July 23, 2010

Aldi quits Greece

Aldi Greece (photo: Stavros Tsouroukidis)
Flight from Mount Olympus: Aldi will exit Greece this December
Aldi has announced its intention to exit the troubled Balkan country only two years after entry.

This represents the first time in Aldi's long history of international expansion that it has ever abandoned a foreign market.

The wording of the low-profile, privately-run company's press release this week was characteristically terse:

"The Aldi South group is ending the business operations of its 38 stores in Greece. Talks regarding the sale and future operation of these outlets are being conducted with several interested parties." 

Aldi will now "devote itself increasingly to expansion in all the other nine countries, where the company successfully runs more than 4,200 outlets".

The clear implication here is that Aldi Greece had not been running successfully although the stores always seemed to be busy.

Even more counter-intuitively, the decision to pull out was apparently not dictated by the country's current macroeconomic woes or by any fear that consumer spending power would be radically reduced in the foreseeable future.

Johann Mörwald not amused

Furthermore, sources close to the taciturn company confirm that Aldi still regards hard discount as a viable proposition in Greece. Archrival Lidl, which runs around 200 stores in the country and which continues to expand aggressively, clearly proves the point.

The plot begins to thicken when one remembers that Aldi South has invested an estimated €800m in Greece since entering the market in November 2008. Normally well-informed sources also confirm that Aldi was very gung-ho about the business potential in the country at the time of entry.

At all events, Aldi is also generally regarded as the most methodical and rationally-minded retailer in Germany and the one least likely not to have done its homework in advance.

So why the surprise exit announced this week? Given the company's secrecy, one can only speculate. Firstly, there has been an executive shuffle recently at both Aldi South's Austrian subsidiary, Hofer, which is responsible for operations in Greece, as well as at German head office in Mülheim.

Hofer CEO Johann Mörwald, who is said to have always opposed expansion in Greece, has not only assumed direct responsibility for the country. Mörwald has also been promoted to Aldi South's so-called "Koordinierungsrat", the most influential board of management within the company.

Sites and real estate

But even before any pressure Mörwald may or may not have exercised on the decision-making process, local observers had already noticed some dark signs on the Greek horizon.

For instance, after acquiring more than 80 potential sites soon after entry, Aldi Greece seemed to put the brake on local expansion at a very early stage despite an evident need to gain economies of scale rapidly.

As early as the beginning of 2009, it became evident that Aldi was unlikely to attain its original, ambitious target of opening 30 to 40 outlets per year. This was not because Aldi couldn't obtain the necessary sites, but because the company often sold the real estate soon after purchase.

Informal business practices

Informed local market observers point to another, perhaps more fundamental reason. Aldi seemed to be increasingly unhappy with the "informal business practices" that are prevalent in Greece.

In the wake of a series of scandals and legal difficulties that have affected some German retailers over the last few years, Aldi has revised its already stringent Corporate Social Responsibility guidelines this year and is known to enforce these ruthlessly.

One may sneer at this whiter-than-white approach until one remembers the food quality and personal data protection issues which have plagued some of German retailing over the last two decades, whereas Aldi's name is virtually sacrosanct with local consumers.

Obviously, such a positive reputation makes for a tremendous degree of trust among consumers. Surely, also, it represents a major reason why Aldi is one of the few German retailers who merits the name of a retail brand.

Delhaize in the running as potential buyer

Aldi's Greek stores will stay open until December this year. Parts of its head office in Thessaloniki will remain in operation until around spring 2011 in order to affect a smooth wind-down.

Trade rumour credits Alfa-Beta Vassilopoulos, the Greek subsidiary of Delhaize Group, with the best chances to takeover Aldi's Greek stores.

Delhaize CEO Pierre-Olivier Beckers has pointed to the strategic importance the Belgian group attaches to expansion in small countries, particularly in the Balkans.

And, only two years ago, Alfa-Beta Vassilopoulus purchased 33 "Plus Hellas" soft discount stores from Tengelmann for €69.5m. So Delhaize Group is obviously prepared to grow via acquisitions.

Any such move would enable the company to reach estimated annual revenues of around €1.5bn in Greece.

Concentration on largest markets

This would put the Belgians just behind Lidl, which is ranked no. 2 in Greek retailing after French group Carrefour. Lidl is also said to be interested in purchasing Aldi's warehouses and logistics infrastructure.

Whatever may have been the ultimate reason for Aldi's surprise move in Greece this week, it would also seem to be part of a trend among German discounters to reduce the complexity of their foreign engagements.

Lidl is now in 23 foreign markets after having withdrawn from Norway and the Baltic countries. The company also recently put its plans to enter the USA on ice for the second time.

Both Lidl and Aldi seem to want to concentrate on expanding in their largest foreign markets. For Lidl this means France, while Aldi is particularly interested in growing its successful operations in Australia, the United Kingdom and the US.


Read in German: Lebensmittel Zeitung, 22.07.2010, von Hans-Jürgen Schulz


7 Comments (Write a comment)

  1. Kostas Monioudis
    Created 30 September, 2010 15:30 | Permanent link

    I can't believe that Aldi did not know the level of corruption that Greece has. If Aldi's highly-paid financial consultants had asked an ordinary Greek on the street, how local business men and politicians operate, it would have saved Aldi billions of euros.
    I hope Aldi retrieves the losses from its financial advisers; they should return their high salaries to Aldi. What a waste of money!

  2. Created 1 October, 2010 15:24 | Permanent link

    Alas, the kind-hearted, imaginative and hospitable Greek people have been betrayed by their political and business elites.

    The tragic hero is not Aldi, but the "ordinary Greek on the street" who will not be able to buy good food at low prices from this company during the current recession.

    Petty corruption inevitably breeds major corruption which equally inevitably leads to tyranny and a loss of personal liberty.

    Nonchalance as to the terms and conditions under which one lives cannot be a recipe for long-term happiness.

    To quote from Lord Byron's poem "The Isles of Greece": "You have the letters Cadmus gave -- Think ye he meant them for a slave?" Of course, the slavery Byron referred to then was foreign occupation, but, if he were alive today, the bard would surely rail against a different form of tyranny...

  3. Pavlos Tamouridis
    Created 1 November, 2010 09:26 | Permanent link

    Governmental corruption is not the reason (at least not the primary one). There is also corruption in many other countries where Aldi operates. The main reason behind Aldi's pull-out is a series of bad business decisions. Mr Dawson points this out clearly in his article.

    Mr Dawson is also right about one thing. The worst hit person will be the everyday Greek on the street because he or she won't be able to buy decent food at low prices.

    This, in my view, makes Aldi's pull-out unethical. And, finally, if Lidl is booming in Greece, why can't Aldi?! Can't they put their own house in order? Once you enter the supermarket business in a country you change a people's way of life. You shouldn't suddenly say one day: "I quit, and I'll leave all those people behind and much much worse off."

  4. The Insider
    Created 3 November, 2010 19:53 | Permanent link

    I should like to finally make clear the real reasons why Aldi is leaving Greece. I'm really tired of listening to the various reasons given as to what happened in Greece.

    Well, yes, we all know that corruption is almost everywhere in our daily life, but all companies in Greece live in this enviroment. The one and only reason that Aldi is leaving is the INTERNAL corruption within the company. Senior managers took advantage of the FAST expansion that was planned with the €1.5bn budget. One only needs to remember that this budget planned to finance the opening of 400 stores and five logistic centers in ten years. To date, only 38 stores have been opened, one has been closed, and two logistic centers as well as 15 more plots have not been constructed. All these cost €750m. The land and buildings cost around €200m. The Central Logistics Center in Sindos cost around €90m, and the one in Patras around €40m which has already been closed.

    They also say that land in Greece is expensive. Unfortunately, Aldi bought already expensive land and paid two or three times more for it. But, most probably, this was part of a plan. How is it posible that no one at the "Koordinierungsrat" did any calculation to detect that something was wrong? The managers in the Koordinierungsrat did not meet their main responsibility, i.e., the CONTROL of their employees.

    It's not without relevance that senior managers were out of the company in Germany less than a year after their promotion! In the end, the result is the same. Aldi is leaving Greece and 720 people are losing their jobs while those responsible are still there or have received a good remuneration packet! I hope I have cleared up some things concerning the REAL REASONS...

  5. Manny Caruana
    Created 17 November, 2010 20:16 | Permanent link

    One contributory reason for the decision to close must have the several weeks of total operating lossed during the strike by Greek lorry drivers. This affected things like fruit & vegetables immediately, but it was only a few days before the frozen food also ran out. A week later, the stores were reduced to selling soft drinks and chewing gum, which was all they had left. I doubt if the takings were enough to pay for running the lift down to the car park, never mind all the other costs.

    The few stores in the Attiki area (Athens and its surroundings) seem to have been built very close to existing Lidl outlets. My local store is an extreme example where the backs of the stores are literally five metres apart. This wouldn't seem like a good plan to maximise takings although it could be that they were both looking to damage the competition. If that was the case, then they would have needed to have had a much larger presence before setting off down any such road.

    Stock control was also woefully lacking with several products running out and many days passing before new supplies arrived. More than a few customers were angered on several occasions when turning up for one of the special offers only to find that they had sold out less than a minute after opening time! I heard several unhappy people vowing never to set foot there again! This could easily have been prevented by someone actually implementing the clause in the adverts stating that the quantities purchasable under special offers are limited to 'normal domestic use'.

    With takings lower than they could have been and the major setback caused by the strike, this would have been enough have tipped the scales in the mind of any top manager who had always been opposed to expansion in Greece. If the stores had been doing better and there had been no strike, it would have been difficult to have justified writing-off Greece.

    I, for one, am not convinced by the self-styled "insider" and his "REAL REASONS", even if they are in capital letters.

  6. Created 11 March, 2011 03:02 | Permanent link

    One major reason in my opinion, (as the lorry drivers strike was in September, long after the decision to pull out was made), is that Aldi and Plus made the same grave mistake: They did not expand fast enough.

    When Lidl arrived in Greece, they rapidly purchased large areas inside or near Greece's major cities. Aldi and Plus were in northern Greece for almost two years before deciding to head south, where the largest cities are.

    This gave Lidl enough time to purchase all the real estate that would allow for store building. So, when Plus and Aldi finally came to Athens, they had to build their first stores in the farthest suburbs. People had to drive for more than half an hour to get there. Given rising gas prices and the time spent, you had to make really big purchases in order to justify the trip.

    The sad thing is that Aldi really had good quality food, especially in vegetables, with the lowest prices on the market; and, from what I have heard, they were also a good employer.

    Now, only Lidl is left in the hard discount market in Greece, which is now obvious as their prices have risen over and above inflation and tax increases. Their fruit & vegetables department is now one of the most expensive, compared with other supermarkets and street markets.

  7. Created 3 August, 2011 14:36 | Permanent link

    My name is Athanasios Georgiou, and I'm from Giannitsa of Pella in Greece.

    I am sorry that they closed their stores. I would like to know regarding the store they've closed in Giannitsa, whether it would be possible to rent it for five years with the option to buy from the partners over a longer-term period of five years, while cooperating with the company on products?

    We are the SA SA family company, although we have not dealt in supermarkets to date, we would like to start, and are very positive regarding cooperation. Thank you in advance for an answer.

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