July 10, 2012

Metro Group's E. European hypermarket empire

real,- eastern Europe CEO, Didier Fleury (photo: Metro)
Didier Fleury: Runs real,- in eastern Europe
Metro Group's hypermarket subsidiary real,- is beginning to look like the late Roman empire – troubled within and under constant pressure to redraw its eastern borders.

According to our sources, Metro could be considering ending the separation of real,- into a domestic and an international division as a possible preliminary to the sale of all Central & Eastern European (CEE) operations.

(Last year "real,-" posted annual revenues of €11.2bn, a quarter of which was in the CEE region, on a meagre ebit margin of 1.2 per cent.)

The same sources also indicate that both divisions could be united under top manager Didier Fleury, who has run real,- in eastern Europe since 2008.

If this is true, it would seem an odd decision when one considers the need to be an insider here in Germany.

Firm denial

Metro firmly denies the above speculation. Germany's largest retailer by annual revenues also denies that the contract of current German head Roland Neuwald will not be renewed, or that there will be any merger of domestic and international operations.

Although the Dusseldorf-based company does not deny that there have been recurrent expressions of interest in real,- a company spokesperson stresses that there is  "...no decision to sell real,- International, and there have also been no concrete negotiations to date."

These démentis have failed to stem the trade rumours that have flared up since May. There is already market speculation that Auchan could be interested in purchasing the 110 real,- outlets in Poland (54), Romania (25), Russia (18), the Ukraine (1) and Turkey (12).

This story has been fuelled by the fact that the family-owned French retail group already has successful operations in all these countries except for Turkey.

Auchan probable purchaser

How likely is all this? At first blush, it could be plausible. Real,- has been stagnating in eastern Europe since 2008 where annual revenues have grown by a mere 1.4 per cent to €2.93bn over the last five years. Only one new store per year was opened in the region in 2010 and 2011.

While Poland remains its largest foreign market, annual revenues there have declined by 12.5 per cent to €1.4bn since 2007. During the same period, however, major international rivals have thrived: Tesco (+20%), Carrefour (+20%), Auchan (+10%).

Although former Metro Group CEOs have indicated a willingness to sell real,- the truncation of eastern European operations would risk undermining, however, any future growth story. Annual revenues for the 315 real,- outlets in Germany have fallen by nearly 5 per cent to €8.3bn since 2007.

Pressure to sell

The question surely is to what extent Olaf Koch, the relatively new CEO, who only recently put any sale of group divisions on hold, can free himself from pressure by major shareholders Haniel and Schmidt-Ruthenbeck to "take the money and run".

Given the huge book losses these shareholders have taken on their Metro stake so far, Koch must be under considerable pressure to sell one of the group's few quickly realisable assets. After all, if you incur an estimated €3bn in debt in 2007 to buy shares at around €60, no one is going to be philosophical in 2012 when they have fallen by two-thirds to around €20.

Meanwhile, as consumption wanes during the European economic slowdown, Koch hasn't exactly been dealt a good hand to play by his predecessors. There are troubles at all major Metro divisions with a net group loss of €81m in Q1, compared to a net profit of €14m for the same period last year, and expectations for results in Q2 are about as enthralling as our current summer weather.

 
Related article in German: Lebensmittel Zeitung, no. 27, 06.07.2012, by Mathias Vogel

 

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