Montblanc boss says it's time to scale even higher peaks

The German pen manufacturer knew it had to diversify to expand. Laura Chesters reports

As Lutz Bethge presides over a meeting at Montblanc's atelier in Hamburg, Germany, last week, he is in fact 724 miles away from where the luxury goods group took its name, the highest peak in Europe: Mont Blanc in the Alps.

The brand was created in 1907 by a Hamburg banker and two engineers who, after seeing the latest technology for fountain pens in Britain and France, decided to create their own version in Hamburg. The Montblanc name was chosen because the founders thought their pens were the "pinnacle" of pen design and craftsmanship and the "most majestic peak" would be a fitting name. The name and the white star logo – to represent the snowy peak of the mountain – were adopted by 1910. The company, now part of luxury goods conglomerate Richemont Group, has grown into a global empire – selling its expensive fountain pens in 70 countries.

Mr Bethge is proud of his company's heritage and its headquarters contains a museum showing the rich history and how it has been loved by the rich and famous for decades. But what future is there for a business selling pens in a world of computers and mobile phone technology? Children at school today are learning to write on computer screens on their desks, not with ink wells. How can a 104-year old pen-maker, which still makes its pens by hand in a Hamburg factory, survive?

Mr Bethge says: "Computers rule our lives but letters written by hand show the recipient how important they are. They are personal and show you have given one of the most important things of today – time."

Hamburg-born Mr Bethge, who has been with the company since 1990, is so passionate about his products that he knows every detail of the process of creating them. "Our brand stands for power, for success, but also for education and culture. The person with a Montblanc writing instrument has a successful and cultural lifestyle." And at a £500 entry point rising to close to £20,000, these fountains and roller balls are more than just pens. They are indeed, as Mr Bethge says, "writing instruments".

At the atelier in Hamburg a tour around the network of rooms reveals that more than 600 people make its products. Painstakingly engraving, welding, shaving and bending the delicate gold and precious metals in a total of 35 different steps to create the fine nibs for each fountain pen sold across the world.

But Mr Bethge's plan for the business goes well beyond his beloved "writing instruments". Since 1995 it has diversified into leather goods, jewellery and, most importantly, watches, which could easily overtake its sales of pens.

Erwan Rambourg, luxury goods analyst at HSBC, said: "Montblanc product diversification has been quite successful. The name is still probably associated with pens. However, as Cartier started off as a jeweller and is now well known for watches, I would not rule out that at some stage that the first point of reference for Montblanc will be watches."

The business is rapidly growing in China, India and Brazil. It has established a network of 360 shops – with a total of 9,000 sales outlets worldwide and plans for further growth. In China it has 100 shops in 48 cities and will by the end of the year open its biggest store yet – a concept store that will host events and exhibitions in a four-storey building in Beijing. Mr Bethge says: "China is our biggest market but Europe is still important. A business needs a balance of all markets. We are evenly spread. This is a benefit."

But in the current economic recession how can a company that still manufacturers products by hand compete? The company made a crucial decision for its future success in the 1970s when it stopped mass production of cheaper pens to concentrate on the high end. This decision made Montblanc what it is today.

Mr Bethge explains: "We are selling luxury goods, but we are artisans and an atelier – not a mere luxury brand. When we launch new categories people know they will also be of the highest quality."

When it entered the watch market it opened two locations: Le Locle for ¤6,000-plus watches, and Villeret where everything is handmade and where it creates only 300 to 400 pieces a year. Only eight Villeret Tourbillon Bi-Cylindrique have been made which sell at ¤230,000 (£197,000).

Like its home city's forefathers, Montblanc has a long list of art and cultural events that it has created. It uses its celebrity clients to raise money for charities and support the arts. Montblanc runs competitions for young and established artists as well as an award for a patron of the arts. This year Prince Charles will be awarded the Montblanc de la Culture award in the UK with a prize of a limited-edition fountain pen and ¤15,000 to donate to one of his charities.

Parent company Richemont, the second largest luxury goods conglomerate in the world after LVMH, updated the market last month with a 23 per cent increase in global sales for the last quarter. The group, which owns brands such as Cartier, had a net cash position of ¤2.2bn as at the end of December. But its generous nature and good trading figures mask other issues. The rising price of gold and precious metals as well as currency fluctuations mean its prices will be forced up in April.

Mr Bethge plays down the cost hikes. He says: "This is not the first time gold prices have risen and currency always fluctuates. This is something we have to live with. We have to adjust our prices of course, but we will not over do it for our customers."

Analysts agree. Luca Solca, senior research analyst in luxury goods at Sanford C Bernstein, says: "All hard luxury players are affected – Montblanc maybe less than others given its lower use of precious metals. It is a very solid and profitable brand."

The international nature of Montblanc was part of its plan from the beginning. When the founders opted for the Montblanc name they chose the highest European mountain. "Our founders chose the highest European peak and not the highest German peak. They had an international vision. If they had not had a European outlook we would have been called Zugspitze. This would have been difficult for international success." Mr Bethge says with a wry smile.