Exactly 26 months ago, Tengelmann chief executive Karl-Erivan Haub told a surprised supervisory board he had sold his loss-making supermarket chain Kaiser’s Tengelmann to competitor Edeka.
But he underestimated resistance to the move, both internally and externally. First was the Federal Cartel Office, then complaints from competitors, and finally the higher regional court in Düsseldorf repeatedly kiboshed the deal.
If the contract to sell Tengelmann to supermarket chains Edeka and Rewe follows through this week, it will be salvation for Tengelmann’s 15,000 employees.
After a long-fought compromise was achieved, Rewe is set to receive 67 of the remaining 420 stores and withdraw its lawsuit against the Edeka-Tengelmann deal, while the rest of the branches will go to Edeka.
It is a complex agreement. The contract not only settles store allocations and purchase price, but also includes requirements from the economics ministry demanding jobs to be secured for five years and employee council structures maintained. Until recently, such a happy ending seemed impossible.
However it is not a happy ending for everyone. The deal between market leaders Rewe and Edeka cements the dominance of large food chains, to the detriment of small- to medium-sized companies – and presumably also suppliers and consumers. Dividing up the stores “will avoid a few regional concentrations compared to the sole takeover by Edeka,” said Thomas Täuber, retail expert at Accenture. “Nevertheless, the consolidation of food retailers is continuing.”
Precisely why the cartel office advocated for Kaiser’s Tengelmann to be partitioned off to several different competitors. “From a competition point of view, smashing Kaiser’s Tengelmann into pieces would have been the better option. Smaller vendors could have come to the market, which would have slowed down ongoing consolidation in the market,” Mr. Täuber said.
However this approach was blocked when Minister of Economics Sigmar Gabriel approved Edeka’s acquisition of the Tengelmann stores. It shut out smaller competitors and brought negotiations behind closed doors.
“The minister’s blessing clearly disregards small and mid-sized businesses,” Thomas Gutberlet, head of the regional trading chain Tegut, told Handelsblatt. The supermarket operator owned by Switzerland’s Migros group owns 290 stores and had put forth an offer for the 188 Tengelmann shops in Bavaria. “This was a unique opportunity for Tegut to expand in the Munich area at one stroke in a larger scale,” Mr. Gutberlet said. But nothing came of it. “Minister Gabriel has interpreted the principle of common good unilaterally in favor of the big competitors.”
Tegut, Aldi, Schwarz-Holding (which owns the ubiquitous Lidl and Kaufland chains), Edeka and Rewe together control 85 percent of the German retail food business. The Kaiser’s Tengelmann sale might not seem like much market share at first sight. But the chain was itself concentrated in three regions – and heavily so.
“The impact of the merger will be most pronounced for consumers, especially in Berlin.”
For example in Berlin, with its 120-odd shops, Kaiser’s Tengelmann has a market share of well over 10 percent. At present, Edeka and the Schwarz group are about as big in Berlin.
“With the takeover of the Tengelmann stores, Edeka will be able to secure the top position here, and Rewe would also be able to strengthen its position significantly,” said Fred Hogen, a trading expert with the Nielsen market research company. “The impact of the merger will be most pronounced for consumers, especially in Berlin.” Inventory diversity could be reduced and long-term prices would rise.
“Increasing concentration in the food trade means that there are fewer and fewer producers,” Mr. Gutberlet of Tegut said. Loss of diversity is already a stamp of the retail sector: “All the pedestrian shopping areas now look almost the same, everywhere the same shops and the same products,” he said.
Suppliers are also worried. “In any case, competition in the procurement markets will be the loser,” said Andreas Gayk from the German Brand Association, which represents brand manufacturers. The cartel office also expressed concerns that the big traders’ negotiating power will increase compared to that of food producers.
Mr. Gabriel knows all this, but isn’t bothered. On the contrary, he’s pleased to see an end to the Kaiser’s Tengelmann saga. “The path is clear for the final steps, which can now be carried out quickly,” he said on Friday. “I am confident that the ministerial permit will be carried out next week.”
He wants to be celebrated as the savior of 15,000 jobs. But experts are skeptical about how long this joy can last. “Of course, it is understandable that the employees prefer a package solution with job guarantees,” said Accenture’s Mr. Täuber. “How much these promises are actually worth, will have to be seen in the medium- to long-term.”
Florian Kolf leads a team of reporters, who cover the trading and consumer sector for Handelsblatt. To contact the author: email@example.com