Presentation of opportunities
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.
We have identified the following material opportunities that may have a positive impact on our ability to meet our corporate goals over the next five years. We disclose indicative values for especially relevant opportunities with a potential sustained EBIT effect of ≥ €100 million a year. We do not consider these values in our planning. The potential EBIT effect of all other opportunities ranges from €20 million to €100 million.
Opportunities from the development of business conditions
During financial year 2016/17, we expect at best a slight improvement in business conditions for retail, which, however, could support our sales and earnings development.
In addition, demand – including for 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 expansion in the growth regions of Asia and Eastern Europe through METRO Cash & Carry. 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 continue to focus our expansion on the markets of China, India, Russia and Turkey. We also expect to see opportunities from positive geopolitical and macroeconomic developments in Southern Europe and Russia/Ukraine.
The removal of bureaucratic barriers can help ease METRO GROUP’s entry into new markets. In the context of trade relations between countries of the European Union (EU) and third countries with which the EU has concluded free-trade agreements (including Canada, Moldova, South Korea, Ukraine and Vietnam), many goods from METRO GROUP’s existing assortment can already be imported with no or substantially reduced customs duties. A successful conclusion of the EU’s current free-trade negotiations with such countries as the United States and Japan could also translate into substantial benefits for METRO GROUP in the procurement of goods. METRO GROUP also welcomes the multilateral agreement aimed at streamlining customs-clearing procedures and boosting the efficiency of the customs processes used by WTO member countries, which was agreed at the Ninth WTO Ministerial Conference in Bali in 2013 and the Tenth WTO Ministerial Conference in Nairobi in 2015. This programme could result in the streamlining of imports and exports, particularly in developing countries, and a reduction in the cost of international shipments of goods by up to 10 per cent.
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 are hit particularly hard by the 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). Ongoing transformation, repositioning and restructuring measures at our Media-Saturn sales line aim to improve the sales line’s market position and boost its profitability, particularly with respect to focal topics such as the consolidation of procurement activities, logistics and the country portfolio (opportunity: EBIT of ≥ €200 million).
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 great opportunity in the continuous 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. In Russia and Turkey, we are already testing shop-in-shop concepts where Media Markt or Saturn manage the electronic departments of METRO Cash & Carry.
In the cash-and-carry business we see substantial additional potential in the continued expansion of the delivery business, for example through selected M & A measures and by strengthening our B2B e-commerce activities (opportunity: EBIT of ≥ €100 million), as well as by tapping additional professional customer groups. Examples include the acquisition of Rungis Express and the planned acquisition of Pro à Pro during the reporting period. The acquisition of Pro à Pro has yet to be completed. For Real’s business, opportunities are being created by the strategic transformation that remains focused on cost and structural adjustments, the optimisation of the distribution network, the modernisation of the store network and the expansion of the online business, among other things. In addition, a new store concept aims to better align the product range and service offering with the individual needs of different customer groups while considering both emotional and rational customer wishes.
Online sales remain an important opportunity for our company’s future success. Online retail is experiencing strong growth. We believe that this development will continue and create 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 2015/16, we continuously improved the online shops and thus made additional strides in the shift from strictly store-based retail to integrated multichannel marketing. Unlike pure online providers, we create real added value for customers this way.
The dynamic development of information technologies creates substantial opportunities for our company to optimise its own processes and offer its customers new solutions (opportunity: EBIT of ≥ €200 million). 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 and analyse 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. New organisational IT concepts (agile methods) and newly developed IT systems based on modern technology architecture allow for a more flexible and timely adaptation of the IT infrastructure to continuously changing customer needs and market conditions. METRO GROUP also buys into new digital services, particularly for the METRO Cash & Carry sales line, to tap new business areas or to be able to offer key customer groups such as the food service sector a comprehensive portfolio of solutions.
We believe that the application of innovative ideas relating to progressing digitisation will increasingly shape the future of retail and drive the development of new business models both at METRO Cash & Carry and Media-Saturn. In our group, we see 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 2015/16, for example, METRO GROUP acquired shares in the start-up Shore, a leading European provider of web-based business solutions for local service providers in Europe, as well as in Orderbird, the leading iPad POS system for restaurants in the German-speaking region. Together with the US company Techstars, we have introduced the METRO Accelerator powered by Techstars, which was launched for the second time during the reporting period. As a global retail company, we thus continue to monitor trends related to food service 2.0 and support digital solutions of innovative start-up businesses for the food service, hospitality and catering sectors. Similarly, Media-Saturn also created a start-up programme with the Spacelab accelerator.
Demographic trends offer another 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
Aside from 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.
Alongside 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. Moreover, we are planning to launch a new logistics network with Germany’s largest retail logistics park in Marl. New logistics centres and greater centralisation of product flows will serve to enhance the availability, quality and freshness of products.
The issue of sustainability will continue to gain importance on a global level. As a result, the expectations of customers, employees, investors, political decision-makers and society regarding corporate sustainability will increase accordingly. By continuing to rigorously implement our sustainability strategy, we will ensure that METRO GROUP as well as its sales lines and own brands will become more attractive for these stakeholder groups. For example, the renewed distinction as Industry Leader in the Dow Jones Sustainability Index makes our share more attractive to sustainability-oriented investors and provides us with access to the capital markets at better conditions.
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. Our sustainability activities in our stores and headquarters, for example the development of a sustainable assortment and service offering, as well as our corporate responsibility activities enhance our reputation among independent businesses and consumers. This will help us to grow our sales over the medium term.