why baumax and praktiker disappeared – why did they fail? · • baumax failed for its foreign...

4th Global DIY-Summit

9th Juni 2016

Prof. Dr.rer.pol. Dr.-Ing. Thomas Roeb M.A. HS Bonn-Rhein-Sieg - [email protected]

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Why baumax and Praktiker disappeared – why did they fail?

Stockholm, 9th Juni 2016

Prof. Dr.rer.pol. Dr.-Ing. Thomas Roeb M.A. HS (University of Applied Sciences) Bonn-Rhein-Sieg

Prof. Dr. Dr. Thomas ROEB M.A.

clients (selected retailers) contact

• AMS Sourcing B.V. (NL) CEO

• atb market (UA) Marketing Director

• Anton Schlecker VP Purchasing

• basic AG CEO

• Delhaize Group (B) Senior VP Group Purchasing

• Denner AG (CH) CEO

• denree GmbH CEO

• dm-drogerie markt GmbH & Co. KG Owner/CEO

• EDEKA Zentrale AG & Co. KG Director Marketing

• Gebr. Bratzler Fruchtgroßhandel CEO

• Ihr Platz GmbH & Co. KG VP Sales and Purchasing

• Jawoll GmbH Owner/CEO

• Kopeika (RUS) Consultants to the Board

• Kaufland Stiftung VP Purchasing

• Lidl Discount Stiftung CEO

• Nordwest Handel AG 3 different CEOs

• Penny Discount CEO

• Plus Warenhandels GmbH CEO

• Praktiker AG CEO

• REWE AG CEO

• Tchibo AG VP Sales & Marketing

• Weltladendachverband e.V. Head of Marketing

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clients (selected suppliers):

• n.v. artic s.a.

• AVO-Werke August Beisse GmbH

• Axel-Springer Verlags AG

• Bongrain Deutschland GmbH

• GlaxoSmithKline Consumer Healthcare …

• Hewlett Packard Europe

• Intersnack Knabber-Gebäck GmbH & Co. KG

• Josef Schmitz Grafschafter Krautfabrik GmbH

• Laverana GmbH

• Moksel-Gruppe

• Nestlé Deutschland AG

• Fleischwarenfabrik Heinrich Nölke GmbH & Co

• H.&E. Reinert Westfälische Privat-Fleischerei …

• SC Johnson GmbH

• Westfleisch

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clients (selected others):

• Bundesministerium für Verbraucherschutz, Ernährung und Landwirtschaft (Ministry of

Consumer Protection, Food and Agriculture)

• CMA Centrale Marketing-Gesellschaft der Deutschen Agrarwirtschaft mbH (Central

Marketing Organization of the German Agriculture)

• Die Verbraucherinitiative e.V. (Association for the protection of consumer rights)

• Gesellschaft für technische Zusammenarbeit GTZ (Society for technical cooperation

between Germany and developing countries)

• Lebensmittelzeitung (Germany´s leading specialist journal for food retailers and

manufacturers)

• SEB AG (bank)

• KPMG

• Kurt Salmon Associates

• McKinsey & Company

• Roland Berger Strategy Consultants

• wbpr Gesellschaft für Public Relations und Marketing GmbH

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9th Juni 2016


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• both baumax and Praktiker were no real discounters, but only Praktiker failed for this

• baumax failed for its foreign expansion, if failure is the right expression

• Praktiker failed because it tried in vain to compensate its cost disadvantage by using aggressive promotions

baumax and Praktiker were completely different – in their concept and their failure


9th Juni 2016


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There are many ways leading to price leadership – the Aldi-way is only the exception

small assortment

lean operations

low absolute costs

low prices

high sales

low relative costs

vertical integration

lean operations

low absolute costs

low prices

high sales

low relative costs

small assortment

lean operations

low absolute costs

low prices


lean operations

low absolute costs

low prices

high sales

low relative costs


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baumax and Praktiker didn´t take any of them – indeed they weren´t real discounters at all

baumax concept

• assortment size: 60.000 SKUs (before restructuring) / 55.000 (after restructuring)

• pricing: officially EDLP, but in reality neither ED (every day) nor L (low), but in reality strong promotion-orientation and generally high price level

• „Aldi“-type (EDLP, limited assortment) concept tested in Eastern Europe (2010/2011), but stopped for unclear reasons

Praktiker concept

• very strong promotional pricing (“20% on everything except pet food”)

• non-promotional prices above average


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The key reason for baumax´ failure lay elsewhere: in its expansion into Eastern Europe

65

24

14 15

3

7

15

8 7

Austria 1992:CzechRep.

1992:Slovakia

1993:Hungary

1995:Slovenia

2000:Croatia

2006:Romania

2008:Bulgaria

2010:Türkei

baumax: foreign operations 2014 and starting year

• foreign expansion was too fast (on average one new country per two years in the years 1992 - 2010)

• foreign expansion into the wrong countries (Eastern Europe and Turkey), the potential of which was over- and the crisis underestimated: in 2014, 6 of 8 foreign markets were hopelessly loosing money. Only the first two markets CZ and SK were profitable

• wrong focus of management, e.g. in 2012 out of 5 VPs only one for sales/purchasing, the others for finance, real estate, social issues and art (!)


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But the core business (A, CZ, SK) was good enough for baumax to become an orderly exit – as opposed to Praktiker

baumax

• no bankruptcy; instead restructuring and orderly M&A process leading to sale

• 9.500 out of 11.000 jobs preserved

• no financial losses for employees, suppliers and landlords

• losses only for banks, but 70% of debt reimbursed

Praktiker

• full-scale bankruptcy even dragging down the profitable subsidiary “max bahr”

• all jobs lost

• almost all claims of employees, suppliers, landlords and banks lost

• major loss to investors

difference between failure of baumax and Praktiker


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Praktiker didn´t have the cost advantage required from a discounter

source: annual reports, estimations Prof. Dr. Dr. Thomas Roeb M.A.

33,1%

29,3% 27,0%

14,0%

Hornbach Praktiker Supermarkt Aldi

cost as a % of sale


9th Juni 2016


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Praktiker tried to generate cost-advantages through price reductions

source: estimations Prof. Dr. Dr. Thomas Roeb M.A.

-20,0%

200,0%

11,9%

28,8%

price reduction sales increase share of promotiondays in total days

share of promotionsales in total sales

parameters of Praktiker 20%- promotions at the beginning


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The sales increase leads to a significant reduction of the share of fixed costs in overall costs

source: annual reports, estimations Prof. Dr. Dr. Thomas Roeb M.A.

100,0%

33,0%

fixed costs, non-promotionallevel

fixed costs, promotional level

fixed costs as a function of sales

• space costs (!)

• depreciation of store furniture

• HQ

• advertising

• …


9th Juni 2016


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staff productivity wasn´t affected by the 20%-promotions

source: calculations Prof. Dr. Dr. Thomas Roeb M.A.

100,0%

80,0%

100,0%

20%

staff productivity initiallevel

productivity loss due tolower prices

productivity gain due tohigher sales

staff productivity finallevel

Entwicklung der Personalproduktivität infolge der Aktionen

25,0%

100,0%

average price

reduced by

20%

-> volume

increases by

25% to

maintain sales

levels

-> productivity

reduced by

20%

tripling of

sales leads to

staff

productivity

increase of

25%


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In addition, the price reduction of 20% doesn´t lead to a reduction of the margin by 20%-points, but just ca. 15%-points

59,5% 59,5%

40,5%

20,5%

non-promotion promotion

margin

price ofpurchase

margin as a function of promotional pricing

100%

80%

„20% on everything except petfood“

= 40,5% of 100%

= 25,6% of 80%


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However, Praktiker didn´t succeed – unlike Aldi – to increase sales surface productivity, i.e. overall sales in existant stores

source: annual reports

1.810 €

1.657 €

1.506 €

995 €

Hornbach Bauhaus Obi Praktiker, D Max Bahr, D

sales surface productivity


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the sales impact of promotions decreased with the frequency of promotions

11,9%

39,6%

share of promotional days

200,0%

100,0%

2006 2007

increase of sales during promotions 28,8%

56,7%

2006 2007

share of promtion sales in total sales


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the compensate for this, Praktiker was forced to increase its margin, killing its discount claim

Quelle: Geschäftsberichte, Schätzungen Prof. Dr. Dr. Thomas Roeb M.A.

37,5%

23,0%

40,5%

26,7%

margin, non-promotion margin, promotion margin, non-promotion margin, promotion

Praktiker: Margin as a function of promotional sales

Praktiker margin mix 2007 Praktiker margin mix 2007


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So, what does that mean for discounting in DIY: discounting must be more like IKEA, than like Aldi; efficiency gains are much harder to attain


9th Juni 2016


small assortment

lean operations

low absolute costs

low prices

high sales

low relative costs


lean operations

low absolute costs

low prices

high sales

low relative costs

in fmcg, assortment size is driven by brand variety more than by product variety -> assortment size can easily be shrunk by relying on private labels in DIY, varity is driven by wide range of different products -> private labels can make only a limited contribution to assortment size

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thank you for your attention!


9th Juni 2016


why baumax and praktiker disappeared – why did they fail? · • baumax failed for its foreign...

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