Edeka finally has its way with Kaiser's

It has been a drawn out process, but Edeka has accepted the competition authority’s conditions and its purchase of Kaisers Tengelmnann can go ahead.

A long time coming

Edeka and Tengelmann agreed the deal as long ago as October 2014. It’s not a large deal for Edeka – Kaisers had 1% of the German food retail market and Edeka has 24%. Rewe, objected to the takeover and the Federal Cartel Office (FCO) launched an investigation. The process has been tortuous. But eventually, Edeka was given the go ahead to buy the business subject to several conditions, but including:

  • Edeka has to guarantee to keep at least 97% of the 16,000 employees currently working at the 451 Kaiser’s supermarkets for at least five years whilst respecting their existing wage scales.

  • Edeka will not be allowed to sell any of the Kaiser’s supermarkets for at least five years.

But presumably, Edeka could close its own stores where there is a duplication.

What does Edeka want with Kaiser’s?

With sales of €1.86bn in 2014, Kaiser’s Tengelmann accounts for around 1% of the German grocery market. But sales have been in decline for a number of years and in its 2014 annual report Tengelmann described the Kaiser’s business as being a ‘considerable burden over the past 15 years’.

On a more positive slant, the stores tend to be in central locations and of a slightly smaller size than the average Edeka store. Edeka has been looking at ways to open its stores into more convenient city centre locations and this looks like a good way of doing so. The stores are all in or around the urban areas of Berlin, Cologne, Düsseldorf and Munich.

Mintel’s research (see Supermarkets in Germany, November 2015) found that Kaiser’s Tengelmann also attracts a younger and more affluent customer than any of its competitors and this will also surely be part of the attraction for Edeka. In fact, as the chart of customer profiles shows, the two could hardly be further apart.

Figure 1: Germany: Where consumers spend most in a typical month for groceries, by age and affluence, September 2015
Base: 1,831 internet users aged 16+ that are responsible for grocery shopping
[graphic: image 1]
Source: Lightspeed GMI/Mintel

What will Edeka do with the stores?

Edeka hasn’t revealed its plans for the Kaiser’s Tengelmann stores and we don’t know what impact the new conditions to the deal will have on whatever plans there were.

However, we think that Edeka will use the many city centre locations to launch a more convenience led chain of city centre outlets similar to that being done by its main rival Rewe through its Rewe-to-Go and Temma concepts.

Our research found that German consumers like to shop around for their groceries, far more so than elsewhere in Europe. So introducing a wider range of store concepts should help the supermarkets to capture more of these separate shopping journeys. Already Edeka has acquired Netto as its foray into the discount sector, so re-positioning the Kaiser’s stores as a convenience based city-centre chain should add another string to its bow.

What happens now?

Despite the conditions imposed, expect a considerable amount of opposition to remain. Already the Farmers Association, the Federal Association of the German Food Industry, the Food, Beverages and Catering Union as well as workers unions and competitors have all expressed their concerns about the offer and the impact that a reduction in competition will have on consumers, employees and suppliers alike.

However, it isn’t clear that leaving the company as it was, or selling it to another owner will have made life much better. Sales at Kaiser’s have been in decline for years and it seems unlikely that this would have turned around without some dramatic restructuring by whoever took over.

Edeka’s hands will be tied for a few years regarding how far it can restructure the business but at least it can get on with making plans to integrate it into the rest of the business. For Kaiser’s Tengelmann, the long term uncertainty over its future was certainly hampering innovation and any chance at a revival. With some investment from Edeka it could now find itself a more defined place in the German grocery space, otherwise, expect the majority of the stores to be closed once the conditions on the deal expire.

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