Why hasn't Metro Group had the same success in the UK that it has elsewhere in the world? And can it reverse Makro's fortunes, asks Beth Phillips
Is Makro suffering an identity crisis? Despite being part of Metro Group - one of the biggest, most successful cash & carry operators in the world - life at the UK wholesaler has been somewhat of a struggle.
Accounts at Companies House show the business' pre-tax loss widened from £3.5m to £19.4m in the year to 31 December 2007. Turnover also fell below £1bn with sales down 10.9% to £924m, comprising food sales down 9.7% and non-food sales down 13.3%. And that was 2007.
Last month, Makro Cash & Carry announced plans to close three under-performing depots in Swansea, Wolverhampton and Coventry with the loss of 378 jobs.
"I wouldn't be surprised if they were heading for a £30m loss in 2008," says one wholesaler.
So why hasn't Metro Group been able to replicate its worldwide performance in the UK and can it turn Makro's fortunes around?
Metro Group's international C&C operations are huge. It operates 655 depots in 29 countries and this year plans to enter Egypt and Kazakhstan. In a trading update in January, Metro said sales in Metro Cash & Carry rose 4.5% in 2008 against a 6% increase in 2007, with like-for-like sales up 1.6%. Sales in Eastern Europe, Asia and Africa "increased significantly" but there are signs the UK business isn't the only one starting to feel the pressure of the downturn. Metro said sales in Western Europe in local currency were "slightly above" last year but in euros were "slightly below" last year.
It also unveiled what it called a "comprehensive efficiency and value enhancing programme" to improve profit by €1.5bn by 2012. The statement for the programme, which could affect 15,000 jobs across its operations, warned "operational units that fail to meet return targets will be systematically restructured or disposed of". "Critical areas of the company will be put right and put on their feet," said chairman Dr Eckhard Cordes, who led a takeover of the business. "Against the backdrop of an increasingly challenging market environment, we must also tackle more aggressively our identified areas of weakness."
Whether Makro, Metro's sixth-biggest C&C market with 33 depots, is one of these "operational units" is the subject of debate. There are rumblings across wholesale that it could be at risk. "I don't think Makro will be with us by the end of the year," says one wholesaler.
"Metro should have exited before but has not wanted to bite the bullet," adds another. "Perhaps now is the right time?"
The UK is probably Metro's most difficult market, says James Collins, an analyst at Deutsche Bank. "Against the backdrop of like-for-like decreases of 5%, 4% and 11% in the past three years on a static store base, there are signs from the new management that in the next nine to 12 months Metro will no longer tolerate under-performance."
However, for Makro MD Hannes Floto, exiting the UK is not an option. Speaking exclusively to The Grocer, Floto says Makro UK has the "full, complete support" of Metro and he has big plans for the business in the next 12 months.
Sophisticated market
"The UK is the most sophisticated market in the world, rivalled only by the US and Japan," he explains. "It truly separates the men from the boys and we are very satisfied with our development. Trading was very strong in January with overall double-digit growth, although February was more difficult because of the weather."
There are no further depot closures planned, Floto insists, and the company is looking at rolling out the refurbishment of its Manchester and Queensferry depots to the rest of the network.
While Floto remains committed to serving the independent sector, the depots have been refigured to specifically help Makro's core customers in the hotel, restaurant and catering trade.
A larger proportion of the depots have been set aside for fresh food, while non-food areas have been moved around or reduced in size as part of a range review.
This review was one of Floto's first tasks when he became MD in 2007. He identified each of Makro's core customers and what they needed when they came to a Makro depot, split into three categories: core - "we have to stock every core product they need"; general - "we have to stock or have to be very strong in their general needs"; and complementary - "if we have space left we will stock these products".
Rooting out mistakes
"The past two years were all about laying the foundations, rooting out the mistakes and getting the business back on track," he says. The major focus has been to turn the company from one that was supplier-driven - getting the products in and out of the depots as quickly as possible - to one that is customer-focused, adds Floto.
This new focus is exemplified by Makro's Love the Pub campaign. Launched at the end of last year, the campaign encourages pubs to look closely at the prices they pay for key products. It has already ruffled a few feathers. In January Makro delisted Carlsberg Export, claiming it was being too aggressively discounted in the supermarkets. "Love the Pub is a blueprint for further campaigns," adds Floto. "The pub trade is our biggest customer group but the style of the campaign can be rolled out to our other customers."
Floto won't reveal how much Makro UK has spent on remodelling depots, only that it was a "significant investment" and to focus on fresh food you need "deep pockets".
The investment has been questioned by some wholesalers. "Lots of energy has gone into their depots and they are well done, but they have spent a lot of money," says one. Another wholesaler believes Makro could also be struggling in the UK because its hotel, restaurant and catering customers would want a delivered service - something Makro doesn't have.
Delivery service
However, its Metro counterparts do. Last month, Metro announced plans to roll out a delivery service in Germany following successful trials. "The company has said this has been successful and by the end of 2009 will make hundreds of millions worth of sales," says Collins. "Metro also has a delivery service in Austria, Italy, the Czech Republic and Russia and it has said it will be rolled out to more countries."
Floto doesn't deny a delivered service could come to the UK. But it's a question of timing. "We want the basics under control before we move on to the next venture."
Moving away from non-food into the fresh concept adopted by Floto's predecessor Philipp Dautzenberg has also hampered the wholesaler's UK operations, rivals believe. "The strategy on fresh food simply hasn't worked," says one leading wholesaler. "I think it will go back to its old non-food formula, very much like Costco's."
Floto, however, insists Makro will stick to fresh. "We have put in certain non-food ranges that are very successful but we have a clear focus on our core demand customers." He knows he has doubters, but adds: "There has been a lot of speculation about us but I am completely confident in our plans and we have Metro's full support."
Is Makro suffering an identity crisis? Despite being part of Metro Group - one of the biggest, most successful cash & carry operators in the world - life at the UK wholesaler has been somewhat of a struggle.
Accounts at Companies House show the business' pre-tax loss widened from £3.5m to £19.4m in the year to 31 December 2007. Turnover also fell below £1bn with sales down 10.9% to £924m, comprising food sales down 9.7% and non-food sales down 13.3%. And that was 2007.
Last month, Makro Cash & Carry announced plans to close three under-performing depots in Swansea, Wolverhampton and Coventry with the loss of 378 jobs.
"I wouldn't be surprised if they were heading for a £30m loss in 2008," says one wholesaler.
So why hasn't Metro Group been able to replicate its worldwide performance in the UK and can it turn Makro's fortunes around?
Metro Group's international C&C operations are huge. It operates 655 depots in 29 countries and this year plans to enter Egypt and Kazakhstan. In a trading update in January, Metro said sales in Metro Cash & Carry rose 4.5% in 2008 against a 6% increase in 2007, with like-for-like sales up 1.6%. Sales in Eastern Europe, Asia and Africa "increased significantly" but there are signs the UK business isn't the only one starting to feel the pressure of the downturn. Metro said sales in Western Europe in local currency were "slightly above" last year but in euros were "slightly below" last year.
It also unveiled what it called a "comprehensive efficiency and value enhancing programme" to improve profit by €1.5bn by 2012. The statement for the programme, which could affect 15,000 jobs across its operations, warned "operational units that fail to meet return targets will be systematically restructured or disposed of". "Critical areas of the company will be put right and put on their feet," said chairman Dr Eckhard Cordes, who led a takeover of the business. "Against the backdrop of an increasingly challenging market environment, we must also tackle more aggressively our identified areas of weakness."
Whether Makro, Metro's sixth-biggest C&C market with 33 depots, is one of these "operational units" is the subject of debate. There are rumblings across wholesale that it could be at risk. "I don't think Makro will be with us by the end of the year," says one wholesaler.
"Metro should have exited before but has not wanted to bite the bullet," adds another. "Perhaps now is the right time?"
The UK is probably Metro's most difficult market, says James Collins, an analyst at Deutsche Bank. "Against the backdrop of like-for-like decreases of 5%, 4% and 11% in the past three years on a static store base, there are signs from the new management that in the next nine to 12 months Metro will no longer tolerate under-performance."
However, for Makro MD Hannes Floto, exiting the UK is not an option. Speaking exclusively to The Grocer, Floto says Makro UK has the "full, complete support" of Metro and he has big plans for the business in the next 12 months.
Sophisticated market
"The UK is the most sophisticated market in the world, rivalled only by the US and Japan," he explains. "It truly separates the men from the boys and we are very satisfied with our development. Trading was very strong in January with overall double-digit growth, although February was more difficult because of the weather."
There are no further depot closures planned, Floto insists, and the company is looking at rolling out the refurbishment of its Manchester and Queensferry depots to the rest of the network.
While Floto remains committed to serving the independent sector, the depots have been refigured to specifically help Makro's core customers in the hotel, restaurant and catering trade.
A larger proportion of the depots have been set aside for fresh food, while non-food areas have been moved around or reduced in size as part of a range review.
This review was one of Floto's first tasks when he became MD in 2007. He identified each of Makro's core customers and what they needed when they came to a Makro depot, split into three categories: core - "we have to stock every core product they need"; general - "we have to stock or have to be very strong in their general needs"; and complementary - "if we have space left we will stock these products".
Rooting out mistakes
"The past two years were all about laying the foundations, rooting out the mistakes and getting the business back on track," he says. The major focus has been to turn the company from one that was supplier-driven - getting the products in and out of the depots as quickly as possible - to one that is customer-focused, adds Floto.
This new focus is exemplified by Makro's Love the Pub campaign. Launched at the end of last year, the campaign encourages pubs to look closely at the prices they pay for key products. It has already ruffled a few feathers. In January Makro delisted Carlsberg Export, claiming it was being too aggressively discounted in the supermarkets. "Love the Pub is a blueprint for further campaigns," adds Floto. "The pub trade is our biggest customer group but the style of the campaign can be rolled out to our other customers."
Floto won't reveal how much Makro UK has spent on remodelling depots, only that it was a "significant investment" and to focus on fresh food you need "deep pockets".
The investment has been questioned by some wholesalers. "Lots of energy has gone into their depots and they are well done, but they have spent a lot of money," says one. Another wholesaler believes Makro could also be struggling in the UK because its hotel, restaurant and catering customers would want a delivered service - something Makro doesn't have.
Delivery service
However, its Metro counterparts do. Last month, Metro announced plans to roll out a delivery service in Germany following successful trials. "The company has said this has been successful and by the end of 2009 will make hundreds of millions worth of sales," says Collins. "Metro also has a delivery service in Austria, Italy, the Czech Republic and Russia and it has said it will be rolled out to more countries."
Floto doesn't deny a delivered service could come to the UK. But it's a question of timing. "We want the basics under control before we move on to the next venture."
Moving away from non-food into the fresh concept adopted by Floto's predecessor Philipp Dautzenberg has also hampered the wholesaler's UK operations, rivals believe. "The strategy on fresh food simply hasn't worked," says one leading wholesaler. "I think it will go back to its old non-food formula, very much like Costco's."
Floto, however, insists Makro will stick to fresh. "We have put in certain non-food ranges that are very successful but we have a clear focus on our core demand customers." He knows he has doubters, but adds: "There has been a lot of speculation about us but I am completely confident in our plans and we have Metro's full support."
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