November 22, 2012

Auchan eyes Metro's hypermarkets in E. Europe

An Auchan hypermarket in Russia (photo: Les Linéaires)
An Auchan hypermarket in Russia: Expansion in this vast country is a global strategic priority for the French retail giant (photo: Les Linéaires)
Journalists find it frustrating to chase a story where all parties involved refuse to comment, but it does arouse their hunting instincts.

Rumour has it that French retail giant Auchan has been finalising negotiations with Metro Group.

The aim is said to be the purchase of the German market leader's "real,-" hypermarkets in Central & Eastern Europe (CEE).

Apparently, the main stumbling block to sealing the deal for the 100-odd hypermarkets in Poland, Romania, Russia and the Ukraine are the rental contracts. The store owners are said to have tied rent levels to annual sales, which gross around €3bn for the CEE region.

As Auchan is believed to be convinced that it can do a much better job than Metro at running the hypermarkets, it fears that future rental costs will explode.

Given that Auchan's 120-odd hypermarkets in Hungary, Poland, Romania, Russia and the Ukraine now make around €11bn in gross revenues this sounds plausible, but is it true?

Metro in sibylline mode

Auchan's press office quickly replied by telephone with a standard "we don't comment on rumours" to an email enquiry from our newspaper.

Metro Group gave an answer straight from the Sibylline books: "On the basis of the new direction and the stable course of business we have various options with which we can work strategically."

Given these responses, one can only consider whether the story is logical.

For troubled Metro Group the sale, which does not include "real,-" stores in Germany and Turkey, would not cut the Gordian knot of its many woes. However, it could fetch an estimated €1bn to €1.2bn, including some real estate, and give a breathing space to the company's hard-pressed management and disappointed shareholders.

Meanwhile, Auchan goes from strength to strength both at home and abroad where international sales now account for nearly 60 per cent of consolidated group revenues.

Group net revenues (2011: €40.4bn) have steadily increased since 2007, and net earnings (2011: €810m) have been on the up since 2009.  In fact, this Gallic success story seems to defy the store life-cycle.

As petrol prices rise, citizens age, and consumers tighten their belts in the crisis, most of its international hypermarket rivals are experiencing a profound crisis of identity. Many are exiting those countries where they do not see future market leadership, downsizing their stores, and reducing non-food assortments.

Auchan: Big is beautiful

Auchan, however, never seems happier than when it can open big 12,000m² stores, hasn't reduced its non-food offer, and is ramping up its international expansion, particularly in Russia and China. It now runs more than 620 hypermarkets in twelve countries.

This is not the place to discuss the conceptual strengths of a retailer which is A-rated by Standard & Poor's. However, it would seem that the controlling Mulliez family is not only ambitious, but also happy to invest big time in a trial & error process of innovation.

Store concepts ("Auchan City" in Tourcoing in April 2011, "Cœur de nature" in Brétigny-sur-Orge in May 2012 etc.), multi-channel online (Auchandirect, GrosBill, and Click & Drive ideas (Auchan Drive; Chronodrive) are merrily tested.

Also, staff members are highly motivated, and corps d'esprit is fuelled by a share participation of 11.9 per cent.

At the end of the day, money in our capitalist system inevitably flows to where it can be used most efficiently and to those who employ it most profitably. So whether the purchaser turns out to be Auchan, Kaufland or someone else, "real,-" is unlikely to live for long in the Metro bosom.


Lebensmittel Zeitung print and digital (photo: LZ)
photo: LZ
Our German B2B newspaper, Lebensmittel Zeitung, in print & digital
Read in German: 'Starke Gallier' by international editor Mike Dawson on page 24 of 
Lebensmittel Zeitung, no. 47, 23.11.2012

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