Spar Handels Ag Business Information, Profile, and History

Company Perspectives:

Our goals are 1) the results-based and consumer-oriented optimization of our product mix emphasizing freshness and local specifics; 2) increasing consumer awareness of the SPAR profile (sympathy, freshness, quality and security) by managing neighborhood stores in an exemplary manner and by profile-enhancing consumer marketing; 3) a noticeable improvement of the SPAR prices for the consumer; 4) achieving a delivery standard that guarantees product presence and 'daily freshness,' and improving delivery modalities according to the needs of retailers at an acceptable cost. In addition, to provide the necessary waste management; 5) development and realization of clear conditions that guarantee profits and the existence of progressive independent SPAR retailers; 6) to offer wholesale services based on retailers' needs and to constantly test and optimize quality and efficiency 7) to expand SPAR's market position through a joint effort of intensified, active market acquisition by securing and developing locations; 8) to significantly improve and strengthen in a sustainable way the motivation, the professional and other training of independent retailers and their employees; 9) to intensify the communication between independent SPAR retailers and wholesalers.

History of Spar Handels Ag

SPAR Handels AG is Germany's seventh largest company active in grocery wholesale and retail with a market share of about ten percent. The German SPAR group consists of five wholesale organizations, 1,350 food and nonfood hypermarkets and discount stores, and approximately 3,850 independent SPAR retailers. About half of SPAR's sales come from wholesale with the independent mid-sized grocery retailers. The other half is generated in SPAR and SUPERSPAR supermarkets, EUROSPAR, Famka, and Attracta hypermarkets, Netto grocery discount markets, and KODI non-food discount stores. SPAR has also introduced Express convenience stores at gasoline stations and has a 25 percent share in the E-commerce site Einkauf24. The French grocery retailer Intermarché, itself a subsidiary of ITM Enterprises S.A., owns 75 percent of SPAR. SPAR supermarkets represent the largest national member of the International SPAR organization, with 100 grocery wholesalers and over 20,000 grocery retailers in 28 countries around the world with total sales of about $30 billion.

SPAR's Origins in the Early 1950s

SPAR's co-op origins were influenced by an existing model in the Netherlands. In 1932 Dutch grocery wholesaler A.J.M. van Well founded the first cooperative grocery chain in Europe. At that time cooperation between wholesale and retail businesses was uncommon. Van Well and his business partners--16 of his retail customers--decided to work together in harmony in order to secure profits on a regular basis. In the reconstruction years after World War II, the concept became popular among German mid-sized grocery wholesalers and retailers. Many of them were concerned about their ability to compete with large conglomerates on one hand and the widespread produce cooperatives at the other end of the market.

At an international wholesale trade meeting on February 16, 1952, the president of the German grocery trade organization VDN, Rolf Knigge, and two state chapter heads, Werner Hagen from North-Rhine Westphalia and Franz Weissbecker from Bavaria, founded the Deutsche SPAR modeled after the Dutch organization. By the end of 1952, 20 wholesalers belonged to the group, loosely organized into northern and southern German groups, which met several times to exchange ideas and experiences. At one such meeting, on October 8, 1952, in Frankfurt, they decided to make their enterprise and the SPAR trademark public.

The idea of about 50 cooperating wholesalers was not well-received by other parts of the industry. Many retailers were afraid they would have their choice of suppliers restricted. Many wholesalers did not sympathize with SPAR, which they saw as a growing new competitor in its own right. The food industry even stopped delivery of goods to one SPAR wholesaler, I.A. Schnell, in the German town of Hohenweststedt. However, other SPAR wholesalers helped out with the goods that were not delivered to the Schnell business, and soon they started looking for ways to jointly purchase certain products for all SPAR members.

To coordinate the group's activities, Centrale der Arbeitsgemeinschaft SPAR was founded in the German city of M&uuml#ter. At a meeting in January 1953 the foundation was laid for the group's further development. The gathered SPAR members agreed on a set of core principles and the first SPAR logo. They decided to transform the M&uuml#ter-based Handelshof GmbH, a private wholesale business founded in 1949, into SPAR's central purchasing organization. At the same time, the principals of the Handelshof GmbH agreed to sell their capital to the SPAR members and to move the company's headquarters to Frankfurt/Main. On August 19, 1953, the renamed Handelshof SPAR GmbH was officially registered in Frankfurt.

The Handelshof SPAR GmbH was the umbrella organization for all SPAR wholesalers. It purchased products centrally from manufacturers, developed and managed central advertising campaigns, consulted its members on best business practices and issued licenses to new SPAR wholesalers. In 1953 four regional purchasing organizations were set up, serving the German North, South, West, and Southwest. The first SPAR brand products were developed in the same year.

In July 1955 the Deutsche Handelsvereinigung SPAR e.V. was founded to serve as the central committee for all SPAR member businesses. Each regional SPAR group was represented by a wholesaler and a retailer. Delegates had one vote, each representing 100 SPAR retailers, and decisions were made at central delegates meetings. Thus SPAR members were able to influence business politics of the group.

By 1958 the number of SPAR member wholesalers peaked at 55. At the same time there were approximately 12,000 retail stores bearing the SPAR banner. In 1959 the first SPAR supermarket opened in Hersfeld, and the following year the first SPAR mail order catalog was introduced and the first nationwide advertising campaign, worth DM 2.5 million, launched.

By 1964 there were 26 SPAR brand products, and that number would increase to 540 by the end of the decade. During this time, four subsidiaries were founded to run wholesale businesses and offer services such as electronic data processing, purchasing and bookkeeping. Moreover, the Deutsche SPAR Handels GmbH & Co. (DSH) was founded to purchase primarily non-food products for the whole SPAR group and to centralize invoicing and payment processes for SPAR member firms and the industry suppliers.

The 1970s were characterized by a process of concentration and restructuring of the German retail landscape. The shrinking of Germany's retail food market segment had begun in 1968, and in the ensuing years the number of SPAR wholesalers and delivery districts decreased by about one-third to 33, while the number of SPAR independent retailers shrunk by 40 percent to 6,200 stores. As the number of stores went down, the remaining stores started growing in size. To make up for losses in the grocery segment, the group also started to diversify into non-food markets. As a result, SPAR's wholesale revenues more than doubled during the 1970s and even sales of the traditional SPAR retailers rose by almost 50 percent.

The SPAR principles, which were agreed to by all participating businesses, were the basis for the group's success. While they were regularly interpreted, updated or modified according to changes in business environment, they remained the same in essence, and every member of the SPAR organization had to adhere to them or be excluded from the group. A catalog agreed on by SPAR delegates in November 1972 listed the main obligations and services for SPAR members which remained unchanged up until the 1990s. They included guaranteed minimum sales for SPAR wholesalers and retailers and a minimum sales area size for SPAR retailers; the full product range to be offered; the obligation for retailers to order most products from SPAR wholesalers; exclusive use of the uniform SPAR logo in predefined sizes; participation in all SPAR organs and services; openness of financial statistics; controls on competition between SPAR members by means of assigned territories; and the right of first refusal by the group whenever a SPAR store was put up for sale.

Mid-1980s Formation of SPAR Handels-AG

The 1980s were a decade of stabilization for the German SPAR. The number of SPAR wholesalers remained at about 30. While several wholesale businesses merged during that period, new wholesalers joined the group. The number of SPAR retailers decreased, reaching about 5,400 by the mid-1980s. In 1982 SPAR member company Koch & Sohn, based in Düsseldorf, established a new brand for the group--the KODI non-food discount stores. In 1985 the three leading German SPAR wholesalers Pfeiffer & Schmidt (Schenefeld), Karl Koch & Sohn (Düsseldorf) and Kehrer & Weber (Munich) merged to form the SPAR Handels-AG. The following year the SPAR Handels-AG acquired shares in eight mid-sized German grocers. In 1988 the company's stock was first traded on the stock market.

The second half of the decade saw the number of SPAR retailers rise once again, the result of takeovers and consolidation in the grocery industry. SPAR's strong market position was reflected in increasing sales. Sales of SPAR retailers rose by one-third, from DM 8.9 billion in 1980 to DM 11.7 billion in 1990. The wholesale side of the business grew even faster. In 1980 30 SPAR wholesalers grossed DM 5 billion; by 1990, though the group had shrunk to include nine SPAR wholesale businesses, sales had jumped by 80 percent up to DM 9 billion.

Expansion in the 1990s

Immediately after the Berlin Wall came down in 1989, SPAR developed a crash program to help about 3,000 East Germans set up their own SPAR neighborhood stores. The first SPAR supermarket on the territory of the former German Democratic Republic opened in March 1990. Designed in the style of markets in the West and stocked with products from the West, by the beginning of April 1991 there were already more than 1,500 retail stores in the new East German states that purchased products from SPAR and were interested in becoming independent SPAR retailers.

To serve the new German states--Saxony, Saxony-Anhalt, Mecklenburg-Vorpommern, and Brandenburg--subsidiary SPAR Nordost was founded. Thuringia, the fifth new state, was served from the SPAR subsidiary in Friedewald near Bad Hersfeld in former West Germany. When the East German centrally administered grocery wholesale and retail industries were privatized, SPAR Nordost took over 400 supermarkets in good locations and 1,600 other grocery stores from the former East German Handelsorganisation (HO). SPAR also acquired warehouses form ten former East German wholesale firms. Thus, with this East German expansion, the number of SPAR wholesale customers suddenly increased significantly; the total number of SPAR retail customers grew by 2,000 between 1990 and 1992, an increase of almost 30 percent.

The next step was the integration and modernization of the new facilities. Before new facilities were available, 86 warehouses taken over by SPAR served the new SPAR retailers. Four central warehouses in Rostock, Magdeburg, Potsdam and Döbeln became key locations. At the beginning of 1992 SPAR Nordost was merged with the SPAR Handels-AG. All of its facilities were organized under the region Nordost. The new wholesale warehouses were transformed into modern logistics centers. Between 1992 and 1995 SPAR invested more than DM 1 billion into modernizing its logistics network in the new German states. In April 1995 a brand-new SPAR logistics center started operations in Mittenwalde near Berlin. The whole Nordost territory was served by three central warehouses in Mittenwalde, Rostock, and Döbeln, as well as two regional and three discount warehouses.

In 1995 there were about 1,340 independent SPAR retailers in the new German states, 11 EUROSPAR hypermarkets, eight self-service department stores, 211 Netto food discount markets, and 18 Kodi nonfood-discounters. In addition SPAR delivered to over 800 other retail customers including 20 food departments of the Karstadt and Hertie department stores.

Combined sales of SPAR wholesale and retail businesses rose by more than 43 percent between 1990 and 1995. In the new German states alone SPAR grossed DM 5.5 billion, a market share of between 13 and 14 percent. In 1993 30 percent of SPAR's net sales derived from the new German states. By the mid-1990s, 1,200 out of 1,600 SPAR neighborhood stores in East Germany were managed by independent retailers.

Recession and Reorganization in the Late 1990s

SPAR's horizon was soon darkened, however, by fierce competition in the grocery retail industry, especially for market share in the new German states, along with a significant drop in fruit, vegetable, and meat prices and increasingly frugal shopping behavior. SPAR, and the industry as a whole, entered a period of ruinous price competition. This was particularly hard on independent SPAR retailers in East Germany, since they had not yet had the time to build a sustainable neighborhood customer base. Already, in the early stage of building their businesses, they were often in the red, their very existence threatened by other grocery chains. Moreover, they had to fight daily for the best purchasing modalities and began to feel that the SPAR wholesale conditions did not meet their needs.

In August 1995 a group of disgruntled SPAR retailers in Saxony-Anhalt, Mecklenburg-Vorpommern and Thuringia founded an interest group called "Interessengemeinschaft der möglicherweise Spar Geschaedigten e.V."--the "Interest Group of those Possibly Harmed by SPAR." They accused their regional SPAR wholesalers of unrealistic sales projections, overpriced rents, and unfavorable prices and conditions. The group's story was featured in Der Spiegel, Germany's premier news magazine, and the SPAR headquarters then accused those business owners of sub-optimal management practices. In the following internal and external information campaign, SPAR leaders admitted minor problems and promised help to struggling East German SPAR retailers, except for those belonging to the Interest Group. The disputes were eventually more or less settled, at least in public. Membership of the Interest Group fluctuated between 60 and 100 during the late 1990s. One of the several pending lawsuits against SPAR was settled in February 2000 in favor of SPAR.

The increasingly competitive marketplace put SPAR under pressure to find new markets and competent partners for strategic alliances. Beginning in 1995 SPAR stocked the shelves of 50 Hertie grocery departments in addition to the 71 Karstadt grocery departments it had supplied since 1991. One year later it started deliveries to 600 VeGe/Vivo markets formerly owned by Contzen. SPAR's endeavor to find new strategic partners bore fruit in 1997. After an alliance with the Tengelmann Group, another leading German retail supermarket and distribution group, failed in 1995, the French trade group Intermarché became majority shareholder of SPAR through its Swiss subsidiary Intercontessa AG in the summer of 1997. The group, with retail sales of over DM 40 billion, had a structure similar to SPAR's, with 2,200 independent retailers in France, Portugal, Spain, Italy, Belgium, and Poland.

Beginning in 1996 SPAR went on an unprecedented acquisition spree. Between 1996 and 1998 it took over 66 Bolle Markets in Berlin; 36 large Continent self-service department stores from the French Promodès trade group with annual sales of about DM2 billion; the wholesale business of the Kathrainer AG; eight self-service department stores from the Holzer Parkkauf GmbH; the Karlsruhe-based Pfannkuch Group with 212 markets in Southwest Germany and net sales of DM1.1 billion; 152 PRO Hamburg markets in the Hamburg area and 34 markets around Kassel.

However, the weight of those new acquisitions was proving too heavy for SPAR. In particular, venturing into the department store market segment seemed an unfavorable risk. The transformation of the Continent stores into INTERSPAR self-service department stores was costly, and the ongoing price war in Germany diminished sales. SPAR was deep in the red, by over DM 300 million, in 1998. Moreover, since the engagement with Intermarché, SPAR preferred shares lost 80 percent of their value. In 1998 a new strategy was developed, focusing on small and mid-sized grocery and convenience stores. Some 74 large INTERSPAR self-service department stores were sold to U.S. giant Wal-Mart in a $658 million deal, while another 44 stores of the same format were integrated into the EUROSPAR distribution line. In November 1999 SPAR wholesaler L. Stroetmann GmbH & Co. did not extend its contract with SPAR and joined competitor Edeka Zentrale. As the company approached a new millennium, management was focused on turning the company around.

Principal Subsidiaries: Handelshof SPAR GmbH (82.3%); Deutsche SPAR Handelsgesellschaft mbH & Co. (77.8%); Gerhard Prahm GmbH & Co. KG (50%); L. Stroetmann GmbH & Co. (24.9%); INTERSPAR Warenhandelsgesellschaft mbH & Co. OHG; Offene Handelsgesellschaft NETTO Supermarkt GmbH & Co. (50%); KODI Discountläden GmbH; IQS Institut für Qualit&auml×sicherung und -prüfung im Lebensmittelhandel GmbH (70%); SPAR Finanz AG (77.8%); "Einkauf 24" GmbH (50%).

Principal Competitors: Tengelmann Group; Aldi Group; Edeka Zentrale AG; Rewe-Liebbrand; Metro AG; Lidl & Schwarz Stiftung & Co. KG.

Chronology

• Key Dates:

• 1949: Handelshof GmbH, a German wholesale business, is founded.
• 1952: Deutsche SPAR co-op is founded.
• 1953: Handelshof and SPAR merge, forming Handelshof SPAR GmbH, which is incorporated in Frankfurt.
• 1972: SPAR delegates agree on updated SPAR principles.
• 1982: First KODI non-food discount stores open in Düsseldorf.
• 1985: The largest SPAR members merge to form SPAR Handels-AG.
• 1988: Company goes public.
• 1990: First SPAR supermarket opens in former East Germany.
• 1995: SPAR logistics center in Mittenwalde near Berlin starts operations.
• 1997: French trade group Intermarché becomes SPAR's majority shareholder.