After more than a year of wrangling, it seems Edeka, Germany’s largest supermarket chain, will finally get its hands on the prize. But it took a controversial overrule by the country’s economics minister – one with potentially far-reaching consequences – to do it.
Edeka has won the approval of Sigmar Gabriel’s ministry to buy rival chain Kaiser’s Tengelmann, but subject to certain conditions that the supermarket giant may not be too happy with.
In a statement on Tuesday, Mr. Gabriel set tough conditions that Edeka will have to agree to before the sale can go ahead. Effectively, it guarantees that nearly all of the more than 16,000 employees of the Kaiser’s Tengelmann stores will keep their jobs for at least five years.
Edeka and Tengelmann have 14 days to agree to the economics ministry’s demands. Only then will Mr. Gabriel give his final approval. Edeka, in a statement, signaled it would bite its lip and take the deal.
“This is a good day for the employees of Kaiser’s Tengelmann, who now have new perspective for a secure future under the roof of the Edeka brand,” the company said in a statement to the German news agency dpa.
If final approval is given, as expected, it would mark a surprising reversal in Edeka’s long-running battle with competition authorities to acquire its smaller rival.
Mr. Gabriel’s approval runs against a decision from Germany’s anti-trust authorities. The Federal Cartel Office last April forbade Edeka from buying Kaiser’s Tengelmann out of fear that it would create a supermarket monopoly in parts of the country. The separate Monopolies Commission, which advises the government, said in August that the economics ministry had no grounds to overrule the decision.
Germany’s opposition Green party sharply criticized Tuesday’s ruling, telling Handelsblatt that the decision would enhance Edeka’s dominance of the German market.
Mr. Gabriel likely had other concerns on his mind. Kaiser's had warned that thousands of jobs could be on the line if the takeover fails.
“This will harm competition,” Katharina Dröge, the party’s spokesperson on competition affairs, told Handelsblatt. “The victims are farmers and manufacturers, whose margins are sinking further, while consumers will have less choice.”
Edeka, which is privately owned and operates under a franchise model, has a market share in Germany of around 25 percent. It had sales of €51.85 billion ($56 billion) in 2014, well ahead of the number two Rewe, with €38 billion.
Kaiser’s Tengelmann, by contrast, is ranked as the country’s 7th-largest grocer with €2 billion in sales and 13th in terms of market share in 2014 (see graphic), and has been in danger of bankruptcy. However, it remains a dominant player in some key regions of the country, including around the capital Berlin. Tengelmann Group, the parent retailer, has been looking to get rid of its loss-making supermarket subsidiary for a number of years.
Last week, Germany’s Berlin-based think tank DIW warned that while a merger probably wouldn’t push up prices, it could have an impact on the wealth of products on offer to German consumers. The takeover would reduce competition in a number of regions around the country, DIW warned, including Berlin, Munich, northern Bavaria and in North-Rhine Westphalia.
Ivan Koric, a research analyst with Euromonitor, told Handelsblatt Global Edition the merger could have some impact on suppliers in select regions, but he said Germany’s overall food retail market remains more competitive than the numbers would suggest. Even if the country’s traditional supermarket sector is consolidating towards two major players – Edeka and Rewe – he noted the overall market is far bigger. It includes discount chains like Aldi and Lidl that have long played a major role in Germany’s shopping culture, and in some cases even use the same suppliers as Edeka and Rewe.
For Edeka the key, however, is the conditions attached to the approval. Mr. Gabriel has demanded that Edeka, which is made up of some 4,000 franchise-operated stores, effectively run Kaiser’s Tengelmann as a separate chain for at least five years. Edeka would be barred from passing Kaiser’s stores on to franchise owners during that time.
Mr. Gabriel said his conditions would guarantee that 97 percent of Kaiser Tengelmann’s employees would keep their jobs for at least five years – and probably longer.
Even after the five-year time frame, Mr. Gabriel said that any franchise owners taking over the supermarkets would not be allowed to fire staff on cost-cutting grounds for at least another 2.5 years.
According to supporters of Mr. Gabriel’s ruling, the merger poses little threat to the country’s overall supermarket industry, one of the most competitive in the world and the home of hugely successful discount supermarket chains Aldi and Lidl.
But the Monopolies Commission, an independent panel of experts that advises the German government on competition issues, ruled more on the basis of regional monopolies. It felt that the proposed takeover of some 450 Kaiser’s Tengelmann stores would hamper competition in the grocery purchasing and retail markets in parts of Germany where both brands dominate the local market.
The ruling was never binding for Mr. Gabriel, but in most cases ministers accept the watchdog’s decision.
This time, Mr. Gabriel had other concerns on his mind. Kaiser’s had warned that some 16,000 jobs could be on the line if the takeover fails. The supermarket chain could, quite simply, collapse if it wasn’t rescued by a rival.
In his statement, Mr. Gabriel argued that such job concerns took precedence over the monopoly concerns of the anti-trust authorities. But he warned Edeka still needs to agree, or there would be no deal.
“Today’s decision does not mean that the case is at an end,” he told reporters.
Dana Heide is a correspondent for Handelsblatt in Berlin, focusing on companies and markets. Christopher Cermak is an editor at Handelsblatt Global Edition. To contact the authors: firstname.lastname@example.org, email@example.com
This story was updated at 15:50 CET with reaction from Edeka.