After several years of cost-cutting measures, German retail group Metro announced it will invest considerably over the next few years in order to speed up growth. Acquisitions are part of those investments, which will rise to 2 billion euro per year, according to CEO Olaf Koch.
End of lean years in sight?
"We are in the middle of a huge transformation, which is still ongoing. We are therefore aware that we have not finished yet, but after three years of heading in the right direction, we have reached the point where we can emphasize, intensify and possibly even speed up", Koch told the international press this week, three years after his appointment.
Metro currently has some 2,200 stores in 30 countries and is Europe's fourth largest retail group. Between October 2014 and March 2015, it managed a 32.677 billion euro turnover, down 1.1 % from the same period in 2013/2014. Net profit dropped from 242 million euro to 62 million euro, but the CEO feels that particularly 2015's first quarter shows the company's solid financial position.
Lower the debt
The Metro Group had been cutting down its size over the past few years, as its sale of a large portion of its Real chain demonstrated. The money from that sale went towards debt reduction, from nearly 8 billion euro in 2010 to 4.7 billion by the end of its latest fiscal year.
Its average interest rate also dropped from 6.3 % to 4.8 %, helping to considerably lower its interest costs, while the company has also managed to lower its debt another 800 million euro over the past 6 months. All this has helped to increase the company's creditworthiness.
From product-pusher to customer value retailer
"We were in a deep crisis in 2012 and the company has struggled to find a new strategic path. We found that new strategy three yers ago and have changed a lot since then", the CEO plainly admits.
"We have completely overhauled how our chains work. We had been in a push model for decades: we pushed products into the market, towards the consumer. Nowadays, it is the other way around: our consumers are our "asset" and their loyalty is what it is about. That is why we have to relate to them and engage them, which is why everything - and I do mean everything - has to create "customer value". We have to ask ourselves each and every time how we do that."
The company had to change its leadership and organizational culture in order to realize that change in the listed German company. Koch: "People are the key, products are not. We want to evolve away from a company that delivers products into a company that offers services, which is also why we have invested heavily."
Towards an omnichannel perspective
Another focal point were the new sales channels. "Every generation of consumer is online nowadays", the German CEO says. "Media-Saturn is very successful online, while the other chains are also working on their omnichannel strategy."
For example, customers can order online at Metro Cash & Carry in Italy or even buy something in the store and get it delivered at home. The only thing they cannot oder online is fresh foods, to allow professional customers to come and pick their fresh foods in the store itself. Metro Germany's customes can even trace the origin of every product thanks to an app.
Invest in innovative start-ups
It is clear that Koch wants to turn the negative trend from the past few years around. "There is a huge difference between the position we are in now and where we could be in 5 to 10 years' time. We will spend more time in the next few years preparing acquisitions than we will spend selling off business units."
Olaf Koch, who has been with the German company since 2012, is especially looking for complementary purchases with a primary focus on smaller acquisitions with huge potential. Later on, larger-sized purchases could follow.
Only last Monday, Metro Group purchased a stake in the American-based Culinary Agent platform, which helps store owners to find capable catering employees. It is already the fastest-growing platform of its kind and Metro will help the company expand to Europe. "We will do such things more often and whoever has innovative ideas can come to us. We will give them access to our data and offer a huge platform, while they can give us added value and more modern features", the company said.
New geographic expansion by 2017
These acquisitions should help give Metro Group access to new markets and the company should be ready for further geographical expansion by 2017. Potential markets in Africa and Asia will probably be the new target areas for Olaf Koch. Metro also wants to increase its presence in Russia, although it will have to see whether the region will stabilize.
Purchases also have to help Metro achieve growth, both in turnover as in profitability. Its 2013/2014 operational margin of 2.7 % should be pushed up to 3.5 % by 2020, while the company also seeks internal growth: on a like-for-like basis turnover only grew 0.1 % in its latest fiscal year, but the company seeks at least 2 % by 2020.
To realize that ambition, the company will invest a lot in the next few years: for 2015, it will invest 1.4 billion euro and it will increase that number to some 2 billion euro. "This money will be spent to update the existing store network, while we will also invest in new initiatives like electronic trade and other innovations. We will obviously also open new stores in markets with huge growth potential", Chief Financial Officer Mark Frese said on the company's strategy day.