Presentation of the opportunity situation
METRO GROUP has numerous opportunities to ensure long-term positive business developments. Above all, these are due to the fact that we respond in a rigorous manner and at an early stage to the needs of private consumers and professional customers. Our key goal is to create value for our customers. As part of this work, we employ new sales channels and exploit the opportunities created by demographic trends and the increasing differentiation of the mature markets of Western Europe as well as population growth in developing and emerging countries. We analyse the relevant global and national trends and take decisions aimed at systematically exploiting opportunities of the future and creating competitive edges.
Opportunities from the development of business conditions
During financial year 2015/16, we expect to see a slight improvement in business conditions for retail.
Our sales and earnings could profit from the slightly improved business situation. Demand – including over the long term – is rising in countries with growing populations. METRO GROUP does business in many markets where we can benefit from this trend. In addition, we are continuing our selective expansion in the growth regions of Asia and Eastern Europe. In the process, we are focusing on business units and countries where we can build a distinct profile and strong market position. As a result, we plan to continue expanding our activities in China, India, Russia and Turkey.
The removal of bureaucratic barriers can help ease METRO GROUP’s entry into new markets. Trade between countries of the European Union (EU) and third countries with which the EU has concluded free-trade agreements (including Canada, Moldova, South Korea and Ukraine) or with which the EU is currently conducting negotiations (including India, Japan, the United States and Vietnam) could be conducted with no or limited customs duties. In our view, negotiations regarding an agreement to simplify trade are also particularly promising. Imports and exports could be streamlined and the costs of cross-border trade could be reduced by up to 10 per cent. For this reason, METRO GROUP welcomes the results of the Ninth WTO (World Trade Organization) Ministerial Conference in Bali in December 2013 and the decision of the 160 WTO members to conclude a multilateral agreement aimed at streamlining customs-clearing procedures and boosting the efficiency of the customs processes used by WTO member countries.
Strategic business opportunities
METRO GROUP’s sales lines have high levels of brand equity in the countries in which they do business. We have assumed leading positions in many markets. We must further strengthen and expand these. Weaker market participants have withdrawn from the market, especially in countries that were hit particularly hard by the ongoing economic and financial crisis. We are working to fill these gaps or, when reasonable, to take over individual locations. Market exits of competitors would create additional opportunities for market share gains. In addition, we see potential in the successful repositioning of national subsidiaries operating in a challenging economic environment (including Germany and Southern Europe). The ongoing transformation and restructuring measures we have already launched aim to improve these companies’ market position and boost their profitability.
By optimising sales concepts, continuing to focus on core target groups and modernising stores, we are creating opportunities to win new customer groups and to bolster existing customer relationships. To this end, METRO GROUP continuously provides funds for investment. The company’s investment strategy is aimed at protecting and strengthening the competitive strength of all sales brands while better addressing customers in a more targeted manner. Examples include new and innovative formats, a distinct intensification of our online activities and multichannel business, measures to strengthen our own brands, franchise concepts, investments in innovative sales formats and customer-centric services and solutions. In all sales lines, we see considerable opportunity in the sensible dovetailing of store-based and electronic retailing.
We see further opportunities in the increased cooperation of the individual sales lines, for example in consumer electronics. We are already testing shop-in-shop concepts where Media Markt or Saturn manage the electronic departments of METRO Cash & Carry. The first two pilot stores were opened in Russia in the fourth quarter of the reporting period.
In the cash-and-carry business, we see additional substantial potential in the continued expansion of our delivery channel and in tapping additional professional customer groups. For Real’s business, opportunities are being created by the strategic transformation that is focusing on store refurbishment, the optimisation of the store network and a stronger customer orientation, among other things.
Online sales remain an important opportunity for our company’s future success. Online retail is experiencing strong growth. We continue to believe that this development will be maintained and project continued competitive momentum both in the store-based business and in online retail over the medium term. As a result, it is imperative for METRO GROUP to further strengthen its internet sales channel. All our sales lines now have online shops in Germany and in many other countries. During financial year 2014/15, we continuously improved the online shops. One example of this approach is the recently announced strategic cooperation with leading online and mobile commerce company Alibaba Group. METRO GROUP successfully strengthened its online activities in the fast-growing Chinese e-commerce market by launching a flagship store on the Tmall Global platform of Alibaba Group. By doing so, and through various other measures in the reporting period, we made additional strides in the shift from strictly store-based retail to integrated multichannel marketing. Unlike strictly online providers, we create real added value for customers this way.
The dynamic development of information technologies creates tremendous opportunities for us to optimise our own processes and provide our customers new offerings. New innovation areas are being fuelled in particular by information technologies that are more widely and easily used, including mobile communications (mobile computing), social media and cloud solutions. The implementation of solutions to process large amounts of data (big data) should create significantly improved marketing instruments, more efficient logistics and an opportunity to introduce new customer-oriented products and services. Involving METRO GROUP IT at an early stage in activities to assess and support start-up enterprises or in subsequent acquisition of participating interests enables the solution-oriented and secure interfacing of IT-based services.
We are convinced that innovative ideas relating to digitalisation will shape the future of retail and drive the development of new business models. In our group, we see great potential for those new business models which offer excellent added value to our customers, in line with our strategy and building on existing strengths in our operating processes.
Our first step in this area is to launch a pilot project to test the extent to which we can deploy an innovation at our company and to invest in interesting start-up companies. In financial year 2014/15, we also started the Techstars METRO Accelerator together with the US company Techstars. The programme aims to support innovative start-up enterprises in the Horeca sector. Techstars METRO Accelerator is the first global programme focusing mainly on technological applications for the food service, hospitality and catering sector.
Demographic trends offer another tremendous opportunity for METRO GROUP. Ageing populations in Western Europe and the growing concentration in economic and cultural centres dominate our customers’ current and future needs. The stores of our sales lines are easy to reach and, as a rule, are accessible to people with disabilities. In addition, the outlets offer assistance and products designed to meet the needs of customers of all generations. As a result, we see good opportunities to gain additional market share.
Business performance opportunities
In addition to rigorously leveraging cost-cutting opportunities, we are creating the basis for long-term success by increasing our productivity, especially through process optimisations. This effort includes a number of projects that we have already initiated and will systematically continue to pursue. These include the expansion of our delivery activities and increasing the share of high-margin own-brand products in total sales. Should we make more progress in the implementation of further productivity enhancements than we currently expect, this could have a positive impact on our business development.
In addition to cost components, quality and freshness are critical differentiating factors that are particularly relevant for food. By having employees who continuously check and ensure quality, we can gain an edge on our competitors and establish customer perception that has a positive effect on sales and earnings.
Additional opportunities arise from efforts to cut our greenhouse gas emissions. Our climate protection goal will indeed require investments. But as a result of lower costs, particularly for energy, these investments will create savings over the medium and long term. These savings will result in financial as well as environmental benefits and improvements.