By / Matthias Queck, Research Director, Planet Retail
German co-operative grocer Edeka is seeking to invest EUR1.6 billion (USD2.1 billion) in modernisation as well as the extension of its store network and retail infrastructure, CEO Markus Mosa has announced. This is 10% more than in 2012.
Leading German grocer Edeka continues to build on its food competency, for example by developing vegan private label products such as this ‘SoYes’ soy-based organic pasta sauce. In its financial and calendar year 2012, Edeka posted sales of EUR44.8 billion (USD57.6 billion), up 3.8% on the previous year when adjusted for the divestment of its 25% stake in Dansk Supermarked’s Netto. The group’s net income reached EUR168.6 million (USD216.7 million), up 19.7%.
Turnover generated by the co-operative’s independent shopkeepers climbed 6.4%, up to EUR21.3 billion (USD27.4 billion). Its corporate-run full-range retail division saw sales slip 0.5% to EUR8.3 billion (USD10.7 billion), mainly due to store privatisation. During the year, 83 companyoperated outlets were handed over to independents. Its Netto Marken-Discount discount arm accounted for sales of EUR11.3 billion (USD14.5 billion), up 5.2%, whereas the wholesale business grew 3.0% to EUR1.9 billion (USD2.4 billion). Third party sales fell 14.8% to EUR1.3 billion (USD1.7 billion).
A safe pair of hands >>
The announcement of very robust results for 2012 has come at a time when Markus Mosa is sitting as firmly in the saddle as ever before. Just a couple of days earlier, his contract as the co-operative’s CEO was extended by another five years. The other two members of the executive board, Michael Wulst and Martin Scholvin, only joined in January this year, when Dr Reinhard Schütte, previously in charge of Finance, IT, Logistics and other areas, left the company “at his own request”.
- Edeka’s strong performance has proved again that retail business is local business. Thanks to its leading position at home (and its membership in Agenor/Alidis), it does not need international ambitions to be successful.
- Edeka’s independent structure, combined with the need for differentiation and localisation, offers manifold opportunities for smaller suppliers and specialists in Europe’s largest market.
- Edeka’s investments in IT, alongside its general efforts to centralise sourcing, will result in greater visibility of conditions, which means standardised terms for suppliers.
- The relative independence of Edeka’s shopkeepers will make it particularly difficult to coherently tackle common challenges, such as online shopping and an all-encompassing loyalty scheme.
- Edeka’s investments in verticalisation may become an increasing threat for suppliers.
Reportedly, Schütte’s departure was not unexpected, given his allegedly tense relationship with CEO Markus Mosa and Adolf Scheck, Head of the co-operative’s Supervisory Board. Exactly one year ago, at the end of April 2012, fellow member and COO Gert Schambach parted ways with the cooperative to join his previous employer Dohle, a retailer with close ties to Edeka’s key competitor Rewe Group.
Mosa, who has been CEO since May 2008, came from the Netto discount division – at that time representing a centralised retail model – but he has since undergone a conversion to become a driving force in strengthening the independent shopkeepers as the nucleus of the group. Indeed, Edeka’s development away from the ambition of a corporate self-understanding towards a co-operative identity has been helped by the continuing over-performance of its independents – a phenomenon that cannot only be observed in Germany (at Edeka and Rewe Group alike) but also in France, where independent groups have been better able to serve the growing desire for a regional, even local, approach to grocery retailing.
Mosa, who in this regard has turned from Saul to Paul, now knows well how to fill the role of a servant of all servants – without losing his de facto position as an autocrat. It is not least Edeka’s number one position in German grocery retailing that has encouraged the co-operative to play down its power and strength, knowing only too well that the Federal Cartel Office is keeping a watchful eye on the consolidation process in German food retailing.
Dovetailing is the imperative >>
While respecting diversity, Mosa’s focus lies on creating synergies in Edeka’s strongholds – which clearly lie in the grocery sector. ‘Dovetailing’ (‘Verzahnung’) is the retailer’s keyword for this.
This entails the ‘interlocking’ of the various business fields in which the seven Edeka regions are active. Edeka has invested in verticalisation to afford it greater security when it comes to commodity supply. Recently, it announced the acquisition of insolvent fruit juice manufacturer Elro. “Concentration on supplier side is one of the biggest challenges for retailers and for Edeka,” Mosa said at the time, adding that concentration would “limit our freedom of action as a full-assortment store.”
As for buying, Mosa implemented new procedures last year that insiders have deemed a success, as the retailer has managed to bundle sourcing centrally for a group-wide buying turnover from EUR10 billion (USD13 billion) to EUR16 billion (USD21 billion). Edeka’s efforts had been focused on persuading manufacturers to agree to standardised terms, which had previously been negotiated on a regional basis.
To support its food competence, Edeka is also working on improving co-operation between its full-range and discount divisions when it comes to private labels. For the first time, Edeka has made the same private labels available in both channels. This includes exclusive deals with brand suppliers for specifically developed products.
From 2014 onwards, Netto’s automated instore bakeries will be supplied with dough from Edeka’s own baking plants. It has also extended its co-operation with the Fraunhofer Institute (best known globally for the invention of the MP3 media format) for research and development of innovative private label products, such as instant meals with freeze-dried mincemeat or Omega-3 enriched charcuterie.
Strengthening regionality >>
At the same time, Edeka is strengthening its regional stance, supporting independents who offer locally sourced products while rolling out regional private labels. Although its constitution as an organisation of independents offers the ideal basis for regional appeal, it may nonetheless hinder harmonisation efforts. After competitor Rewe Group’s announcement that it would join the national Payback loyalty scheme from 2014, Edeka will have to find a way to make its DeutschlandCard membership more powerful. So far, participation in the loyalty programme is devolved to independent shop owners.
Another important part of the co-operative’s dovetailing process has been Lunar, one of the biggest IT projects in European retailing. For 2013, a further roll-out of the Lunar merchandise management system in the wholesale and retail divisions is on the agenda, namely in the Südwest, Nordbayern and Südbayern regions. In the second half of 2013, a newly developed supply chain management platform will be deployed in the Minden-Hannover region.
Non-food and HBC need attention >>
Going beyond food, Edeka is also working on developing a convincing non-food offer. Having handed over its formerly centrally managed Marktkauf hypermarkets to the respective regional divisions, there is still room for a decent non-food range in larger stores. For 2013, the group has envisaged the development of modules depending on store sizes – partly in co-operation with leading brand manufacturers.
Discounter Netto has extended its drugstore offer to benefit from Schlecker’s disappearance.
As for health and beauty care, the spectacular implosion of the Schlecker drugstore empire last year has aroused the desire for a larger share of this lucrative market. Discounter Netto has recently extended its drugstore offer to more than 1,000 products – just a couple of months after it appointed Schlecker’s COO Thorben Rusch as its Deputy Head of Buying. At the same time, the full-assortment stores (not only at Edeka) are experimenting with concepts that convey competence in this sector.
The various fields of dovetailing work, combined with the continuing strength of independent grocery retailing and increasing demand for regionally sourced high-quality foods, will provide Edeka with enough scope for a promising future. Despite a declared focus on its home market, there may even be room again to look beyond the German borders: After all, it emerged as one of the bidders for Dutch retailer C1000 in late 2011, an indication that its long-term ambitions may not be restricted to Germany.