinese customers willing to spend on one luxury item?

2015: CNY 4 200 (CZK 15 000)

2014: CNY 1 900

year 2014

5 500

69 %

Best-selling items (average amount of purchase) year 2015

1 750

2 500

2 600

1 750

4 100

Most of the customers never pay full price online but only shop sales

Most popular types of products purchased by Chinese customers online

women’s Cosmetics shoes

women’s luggage shoes

women’s luggage shoes leather luggage goods

Jewellery

leather luggage goods

Handbags

leather goods

Watches

leather goods

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legal

The end of legendary Act 101/2000 Sb. Are you running an e-shop or rewarding your customers with a loyalty programme? In today’s digital times personal data are some of the most valuable goods on offer. Users of social networks and other on-line technologies are ever-more willing to provide them or even put them on display of their own accord. New technologies have also enabled private businesses as well as public authorities to take advantage of personal data to an unheard-of extent. In April of this year, the European Parliament decided to react to these developments by adopting a  new regulation, the General Data Protection Regulation, or GDPR for short, which will significantly change European legislation in the area of personal data protection. This move has not come out of the blue, however. Negotiations concerning one of the most wide-ranging European regulations in recent years took more than three years. The result of unequalled extensive discussions and lobbying efforts on many levels of the European Commission, the European Parliament and the European Council is hence a piece of legislation bringing many changes in personal data protection practices both within the EU as well as outside of its borders.

GDPR’s binding effect This piece of legislation has been set to enter into application on 25 May 2018. Unlike a  directive, the GDPR will be directly binding and will not require transposition into individual national legislations. The regulation will hence automatically replace Directive 95/46/EC, which currently governs private data protection on the European Union level, as well as Act 101/2000 Sb., on personal data protection. At the same time, the GDPR provides member states with the possibility to deviate from some of the rules that it contains, most likely leading to a breach of the declared effort to fully unify legislative personal data protection efforts within the entire EU. Only the following months will show how Czech legislators will react to the new European legislation, as the regulation currently is not a priority for the Czech government.

To whom will the GDPR apply? The GDPR concerns not only the processing of personal data by European data administrators (data controllers) or processors on the territory of the EU, but its rules also

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legal

reach beyond its borders. The GDPR will thus also affect companies outside of the European Union which aim at European consumers and process their data in connection with offers of goods or services or with the monitoring of their behaviour within the EU.

On the basis of this right, subjects may demand that data controllers without undue delay erase all personal data in regards to their person, most typically in cases where subjects withdraw their consent and no other legal grounds for processing are given.

What other significant changes will accompany the new regulation?

Notification obligation in data security breach cases Under the regulation, data processers will be required to notify the Office for the Protection of Personal Data of any personal data security breaches within 72 hours after they become aware of such incidents. In some circumstances, processors will have to inform the data subjects as well. This obligation will not apply to security breach incidents generally not considered a risk to the rights and freedoms of subjects.

Responsibility of data controllers and protection by design The new regulation introduces a number of new responsibilities which data controller must at all times meet and be able to demonstrate throughout the processing of personal data. This, among other things, concerns the creation and archivation of various documentation and the introduction of appropriate technical as well as organisational measures (not only during the actual processing of data, but already during the inception of data processing solutions) to assure that data controllers only process such data as necessary for their explicitly defined and stated purposes. Consent with personal data processing The new regulation also places stricter requirements on data controllers when obtaining the customers’ consent with the processing of their data. The current condition that consent be free, definite, informed and unequivocal will remain in place. Any requests for consent will have to use easily understandable and simple language. If a declaration of consent is part of a document that also concerns other circumstances (a  contract, for instance), it has to be separated in such a  way as to signify that consent is not a precondition to the conclusion of the contract. On behalf of children younger than 16 years, only their lawful representatives will be able to grant consent with data collection. Here, member states will be able to set a lower age limit, whereas the absolute minimum is 13 years. Expansion of the definition of personal and sensitive data The definition of personal and sensitive data has been expanded to include genetic and biometric data. At the same time, the regulation expressly states that some online identifiers like IP addresses or cookie identifiers may under certain circumstances also be considered personal data. Data subjects’ reinforced rights The GDPR introduces a  number of new rights for data subjects, like the right to erasure (a  hotly discussed recent topic in connection with the Google vs. Spain case).

Personal data leaks occur almost daily, even in the Czech Republic

Personal data protection trustees Data controllers and processors will be required to name personal data protection trustees. This will specifically apply to cases where any data processing is done by public authorities or subjects or when the principal activity of the data controller consists of the processing of data in form of the regular systematic monitoring of a large number of data subjects or if the data controller engages in the processing of a significant amount of sensitive data. Trustees should have sufficient knowledge of and professional experience in the area for which they will be responsible and may be either employees of data controllers or external service providers. Either way, trustees should hold a relatively influential and independent position in the area of their competence and within the data controllers’ structure. It will be possible for several data controllers to appoint one common trustee.

Sanctions of up to EUR 20 mil or 4 percent of the annual world-wide turnover At first glance it may seem that the two years allocated to conformance with the new regulation should be sufficient. From the above enumeration of only a few of the upcoming changes it nevertheless becomes obvious that the areas which will require adaptation to the new rules are manifold and that postponing any kind of appropriate preparations would be foolish. A  more than convincing argument for the in-depth and timely implementation of the new legislation is provided by the fines which can be imposed for the violation of some of the GDPR’s rules and which may reach up to EUR 20 million or up to 4 percent of a company’s world-wide turnover for the past financial year (whichever amount is higher). The sanctions for nonconformity may hence be quite painful, to say the least. Viktor Dušek Associate Manager KPMG Legal vdusek@kpmg.cz @viktordusek

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case study

Let KPMG do its magic, boss! Decision Science KPMG helps retailers double the accuracy of their revenue predictions for new branches, saving them CZK 950 million in investment and operational costs within a three-year horizon.

After a speech in 1974 at the University of Texas at Austin, the founder of the McDonald’s  empire, Ray Kroc, asked his audience in which field they thought he was doing business. The students laughed and one loudmouth called out that everybody in the world knew that Ray Kroc was selling hamburgers. Mr Kroc just smiled and answered: “Ladies and gentlemen, I’m not in the hamburger business. My business is real estate.” During the resulting discussion, he explained that even though his main goal indeed was the sale of hamburgers, pieces of real estate and their location constituted the main key to the success of the individual franchises and of the company in general. While franchising models and retail chain concepts have been successful for many decades, their success still fundamentally depends on the entrepreneurs’ ability to select the right location for their brand. Growing competition, changing customer behaviour and growing real estate prices and rents significantly increase the necessity of accurate estimates of demand and revenue in given locations as well as the resulting return on investment of a new branch over time. Inaccurate financial estimates can be fatal for the financial operations of a  newly opened store. If turnover has been overestimated, the entire investment may be bound for failure, as the branch will never be able to operate in the black. Demand that has been underestimated may result in forgone profits, as the branch could have easily been larger with a wider assortment of goods or, if nothing else, with more advantageous financing than initially planned. Several branches opened under such unrealistic expectations can easily drive an otherwise healthy company into the ground.

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case study

What our client was dealing with Similar problems were well known by KPMG’s client, a company annually opening ca. 30 new natural fast-food outlets. This client’s revenue estimates for one to three years in advance were on average off the mark of reality by 30%. In fact, it may also happen that a  retailer’s  expert estimates will under- or overestimate sales by more than 100%, which can easily come to pass if the new branches are opened in locations where the company does not have much experience. If you are successfully running a chain of snack-bars in a city, then the opening of a branch in a small town or of a small kiosk at the train station will confront your business with completely new challenges in the form of, e.g., different customer segments and different turnover rates of the goods you sell. These will translate into the need to change your purchasing as well as selling strategy. Your business approach will also have to differ depending on your local competition. Simply put, a student waiting for the delayed Prague-Brno train will display different behaviour and have different needs than the manager who is late for a meeting and hasn’t had the chance to take a bite out of her morning croissant or to take a sip of his latte.

The first phase – training a predictive model To deal with the problem our client had with their newly opened branches, we used KPMG’s Decision Science approach, combining Big Data, machine learning and cloud technology. The first phase involved training a predictive model, which based on more than 10 000 comprehensibly variable signals estimated weekly revenue for the first, second and third year after opening and took into consideration growth as well as seasonal influences. The model’s  prototype reduced the average error rate of the turnover predictions to 15%, which meant a double improvement in comparison to the expert estimates by the company’s  management. Subsequent model versions continued to drive down the error rate to close to 10 %. This entire process took about ten weeks. The main reason for the massive reduction in the error rate lies in the model’s  ability to maximally utilise information from all 10 000 signals which in detail describe the characteristics of the real estate and location under consideration and together create a  comprehensive network of links and interactions unique for every point on the map. The majority of signals stemmed from external data sources and included the social demographic and economic characteristics of a  location’s  inhabitants and workers, the numbers and trajectories of pedestrian and vehicle movements, the presence and type of competitive companies, retail shops and other entities, public transportation stops, photos, comments and sentiments in social media networks, local weather conditions, regularly occurring events and the distance to any of a  thousand

points of interest (e.g. road crossings, subway exits, ATMs, mailboxes, bicycle stands, etc.). All signals were also compared against the local direct and indirect competition.

The second phase – implementation of a custommade approach At KPMG, our work is governed by the principle that the even the best predictive model is only useful if it can be applied in practice and if it supports its end-users in their every-day decision making. For this reason we designed and implemented the Analytics-as-a-Service approach within the Microsoft Azure cloud environment, helping our client to predict any planned location’s  revenue. All it takes is the input of an intended location’s  basic information, i.e. address, size, planned seating numbers, into a simple user interface and to submit this data to the system. From the outside, this may seem like magic as the system takes care of everything else: download and preparing of external data, counting of signals and the final scoring of the given location. The subsequent detailed report includes not only predicted weekly revenues for the first, second and third year of operation, but also estimated turnover according to individual products or operating hours as well as a list of already up-and-running stores which are similar to the ones in planning. “The advantage of our approach is that from the client it does not require a  huge investment into expensive technologies or the costly assembly of an analytic team. All remains outsourced at KPMG, including our data scientists”, so David Slánský, KPMG’s  Partner in charge of Data Analytics. “For a  monthly service charge, clients receive a  tailor-made application which they may use in the company’s  decision making processes as they see fit, without any other concerns. And we continuously calibrate and adapt our approach to current market conditions to assure maximum accuracy,” he adds. In closing, it may serve well to repeat the mantra about the impact of accurate revenue predictions on a  company’s  effective investment into its own growth. Good, well prepared and properly timed investment decisions lead to positive economic results, while bad, incorrect, rash or insufficiently planned steps may mean the end of a  company, regardless of management’s  best intentions. In the case described above, thanks to the application of KPMG Decision Science, we helped the client reduce such risks to a  minimum, while saving CZK 950 million in investment and operational costs within a three-year horizon. Petr Václav Decision Science team leader KPMG Česká republika pvaclav@kpmg.cz @petrvaclav

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You have to set yourself

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apart from the competition

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interview

At first glance, Czechia’s largest fashion house specialising in men’s wear and the country’s largest online electronics retailer may not have much in common. Meeting at the KPMG Retail Forum, however, Ladislav Blažek, the founder and chairman of the board of Blažek Praha a.s. and Tomáš Havryluk, vice-chair of the board of Alza. cz, found out that they both are often faced with the same problems and challenges. Text: Pavla Čechová, photographs: Tomáš Hercog

Your companies have both been on the market since the 90s of the last century. How have the Czech market and the Czech consumer changed since then? Tomáš Havryluk (TH): Most of all, customers have become ever-more demanding. At Alza, we see this as an opportunity. Customers who demand a lot are also able to appreciate quality or added value, which for us in turn means an opportunity to approach business creatively and to begin to set ourselves apart. Ladislav Blažek (LB): I wholeheartedly agree; this holds true for our field as well. At the beginning of the 90s fashion was somewhere on the outskirts of the public’s interest, as for 40 years of socialism, fashion in Czechoslovakia was just about forbidden and even after the revolution men continued not to take any interest in it. It was fairly difficult to evoke in them any memories of the traditions of the First Czechoslovak Republic and swell dressers like Oldřich Nový. It basically took us all of the 90s, when we were trying to fine-tune our business model. The decision to establish our own network of brand-name retail stores was key for the further development of our brand. Today, fashion is a often-discussed topic among men, especially among the younger generation of thirty-somethings. This is a huge change, today’s men are no longer fearful of looking good and are brave enough to sport even more extravagant models. You mentioned added value that needs to be offered to the customer, so as to set yourselves apart from the competition. What exactly does this mean in your case? TH: It’s important to get as close as possible to those proverbial 99,999 percent of perfection. All companies get their employees from the same market, but only some are able to steer them in a way to make them rise above the competition, be it even by one tenth of a percentage point. Anything offering the customer greater comfort is important; in our case this is availability, a speedy delivery, extended warranties, or offering financing services like operative leasing. We have a tablet and mobile phone version of our web and each reacts differently as to make it possible for us to spoil our customers.

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LB: The principles are the same in the fashion world. With us, it begins with our designers’ innovative approach – every new collection has to be even more sophisticated than the one before. But it doesn’t end there; that’s  just the beginning. Men are very demanding and the competition is huge. Customer service and all that goes with it determine a company’s success. And here, every little thing is important. Convenient parking, the smile and the warm welcome my colleagues greet every customer with, the right temperature in the fitting rooms. Goods that can be ordered online have to be readily available, and we need to be able to easily access and deliver garments which may not have been available in one branch in the right size. One extraordinary service which we offer is the availability of a tailor in each of our 27 branches, so that customers can have their purchases altered if need be. How do you recruit employees that then excel in such a changing market? How can you tell whether an employee will be able to respond to ever new demands? LB: In terms of employees, we are still running on a small team. At our headquarters, we all work in one open space, which I  consider healthy and rational. Our recruitment process has two rounds; the candidate will get a task for half a day and has to deal with it. We also work with personality tests to support our decisions. But most important is whether applicants have common sense and are willing to work hard, otherwise they won’t be with us for long. TH: We also have certain minimum requirements which we won’t compromise on. During our recruitment process, applicants have to create something and we in particular test their ability to learn, to create new things and to adapt to changes. In practice, candidates will get to solve a task from an area of expertise different from their own, e.g. a  sales director who has never dealt with marketing will be asked what attribution modelling is and how he would deal with it. We then get to see whether the candidate is able to learn about and absorb the topic within a week. During the recruitment process we will also ask applicants what they are currently reading and if there’s anything they feel they could enrich us with. Hence we find out whether the candidates really care about their area of expertise. Your companies have been present on the internet for varying amounts of time. Whereas Alza started to sell online in 1999, Blažek established its e-shop only in 2013. What expectations do you have for the growth of your online sales? LB: We felt that it was time to go online, that it would make a difference in our sales. People shop online more and more often, but I doubt that our segment of affordable luxuries will ever do away with brick-and-mortar stores. Our customers enjoy choosing and buying fashion in


interview

our brand-name stores; often also thanks to our online lookbook, where they are able to put together outfits before visiting the store. Last year, our online revenues increased by 44% and I believe that we will hold this tempo this year as well. Our goal is to have our internet sales reach 10% of our overall turnover within three years. TH: Alza has been on the market for 22 years; our internet shop has been around 17 years and from the start it had the same functionalities it has now. Every four years, it doubles [sic] and we expect this for the future as well. How do you plan to go about this? TH: We try to offer a wide array of goods; it’s no longer only about electronics. This does not mean that we add just about anything to our portfolio. An important part of selling is having perfect insight into your goods; without it, we don’t dare put it on offer.

LB: Approaching all our activities creatively. Every great thing or service can be made even better. We are working on linking our off-and online stores even closer together, on more sophisticated online marketing and on launching a mobile phone app for our e-shop. At the same time, we are changing the interior design of our branches. In March, our customers were for the first time able to watch our spring fashion show on-line. We regret immensely if we lose a customer because he could find his size in our stores, so now we are going to launch a better fitting service, making available the entire size portfolio including extended and shortened lengths. This service will be offered free-of-charge. To what extend do you use data analytics in your shops? LB: We of course monitor our branches very carefully. It is important for us to know how customers get to our e-shop, how long they stayed and how much money they spent and on what. TH: For us, data analytics are a necessity and a natural aspect of our work. I don’t like it when it gets demonised, but at the same time we try not to get bogged down in the quicksand of constant measurements, when absolutely everything gets

“I doubt that the luxury segment will ever do away with brickand-mortar stores.”

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analysed and you’re constantly waiting for data. LB: Of course, everybody tries to monitor their sales, but it shouldn’t be overdone. If you spend half your workday just monitoring data, then something is obviously wrong. Personally, I get to look at one table and four charts every morning, and it just takes me a couple of minutes. TH: You always have to determine beforehand what interests you and what steps will follow. If you watching your data ‘just to make sure’, then it makes no sense. Both of your companies got under the skin of the public with very distinct advertising campaigns. The Alzák alien has been getting people to buy at Alza for a fairly long time and the campaign with celebrity Leoš Mareš, which Blažek started last year, is also very popular. How is this reflected in your revenues? LB: The massive advertising campaign with Leoš Mareš was preceded by our brand’s significant rejuvenation. We fundamentally expanded the informal and denim parts of our collection and now target men for whom fashion is a sexy topic, because they like looking good. Our revenue went up by 12 to 14 percent, but we’re not able to measure what it would have been if we had not run the campaign. What’s important is that we returned to growth and that our loyalty club increased its membership numbers. To link Leoš Mareš with our brand was a very good choice, attested to by the fact that the fashion videos which we taped with Leoš had great viral potential and views in the hundreds of thousands. TH: The Alzák alien character is known by everybody. Some people like him, others can’t stand him. Kids absolutely love him and send us drawings and photos with him. What’s  important to us is that he still works, and until somebody comes up with a better idea, he will continue to do so. LB: I am jealous of that, because as a fashion label we have to regularly come up with new faces for our campaigns. TH: But you get to change and we don’t. We’re still hanging on to Alzák and you’re getting to be creative. How much do you focus on the new media? Are either of you cooperating with bloggers and vloggers? LB: This is certainly interesting for us and a lot of fashion brands are working with it. We are also planning such cooperation in the future, we can’t just stand by. We’ve already undertaken the first steps. Facebook works very well for us; we have almost 16 000 fans eager to provide us with quick feedback. Their opinions are very valuable to us. TH: We are interested in all the new media, but we always consider whether it fits our context. Twitter is not really right for us, because it doesn’t work much with photos, but Instagram appears to have potential.

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Tomáš Havryluk At Alza, he has held the position of vice-chair of the board since 2013, before that, he was the CIO. He has been with the company since 2008, when he stated as its IT coordinator. He graduated from the Czech Technical University with a degree in Software Engineering Alza.cz a.s. The Czech computer and electronics retailer runs an internet shop and a  number of branches under the same name. Its predecessor Alzasoft was founded in the summer of 1998 by then-student Aleš Zavoral in a small rented store space in the Prague Holešovice neighbourhood. In the same year, the company’s  webpages came into existence; a year later, Alza started its e-shop. Today, the company is also active in other EU countries. Its annual turnover was CZK 14, 5 billion last year.

Ladislav Blažek Entrepreneur in the men’s fashion sector. Blažek Praha a.s. Ladislav Blažek entered the men’s  fashion business in 1992, even before he graduated from the Mechanical Engineering Faculty of the Czech Technical University. He presented his first collection under the Blažek brand in 1993. Today, the fashion house runs 27 brand-name stores in Czechia and eight in Slovakia. Its e-shop was launched in 2013. The company belongs to the Blažek holding group, with Ladislav Blažek holding 90% of its shares, while the remaining 10% belong to Jan Vácha, Blažek’s long-standing colleague and financial director of the entire group.


topic

Five trends about to change retail 1. Virtual reality Virtual reality is most likely a phenomenon which will change entire sectors of human activity, including project drawing and modelling for production, sales but also entertainment and leisure. Whereas mobile phones connected to the internet were able to change human behaviour just with their two-dimensional display, virtual reality offers the entire world for us to experience with all our senses. We’ll be able to touch goods, wear them and even try to work with them. Those who have begun to anticipate that customers won’t come on their own but that traders will have to “get into their headsets” appear to be on the right track, whether they are selling groceries, clothing or entertainment.

2. AI – artificial intelligence Recommendations of supplementary purchases or algorithms for one’s  favourite purchases followed up by appropriate sales coupons are just the beginning. Artificial intelligence will not only evaluate customer data but will also significantly shape the functioning of merchants. The internet of things and current data from thousands of sources will make it possible to accurately plan stock on hand and to predict demand for individual items according to weather, traffic patterns, current events and other relevant factors.

3. Robots The robot bartender has been a Hollywood cliché for years. The time when it will become a reality is very close, however. Even today, the moment you order something off the internet, chances are that expedition from the warehouse is automatically taken care of by a robot. With the advent of autonomous vehicles, robots will in all likelihood also bring what you ordered to your door. Does we really need another person to take our order or to hand us a drink? Self-serve counters at fast food outlets are just one step away from robotic staff.

4. Blockchain Not only financial institutions are keenly interested in a technology which will enable them to monitor all transactions undertaken with virtual bitcoins. While a  blockchain database makes it possible to observe various cash flows, it can also be put to use in the monitoring of entire product cycles, including those of food. The main attraction of a blockchain is that for the collection of data it does away with the need for a  centralised database  – instead, any connected link can propagate entered data throughout the entire network and connect it with its correct owner. In retail, this may involve a particular fish caught in a certain location or a pret-a-porter dress just put on store display.

5. 3D printing And finally – why bother going to the store or to the post office for stuff ordered through the mail? A time will come when we will churn out household furnishings and other necessities on our own 3D printer in the comfort of our home. Just take your pick from a catalogue, buy the algorithm and crank up the machine. After all, even 3D printing equipment can already be printed out today. Tomáš Potměšil Manager, KPMG Česká republika tpotmesil@kpmg.cz

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t a h t s d i k w o h s g s n ’ i t h e t L y n a o d n a c y e th What drove most of us as kids were ideas and imaginary inventions which we trusted would change the world. As adults, we are at least a little sorry that nothing ever became of our early imagined creations. Hence we wanted to give today’s children the chance to realise their ideas and designs. So, at KPMG, we came up with the iKid project. In Slovakia, four annual rounds have already taken place; the Czech pilot concluded a couple days ago. Come take a look at the projects that made it to the finals, described by their kid inventors from elementary schools in four Czech cities.

Glass-door refrigerator X-led

Deskboard

Team of teacher Jakub Zvěřina, Prague, elementary school ZŠ Kunratice

Team of teacher Pavla Kucharczyková, Karviná, elementary school ZŠ Mendelova

“X-led is a unique custom adaptation of the doors of a refrigerator, providing a semi-transparent opening which lets you see what’s in your refrigerator – you don’t need to open the doors as often – saving effort and energy.”

“The DESKBOARD is a teaching aid that can be used in all subjects and for all elementary school levels. But it’s best for math classes taught with Professor Hejný’s method. The Deskboard takes care of couple of problems at once. No longer will it be possible for pupils to forget their math tables at home or to have them get damaged in their school bag or to get a bad grade or be written up for leaving the tables somewhere. Deskboard is kind to the environment – it saves trees, parents’ money, and teachers’ time.”

Through the eyes of the mentor: Roman Maco, Marketing Director, KPMG “When I last spring took part in the final round of the third annual iKid in Bratislava, it became clear to me that I would have to import the idea of supporting children in how to realise their innovative concepts into the Czech Republic. Today, we can look back at our first finals and the presentations of eight prototypes. It took us a year to assemble the schools, teams, teachers and mentors. The results are definitely worth all the work we did. No similar project exists for elementary schools and it is obvious that through iKid, children get to learn something that they may put to good use in their future development. I  would like to thank everybody and all the companies that have participated in the iKid project. Without their help we would not have been able to spread the idea to more schools and more children for the second annual rounds already in planning.”

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Through the eyes of the mentor: Jan Jůzl, business support specialist, coordinator for start-up accelerator GREEN LIGHT “The kids took their own problems which they are having with tables and on their own designed a product which best took care of things that bothered them. That’s a great approach – when coming up with new products not everybody can base their ideas on a  real problem which the product is supposed to take care of, instead, they often times create additional problems. The children also spend time thinking about other features (ease of use, storage and anti-theft security) having to do with the tables and brought those in into the final prototype. They hence came up with an attachment system to school desks, which from an innovative viewpoint is maybe more interesting than a sturdier writing tool.”


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e this k i l t c e j A pro hools c s y r a t en say at elem , d e t n e ced is unpre tors. the men

3D cube – a cube-full of fun

UNICAP – three-caps-in-one

Team of teacher Beatrice Stařičná, Karviná, elementary school ZŠ Mendelova

Team of teacher Vladimír Korf, Slaný, elementary school #3 in Slaný

“The inspiration for this prototype came to us from playing existing board games. It seemed to us that the boards were all basically the same and we really didn’t like the questions. So our team created a webpage where everybody can create their own game, select their own board, the type of questions and other components. We will put the game together and send it to you via mail order. Should the game bore you after a while, you can reorder some of the components. On the webpage, we also offer a discussion board on which you can communicate with other players about this game and its possibilities.”

“This product combines the classic woollen cap with a headband. It is also possible to wear the cap as a balaclava in case the weather turns bad. The cap also features a pocket for small carry-along items, like change, a credit card, etc.“

Through the eyes of the mentor: Jaroslav Procházka, mentor in the IT and innovations area “I very much like KPMG’s  idea to teach entrepreneurship to elementary school kids. I  loved getting involved and shared experience which I  gained from commercial innovation projects, incubators, as well as from similar projects that I organised for university students in Ostrava. Hardest for me was not to step over the edge where I would be pushing my ideas onto the kids. I instead tried to expand their views, show them all possibilities so that it would be most fun for them, the result would be their own and they would actually learn something that could help them later in life. I  think that Ms Stařičná, their teacher, and I did rather well in guiding but not pushing them – after all, the 3D cube is proof of that.”

Through the eyes of the mentor: Renata Pokorná, industrial engineer, LINET spol. s r. o. “I got involved in the project while asking myself whether kids at an age which I personally remember rather fleetingly will be able to create an innovative product. Right from the start a surprise awaited me, as the children filled our initial meeting with their proposals and ideas. Their active approach continued throughout the entire project. The idea we finally chose went through several adaptations. The entire development process was firmly in the hands of the kids. They were able to propose a  project whose application in real life is more than probable, as it combines simplicity and practicality.”

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not to s a w g st thin e d r e we r a e h h w The e he edg t r e v o deas i r u step o g pushin e b d l u wo kids. e h t o t n o

iCharge

Illuminated glassware

Team of teacher Pavla Nečasová, Slaný, elementary school #3 in Slaný

Team of teacher Monika Nademlejnská, Ústí nad Labem, elementary school ZŠ Vojnovičova

“iCharge is an ecological gadget which lets you recharge a powerbank while cycling. With the help of iCharge you can recharge your phone, save on electricity and do something good for your health.”

“Thanks to our glass, you don’t need to turn on your nightlight or grope around on your nightstand, hoping not to break the glass you left there – you’ll always find it, safely and securely. How, you ask? Our glass reacts to movement. You can use it as a medication reminder as well, as it features a built-in alarm clock. The glass has a very modern design, you can choose the colour of the LED lights based on your nature or mood. All in all, it’s a smart glass, better than any bed-side table lamp!”

Through the eyes of the mentor: Jan Louda, University Programs, iLAB design, IBM “iKid exemplifies that even school projects can be fun for children and that they can actually be enthusiastic about what they learn. The entire team from Slany under the leadership of Pavla Nečasova is just amazing and the kids blew me away not only with their ideas but also with their ability to turn them into reality. This all is reflected in their great product which won’t leave any cyclist without power.”

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Through the eyes of the mentor: Roman Vaibar, managing director, Drakisa s.r.o. “In the realisation process of the iKid projects young people get to solve tasks which they should in reality be dealing with every day. In a very gentle way, kids are led through the various phases of project, with emphasis on creative teamwork. It’s almost unbelievable what kind of creative ideas can be realised within a group of children who want to achieve something together and what kind of progress such a team can make in the individual steps involved in the preparation of such a  project. As part of our project we are working on a  so-called smart glass which in its current form is being made by children for children. The resulting prototype is a fun smart glass, but we are already thinking about possible variations and expansions which move our solution into the realm of a very practical and useful product.”


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Would you like to find out more about the iKid project or are you even thinking about getting involved as a mentor or expert consultant next year? Visit www.ikid.cz.

Self-refilling birdfeeder Team of teacher Romana Humplová, Ústí nad Labem, elementary school ZŠ Vojnovičova “We decided to design and build a self-refilling bird feeder that during our absence in winter would keep feeding the birds in the garden, at the cottage or on the balcony. As part of the Earth Day celebrations which took place at our school we presented the feeder to students, teachers and our director. Parents were shown our creation at parent-teacher conferences and the public got to see it in our school’s surroundings. We received more than 20 advance orders for the bird feeder this way.” Through the eyes of the mentor: Ondřej Suchý, free-lance consultant “During one discussion with students I  realised that the projects which I  and my colleagues usually deal with are 80 % about communication, teamwork and creativity. And that no school ever taught me these competencies. So, when I was offered to act as a mentor for the iKid project, I was excited. Of course, we do want to win, we are our biggest fans, we work hard on the prototype, its marketing and on the many other aspects, but the other teams are also strong. With the teacher we hence agreed that regardless of the judges’ decision we want the main prize for our team to be the lessons in cooperation, creativity, communication, willingness to try new things and to take risks as well as the ability to stumble and to get up again. To tell the truth, we are trying to do just three things: not to lecture the kids, to support them in testing things in practice and to modify their plans accordingly and to help them reflect on how it is to work together, what they are learning from this and what their project will need in the future. Something like this I would make a required subject for everybody :).”

Travel across Europe – a game for children designed by their peers Team of teacher Martin Suchánek, Prague, elementary school ZŠ Kunratice “In this fun board game, you have to ask questions which concern all European countries. If you happen not to know the answer, you can at least take a guess. You’ll also learn to budget your game tokens, which you can spend on better transportation. Winner is who completes a trip through all of Europe. Not only your knowledge but also the knowledge of your opponents decides this game. Who will be the first to cross the finish line and travel through Europe? The game offers lots of fun, suspense and a good time spend with your family and friends.” Through the eyes of the mentor: Zuzana Maderová, country manager Czech Republic, Staffino “I consider iKid to be an excellent project, because it lets children at such an early stage in life gain soft skills in a  playful manner. Those skills are necessary for the successful completion of any kind of project, be it in your professional or personal life  – I  am talking about teamwork, orientation towards finding common solutions, presenting in front of an audience and others. My group of kids decided to create a board game for children, because often kids are bored by the games adults create for them. But the main reason was to bring kids back to board games to see that they can be more fun than pc and video games and that they get to spend time with their friends and family.”

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coffee break

of the best surf spots in the world

7. 1.

2.

3.

8.

4. 5.

9.

6.

10.

In recent years, surfing has made its way into the hearts of an increasing number of “land-locked” Central Europeans. Those who love riding the waves have given rise to a solid sports community, with top managers, doctors and lawyers among its members. Hence we have asked Aleš Tůma of SurfAndTravel.cz to come up with recommendations on where in the world to experience surfing at its best. 28


coffee break

1. Puerto Escondido (Mexico) One of the world’s most famous surfing spots and the centre of international surfing competitions, Puerto Escondido has become famous mostly thanks to its pipeline wave. Most photos of surfers riding through waves as if they were in a tunnel were most likely taken here. Zicatela Beach has the largest waves, but for beginners, smaller La Punta Beach offers a safer location. The Mexican pipeline is fast, deep and can ruin surfboards. Zicatela is for advanced riders, the waves are fast and close quickly, and the undertow can be treacherous. Swimming is not recommended. Local shops specialise in the repair of broken surfboards and restaurants offer great food at low prices. As a beginning surfer, you’ll do best to sit on the beach and watch the masters. It’ll be an unforgettable experience. How to get there: From Mexico City it’s a six-hour bus ride to Oaxaca with an additional two hours to Puerto Escondido. When to go: The waves are small to medium-sized from November to April. With the advent of the rains in May, the waves grow and are best from June to September.

2. Manzanillo (Costa Rica) Costa Rica is another country offering a wide variety of surf spots for all levels of ability and it’s  just about impossible to pick only one. Riders can choose between Caribbean black beaches of volcanic origin and long shores on the Pacific side with perfectly shaped waves. As Costa Rica is fairly small and easily criss-crossed, it’s easy to visit both locations, so close but so different – the Caribbean with creole culture and the Pacific. Here, try Pavone with its beautiful surroundings. This spot offers the best left-breaking waves and professional surfing star Kelly Slater is rumoured to have a beach house here. However, my personal choice is Manzanillo on the opposite coast, i.e. on the Caribbean side close to the border with Panama. Crystal-clear water, swarms of colourful fish below and the jungle just beyond the beach – all of this makes Manzanillo the most beautiful spot in Costa Rica. How to get there: A bus runs from San José to Puerto Limon and on to the Gandoca National Park in Manzanillo. To the beach, it’s a 1,5 km walk through the jungle. When to go: December to April.

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coffee break

Ka

a Ka N

Nu l

u

Nu l

u

Nu l

u

a Ka N

n i l i Ma i!

i Ma i

Ka

i Ma i

n i l i Ma i!

i Ma i

Ka

a Ka N

n i l i Ma i! And when you’re standing on the beach with board in hand, remember the old Polynesian prayer: “Ka Nalu Nui Mai Kanili Mai!” (Arise, arise, you mighty surfs of Tahiti!)

3. Playa Majagual (Nicaragua)

5. Puerto Chicama (Peru)

Tourists don’t flock to Nicaragua as much as they do to Costa Rica due to its insufficient infrastructure and longterm instable political situation. Even surfers don’t go here much and international surfing magazines have so far failed to show the beauty of Nicaraguan beaches on their covers, hence it is still possible to enjoy one of the world’s best waves in peace and without droves of surfers. One of the best kept secrets is Playa Majagual near the town of San Juan del Sur in the south of Nicaragua. It is fairly hard to access and the only accommodations used to be tents on a  neighbouring beach. Currently, some Spartan huts have been erected, but peace persists, with incredible regular waves and gorgeous sunsets. Surrounding nature is nothing but magical and enchanting. To miss the nature reserve at Lake Ometepe with its pair of volcanic peaks would definitely be a sin.

Peru is said to have the world’s longest waves and the small village of Puerto Chicama probably offers if not the world’s then South America’s best waves. Under normal circumstances this would mean overcrowded beaches with surfers from around the world, but because of the cold Humboldt Current, ending in Peru’s north at Trujillo, the water’s rather cold and there’s often fog; hence neoprene suits are a necessity, which deters quite a few surfers spoilt by warmer conditions. But once you’ve tried to ride the kilometre-long wave, you’ll no longer mind the temperatures and won’t want it any other way. Another advantage of Puerto Chicama’s long beach is that it is accessible for all levels of surfers. Due to the village’s  one hotel accommodations are rather limited, but a new one is currently being build, so don’t despair.

How to get there: From the capital of Managua by bus to San Juan del Sur, then with a 4x4 taxi. When to go: January to May.

How to get there: By plane to Lima, Peru, then nine hours by bus to Trujilla and another three hours by smaller bus to Puerto Chicama. When to go: May to August – it’s a little colder but the waves are the biggest. March offers higher temperatures.

4. Montanita (Ecuador)

6. Ilha do Mel (Brazil)

Montanita is a small town on the southern shore of Equador with many hippie bars and makes for a good stop on the way from neighbouring Peru to the Galapagos Archipelago, known for its otherworldly flora and fauna as the last paradise on Earth. The beach is long and sandy and waves are relatively fast. Evenings are quite lively in Montanita thanks to its many bars and restaurants. After having spent all day on your board make sure to try a local fruit shake, sold by a local bicycle vendor. Pick your favourite fruit and ice cream flavour and Mr Koolshaker will take care of the rest. Montanita is surrounded by banana orchards and corn fields, so don’t be surprised if even at the bank you’ll find bananas or popcorn offered instead of the obligatory free candy.

Brazil is home to many excellent surf spots and Brazilians have for years been among the world’s best riders. The small island of Ilha do Mel is situated on the country’s south-eastern shore in the province of Paraná and belongs among the best that Brazil has to offer. Three gloriously long beaches with waves measuring 50 to 100 meters provide all levels of difficulty. The waves break directly on the beach and hence it is not necessary to swim out to any cliffs. The bottom is sandy, riders thus don’t have to be afraid to scrape up against corals should they crash. Cars are not allowed on the island, sandy paths take you where you need to go. Small huts with a kitchen and hammocks on the porch will rent for USD 20 per day, with surfboards either included in the price or available for USD 5 per day. This all depends on how much the landlord has smoked on a particular day and if enough Cachaça (a Brazilian sugar cane spirit) has arrived from the mainland. When there are no waves or if your hands have had enough, the caves dotting the shoreline are worth a visit, but make sure to watch the tide. Many a visitor has been injured just trying to keep up with its speed.

How to get there: From Ecuador’s capital Quito by bus to Guayquil, then by smaller bus to Montanita. When to go: January to February.

How to get there: By bus from Rio de Janeiro to Paranaguá. From here, the island is a short boat ride (40 minutes) away. When to go: During the local winter – April to September, when waves can reach up to several meters.

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coffee break

7. Taghazout (Morocco)

9. Lakey Beach (Indonesia)

Australian surfers discovered Morocco already in the 70s of the last century. The sleepy little fishing village of Taghazout thus became the surfing mecca of Morocco thanks to an unusually concentration of fantastic surf spots. Today’s Taghazout is an interesting mix of fishermen and surfers from all over the world but has managed to retain its original magic. Seasoned surfers can get their kicks at Anchor Point, the best known spot, but beginners will also be able to ride their first wave on the long sandy beaches hugged by the sea. SurfAndTravel.cz’s local surf base opens here every February.

Indonesia is a downright paradise for surfers: bamboo huts on palm-lined beaches, perfect barrels and hundreds of surf spots. Most Bali locations are full of surfers, so it pays to fly on to the East, to, e.g. the Isle of Sumbawa, often for no reason overlooked by tourist. The journey to Sumbawa may be laborious, but once you get to Lakey Beach, you won’t regret it. Five perfect surf spots right next to each other, all degrees of difficulty and only a few other surfers. Indonesia is incredibly cheap and if you don’t have a surf board to call your own, it pays to stroll through a couple of surf shops on Bali, especially in the village of Kuta, where you can get a board in very good condition for ca. CZK 3 500 including a new surfboard cover. But if you are indeed planning to buy your new board locally, take a long and hard look at your air carrier, as some will charge an extra EUR 100 to transport your luggage. My tip: China Airlines might not be the most comfortable, but will transport anything legal weighing up to 25 kilos. If you intend to do a lot of traveling, you might be better of renting a surf board directly on the beach from the locals for a couple of rupees. Please note: Most surf spots in Indonesia are surrounded by cliffs which means that you have to paddle to reach them which during low tide can be extremely dangerous. I definitely recommend taking along surf shoes which will protect you should you fall on the coral reefs or as you make your way towards the waves. Every decent surf shop will also offer tide tables, so make sure to pick one up.

How to get there: A non-stop air connection exists between Berlin and Agadir, then it’s just a bus ride to Taghazout. When to go: November to March.

8. Whiskey Point (Sri Lanka) In the last two years, Sri Lanka has become a favourite destination for many Czech tourists thanks to a  fairly cheap and convenient connection from Prague to Colombo. The capital of Sri Lanka lies on the western coast of this beautiful island. Both the west and the south of this country are fairly touristy, hence to those who want to relax away from the large hotels and surf in great spots, we recommend traveling southeast to the small town of Arugam Bay. Main Point is Sri Lanka’s main surf spot with the highest waves and is intended only for the most experienced surfers. A  short tuk-tuk ride away, however, lies the ideal spot for beginners. Whiskey Point peels off the rocks onto a  sandy beach, with a  wave that is slow and long and best for practicing and improving one’s  skills. SurfAndTravel.cz has a local base camp here as well.

How to get there: By plane from Prague to Colombo, then take a taxi to Arugam Bay village. When to go: End of April/beginning of May are ideal, as the season is starting out, the tourists are few and accommodation prices half of what they are later on.

How to get there: With commercial air carriers to Denpasar on Bali, then two hours with smaller airlines to the Isle of Sumbawa. When to go: Anytime other than the rainy season from June to August. The biggest waves are in December.

10. Kirra (Australia) Australia is a definite surfer’s Eldorado. Its long shoreline, from the west hugged by the Indian, from the east by the Pacific Ocean, offers waves of all difficulty levels both for absolute beginners and absolute suicidal maniacs. One definite top spot is Kirra on the eastern Gold Coast. The quality of its waves makes it one of the best surfing locations in the world. Kirra sports the fastest and most difficult sandy-bottomed barrel waves, hence you really need to gather some speed unless you want to find out how your laundry feels inside your washing machine. Luckily, Kirra’s second wave can also be ridden by less experienced and hardened surfers.

How to get there: By plane to Sidney, on to Brisbane or Coolangatta and from there by bus to Kirra. When to go: January to April.

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european cultural highlights

The best of culture when you‘re on the road Where else to go in the summer but south? If you are eager to take in some cultural highlights while traveling on business, you won’t want to miss some of the most celebrated summer music festivals. This issue’s cultural tips invite you to Serbia for the Exit Festival and to Croatia for Love International. Should you be an opera aficionado, you are bound to get your kicks in Austria at the Bregenzer Festspiele on the shores of Lake Constance. Text: Anna Batistová

Opera on the lake

� Bregenz, Austria � from 20 July to 21 August 2016 The Bregenzer Festspiele, the celebrated Austrian music festival, has traditionally been bringing together music fans for a truly extraordinary music experience: opera on the lake. This year, one of the world’s  most breath-taking opera stages, located on the shores of Lake Constance, will feature Giacomo Puccini’s  Turandot. The Prague Philharmonic Choir under the direction of Lukáš Vasilek has been appearing at this festival since 2010. The ensemble will also perform in Franca Faccia’s Hamlet at the Bregenz Festspielhaus.

Festival in the fortress

Festival on the beach � Tisno, Croatia � from 29 June to 6 July 2016

Not many other festivals in the world can offer what Love International has…a stage right on the beach. So if the music gets too hot to bear (house and disco greats like Prosumer, Bicep, Eats Everything, Axel Boman, Dixon and Horse Meat Disco will appear), you can take a dip in the private bay of the Garden resort in Tisno, the home town of the festival. The event loosely ties into the Garden Festival, which took place in Tisno for the last ten years. The organisers of the new festival are the successful creators of the Love Saves the Day festival in Bristol, England.

� Novi Sad, Serbia � from 7 to 10 July 2016

The Prodigy, David Guetta, Ellie Goulding, The Vaccines, Robin Schulz. That’s the star-studded line-up of the 16th annual Exit Festival. One of the most prestigious European festivals, it is the proud holder of the Best Major European Festival award, which it received in 2013, when 620 000 people cast their votes among 360 festivals taking place in 34 countries. The Exit Festival has its beginnings as a student event fighting for democracy in Serbia. The festival takes place in the Petrovaradin fortress in Novi Sad and its most important aspect, apart from the music, is its social responsibility theme.

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Festival with industrial appeal � Ostrava, the Czech Republic � from 12 to 17 July 2016

You don’t have to travel all that far to take in a great open air festival, however. The domestic Colours of Ostrava has been voted by British daily The Guardian among the top ten summer festivals of 2016. The event will take place in Dolní Vítkovice, among historically protected iron foundries, mines and steel mills. This year’s front runners are Underworld, Tame Impala, Of Monsters and Men, M83, Passenger, Thievery Corporation, Kodaline, The Vaccines, Slowdive, Kiasmos, Boys Noize, Aurora and many more.


european cultural highlights

Almodóvar’s Julieta

� Czech Republic � Czech premiere on 21 July 2016

Shakespeare at the castle

� Prague, Brno, Ostrava, the Czech Republic

Bratislava, Slovakia

� Summer 2016

In his 20th feature, celebrated Oscar-winning director and screenwriter Pedro Almodóvar again focuses on women and their emotional life. The main and title character Julieta is played by two actresses – Adriana Ugarte and Emma Suárez. After the death of her husband Xoan, Julieta, now living alone with her daughter Antía, is going through a very rough and unhappy time. To make matters worse, after turning 18, Antia decides to leave home and her mother, who subsequently spends more than 12 years looking for her. According to Almodóvar, the film signifies a  return to movies about women and to strong women protagonists.

Commemorate the 400 years since the death of William Shakespeare and visit the Summer Shakespeare Festival, the largest European open air theatre festival dedicated to performances of Shakespeare’s works. The festival takes place on open-air stages at Prague Castle, Špilberk Castle, the Silesian Ostrava Castle and Bratislava Castle. Apart from Shakespeare’s  most famous plays the festival will also feature the Tribute to Shakespeare project, an evening moderated by Shakespearian expert Martin Hilský, with Jan Tříska playing the main role.

New Irving novel out in Czech

Warhol in Bilbao

In June, publishing house Odeon brought out the Czech translation of the new novel by John Irving, one of the most-read American contemporary writers. The author of the best-selling Ciderhouse Rules and The World According to Garp in his new book Avenue of Mysteries traces the life of Juan Diego, an aging writer, who travels to the Philippines while struggling with his memories of growing up as a boy on a landfill in Oaxaca, Mexico. Avenue of Mysteries is a story about the past colliding with the present…

Should your travels lead you to Northern Spain this summer, you should definitely visit the Guggenheim Museum in Bilbao. Its home is an architectural gem often lauded as one of the greatest works of our time, as it was designed by American architectural genius Frank Gehry. To boot, until 2 October 2016 the museum is hosting Andy Warhol’s Shadows installation. Warhol started this monumental body of work consisting of 102 silkscreen panels and measuring 130 metres already in 1979, seeking inspiration from photographs he took in The Factory, his New York City studio.

� Czech Republic � June 2016

Velázquez in Berlin

� Bilbao, Spain � until 2 October 2016

� Berlin, Germany � until 30 October 2016

El Siglo de Oro is the title of the Gemäldegalerie Berlin exhibit which, starting 1 July 2016, will introduce visitors to the golden era of Spanish fine arts – the Age of Velasquez. On display will be 150 masterpieces by Velázquez, El Greco, Francisco de Zurbarán, Bartolomé E. Murilloa as well as of lesser known artists such as Alonso Cano and Gregorio Fernández. This is the first time that this fascinating collection of a wide spectrum of Spanish paintings and sculptures from the 17th century is being shown outside of Spain. The exhibition will offer visitors a comprehensive overview over the development of painting and sculpture during Velazquez’s time.

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business lunch

We make drinks for people we like In a land in which excellent apples have been growing for centuries but whose national beverage is beer, Ondřej Frunc and Cyril Holub decided to found the F. H. Prager cider house and to produce ciders and sodas using only traditional Czech apple varieties. In almost six years they have built a company which still adheres to its “punk” image but boast annual million-crown turnovers. Text: Eva Samšuková, Photographs: Barbora Mráčková

Your ciders as well as your design were recently very successful in several international competitions in the US and Great Britain. What does this mean for you as a Czech producer? Every producer wants to know how his products fare among the competition, especially if it’s  world-wide. That we are successful abroad tells me that honest Czech artisan cider has a place on the global market, where ciders have at least a hundred-year tradition, unlike at home. What’s even more interesting is that we succeeded both in the US and in Great Britain, because both countries approach the production of cider differently. The Americans use ordinary, regular apples while in England, they grow specially cider varieties. You decided to produce your cider from typical Czech cultivars. How successful are you in keeping up your production volume? So far, it hasn’t been a problem. Based on our volume, we’re sort of a “micro-winery”. But we are thinking about building up our own orchard in the future, because the old varieties are starting to become less fruitful. The old cultivars are key for our beverages and their taste. We’re trying to stock up on them because we are not going to be able to grow as many as we will need for our production. The orchards will have to be expanded in the upcoming years and we will have to cooperate with a greater number of orchardists and fruit-growers. You mentioned that Czech apple varieties are the key ingredients in your beverages. How do they differ from imported apples? I believe that the magic of genuine cider lies in the apples that are used, nothing more. The right selection is thus crucial for the resulting taste as well as quality. It’s similar to wine, that’s quite logical. And unfortunately you won’t be able to make cider from the new Italian apple varieties you can buy in any supermarket. These apples are sweet and pretty to look at, but there’s no other taste and after the sugar has fermented away, you’re left with nothing. Hence we are looking for a make-up of apples that suit us perfectly. Some of them have to be a little bitter, others sour and also sweet, so that the cider ends up with just the right flavour.

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I won’t tell you which specific varieties we use, that’s  of course a secret. But personally I like the Pineapple Rennet, the Clavilles, the Czech Virginapple or the Oldenburg. Year on year your turnover has grown by 50 percent. Are you expecting to grow further in a similar fashion? Indeed we do. Our segment is really just at the beginning, so it’s fairly easy to grow from nothing to double of nothing. In ten years, things will be different. Our goal is not only to increase the volume of ciders and sodas on draft, but we also want to expand our portfolio. We have ideas for other beverages and have the most fun with that, but we are also thinking about our own brewery or cider mill. Your labels and activities proclaim a very alternative way of thinking. How does that fit in with the 21st century’s hard-nosed business climate? While you’re small, you can hold your hand up and do business ethically. At least I  hope so. Only time will tell how successful we’ll be with that. We’re definitely trying. Who are your typical customers and where can we find them? They are bored with beer or they maybe even never liked it. Wine’s also not really their thing; their active and like to have fun. They think about what they’re consuming. They like apples and they like to dance. They are definitely not conservative. For today’s brands it is key to have a strong positioning on the market. Is this something that you had to think about long and hard or did it just happen, with the brand finding itself? With us, it’s an organic part of the whole. I am not even really sure what that means. Where we are and where I feel I am, I want to have our products, too. Our products are what I want to do, what I want to stand behind and what I want to believe in. They thus have to reflect what I believe the world to be and what I want from it. We’re not speculating about any kind of position; we’re just making drinks for people we like.


business lunch

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www.marwick.cz

Marwick 04/2016 ENG  

A magazine for clients and friends of KPMG in the Czech Republic.

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