German Supermarket Metro Finds Growth at Home
Company scales back from emerging nations to focus on Europe
German retailer Metro sold its department store chain Galeria Kaufhof to Hudson’s Bay. Metro plans to use the proceeds from the sale to invest in e-commerce and startups. PHOTO: JAN WOITAS
DÜSSELDORF—German retailer Metro AG’s global reach across 30 countries was supposed to insulate it from market swings. Instead, turmoil around the world has battered the company, forcing the chain to retrench and refocus on Europe.
With a retail empire of more than 2,000 wholesale, food retail, and consumer-electronics stores in Europe, Asia and Africa, Metro has a big presence in emerging markets. But crises in many of these markets including Russia, Greece and Egypt over the past few years has hurt its results. The latest hit was a €1 billion exchange-rate loss it had to take, due largely to the Russian ruble’s slide.
The company responded by trimming its international portfolio and seeking growth at its core: Europe’s retail market.
Metro in June sold its German Galeria Kaufhof department store chain to Canada’s Hudson’s Bay Co. for €2.5 billion ($2.72 billion). It also shed its Real hypermarket business and exited countries including Vietnam, Denmark and Greece.
Metro Chief Executive Olaf Koch said he aims to make Germany, which accounted for 38% of Metro’s revenue last year, its priority market this year.
The reorientation marks a change for Metro. It comes after two years of slumping profits and a realization that the company’s plan to spread risk and seek growth in developing countries had failed to insulate Metro from “circumstances outside of our control,” Mr. Koch said.
Metro earlier this month said its holiday sales increased compared with a year earlier, helped by improved sales in Western Europe, particularly in Germany. The positive numbers follow Metro’s announcement of its best annual results in years. For the year through Sept. 30, it posted a net profit of €672 million on revenue of €59 billion.
The positive results show Metro is on track to offset the financial headwinds from emerging markets.
The hardest blow for Metro was the crisis in Russia. The company had entered Russia in 2001, when the country’s growth rate was surging. More than a decade later, its Russian cash-and-carry business accounted for about a quarter of group operating profit, and Metro planned to accelerate its expansion there. When the European Union imposed sanctions on Russia in 2014, Mr. Koch realized he needed to act quickly.
First, he refilled the empty shelves at more than 80 cash-and-carry stores in Russia that had previously stocked imported European goods including dairy products, meat and fruit. Restocking required an entirely new procurement policy, centered on local produce, that the company managed to implement within two weeks, it said. Soon the stores were packed with Russian merchandise.
Inventory was only part of Metro’s Russian turmoil. The crisis hit as Metro was preparing to float a minority stake in its Russian cash-and-carry business on the London Stock Exchange. The company had to postpone the listing indefinitely. At the time, people familiar with the matter suggested the unit could be valued at €1 billion.
Urs Müller, a consumer goods and retail researcher at the European School of Management and Technology in Berlin, said the slump in regions like Russia was particularly painful for Metro because its home market comprised a small part of its overall revenue in 2014. The company had little room to offset international problems with domestic strength, Dr. Müller said. The weakening ruble added to Metro’s woes.
“The impact was severe,” Mr. Koch said. “We needed to find a way to compensate.”
In 2014, Metro sold 19 wholesale stores and its related real-estate holdings in Vietnam. Metro had entered the Vietnamese market in 2002.
Mr. Koch plans to use cash from its recent sell-offs, including that of the Kaufhof department store chain for investments in e-commerce and startups, hoping to draw more customers to Metro’s electronics retailer and to reinvent its food business.
Metro recently took a stake in Roomatic, an app for room-service delivery that is targeted at guests in hotels without full service, and Lunchio, a meal preorder and payment app.
To create growth in Europe’s fairly consolidated retail market, Metro has started offering tailored shopping solutions to some customers. In southern European countries, where many shoppers drive scooters, the option to get groceries delivered to one’s home is proving popular. Such extras have helped Metro post “unusual” growth in Spain and Italy, Mr. Koch said.
Despite political and economic turbulence in many emerging markets, Metro doesn’t plan to retrench completely from these countries. Mr. Koch said he hoped international sanctions on Russia would be lifted “at some point in time” and that developing countries could again could become the earnings boost for Metro they were planned to be.
“No matter what you see in the next two years, it has potential,” Mr. Koch said of the Russian market.
Paddy Padmanabhan, a marketing professor at Insead business school in Singapore, said Metro’s business model, with big exposure to emerging markets, could be a “huge success” in the long term. Now, though, it makes the company vulnerable to geopolitical swings, he said.
