“We must always think one step ahead.”
In the following interview, Olaf Koch, Chairman of the Management Board of METRO AG, talks about the tremendous strides being made in the transformation process, the normality of undesired events – and ways to reach the hearts of customers and employees.
Mr Koch, METRO GROUP hit its sales and earnings targets in financial year 2013/14. Is the company’s transformation coming along well?
We have made definite progress in every sales line by systematically focusing on our customer groups in the areas of product range, services and solution expertise. And this progress is reflected in our figures. In financial year 2013/14, the trend improved from quarter to quarter. We also realise that continued progress will not just happen on its own. It requires continuous optimisation. For this reason, one of our core jobs in the years to come will be to not only continue this transformation process, but also to intensify it.
We can only develop an ideal attitude … we should always be moving forward, thinking one step ahead and creating added value as a result.
Where do you see the greatest growth opportunities for METRO GROUP?
Each of our sales lines has its very own potential and strategic focal points. At METRO Cash & Carry, the systematic focus on our professional core customer groups is a top priority. Other priorities are improving our delivery service as well as expanding our successful franchise concept and own-brand strategy. At Media-Saturn, we are concentrating entirely on the issue of multichannel sales. We also see tremendous opportunities in the areas of service and customer assistance. Other equally important areas are innovative products and product experiences. By this, I mean fun with and enthusiasm for the product range. At Galeria Kaufhof, we have already seen our focus on local target groups pay off. This strategy is reflected not only in the department stores’ product ranges, but also in the way we manage our selling space. We will continue to build on this. At Real, our job is to further refine the hypermarket format and to prepare it for the future. Real has tremendous potential, but also a great need for change.
What other challenges is METRO GROUP facing?
In both economic and capital market terms, our business experienced some very hard times for the third consecutive year. We also faced unexpected regional crises on top of this in 2014. I think we will have to get used to the idea that undesired events have become a normal part of business. This is one challenge. A second one involves our own positioning – particularly in such an environment. As soon as we begin to believe that we have wrapped up our work and can call it a day, we have completely misunderstood something. We have to realise that the state of our business will never be ideal. We can only develop an ideal attitude about it: we should always be moving forward, thinking one step ahead and creating added value as a result.
That is a high standard. How do you motivate your employees and yourself for this process?
A company is always measured by its figures. They clearly show whether we have hit our targets or not. But the numbers themselves cannot motivate people over the long run. Rather, the key aim is to find something meaningful in what you do. This is the strongest motivator. Let’s use METRO Cash & Carry as an example: with the new brand core and our communication efforts surrounding the brand campaign YOU & METRO, we are reaching both the minds and, increasingly, the hearts of employees and customers. Our goal of making small and medium-sized enterprises successful is not some hollow endeavour. It is actually something that is becoming a bigger reality day after day. And the countries that systematically apply this core philosophy are already profiting the most from it – both in terms of sales and earnings. This makes me especially happy! We are also working hard to change our corporate culture. This is the second critical aspect in regard to motivation. Just as people are the focus of our business transformation, they are also the focus of our company. We do not want to hold back the people with whom we work. Rather, we want to see them grow. More and more people in our company are beginning to understand this.
It is not just the corporate culture that makes METRO GROUP an attractive employer. It is also its internationality. When do you plan to enter new markets once again?
Internationality is indeed one of METRO GROUP’s greatest achievments. But, in the past, we focused too much on expansion into new countries for a period of time. It almost became something we did by rote. For this reason, we have concentrated over the past three years on bundling both our financial and personnel energies. We have already made major strides in this work. Nonetheless, we are still keeping an eye on new markets and will act if we believe that they present a real opportunity for us.
Like change, sustainability must become the norm at METRO GROUP, too.
This could give your share price a boost. It began the year in a stable position and then came under pressure. What caused this to happen?
When you talk about our stock’s performance, you cannot overlook the political situation, particularly with regard to Ukraine and Russia. Negative developments in an area that is critical to our business operations generally also have negative repercussions on our share price. Our industry has been going through sweeping changes for some time now. The capital market is keeping a close watch to see who takes a systematic and long-range approach to change. Companies that act on impulse or fly by the seat of their pants will not hear any applause from investors. The much more critical question in an investor’s evaluation of a company is this: is a turnaround on the horizon, and is it reasonable to believe it will hold this course in the future? For this reason, we are systematically applying our strategy so that we can continue to accomplish the goal that we reached during the past financial year: improving like-for-like sales development. In the end, the capital market will see this as a sign of our company’s progressing transformation.
Among other things, METRO GROUP is once again focusing more closely on innovations …
… because we are determined to actively shape the direction of the far-reaching change that is sweeping through our industry. To intensely and systematically address the issue of innovation, we set up the Business Innovation department in November 2013 and defined five fields of innovation: store; channel; marketing; logistics, supply chain & delivery; and new products & services. Our sales lines have already begun to test a large number of new ideas in these areas. These include individualised offerings in marketing, express delivery within a three-hour window and apps that offer additional product information and digital shopping lists.
Another aspect of METRO GROUP’s future-driven transformation is creating added value while reducing negative developments. How firmly has sustainability been integrated into the company?
In 2014, we were again added to the Dow Jones Sustainability Index World and Europe. We have also been listed for the first time on the FTSE4Good Global Index and FTSE4Good Europe Index. This is a tremendous accomplishment. It clearly demonstrates that our activities are paying off and that our commitment is being recognised. But we want something much more: every individual in our company should grasp the importance of sustainability and to bring this attitude to life. Like change, sustainability must become the norm at METRO GROUP, too. To make this happen, we have already taken a number of steps. In one of them, we have linked remuneration of the Management Board and top-level executives to our company’s ranking on the Dow Jones Sustainability Index. By doing this, we have intensified our internal discourse about the issue as well as our commitment to it.
METRO Cash & Carry celebrated its 50th anniversary during this financial year. Did the anniversary produce the boost that you hoped it would?
Our primary goal was to significantly increase our appeal to customers. We wanted to increase customer frequency, gain new customers and reactivate ones who are idle. Thanks to the activities and special campaigns we undertook during this anniversary year, we were able to take a major step forward in all of these areas. In addition – and this is just as important – we had a great time with our customers and employees and offered them some tremendous deals as a way of rewarding their loyalty. As a result, we are quite pleased about the results of the anniversary year.
Like change, sustainability must become the norm at METRO GROUP, too.
But the German market remains a challenge. In recent months, METRO Cash & Carry has focused much of its time on reworking its product ranges and expanding its customer assistance and services. How satisfied are you with business performance?
I am very satisfied with the progress. Germany is one of the METRO countries with the most potential for generating strong growth and regaining market share. Our primary goal must be to get even better at reaching customers, to make them more satisfied and to create new growth momentum in the process. We have already taken a number of steps here – not only in terms of the product range and delivery, but also in terms of fine-tuning our price strategy. In recent years, though, we have invested too little in our German business operation. We will now take a back-to-attack approach and intensify our investment in the German market.
Speaking of back to attack: Media-Saturn is also working intensively on its own transformation in its work to gain or regain market share. Critics frequently say that especially its online business has some catching up to do.
We have made great progress in our online business in recent years. Now, in the first quarter 2014/15, the online shops of Media Markt and Saturn offer more than 80,000 and about 64,000 products, respectively – and the number continues to grow. Media-Saturn is also working to further expand the purely online business run by Redcoon. But our intensified effort in this area does not mean that we are turning our backs on our stationary business. We intend to link all channels. Our goal is to be everywhere the customer is. Media Markt’s new consumer electronics store in Ingolstadt epitomises this concept. Online terminals and department tablets link the store with the online shop. At Saturn, we are also testing digital price tags. With them, prices can be changed at the press of a button. By creating the world’s first drive-thru for electronic products and a 24-hour pick-up station, we have taken specific steps to respond to customers’ changing shopping habits and service needs. Thanks to our changes, customers can profit from the strengths of our stationary business and also take advantage of our new mobile and online shopping opportunities. This interlinked system puts us a step ahead of companies that only conduct their business online.
Much has also changed at Real. The new store in Essen is serving as a blueprint for a sweeping store refurbishment programme. In this financial year alone, 50 hypermarkets were remodelled across Germany.
And this work has paid off: customer frequency and sales have already begun to rise in the refurbished stores. As a result, we will systematically move ahead with our investments. Next year, we are planning to remodel a large number of other stores on the basis of the Essen concept. Another one of our important jobs will be to inform our customers more clearly about the benefits of shopping at Real. For instance, Real is the only German food retailer to have a butcher’s shop in every store. Real’s meat department is already well ahead of the ones operated by competitors. We also have a very strong position in other product groups such as fruit and vegetables or fish. We have to bring this tremendous expertise about freshness and variety to life and communicate this better.
The Galeria Kaufhof sales line also celebrated an anniversary in 2014. But a 135-year tradition alone does not guarantee success in the future.
Galeria Kaufhof’s good commercial position and its promising future are primarily the result of our far-sighted and deliberate management. First, we have always run the business well – even during those years when sales were falling. Second, Galeria Kaufhof has continuously and extensively invested in the format. As a result, its stores are in great shape. And, finally, we have constantly refined the business model. I should add that this work was not simply aimed at getting the next brand and the next product out into the store. The much more critical step was our decision to carefully analyse our target groups, which we have intensively done since 2011. Thanks to this research, we made specific changes in the product range, reorganised selling space and systematically invested in product presentations. All of this hard work is paying off: for seven quarters now, Galeria Kaufhof has generated like-for-like sales growth.
The new financial year has already begun for METRO GROUP. What are you expecting in 2014/15?
We have already seen that we have a good foundation for starting the new financial year 2014/15: during the fourth quarter 2013/14, we increased like-for-like sales in every sales line. We can now build on this. We are well prepared and can look optimistically towards the Christmas quarter. We are quite aware of the large amount of volatility in markets created by a broad array of regional crises. But we are confident that we will be able to produce another slight gain in like-for-like sales in 2014/15. We also expect EBIT before special items to rise slightly adjusted for currency effects. The strides that we have already made in the transformation of our business models are paying off here. We intend to make more progress in this regard as we move forward. In addition, we will continue to closely focus on efficient structures and strict cost management.