Metro Group Retailer aims to digitalize food industry

The chief of Germany’s largest retail group Metro is looking to accelerate the digitalization of the food services industry. Olaf Koch is also occupied with restructuring Metro's struggling Real discount grocery chain.
"The potential for value enhancement is enormous" in the food industry," said Olaf Koch, the CEO of German retailer Metro.

Olaf Koch has served as chief executive of the German retailer Metro since January 2012. The Düsseldorf company is Europe’s fourth-largest retailer by revenue, and includes Metro Cash and Carry, Media Markt and Saturn electronics, and Real discount grocery stores.

Last year Metro sold the Galeria Kaufhof department store chain to Canadian retailer Hudson’s Bay and is looking for ways to expand. Mr. Koch, 45, spoke with the German weekly Wirtschaftswoche about the company's future plans, including helping restaurants and other food-related businesses take advantage of the digitalization affecting the industry.

Mr. Koch, where did you leave your hoodie?

It’s in the closet. Why do you ask?

You’ve been at almost every startup conference in Germany recently. It couldn’t hurt to adopt the fashion of that hoodie-wearing target group.

Clothing doesn’t play a role, but relevance does. We can be an important partner for young entrepreneurs in reaching customers, for example in the food service industry. Whereas in mechanical engineering the catchword is Industry 4.0, food services is only at version 1.1 with regard to digitalization.

 

 

And a retail fossil like Metro can change that?

Definitely. In Western and Central Europe, food businesses have revenues of around €400 billion ($439 billion). But with only a few exceptions, digitalization hasn’t really occurred there up to now. Many people can’t warm up to it, even though the potential for value enhancement is enormous. Up to now there hasn’t been anyone to explain to restaurant owners or caterers how digitalization could benefit their businesses. This is where Metro comes into the picture. Caterers, restaurant owners and the like are our most important customers. So I’m convinced that digitalization is a historic chance for Metro.

Together with the U.S. company Techstars, you operate an accelerator that supports startups. Will that be enough to make use of this chance?

We intend to extend the accelerator program with Techstars through at least three follow-ups. In coming years, we will select 30 startups to pursue digitalization in food service businesses — with our support, know-how, contacts and financing. We’ll also invest in more mature firms. We are currently in an advanced stage of negotiations with several companies.

What’s in it for Metro?

Lots. Take an accelerator participant such as Lunchio. This startup enables you to reserve a table at a partner restaurant, select your food online and make a cashless payment. When you arrive at the restaurant, everything is already prepared for you. Customers save time and restaurant owners can improve their capacity utilization. This is especially interesting for professionals on lunch breaks. If we create added value for our customers in this way, then we will be taken seriously as a problem solver. That pays off directly when we are financially involved, and indirectly through a more intensive business relationship with our customers.

You still sell a large part of your goods in stores. How is that classic level of business doing?

The trend is positive. Ten consecutive quarters of growth on comparable floor space in wholesale, and six quarters at Media Markt and Saturn, in spite of adverse economic headwind. Both consumer electronics chains were able to improve their performance. We’ve made good progress in Germany, finally also in wholesale.

Are you going to expand your wholesale operations to new countries?

Preparations are underway. By the end of the year, we will decide in what direction. Two countries are particularly exciting. Myanmar is benefiting as its political situation opens up and has high potential for growth. And we are looking at possibilities in Iran after the lifting of Western sanctions there.

Haven’t you had enough of expansion in risky developing countries? The Russian market, once your most important source of growth, is putting the brakes on sales, especially for Media Markt.

The wholesale trade continues to operate on a stable basis. With Media Markt, we had what was essentially an optical effect in the first quarter. The downturn between October and December was because Russian customers had bought more televisions and technology devices in the previous year, in order to protect themselves from devaluation of their currency. That caused sales to shoot up the year before. The situation will stabilize in the long run.

Erich Kellerhals, your contentious minority shareholder at Media-Saturn, sees things differently. On his private homepage, he accuses you of destroying value.

It’s unfortunate when a shareholder speaks ill of his own company in public. I prefer to stick to the facts: In 2015, Media-Saturn made clear progress.

Where exactly?

The company attained its highest market share ever and significantly improved its performance. And the online business of Media-Saturn recently grew by more than 30 percent. Or take Saturn Connect …

... Your shop for lifestyle equipment such as drones or 360-degree cameras?

Without a doubt, there are few new formats in German retailing that have started off as well as Saturn Connect. With regard to all figures, the concept has developed better than we thought. We now have three test stores and are planning three more such pilots. We’ll decide later about the rollout.

At your grocery store subsidiary Real, on the other hand, there is no improvement in sight. Can Real be saved?

With the right concept, Real has real growth potential. We’ve modernized many stores and recognized that this is the right direction. But we have to realize the concept even more radically to truly benefit from our strength – an extensive range of food products. The issue of nutrition is becoming more and more important for many customers, particularly with regard to variety and quality.

That means you need more personnel.

Correct: We want to expand service and consultation. But that’s only possible when Real's personnel costs match that of our competitors, and don't exceed them.

Last summer you ended your collective bargaining commitment and have since been negotiating with the nationwide Verdi trade union about an in-company wage agreement. Why is the going so tough?

No one can expect these sorts of negotiations to be concluded in a few weeks. There is too much at stake. Nonetheless, it must be clear to all parties that the future hangs in the balance. That’s why we want to reach a settlement as soon as possible.

And if Verdi makes no concessions?

We are working on the opposite assumption in the interest of all participants. But we are also exploring alternatives. We don’t take this matter lightly. The future of Real is at stake.

 

This article originally appeared in Wirtschaftswoche. Henryk Hielscher reports on retail and markets for the financial weekly. To contact the author: [email protected]