« We keep our word. »

An interview with: Olaf Koch, Chairman of the Management Board of METRO AG, on customer value, corporate culture – and the things he enjoys about work.

Mr Koch, when you look back on the past financial year, what do you consider to be the greatest strides the company has made and in which areas does METRO GROUP still have some work to do?

We still have some work to do in the very area where we have made our greatest strides: in our effort to create added value for customers. We have certainly made significant progress since last year – but we still have a long way to go before we reach our goal.

Is this progress already being reflected in the company’s figures?

Yes. As the year progressed, we saw clear improvement in sales trends. Even though this trend varied by region, this is a very encouraging sign. For this reason, we are confident about the fourth quarter of 2013 – which will be the first quarter of our new financial year.

Did you experience any pleasant surprises?

I would not use the word “surprises”. But we did see some very positive developments in our cash flow and our reduction of net debt. About €2 billion less in debt within a year – that is a strong signal to the capital markets and a demonstration of our strategy’s soundness. And our message is being heard: investors and analysts are starting to change their minds about our company.

About two billion euros less in debt within a year – that is a strong signal to the capital markets and a demonstration of our strategy’s soundness.

But the capital market still had the impression that METRO GROUP continued to be preoccupied with the process of cleaning up past problems. Is this an incorrect impression?

We have already taken care of the major structural changes as well as the most important portfolio changes and adjustments. We have also made significant progress in our efforts to increase cost efficiency. But we still intend to make further improvements in this area. Primarily because our achievements here will go a long way towards financing our investments in customer value.

Many people have got to know METRO GROUP as a rapidly expanding company. In recent years, though, you have eased off the company’s internationalisation efforts …

… because our experience has taught us one lesson: sometimes, less is more. We grew too rapidly and sapped our performance strength in the process. By focusing on the three growth markets of China, Russia and Turkey, we have become markedly more attractive over the past 18 months. Focusing also meant that we had to drop several country units. Our aim today is to fully tap our growth potential in those countries where we are already doing business. We must first clearly expand our performance strength in these areas. Afterwards, we can say – in combination with a strengthened balance sheet – that the time has come to focus on a new country. Over the short term, however, this is not a priority.

The stock market likes your “less is more” approach. What do you think of the share’s performance?

The share’s performance clearly demonstrates that the market is growing less sceptical. In recent years, METRO GROUP has disappointed some market observers and investors, not least because of specu­lation about portfolio changes that never materialised. This has changed, and the market is increasingly taking notice of this shift: we keep our word. And we report about something only after we have done it – and not before-hand.

METRO GROUP is a multifaceted company with several different sales lines. Is there one strength or quality that they all share?

Strong roots and a successful history are two things that the sales lines have in common. Another is our exceptionally dedicated workforce. In future, we will be bound together more closely by our focus on our customers and our shared goal of creating added value for the customer – without compromise. By taking this approach, we will ensure that we consider our past success as an incentive to produce future success.

By focusing on customer value, you have initiated a change in your corporate culture. What do you consider to be the core element?

As a rule, you cannot change a corporate and management culture with newsletters, posters and stickers. Culture changes when behaviour changes sustainably. This starts with the Management Board and with me as the Chairman. At the beginning of 2012, we agreed on a number of core values and made them the basis of our job performance reviews. We want to have a culture of constructive debate when we are searching for new solutions. This means one thing: when we are trying to reach a decision, we need to pay less heed to hierarchies and be more open to all arguments. After we have taken a decision, we intend to carry it out in a systematic and resolute manner.

How extensively is this model being practiced today?

We have successfully completed the initial phase and are now working to refine it. You can already see these changes taking shape in many parts of the company. This success is largely the result of the various employee and manager development programmes we have initiated. These programmes include our “Leadership for Growth” workshops that are promoting a new managerial culture. More than 26,000 employees have already attended these workshops – and the process is far from over.

Willingness to change is a critical factor in strategic terms as well. Where does METRO GROUP stand in terms of innovation and what are its goals in this regard?

I am really glad that Pieter Haas joined the Management Board at the beginning of April because he is devoting his energies to the issue of innovation. Pieter Haas used his first six months on the job to take a close look at the company and has already come up with some specific suggestions regarding organisation and implementation. During the new financial year, we plan to take decisions about the first projects. From then on, we will continuously accelerate the pace of the innovation process.

In 2013, you took over responsibility for METRO Cash & Carry. What have you done here?

Basically two things: I have systematically continued to expand the success we are seeing in many places here. And I have given the many good ideas at METRO Cash & Carry an opportun­ity to shine throughout the entire company. I believe that we can already set international standards in the cash & carry business in some countries. France, Russia, the Czech Republic and Bulgaria are a few examples. We have the strongest cash & carry business model in the world. However, we still have significant problems in other countries. One of my key jobs will be to work with my teams to raise the performance level in these regions.

Some things have recently changed at METRO Cash & Carry Germany as well. How confident are you about the future?

There is no doubt about the potential of METRO Cash & Carry in the German market. The area of professional customers will continue to expand in coming years. As a result, I have no doubts about our ability to regain our market share. But this will also mean one other thing: we will have to work on our assortment, sales and delivery. The latter is one area we intend to expand further. During the short financial year, METRO Cash & Carry took a huge step forward by introducing new assortments. For the financial year 2013/14, I am very confident that we will send out a clear signal in terms of sales and earnings.

In 2014, the sales line will celebrate its 50th anniversary. What sort of boost do you expect to get from this during the financial year?

I hope that we will view the anniversary both as an occasion for celebration and as an incentive to intensify our focus on our core target groups even further. An unbelievably large number of things have happened at METRO Cash & Carry in recent months. We now have an opportunity to talk about them and jointly celebrate the occasion with our customers. After all, many of the things we are doing today may not have been noticed by the marketplace. Our anniversary is the ideal occasion to intensify the level of our communications and thus expand the company’s audience when it comes to rediscovering METRO Cash & Carry.

One of the most important business issues at Media-Saturn is online retailing. The sales line has also devised its own strategy for gaining market share. How much progress has Media-Saturn now made?

In online retailing, we are generating gains of more than 100 per cent at both core brands, Media Markt and Saturn – but I have to add that we started at a low level. Redcoon is growing at about 40 per cent. Generally speaking, the share of online sales in consumer electronics has slowed considerably during the past two years. But when you consider that the market – or the share of online transactions – is growing relatively slowly and that we are growing rapidly, then you can conversely say that we are regaining market share and taking giant steps in the process.

What share can the online business of Media-Saturn ultimately achieve?

We reached almost 6 per cent in the short financial year. For 2015, we have set a target of 10 per cent. I think that this is the minimum.

For the Real sales line, you have set a target of 2 per cent for rate of return. Which actions are playing the biggest role in achieving this goal?

One major step is the broad application of many successful concepts that we carried out only selectively in the past. Another one is the stronger regional and local focus of the hypermarkets. In addition, we have given more individual responsibility to store managers. Furthermore, we are increasingly directing customers’ attention to our assortment strengths. As part of this effort, we are clearly highlighting areas where our formats are a cut above our competitors’ formats because we can vary or combine products. This is what we are doing to move Real forward.

For years now, Galeria Kaufhof has been performing very well. Do you still stand by your statement that METRO GROUP is the wrong company to own Kaufhof?

As of right now: yes. And the reason is obvious: the return on capital employed is still much higher at METRO Cash & Carry and Media-Saturn – in spite of the setbacks individual stores have experienced. In the current situation, a time in which we intend to continue consolidating the investment budget and lowering the company’s level of net debt, we will concentrate on the necessary modernisation investments at Galeria Kaufhof. Overall, Galeria Kaufhof has performed so well that we can say one thing today: we may not be the right owner, but we are certainly a happy one.

METRO GROUP has made the issue of sustainability a high priority. What progress have you made here?

Over the past year, we have systematically worked on core issues, including increased energy efficiency, reduced CO2 emissions and programmes related to these efforts. We have also taken structural steps. With our sustainability organisation, particularly our Sustainability Board, we now have a stronger presence in our sales lines. I am pleased about one other action: we have now defined five core processes in all sales lines and can set specific sustainability goals for each of these processes. We will weigh these factors in our future decisions, including those involving store openings. As a result, sustainability at METRO GROUP will increasingly become a part of our daily business activities.

We have certainly made significant progress since last year – but we still have a long way to go before we reach our goal.

You became CEO of METRO GROUP two years ago at a fairly turbulent time. Do you think things have settled down?

At the very moment you say that “things have settled down”, I think you are making your first mistake. In our globalised world, setbacks are waiting around every corner. For this reason – and here I am not just expressing my own views, but also those of the entire Management Board – we never expect to feel any sort of tailwind. Rather, we simply assume that business conditions will remain challenging. Today, we feel more comfortable in terms of management. We have tied up many of the loose ends we had in 2011. For this reason, we are certain that we have matters under control. And that is certainly a better feeling than the one we had two years ago.

What has pleased you the most in the last two years?

That’s hard to say – there have been many pleasant moments. I am really pleased when our hard work in one area or on an issue pays off. I am also really excited when areas that have already been performing strongly continue to perform even better. And it is also fascinating to see how this success triggers even more energy.

Is there anything that causes you to lose sleep at night?

No, I do not have any sleepless nights. But I continue to be concerned about economic risks like the euro crisis. Close attention must still be paid to it.

Where will METRO GROUP be in five years?

Our company will have become much more attractive for our customers and it will have expanded its market position in its key markets. At the same time, our earnings strength will have not only stabilised, but also substantially improved. In five years, our formats will have won over our customers and the capital market to such a degree that the question will not be: why does METRO exist in the first place? Rather, it will be: why isn’t there more of METRO?