Tegut, Migros and Germany’s last round of retail concentration

Ah, the good guys have found each other at last in the bar and are negotiating an agreement just after the publican has called for last rounds.

For good guys read Tegut as seller and Migros Zurich as buyer; for the publican read the German cartel office in Bonn.

So, gentle reader, you don’t know Tegut? Well, you’re excused because this family-owned and -run local hero is not well-known much beyond its home in the Federal State of Hesse.

If you want Tegut in a nutshell, think a medium-sized superstore operator with an above-average percentage of organic food in its assortment, and then add a slightly whimsical dash (meat is hung to classical music in order to improve the carma and quality).

What? You don’t know Migros Zurich either? Now that is a lack. For Migros think superstores full of own-label organic food, and a 21bn Swiss franc company founded by ethical entrepreneur Gottlieb Duttweiler and heavily into sustainability.

For Migros Zurich think one of the ten cooperatives within the Migros Group.

Officially, the Gutberlet family as owners of Tegut will only admit to talks. “We confirm sales negotiations with Migros Zurich and other investors,” Wolfgang Gutberlet told Lebensmittel Zeitung.

Sadly, the family has not always seen eye to eye recently, and there have long been rumours in the trade that the Gutberlets were searching for an investor. Annual revenues have been treading water for years and are still only €1.2bn.

This makes the regional multiple a welterweight in a national ring dominated by super-heavyweights. Finances at the Fulda-based company are said to be taut, which has lead to reduced investment in logistics etc.

The somewhat oversanguine purchase of 20 former Tengelmann stores in the Rhine-Main region in 2010 is already beginning to look like a white elephant.

Insiders expect Migros to take a majority stake in Tegut or to buy it completely. A press conference has been hastily convened in Switzerland for Thursday, October 11.

But what’s in it for Migros? With an equity ratio of 81 per cent, the Swiss are swimming in money with little scope for further expansion in their tiny home country. Meanwhile, the German competition authorities are very unlikely to block the deal.

Albeit at a snail’s pace, sister cooperative Migros Basel has also opened five supermarkets in southern Germany since 1995.

Also, Migros is said to be profiting from an alliance with German organics specialist Alnatura with whom they have already opened a store in Zurich this summer.

Last but not least, Tegut could provide Migros’ manufacturing division, the largest own label food producer in the world, with new sales markets in Germany.

Despite the above reasons, it is still hard to understand why Migros Zurich seems determined to suffer in low-margin, discount-dominated Germany.

If Migros does take the plunge on Thursday, however, a sentimentalist would have equal reason for sadness and joy. The sadness stems from the fact that, with Tegut, one of German retail’s last local heroes is to lose its independence.

The joy comes from the knowledge that a high-quality retailer with a strong organic food offer has been saved by a reliable partner. Indeed, the coming together of Migros and Tegut almost looks like an elective affinity.

German consumers must surely also welcome the entry of a top-class international player into the market. Migros’ unexpected arrival for the end game of German retail concentration will also keep the local grocery oligopoly on its toes.

Source: German Retail (http://goo.gl/zKgbK)