December 6, 2012

Walmart, Dansk, Edeka & Netto

Netto Stavenhagen shopping trolleys (photo: Carsten Milbret)
Object of desire: Netto runs 350 discount stores in Germany
Anonymous sources claim that US giant Walmart is in negotiations with Danish conglomerate Møller Mærsk regarding the purchase of some or all of retailer subsidiary Dansk Supermarked.


If this information is correct, it would have a direct bearing on the German trade.

This is because Dansk Supermarked holds a 75 per cent stake in Netto Stavenhagen, a discount store joint-venture with Edeka Group, Germany's largest food retailer.

Dansk Supermarked denies these negotiations, and Møller Mærsk refuses to comment. No answer has been received from Walmart regarding our enquiry to date. So where's the beef to this story?

Audacious Danes

Let's start with Dansk Supermarked which posted gross revenues last year of around €8.8bn with ebitda at €454m.

In its small home country the group operates two "Salling" stores, 86 "føtex" food stores, 17 "Bilka" hypermarkets, 1 "A-Z" discount store, 37 clothing and shoes stores, and 432 "Netto" outlets. This makes the company Denmark's second-largest retailer by sales.

Further to exiting the UK and the decision not to invest in the Ukraine in 2010, the Højberg-based multiple remains active in Poland and Sweden with 242 viz. 146 "Netto" discount stores.

The Danes have also been in Germany since 1990. Exporting a discount format to Germany may seem like carrying coals to Newcastle. However, at the time, it was a canny, if audacious, move aimed at seizing the business opportunities arising from the demise of communism in the former GDR.

Two years later, Dansk Supermarked entered into its current JV with Edeka in which the Danes now have a 75 per cent stake.

Enter Edeka

Although still essentially an independent retailer cooperative, Edeka, somewhat confusingly, also now runs a very much larger chain of its own discount stores under the "Netto Marken-Discount" banner.

Netto Stavenhagen, as the Dansk Supermarked-Edeka co-operation is called by way of differentiation in the German trade, now operates around 350 discount outlets with estimated annual gross revenues of €1.6bn.

Despite intense competition in Germany, it is to the company's homeland that one should look for signs of trouble.

In fact, the first nine months of the current business year have been little less than a horror trip for Dansk Supermarked. Not only have group revenues decreased. Net profit has also slumped to around €103m — a decline of nearly 80 per cent against the same period last year.

This must have been a hellish beginning for Per Bank who became CEO in April. The former Tesco board member reacted to the collapse in profit with a major corporate restructure in August. This has since lead to a number of changes in top management.

A. P. Møller Mærsk conglomerate

Dansk Supermarked's main holding company, A. P. Møller Mærsk, whose diverse shipping, aeronautics and logistics interests are strongly dependent on global business cycles, has also had a difficult year. Corporate Nestor, Mærsk McKinney Møller, passed away at the age of 98 this April.

Now to the alleged bidder. After nine years of heavy losses, Walmart fled Germany in 2006. This proves nothing other than that the US giant has deep pockets and that management is blithely prepared to accept the waste of shareholder money.

It does, however, also nourish persistent rumours that the US retail giant is negotiating a return to continental Europe. These are said to have included talks with Spanish retailer Mercadona and Italian chain Esselunga as well as with Germany's Metro Group.

The hardest part to understand here is what big-box discounter Walmart could want from Netto whose German stores average a mere 740m²?

Whatever the answer to this riddle, there is one spot to watch: Netto Stavenhagen.
 

Related article in German: By Mike Dawson in Lebensmittel Zeitung, no. 49, 07.12.2012


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