Metro AG has essentially spun off its Metro Cash & Carry business.
The demerger of the Düsseldorf-based firm has split the operations into two independent businesses, one that focuses on wholesale and food and the other on consumer electronics. The wholesale and food hypermarkets will operate under the Metro WFS name. The consumer electronics business will operate under a different name, CE Company. Both businesses had limited operational overlap when they were still under the same corporate umbrella. While the business operations have been separate for some time in preparation for the demerger, it still requires the approval by shareholders for the completion of the transaction. They get to vote on the separation on Feb. 6.
According to Olaf Koch, chief executive officer of Metro AG and chairman of the management board, Metro’s customers “have a predictable, repeat purchasing behavior.” He described their carts as having a “high average spend.”
The hypermarket at one point earlier in its existence sold apparel. Koch, who will head up the wholesale and food spin-off, said in an interview there’s “strong demand” for apparel and therefore an opportunity down the road to bring clothing offerings back as “concessions” in the hypermarkets.
“We can say to apparel partners that we have nice traffic and now can specialize a bit more. Here’s a chance to put yourself into my stores and try it out….We offer a fantastic marketplace,” he said, noting that any overtures to fashion vendors probably won’t be for another few months.
As for the operating structure, Koch said the head of each country where Metro has stores is essentially the ceo of that operation. “We handed them the keys and told them to do what they need to do to build the business. It was done so they can act like an active owner….We had to empower the ceo’s [running the country operations] so they can grow market share,” Koch said.
The company’s thinking was similar to that of private equity firms, in Metro’s case with each country operation functioning as a separate “local brand” under the company’s portfolio umbrella. Koch also said in order to motivate store managers, they get to participate in a “10 percent” equity plan for their store, which includes credit from online orders from the zip code where the store is located. “The earnings are real to them,” Koch said.
Metro has 63 million active Metro cards. It has at least 752 warehouses across 25 countries. Most of the stores are across Western Europe, with opportunity to grow in Eastern Europe and high growth prospects in Asia, according to Koch.
The hypermarket is comparable to a warehouse club in the U.S., but the key difference is that a U.S. warehouse club is B2C while Metro is primarily focused on the B2B entrepreneur, which Koch said is the core of its wholesale formula. “The B2B model only works if you can provide incremental value to entrepreneurs,” he explained.
The company in March said it was planning the demerger of the two businesses. Jürgen Steinemann, chairman of Metro AG’s supervisory board, said at the time that having two independent and focused businesses “would be in the best interest of all stakeholders.”