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Strong Q2 Performance for Metro Cash + Carry

Metro Group has posted sales of EUR13.77bn for the second quarter of its business year 2016/17. Of this total, EUR8.51bn was generated by its grocery retail and wholesale arm. The Metro Cash & Carry banner posted a 5.4% sales increase to EUR6.85 but this was partly offset by a sales decline of 7.8% for the Real hypermarket banner, to EUR1.66bn. Sales at the company’s consumer electronics arm of EUR5.26bn remained static vs. the same quarter in the previous year. Group EBIT for the quarter rose by EUR35mn to EUR71mn.  

Metro Group is getting closer to its planed demerger. Already, the company is operating its soon-to-be grocery retail and wholesale arm, Metro, independently from its planned electronics entity, Ceconomy. According to the company, advantages from this change are already being felt – such as an improved focus on key topics and customer demands; and early inspection of trends and innovations. In addition, Metro Group hopes that there will be fewer conflicts regarding capital allocation, as well as more transparency and possibilities for acquisitions.

With the forthcoming demerger of Metro Group, the company has already changed its way of reporting for Q2. Those banners it aims to group under Ceconomy are being referred to as ‘continuing operations’, while those that will be grouped under Metro’s eponymous grocery retail and wholesale arm are described as ‘discontinued operations’. Metro Group did not want to give any concrete outlook for its discontinued segment. The reporting will remain like this in Q3 and in Q4 it will be split entirely.

Opinion

Real Remains the Problem Child

Metro Group highlighted Metro Cash & Carry’s sales gains as significant, but these have been bolstered by the acquisition of wholesale banner Pro à Pro, which contributed to the increase of more than 30% in delivered sales. To grow the Cash & Carry division further, the company intends to continue with its focus on HoReCa clients. Metro Group has implemented several marketing campaigns in Poland, Spain and Germany to lure more of these customers into its cash and carry stores. However, the HoReCa segment itself saw like-for-like sales decline by 0.9% in the first half of the business year. 

Nevertheless, Metro Group’s clear problem child continues to be Real. In the first half of the year and in the second quarter, sales fell by 5.7% and 7.8% respectively. The company continues to look for ways to turn around the fortunes of the banner that has already exited all markets apart from its country of origin, Germany. The company pointed out that the new concept hypermarket Markthalle in Krefeld has shown  "very, very positive" results and that they are looking to build on its success, but that it also calls for optimisation and fine-tuning. Nonetheless, the company said there could be improvements in terms of efficiency which suggests that the cost structure of the new concept is currently sub-optimal. As Lebensmittel Zeitung reported only in March, a roll-out will be postponed while Boston Consulting is to help with the development of a concrete plan.

Markthalle is a flagship store with expensive features that might attract shoppers but that could also burn money. The concept combining foodservice and retail elements seems to have been inspired by Dutch Jumbo’s Foodmarkt which was launched back in 2013. An innovative and promising concept at first glance, Foodmarkt is growing slowly. Currently the network comprises only three stores and we assume it will only grow by one additional outlet each year. Despite the modern features the massive big boxes do not seem suitable for a large-scale roll-out. This might explain why Jumbo recently launched a new concept that could be more applicable for expansion: Jumbo Food Markt City. City has clear elements of the Foodmarkt hypermarkets, but trades from only 800 square metres and focusses on convenience goods. The fact that even the role model concept has had to face some challenges  and is now looking for ways to get the most out of the Foodmarkt idea should reassure Real to keep trying. 

Recently, Lebensmittel Zeitung reported that Real is testing a technology to analyse shoppers’ faces.  In a trial of around 40 stores, the software analyses the gender and age of customers as they look at the screens in the checkout zone and then shows relevant advertisements.  While technologically advanced, news of the software has left some experts and shoppers concerned about their privacy. Metro Group however, does not seem too concerned: shoppers might be sceptical at first but they do not have to worry as the photos that are taken instore are made anonymously and are deleted immediately after. It seems that Metro Group is keen to experiment and find ways to take the Real banner forward, although so far the plans appear to have not taken account of shoppers’ acceptance of these new features. 

Topics: Metro Group