German giant goes all out on many fronts

Metro’s plan includes building up size for its stores as well an aggressive online push After years of underinvestment, Metro is playing catch-up in a market transformed by the advances of online retailing. Koch is using €1.75 billion cash from the sale o

After two years of stagnating profit and a thwarted initial public offering of its Russian unit, Metro AG CEO Olaf Koch says life is about to get better for Germany’s biggest retailer. Soon to start his fifth year at the helm, Koch is eager to reap the benefits of actions that have included the sale of its iconic department store chain, start-up investments and an ecommerce push. He’s also on the lookout for acquisitions.

“The fun part starts now,” the 45-year-old former Daimler AG executive said. “The last two years have been anything but funny. We’re now in strong and healthy shape after years of adjustment.”

Investors will get a window into the CEO’s progress today when Metro reports Christmas season sales. After international sanctions foiled its plan to list its Russian Cash & Carry unit on the stock market last year, recent news has been better.

The company has signalled a robust holiday season, and a surprise dividend increase November 25 helped fuel a 5.6 per cent gain in its shares this year.

After years of underinvestment, Metro is playing catch-up in a market transformed by the advances of online retailing. Koch is using €1.75 billion (Dh7 billion) cash from the sale of the Galeria Kaufhof chain to cut debt, invest in e-commerce and make Metro’s 2,000 stores more attractive.

Takeovers also form part of Koch’s plan. Early next year, Metro plans to announce a company-wide initiative to scout investment in start-ups to help it get closer to the restaurants, hoteliers and independent grocers who patronise its stores, Koch said.

“In the old way of retail, we controlled the chain in terms of data and information,” Koch said. “Today that’s totally turned around,” with consumers able to research products and compare prices from their smartphone, he said.

Some convincing to do

“This is a business that failed to modernise for a very long time,” said Richard Clarke, an analyst at Sanford C. Bernstein. “It makes sense that they’re trying to get ahead of the competition and modernise as fast as they can.”

Koch still has some convincing to do. Investment researcher Redburn said in a report Metro’s turnaround strategy doesn’t contain new ideas. Koch’s bet is that wholesaler Cash & Carry — the source of about half of Metro’s €59 billion in annual sales — can win clients by providing internet-enabled benefits such as trolleys pre-loaded with their favourite dry and canned goods when they arrive at the store.

Metro is also courting startups, taking stakes in companies including Lunchio, which lets customers pre-order and pay at restaurants, and Roomatic, a smartphone app for room-service delivery to small hotels.

With Germany’s retail market remaining under pressure, Koch has his work cut out.

Retail sales in the country will grow just 2.7 per cent annually through 2019, researcher Planet Retail estimates. Metro’s sales may rise at most 2 per cent in each of the next two years, according to analysts surveyed by Bloomberg.

Koch is optimistic that his strategy will pay off.

“With a couple of proven, solid quarters it could really change the equity story,” he said.