Walmart Fails In Germany---Economy, Retail Markets To Blame

THERE IS NO QUESTION that the mighty economic powerhouse of the retail industry, Bentonville, Arkansas-based Walmart, have been for the most part successful in their 44 years of existence.
What started as a five-and-dime general store in 1950 in that small town, and made its first foray into larger discount stores in 1962 on US71 in nearby Rogers have grown into a multinational corporation, expanding throughout Mexico, Latin America, Asia, Europe, and Canada.
But recently Walmart have hit a couple of landmines in their development as a global retail giant.
In May they pulled out of South Korea's tight cutthroat market; the stores were sold to Shingesae for US$882m, this just after French retailer Carrefour had just left the market. Those stores have now been rebranded as EMarts (Korean language website).
And close on the heels of Walmart's failed efforts in South Korea, they have had to make another retreat: Last month, the major retailer announced their plans to pull out of the market...at a loss of US$1bn.
Evidently they hit a lot of road blocks but they come in three major factors.
SOME are based upon Walmart's unfamiliarity with German shopping habits, like a desire for more privacy and less services. The Germans' primary focus is on the lowest possible price...which has made homegrown retailers Edeka, Metro, Rewe Group, Aldi, and Lidl household names throughout Europe. Interestingly enough the German shoppers were initially afraid that they would have to pay more for American style customer service, like sacking their groceries at the register.
Which brings to mind the next group of reasons behind the development of Walmart's failure in Germany: Let's meet the German grocery giants, most of whom have spread their wings internationally.
MAJOR GROCERY STORE COMPANIES IN GERMANY

EDEKA are the largest German grocer with more than a quarter of the country's shoppers, their equivalent of Safeway or IGA or WinnDixie in the United States, with about 4100 stores ranging from hypermarts to corner markets; they also operate the SPAR chain found in Europe, Africa, Argentina. and Japan.
The name originated from the German phonetic enunciation of the original name, EdK (eh-deh-ka), or Einkaufsgenossenschaft der Kolonialwarenhändler which translates to "Purchasing association of the grocers", and was granted in 1913, 15 years after the company were formed from four cooperatives. Today the company own ADEG Group in Austria, with stores in Russia, Denmark, and the Czech Republic.

Then come the Neckarsulm-based Lidl, whose stores are located mostly in Europe, with plans to expand into Canada in near future. The company were originally formed in the 1930s but did not go into the present-day format of typical German-style grocery stores until 1973, when they copied rival Aldi's format, see below for more information, and now have some 5000 stores. Most Lidl stores are located in northern Europe spanning from France and Ireland and the UK to Scandinavia, with some in Italy and Croatia; in fact Lidl have branched into photo lab and floral operations as well. Lidl even offer DSL internet service to German patrons!
Lidl get their name from retired schoolteacher Ludwig Lidl who along with Josef Schwarz were partners in Südfrüchte Grosshandel Lidl & Co, originally a fruit wholesaler; in 1977 Schwarz bought the rights to the Lidl name for DM1000, when the chain had 30 stores, because Schwarz had rejected the name Schwarz Markt (and understandably so because the name means Black Market in English). Speaking of English...Lidl have become well known in Britain during the past 12 years they have been in that country.

Aldi, whose name comes from Albrecht-Discount---drawing from the surname of the company's founders---are marking their 60th anniversary this year and the Essen-based giant are even more widespread than any of their rivals.
Two interesting things to note about Aldi:
There are not one but TWO Aldi chains, Aldi North and Aldi South.



(LEFT) Aldi North logo, used mostly in northern Germany and northern and western Europe.
(RIGHT) Aldi South logo, used mostly in Southern Germany, central Europe, Britain, Ireland, the United States, and Australia.
Aldi North cover northern Germany and western and northern Europe, including Poland, Spain, and Portugal, whilst Aldi South cover southern Germany, Switzerland, Croatia, Austria (those last two under the name Hofer), the UK, Ireland, Australia, and much of the eastern and central United States. They even have their own logos for each division.(1)

Aldi South service the UK and Ireland---both of which are NORTH of Spain, France, and Portugal, ALL serviced by Aldi North. (2)
And some of you who have shopped at an Aldi store in the eastern or Midwestern United States know what I am talking about; I will cover more about the basic concept behind German supermarkets later, in essence, you enter into a long row of pallets of merchandise, mostly groceries, you hit some randomly selected special merchandise, like home electronics, clothing, toys, maybe some ready to assemble furniture, you pass the dairy and deli coolers, then two big aisles stretch to the checkout counters, one alongside juices and baked goods and frozen foods, very minimal staff, you pay for bags, you can take cartons for carrying groceries home without charge.
Aldi pioneered the concept used by most of their competitors including Lidl, Real, and even Edeka. It is one of the main reasons they continue to generate some US$37bn annually.



The Rewe Group are comprised of a number of different businesses specialising in groceries, home improvement, electronics, travel, and discount stores.

(TOP) Logo for the Metro Group
(LOWER LEFT) Logo for the Real store chain
(LOWER RIGHT) Logo for the Extra store chain
Metro AG are composed of SIX companies, Metro Cash and Carry, a self service warehouse, Real, Extra, Media Markt, Saturn, and Kaufhof.
And here is a look at where those Walmarts just sold in Deutschland are going to be rebranded: Real are a relatively strong performer in what has turned out to be a flat economic landscape for Germany and Europe, obtaining a net profit of 9,9bn (about US$12,7bn) in the year 2005 with 43090 coworkers (annual average on full time base) in three countries. (German language link)
Another chain held by Metro is Extra which have a bit more of an upscale feel. Then there is MediaMarkt, which are an electronics store chain, as are Saturn, and then the department store chain Kaufhof, rounding out the Metro stable of companies...all furthering the German conglomerate's credentials in their takeover of Walmart Deutschland. Anticipate that those stores will perform much better under Metro management and under the Real brand name.
THE ALDI CONCEPT: THE TYPICAL GERMAN GROCERY STORE
Aldi started a unique concept of grocery stores that focuses on simplicity, with a relatively limited selection of mostly store-branded products inside a smaller store, minimal staffing, no public telephones, and pallets containing cases of products instead of traditional shelves.
Typically customers enter through one door, to a long, wide, continuous aisle, that carries the customers toward the back of the store, past a long aisle of dry goods and sometimes beer and wine, then to a small group of general merchandise products near the back of the store, past a small bank of freezers, then past a back wall with dairy and deli coolers, a few tables of general merchandise, then either up one or two central aisles loaded with tinned goods, health and beauty products, pet care products, dry pasta, soft drinks, fruit juices, or along a side wall with baked goods, energy drinks, more juices and pop, and then a bank of doors opening to upright freezers.
When you reach the checkouts, anticipate having to queue up as it is common practise in an Aldi or Lidl or Edeka or Real to wait in lines given their minimal staffing policies and only a few registers. Also plan to pay for shopping bags, or you can bypass that by taking a carton or two with you to carry home groceries. Many Germans carry their own reusable shopping bags out of concern for the environment.
Also, you may have to insert a coin in order to use a shopping cart, they are connected to other carts by a short chain that cannot be manipulated to connect to the cart's own chain latch, and you get that money back when you connect the chain to the next cart.
THE BIGGER PICTURE: THE EUROPEAN ECONOMY
The current success story of Metro AG, which just reported a profit of a third of a billion American dollars, is a rarity in a flagging European economy, affecting European nations which have sustained high unemployment rates as of late and are only now corralling those rates.
The European economy has been sustaining a lot of turmoil for several years, and there are a lot of underlying factors, such as their more socialised government programmes, being overly generous with benefits and even holidays, with labour laws mandating even shorter work weeks forcing a lower level of productivity in many western European countries. And resistance to reforms are fairly strong: French protestors drove president Jacques Chirac to scrap a labour reform law that he had just signed.
Other American companies are also affected by the flagging European economy, like Ford which may consider selling its money-losing Jaguar division and General Motors which have had to reduce their labour force at their Opel and Vauxhall plants in Europe; they also sell Chevrolet products including the subcompact Spark and the compact Lacetti and Cadillac products in the continent.
But reforms to the European economic machine may have to come from newcomer European Union members with more libertarian policies on labour, like Poland and the Czech Republic, as well as the charter member United Kingdom, who continue to hold to the pound which remains strong. But then again the euro is also very strong...which some say may be hurting the continental currency now used in a dozen countries.
The Eurozone will remain strong as long as common sense is used in order to further the expansion of the currency. One wrong move and the currency could go from US$1,27 this morning to 85 cents in just three years.
But economic policies need to start favouring the companies more in order to further develop the job base and the economic base as well. If lower income taxes and greater economic incentives were to be implemented on a greater scale Europe could become an economic supercommunity in its own right.
BACK TO WALMART for a moment: They are concentrating on their stronger markets in China and Latin America as well as the US and Canada, with some emphasis in flat operations in Britain, where they operate Asda, and Japan, where they operate the Seiyu chain.
I would say, Walmart are not dead, they are just resting, let them. Even God rested. They will make a stronger comeback in time, maybe even to Germany, wiser and stronger.