Metro Group has responded to the economic crisis by implementing a strategy to contain costs and improve efficiency. Its 'Shape 2012' initiative, launched at the start of 2009, has already begun to produce some positive results and has helped the company to maintain stable EBIT in the third quarter, despite deteriorating sales. The bulk of Metro's productivity gains and improved efficiencies have come from its food and grocery divisions, Metro Cash & Carry and Real, following moves to increase the share of own-brand sales in these chains and reposition underperforming country divisions.

In local currency, Metro's operations in countries in Eastern Europe and Asia reported robust sales growth. However, sales in these regions were heavily impacted by the decline in currencies such as the Russian ruble and the Polish zloty. Meanwhile, its home market provided little respite, with sales for the first nine months of 2009 declining 0.5%. Although Germany has emerged from recession, registering growth of 0.3% in GDP in the second quarter of 2009, many households still face a consumer recession. Rising unemployment and reduced working hours continue to have a detrimental impact on consumer confidence and disposable income levels.

One bright spot for the group is the strong performance of its electricals division, which continues to grow sales despite such challenging market conditions. Sales at Media Markt and Saturn were up 7.4% in the third quarter, with both chains performing well in Germany and Eastern Europe. However, the situation is not so rosy for its cash and carry division, which registered a 2.6% drop in sales. In addition, its Galeria Kaufhof department stores continue to suffer, with warm weather in the third quarter impacting sales of autumn/winter ranges and causing a steep decline in clothing sales in Germany.

Despite a resilient performance for the first nine months of 2009 amid challenging conditions including deflationary trends in food prices and negative currency effects, Metro still faces a difficult final quarter in its core European markets. Unemployment continues to rise across the continent and consumer expenditure remains tightened and significantly below pre-crisis levels. While several countries are already showing signs of revival, true economic recovery in the EU will be a slow and drawn out process.

However, the group's ongoing international diversification provides some growth opportunities. Metro continues to extend its reach beyond core its European base into new markets including Egypt and Kazakhstan. Its first store in Kazakhstan opened in October 2009 and Egypt will follow next year. The group now trades in 33 countries and continues to strengthen its presence in important emerging markets. In Russia, the group has no intention of following Carrefour's lead and withdrawing from the market. Indeed, Metro remains committed to the country and in October opened its 50th Russian Metro Cash & Carry in Kirow. Also in the third quarter Real entered the Ukrainian market and Saturn opened its first store in Turkey.

The company opened 44 stores in the first nine months and the pace of expansion is set to accelerate in the final quarter with a further 30 new outlets planned to open, mainly in Asia and Eastern Europe, as the group bulks up its presence in its strongest growth markets. These new openings will go some way toward further broadening the group's international revenue base and in the longer term help to reduce its dependence on its domestic market, which currently accounts for 40.0% of total turnover.

Source: Verdict Research

A service of YellowBrix, Inc.