Metro and Carrefour seem to have started a new trend by selling Real and Dia: retail multinationals in serious trouble on their home market are selling major parts of their holding. But will these supermarket giants succeed in removing their ballast? And will Wal-Mart try to invade Europe again, to take advantage of the current problems in the European retailing landscape?
The Germans are very unlike the French
Whoever listened to the image Carrefour presented of discount operation Dia, must have wondered why such a beautiful, promising operation needed to be cut off. However, according to the French, “cut off” is not a correct choice of words: they say Dia will be 100% independent, but still keep a connection with Carrefour, most notably through their own brands.
The difference with the Germans of Metro is huge. No excuses about a flotation, no stories about complete independence while keeping a connection… using German Grundlichkeit the message could not be clearer: Metro wants to separate from its hypermarket chain Real. Another non-core activity, Kaufhof, is put on sale too. Metro’s management has confirmed talks with possible buyers, but stated concrete negotiations are currently not being held.
Cut loose non-core parts
The resemblances between Carrefour and Metro are obvious: both have lost a large part of their stock exchange worth, both have serious problems at their home market. And now both try to sell major activities that are not part of the core (hypermarket for Carrefour, cash&carry for Metro). Divisions that do not share that core-dna are simply cut loose.
Bryan Roberts, director retail insights at Kantar Retail confirms this view: “there is a trend amongst major retailers to sell non-core activities – especially if business is not going as well as it should. Carrefour finally understands that there is barely any synergy between their own operations and those of Dia. In addition to that, sale operations generate cash – which might appease impatient investors.
Wal-Mart named in both cases
Remarkably, Wal-Mart has been linked to both selling processes. Should they take over Real, Wal-Mart would return to the German market… where they suffered a humiliating defeat underestimating the German fighting spirit, retailwise. On the other hand, taking over Dia would be a great move for Wal-Mart. Its presence in continental Europe and in several interesting growing markets in the world would offer Wal-Mart an opportunity to finally enter Europe successfully.
Since 2006, when Wal-Mart had to leave Germany after only six years, its European ambitions have been limited to British Asda. A Real takeover would give the Americans 320 hypermarkets – and a strong foothold – in the German market, as well as 110 hypermarkets in Poland, Romania, Russia, Turkey and Ukraine, to spread the risk for Wal-Mart this time.
Moreover, Roberts points to another possible prey: Metro’s cash & carry operation in the UK, Makro, has been generating losses for years and speculations have been ongoing about Wal-Mart’s daughter Asda taking over the English Makro stores – possibly to turn them into a kind of Sam’s Club, Wal-Mart’s “warehouse club”).
Americans looking for “small-scale” stores
What the hypermarket is for Carrefour and cash&carry for Metro, the supercenter is for Wal-Mart. Large scale retail has always been very American, focussing on non-food first and adding food products later.
Lately however, the American giant has been turning towards smaller formats: starting with the Neighbourhood Market (now Walmart Market) and later on also Marketside and Walmart Express. Roberts: “The acquisition of Dia would fit in nicely in this movement towards a smaller scale, and it would grant them the opportunity to enter markets like Brazil, Argentina, China or Turkey.
A major problem for this takeover would be that “over 32% of the Dia stores, more than 2000 stores, are managed by franchisees. Wal-Mart however wants complete control over its chain.” A similar idea is behind Wal-Mart’s annoyance with the French market: usually American companies dislike the French labour laws.
Another problem with acquiring Dia would be the fact that most of Dia’s stocks are in the hands of a large number of Carrefour stockholders, so in order to buy the hard discounter Wal-Mart would have to convince a lot of people. With a lot of money too, as Dia’s buyer is expected to pay up to 4 billion euro – although that should not be a problem for the American giant whose profit last year rose up to 25.5 billion dollar.
The acquisition of Real too is merely speculation: it would be strange if Metro simply handed competitor Wal-Mart an easy entrance into Europe. Roberts thinks therefore that Wal-Mart taking over either Real or Dia is “unlikely, but not impossible”.
