April 16, 2014

Schwarz Group challenges Tesco

A Kaufland hypermarket (photo: Kaufland)
Bright future: A Kaufland hypermarket
Given the depressing annual group trading profit and like-for-like sales figures he was obliged to announce at the preliminary results meeting today, Tesco CEO Philip Clarke might not feel in the mood to mull the latest buoyant news from Schwarz Group.

With net sales of €74bn for the year to the end of February 2014, the Neckarsulm-based company looks set to push Tesco down soon to number three in the list of leading European food retailers and is already snapping at the unhappy UK retail giant’s heels.

If Schwarz Group continues to grow at its current giddy rate of 10 per cent per annum, the parent of "Lidl" discount stores and "Kaufland" superstores could soon challenge Carrefour to become Europe's largest retailer.

This dynamism needs to be put into context in order to be appreciated fully. Over the last two years alone, sales have jumped by €10bn which is the equivalent of creating a company the size of Coop Italia or the Co-operative Group from scratch.

Such an achievement is all the more astonishing given that the increase was essentially like-for-like and that a lot of smaller Lidl stores were closed during the period.

Growth story

Schwarz Group, or Schwarz-Gruppe to give it its native handle, has already passed the 10,000-store mark, with Lidl making up the lion's share (€54bn) of consolidated annual revenues and Kaufland (€20bn) the rest.

The tremendous growth which made all this possible doesn’t seem to have strained the balance sheet. In fact, the positive development in like-for-likes has clearly had a favourable effect on group earnings, and the equity ratio is now around 35 per cent of total assets.

While European rivals Tesco, Carrefour and Metro have been trimming investment, Schwarz Group will be maintaining its high annual capex level of €4bn over the coming year. Both Phil Clarke at Tesco and Georges Plassat at Carrefour, who have virtually called a halt to Big Box expansion in the UK and France, will probably be surprised to learn that a large part of this investment has been earmarked for Kaufland’s 635 outlets in Germany.

In particular, funds will be channelled into the modernisation of stores in eastern Germany. “We quickly opened a lot of outlets there in the early 90’s after the wall came down, but they now need some sprucing up,” says Kaufland CEO Frank Lehmann.

Although more modern sites with better fresh produce departments will attract more customers, the real advantage for a superstore and compact hypermarket discounter like Kaufland are lower running costs via more efficient refrigeration technology etc.

This new store investment will obviously put even more pressure on competitors such as real,- whose parent company, Metro Group, has been obliged to tighten its belt.

Kaufland hunts abroad

Strict local Planning Acts mean, however, that 80 per cent of new store openings at Kaufland last year were outside Germany. The company already runs more than 500 superstores and hypermarkets in six European countries and is planning to enter Serbia.

Kaufland managers see Auchan as their main competitor in Europe. Rivalry has increased since the French giant bought nearly all of the eastern European store network of real,- last year making Auchan particularly strong in Poland and Rumania.

Despite strong organic growth, Kaufland does not exclude acquisitions on principle and admits that it was interested in acquiring Spar Austria’s Czech operations which were recently sold to Ahold.

The main focus of capex will clearly therefore be on bricks & mortar over the coming years. Although Kaufland does plan to enter the online business at some stage, it is not a priority. “When we do it, we want to do it right,” seems to be the mood.

Sibling synergies

Schwarz Group CEO Klaus Gehrig wants to create more synergies between Kaufland and Lidl. These will include such areas as administration, the purchase of industrial equipment, and food manufacturing. Lidl, for instance, has its own factories for making chocolate, baked goods and mineral water while Kaufland runs a meat plant. Therefore they could easily deliver one another.

“But both companies’ main buying and sales functions will remain autonomous,” says Lidl’s new CEO Sven Seidel who will play a central role in coordinating these activities.

Clearly the heady pioneering days of “speed before efficiency” have now passed at Schwarz Group, and Klaus Gehrig is concentrating on structural efficiency. In this context, it is also significant that he now talks about “optimising” rather than widening the assortment.

So, Schwarz Group is not only big and burly, it also has a clear road map for future growth. Hallo, Mr. Clarke, are you still there?


Related article in German: Lebensmittel Zeitung, no. 16, 17.04.2014 by Hans-Jürgen Schulz, Jan Mende, Christiane Ronke & Angela Wisken


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Comments for this article are closed.

  1. Mrs A Brown
    Created 24 April, 2014 17:27 | Permanent link

    My husband and I go to Lidl in Crowborough/Sussex for our big weekly shop because as old-age pensioners (OAPs) we appreciate their general price proposition and are pleased to have an alternative to the price dictatorship of Tesco, Sainsbury & Co. to which there was no alternative until the German discounters arrived. For instance, their flowers are very reasonable, and I often treat myself to a bunch now whereas Sainsbury’s have priced themselves out of the market.

    Two things, however, have struck me recently: Firstly, even at Lidl prices are creeping up, and, secondly, they unfortunately seem to have taken a leaf out of Sainsbury’s/Tesco’s book by offering cut prices on twin packs. This is most irritating and must also be so for poor widows and widowers who certainly do not want to store two of everything, as they have neither the money nor the space at home.

    I have always hated the multi-pack philosophy at Sainsbury’s etc. For instance, my favourite cheese is “Seriously Strong” cheddar. It is usually more than £4 a pack, and so they offer two packs for £5. I bought it, but, to be honest, we are not eating that much cheese these days, and we shall have it too long in the fridge. Luckily the sell-by date is the end of July, but why could they not have at least reduced the price on a single pack?

    Clearly, Lidl are directing their thinking towards providing for young families who buy in bulk, but is this wise? Crowborough has lots of older people living in the area and the proportion of OAPs in the UK seems to be increasing rapidly. In fact, I read somewhere recently that around 60% of the population will be over 65 years of age by 2020.

    So my feeling is that Lidl maybe getting greedy and after a while will develop into another Sainsbury’s. For the moment I will stick to them as I am obviously still saving money there overall. But how long will that be for?

  2. Ray Roberts
    Created 1 September, 2015 19:19 | Permanent link

    Lidl locations in the US

    Dear Lidl,

    We have several great four-acre parcels in Virginia in the US for Lidl stores.

    Contact Ray Roberts REMAX 1st REalty or Ranny Humphreys at REMAX 1st 5403572415 or rray557@aol.com

  3. Dnyaneshwar Nade
    Created 1 October, 2015 05:52 | Permanent link

    Job Vacancies

    Are there any opportunities to work with Schwarz Group in the field of accounting and finance?

  4. John
    Created 15 November, 2016 15:36 | Permanent link

    Lidl Australia

    When I was overseas in Malta, I saw one their stores. I really enjoyed shopping at Lidl because of the good variety. Are we going to see Lidl stores in Sydney Australia next year? They keep on saying soon, but how soon?

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