April 25, 2013

German retailer online sceptics

Dirk Roßmann, CEO Rossmann (© N O V U M / W a l t e r S c h m i d t)
Dirk Roßmann: "We haven't found the key to internet retailing yet" (© N O V U M / W a l t e r S c h m i d t)
Some companies like to moan about the competition, but often what they are really complaining about is their own lack of ideas.
And where there is a lack of innovation, the chances are that local cartel authorities have failed in their duty and allowed monopolies to arise.

The bricks & mortar retailers on Germany's highly-concentrated market are a case in point. They have long identified Amazon and other online pure-players as their favourite bugbear.

Therefore, it is easy to be cynical when retail bosses lament the difficulties of creating a viable online business. But, if they represent retail success stories, their statements assume a different character.

So when Dirk Roßmann, CEO of Rossmann, Germany's second-largest drugstore multiple, admits that he still hasn't found the keys to the online kingdom, you've got to listen. 

The key to the kingdom

The figures speak for themselves. Rossmann has been running an online shop for more than a decade and yet only made €37m in revenues last year. One merely needs to compare this paltry sum with total group sales of just under €6bn.

Dirk Roßmann reveals that the company's e-commerce division has now broken even, but admits that revenues and earnings are only growing modestly compared with bricks & mortar operations.

He attributes this to the cost structures of internet retailing. German customers, he says, are not prepared to pay a premium for home delivery to compensate retailers' higher logistics costs. Therefore, the maths behind selling standard items online simply don't add up.

Not one making money

Roßmann admits that the new sales channel seems to have worked in general merchandise, including such non-food items as textiles and books. But he doubts whether "big volume lines with high stock turns", which are sold as low-margin items in the store, can be sold profitably via the internet.

He certainly doesn't know of one German food retailer who looks likely to chalk up a success any time soon.

Rossmann's experiences are mirrored at competitor dm. Germany's drugstore king supplies Amazon with its "Balea" own label, but Lebensmittel Zeitung understands that the business is not developing at any spectacular rate.

It is also telling that, when former drugstore giant Schlecker filed for bankruptcy, dm looked at its online bookshop and decided not to buy.

Rewe CEO Alain Caparros confirms the difficulties even Germany's second-largest food retailer has with internet food retailing. Lacking any real blueprint for success, Caparros told "Wirtschaftswoche" recently that Rewe now wants to act as an investor in this sector.

Although the company was not prepared to give Lebensmittel Zeitung any further details regarding plans or figures, it would seem that it intends to act as a type of business angel for internet start-ups. As such, this is reminiscent of rival Tengelmann's recent activities.

Retailers and journalists at the bar

The current predicament in which mass food retailing finds itself is not without a certain irony. It is almost amusing to witness how journalists, who were happy to lecture retailers for decades on the need for greater flexibility, seem so perplexed as they struggle to adjust to the changes created by the internet within their own industry.

In fact, there are many parallels with mass market retailing. Both branches of business have committed substantial investment to their own specific physical worlds (stores for the retailers, printing presses for magazine & newspaper publishers).

Both therefore have a far higher cost base than pure online rivals. Both industries have been hit by the lower prices and extra speed and convenience available online.

Both face a reduced revenue stream if they dabble online. It may perhaps be possible to obtain €20,000 for a four-colour advertisement in a broadsheet newspaper, but try obtaining €2,000 for an online banner ad.

True, online revenues, if not earnings, often increase for both newspapers and retailers at a fair rate, but, alas, seldom fast enough to compensate for the decline in their respective physical universe.

So maybe one should revise the old belief that journalists hob-nob with retail managers in bars at the end of trade conferences in order to gain a new story. Perhaps they are only comforting each other?

Podcast microphone (photo: Gerhard Seybert-Fotolia)
(photo: Gerhard Seybert-Fotolia)

Podcast. Click arrow to listen to an audio version of the text:

Lebensmittel Zeitung print and digital (photo: LZ)
Our German B2B newspaper, Lebensmittel Zeitung, in print & digital
Read in German:
Lebensmittel Zeitung, no. 16, 19.04.2013 by retail news editor Jan Mende

German Retail Blog

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