Friday, August 12, 2016

A Little Grocery Story

For a number of months in Germany.....Kaiser's Tengelmann, Ededka, and SPD's Gunter Gabriel have been in the business news.

To explain this story...let's go to Kaiser's Tengelmann.  It is a grocery chain.....550-odd stores....based mostly in the northern half of Germany and extending into the Berlin suburbs.  You can go back to 1880 and review the start-up of Kaiser....which was mostly about the coffee business.  By 1905, they had opened up the 1,000th Kaisers store and had a booming business.  He made the employees....mostly all women....wear a standard uniform in the grocery, with a white collar.  It was a professional gimmick which the public bought into.

Tengelmann came up as the similar  brand name grocery which was a totally separate operation, and had remarkable success as well.  You probably know them by their side-name.....A & P, which used to be a big brand in the US.

In the 1990s....after the wall had come down....Tengelmann, Kaisers, and all the other grocery chain operations in Germany got into a price war.  Someone was to lose.

Tengelmann ended up being bought by Kaisers.  The problem was....that by 1999 when this started to occur....Kaisers ended up selling off storefronts here and there to bring in some cash flow and lessen the "losers" in their inventory.

Two years ago....the grocery chain Ededka entered the game and decided they wanted to buy what was left of Tenglemann and Kaisers (one joint company for fifteen to twenty years).

Oddly, various consumer groups and government agencies have stood in the way of this 2014 purchase agreement....saying that once Tengelmann-Kaisers folds into'll create this massive grocery chain across most of Germany, without fair competition.

The Edeka operation?  My wife shops there weekly.  It's a sharply designed store....fancy lighting in the fruit and vegetable section....clever advertising....and a fairly decent meat market.  It's a mandatory stop for her, and I suspect fifty percent of the locals will shop there at least once a week.

All of this chatter about unfair competition goes to the idea that there is less competition today, than there was 30 years ago.  It's not a proven least in my view of the mess.  But some believe that if you allow this to occur.....competition will get much worse.

Gabriel's part in this?  He's the guy who can give permission for it to occur, and he's lead the way to approve this deal.  Yesterday, out of Dusseldorf....a court there stopped the agreement and stood in front of Gabriel saying that he hadn't done the right thing.

What may happen?  One gets the impression that Tenglemann-Kaisers isn't on firm ground and this massive operation might be on some potential bankruptcy situation.  It would be amusing if the deal is blocked and six months from now.....we wake up to find them bankrupt and the German government now responsible for their daily operations cost, while trying to sell them off.  And the sales price if they were in bankruptcy?  Oh, it might be half of what Edeka is offering today.  One does not wish bankruptcy over any company, but you just look at the good intentions of the pro-competition people and that the fact that the business world operates without much regard to good intentions.

So, that's the inside story of the whole Tenglemann-Kaiser deal with Edeka.

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