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Edeka: grocer struggles against brand companies

DGermany's largest food retailer lets muscles work. Edeka will not accept the pricing of some brand manufacturers without a fight, made CEO Markus Mosa clear on Tuesday. "If certain prices are incomprehensible, there are alternatives," said Mosa in Hamburg.

Several times, the chain with 11,300 branches, which includes, inter alia, the discount supermarket Netto, made it clear that threats with the sacking of branded goods from the stores are not empty talk. Only in February, the merchants threw ketchup of Heinz from their shelves, because they did not want to accept the demand of the manufacturer Kraft Heinz for price increases.

A year ago, Edeka made a feud with Nestlé and boycotted the sale of Kitkat, Vittel, Wagner pizza and dozens of other Nestlé products for months on end. Rewe, on the other hand, recently got involved with the handkerchief producers Essity (Tempo, Zewa) and the cheese dairy Bel (Baby Bel, Leerdamer).

The climate is getting rough

Brand manufacturers and grocers maintain a heartfelt mutual aversion in a kind of symbiotic love-hate relationship. On the one hand, they depend on each other existentially. The industry needs the shops as a sales channel, while the dealers benefit from the manufacturers' expensive brand image.

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On the other hand, both sides struggle for every cent of margin. "We have nothing against the brand industry, we are all in a boat," said Mosa as well. True, Edeka scores two-thirds of its turnover with branded products, despite all the fighting.

The tone has become rougher, since discounters such as Aldi also increasingly with brand manufacturers in the business – until a few years ago a taboo. The new phenomenon is depressing the price level and overall profit margins, especially as discounters may be given cheaper purchase prices, Mosa speculates. Edeka will not do that. If suppliers demanded price increases above commodity prices, they will respond "intelligently."

Edeka as a "good force" against financial investors

How can that look, the example of Heinz Ketchup showed. Edeka quickly stamped its own brand "Papa Joe's" and replaced Heinz's ketchup with products from the competition – a risk for the merchants, after all, the American group has a market share of around 50 percent in the segment. At the same time, Verbund is continuously expanding its own brand biotope, which ranges from "good and cheap" to Albi fruit juices and Karl Karlo energy snacks.

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At the same time, Mosa created a picture in which the cooperative Edeka Association acts as a good force against international finance capital. Behind many food companies such as Kraft Heinz would be international financial investors, at least many are "bullet-driven" and therefore oriented to short-term profits.

In fact, US major investor Warren Buffett and Brazilian investment fund 3G are dominant major shareholders in Kraft Heinz. The group is under pressure for losses, dividend cuts and lower equity prices.

Start-ups can offer their products

Already in the detection of new food trends and the development of fresh brands, the merchants of the industry no longer want to leave the field without a fight. For example, Edeka has put into operation an internal online marketplace ("food starter") through which start-ups can offer their product ideas. The merchants' access to more than 950 new items is already possible, including bread, meat, wine or fruit juices.

The industry is also looking for new sales hits for start-ups, and Nestlé, for example, for regular competition. The chances of newcomers to establish themselves permanently on the market, however, are low.

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In addition to the supermarkets as the core of Edeka, the group is increasingly trying out new specialist retailer lines. She is currently rolling out the drugstore concept Budni nationwide in cooperation with the Hamburg-based family firm Budnikowsky. By the end of the year, about a dozen branches are to be opened, especially in Berlin and southern Germany.

The self-imposed bar of about 50 shops per year should be achieved "medium term", said Mosa. Theoretically, a retreat is possible, as predicted by competitors, but that was "quite unlikely".

Own health food chain starts in Hamburg

Rather, the CEO announced that Edeka will also build a new health food chain. The rights to the name "natural child" come from the legacy of the Tengelmann takeover, where they were not used for shops, but products. The first "Naturkind" shop is due to open in late summer in Hamburg-Altona.

Customers will not immediately realize that they are shopping at an Edeka subsidiary, because own brands would not be represented there – not even those from the organic line. The assortment will be roughly comparable to chains like Denn's or Alnatura.

The employment conditions from the controversial Tengelmann takeover have already exceeded Edeka two years ahead of time by more than 300 jobs. After the ministerial approval granted in 2016, Edeka had to secure at least 15,000 jobs by 2021.

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Edeka is also involved in the sale of the hypermarket chain Real, which is currently for sale. However, this is at best about "individual attractive locations". Discussions with the real parent company Metro about a takeover as a whole are not on the agenda. The Cartel Office would hardly play in such plans well.

Last year, the Edeka network, including its 3,700 self-employed merchants, increased sales by 3.2 percent to 53.6 billion euros and increased the number of employees by 6700 to 376,000. The market share in the German food trade including net has increased by half a percentage point to 28.3 percent.

The online trade plays with Edeka with 130 million euro turnover but still hardly a role. The subsidiary Bringmeister will focus on Berlin and Munich in the future, the own merchants could join on request to an internal platform and deliver online. "We have little desire to burn money, and we do not want to repeat the mistakes of others," Mosa shot off a bit against the rival Rewe. He had invested 80 million euros in an e-commerce distribution center in Cologne, which does not yet yield a profit.

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