Retail report

Retail report

Tension between own brands and A-brands on RetailDetail's Brand Debate

In the current crisis situation, consumers are starting to behave differently. They adapt to the difficult circumstances (government cuts, redundancies, …) and they do that faster than most brands do. The gap between supply and demand is here to stay, as professor Jean-Noël Kapferer of the Parisian business school HEC said on RetailDetail's Brand Debate on 9 September.

 

According to Kapferer, consumers in saturated markets are going through an unprecedented process of social and economic change. Gone are the classic economic principles of balance and self-regulation: in this society consumers make their own deliberate choices based on their own preferences: for example for cheap products, biological products or products of their favourite brand.

Retailers are quicker to respond to consumers, but only A-brands innovate

Price is still a paramount consideration, as most of the retailers' own brands have understood. Still, this is not the only reason why ever more people prefer private labels. “Retailers are much closer to their customers than the slower A-brand manufacturers. They are constantly in touch with their customers and if they decide rapidly, cut the testing phase and quickly get along with it, they can deliver really fast. The volume would be rather limited, but the effect on goodwill would be immense”, says Kapferer.

 

Still, A-brands have their own distinct strength: they decide the future of food and other consumer goods. Only the A-brand producers conduct research and development, only they innovate and create the consumers' needs. This is a huge advantage, but they do not make it count (enough), according to Kapferer.

In practice: not enough dialogue

That is the theory, but how do the retailers and producers themselves experience these changes? RetailDetail organised a debate with key people from both the distribution and the manufacturing and the one conclusion emerging from the beginning already was the lack of dialogue. Pepsico BeLux's general manager Wim Destoop misses “the dialogue about the future: the achievements made by the different categories should be valued much more on their merits by the trade and the industry.”

 

Dominique Leroy, country manager for Unilever Belgium, can subscribe to that point of view: “Why is trade making it so difficult for us to innovate? We invest huge amounts of money to deliver innovating things and our costs are continuously increasing. Just give us some time and space to make our new products successful.”

Fight for your right... to be in a store

Destoop even suggested that private labels are over-represented in the stores – a suggestion that Dirk Depoorter, director of Spar Retail, rejected immediately: “We only have 45% private label”, he said. Moreover, he claims that this is often not a result of choice: “most of our private labels are in the fresh department, as almost all the A-brands have vanished from there. In other categories, the A-brands make sure we grow, something that private labels can not manage.”

 

Pascal Léglise, director private label at Carrefour, claimed that A-brands will never lose their place in the stores: “We can not simply drop the A-brands. Of course, we are eager to develop our own brands, but we can not make the A-brands pay the price.”

A tale of crocodile and sheep

Kapferer ended with the reconciling words that producers and retailers are “like a sheep that crosses the river on the back of a crocodile: they can not constantly fight, because they need each other. Retailers do need A-brands as locomotives of innovation and progress; without A-brands we would have a boring world”, as the brand professor concluded an interesting debate.

» Read more

Retail report

Metro-CEO Eckhard Cordes's friends and foes

Two November will be the day of reckoning for Eckhard Cordes, chairman of the executive board of the German multinational Metro Group AG. The mother holding of Media Markt, Saturn, Metro, Makro, Galeria Inno and many more will then decide about Cordes's position. In a story that could easily feature in a soap series on tv, Cordes has the two major stockholders on his side, but faces fierce opposition of minority stockholder and Media Markt founder Erich Kellerhals.

 

Even though Cordes still has a contract until October 2012, the November meeting of the supervisory board can already decide on a contract renewal. Mike Dawson, editor at German newspaper Lebensmittel Zeitung, thinks it will be a disputed decision, as “Cordes has been especially good at creating negative publicity”.

One major foe

Cordes's biggest problem is his fierce rivalry with one of the most important shareholders of the Metro Group retail empire. Being the founder of one of the major companies that merged into Media Group, Erich Kellerhals (72) has an important minority share of Metro Group... and the right to veto. Any of Cordes's decisions needs the approval of 80% of shareholders, and of course that of Kellerhals himself. 

 

Several important cases are still waiting for Cordes's approval, such as the selling of underperforming units like Kaufhof (department stores) and Real (hypermarkets). Both have been terribly delayed by the strict (to say the least) company policy regarding his decisions. The flotation of consumer electronics chain Media-Saturn is also still pending: that process would go considerably smoother without people watching his fingers according to Cordes – another of his arguments to limit the powers of people like Kellerhals. Last March, Cordes obtained an important victory, as the retail powerhouse considerably limited the rights of minority stockholders (totalling 21% of Media Group's shares).

Defending his life's work

Kellerhals on the other hand remains critical and assertive: on the press conference announcing the 2010 company results, he even managed to cast a shadow on the excellent company results by demanding Cordes's immediate departure. With abundant body language and strong words, Kellerhals made sure everyone understood that he was merely defending his life's work. “I will not allow that mr. Cordes destroys what made us big and influential”, as the hale old man explained.

 

The German media happily covered the personal feud extensively and  pictured Cordes as the personification of the huge, authoritarian conglomerate that wants to silence self-made man Erich Kellerhaus – rendering the former terribly unpopular.

Ending the doubt

A major disadvantage for Cordes is of course that he has reached a satisfying outcome in none of the aforementioned cases. There is still no buyer for Kaufhof, still no peace at Media-Saturn and according to certain rumours, Cordes is even withdrawing the sale of hypermarkets Real. Moreover, Metro's shares have lost half of their worth in the four years of Cordes's reign at Metro Group – another argument for the shareholders not to like him.

 

Still, the two majority shareholders at Metro Group, the Haniel and Schmidt-Ruthenbeck families, have confirmed their support for Cordes. “He deserves our support because the shareholders think the continuing public doubt regarding Cordes and his position should end soon”, as Dawson states. 

Worried about bloodshed

Their worries are justified, because no-one knows what would happen if Kellerhals gets his way and Eckhard Cordes has to leave Metro Group after 2 November. There certainly is no successor present to take over, because “like all men of power, he (Cordes) has strived not to groom a serious contender who could challenge him”, as Lebensmittel Zeitung's Dawson thinks. He continues to say that “they may recruit from outside a top banker, e.g. Deutsche Bank CEO or similar”.


Still, that doubt will linger, along with the feud with Kellerhals. Everyone, and Kellerhals in the first place, will watch Cordes very closely if he receives a contract renewal – even if the two families have pledged their support. “The conflict with Kellerhals is not over yet and I don't think the Supervisory board meeting will solve the problem. Kellerhals's blood is boiling and he wants revenge. He is old and rich and can not be bought with a judicial settlement. I don't see this conflict end without some serious bloodshed”, as Dawson concludes.

 

» Read more