Edeka Zentrale A.G. - Company Profile, Information, Business Description, History, Background Information on Edeka Zentrale A.G.

New York Ring 6
22297 Hamburg

History of Edeka Zentrale A.G.

As a cooperative company, Edeka Zentrale A.G. is made up of a network of small retailers who purchase food and general goods as a group. Small shops that are part of the co-op can be found all across Germany, in rural as well as urban regions. Edeka, or EdK as it is also known, is the German acronym for "Central Purchasing Co-op of the Association of German Retail Co-ops."

The Rise of Food Co-ops in Germany: 1900-33

Edeka's direct predecessor was established in October 1907 with only 800 marks in capital, at a time when co-ops were a new idea. Fritz Borrmann and Karl Biller were its first managers. This company, the Association of German Retail Co-ops, was soon joined by other co-ops all over the country. At a meeting in May 1908, a statute was presented to 80 representatives of 23 organizations, and Edeka itself was formally born.

From its first year, Edeka was financially successful, and by 1910 it was able to establish an advertising division. EdK did not at first have its own brands, but in 1911 it purchased several famous brands. However, the young company soon felt the strength of its competitors, the industry's big retailers. The large retailers pressured suppliers not to sell Edeka goods at a discount, arguing that EdK was too small to receive the discounts big retailers were given. As a result, 44 supply companies boycotted EdK.

In its first years, EdK was very careful abut giving loans and credits to its members, making all money transfers in cash rather than using credit. But it was soon clear that the co-op needed a bank. After long and intense discussion, the Genossenschaftsbank Edeka (Edeka Co-op Bank) was founded to provide loans to Edeka's small retailers.

During the months before World War I, the German economy was in a state of chaos. The government partially restricted free trade, and city and county administrations were ordered to confiscate goods if necessary. People rushed into shops and bought as much food as they could. As a co-op, Edeka's local, decentralized structure meant that it handled the crisis in a steady and reliable fashion. For this, the organization earned a strong reputation among consumers, and within the next several years, many Edeka shops were founded. Local administrations sought Edeka's cooperation, and some city governments even tried--unsuccessfully--to unify all small retailers into a single co-op.

Finally, in 1918 EdK gained legal recognition as a co-op and as a trader that bought large quantities of goods and, therefore, was entitled to discounts. With this legal status, there was no question any more about its official place in the German economy.

After World War I, while free trade was still restricted, EdK's members increased from 194 in 1918 to 578 by 1923. As terrible inflation wrought economic havoc, Edeka had to come up with ways to lessen its impact. One way was to issue 20-mark "saving coupons," to strengthen the company's financial base. Edeka suggested that each co-op member purchase at least one coupon each week, and it promised to pay 6 percent interest. Edeka also made a call for solidarity in 1923, when it needed a new office and a warehouse and asked each retailer to contribute 20 marks. Edeka, like many other companies, also began to issue its own money in another effort to combat inflation. EdK retailers were obliged to accept EdK money, which they could use to buy supplies from the central organization. This measure helped insure that people would be able to shop at Edeka.

In 1924, EdK introduced several new policies for members. Each member store was required to use the name "Edeka" and to post an Edeka sign prominently. Shops also were required to sell Edeka brands. In its continuing effort to cope with inflation, in 1925 Edeka restricted its loans to not more than 5,000 Reichsmarks per shop, and limited the liability of each shop to 7,500 Reichsmarks. A year later, in 1926, new regulations required that all financial transactions be conducted in cash. This was an advantage for Edeka, since immediate payment, in cash, reduced its financial risk. By this time, EdK supplied a wide range of goods aside from food, like soap, floor wax, candles, and other products.

In a concerted effort to help small retailers, who often lacked experience as well as financial resources, EdK sent trained managers to member stores in trouble. During the Great Depression, customers trusted Edeka because of their experience during and after World War I, when Edeka's special role as a co-op ensured a stable and reliable market.

Government Regulation During the Nazi Years: 1933-45

After Adolf Hitler came to power in 1933, the whole economy was restructured and the government tried to organize institutions to regulate all sections of the economy. This effort was not entirely successful with EdK because of its decentralized organization.

After March 1934 it became illegal to import goods from foreign companies that were not part of a German company. To cope with this regulation, EdK was eventually forced to establish branches in Italy, Greece, and Turkey. Edeka also formed a subsidiary, Edeka Import and Export, a co-op with limited financial liability.

During the first years of Nazi rule, the large retailers once again tried to persuade the government to prevent Edeka from enjoying the discount and other advantages of bigger companies. Between 1936 and 1939 Edeka was confronted with intense regulations and controlled prices. At this time Edeka added cigarettes to its goods, which then included some 400 items. Despite huge losses, EdK proved to be a stable company, even when in 1943 its Berlin headquarters office was bombed and burned down. At a time when thousands of companies failed, Edeka was able to stay in business, and its food stamps remained valid until February 1945, when Germany's food industry collapsed.

Postwar Recovery: 1945-60

After the war, the partition of Germany cut off almost all communication between the eastern and western zones. The situation in Berlin was especially confusing, leading Edeka to establish a second headquarters in Hamburg.

A new generation of managers met in Bad Godesberg in 1945 to reestablish an active Edeka. Their first effort failed, but a second meeting in March 1946 in Goettingen made it clear that Edeka would continue to work. The company's first annual report, for 1945, was written by both headquarters, in Berlin and Hamburg.

Of the 524 co-ops that existed before World War II, 201 in West Germany and 125 in East Germany survived the war. In 1952, however, the East German state brought an end to all Edeka co-ops in East Germany when it forbade governmental companies to deliver to the private sector. But the situation in the West improved: in 1950 the central office counted 225 co-ops with a total turnover of DM 15 million. Each co-op encompassed an average of 124 small retailers.

The 1950s, the years of the economic miracle, were a time of tremendous growth for all sectors of the economy. During this time more than 20 percent of all small retailers were part of Edeka, and the co-op expanded vigorously, constructing warehouses in Braunschweig for tins and vegetables, in Cuxhaven for fish, and in Kempten for cheese.

Edeka also continued to introduce new ideas and systems to customers and small retailers: Edeka stores were among the first to introduce self-service, since new packing machines enabled EdK to sell packaged goods. By 1958, 7,000 of 40,500 stores offered self-service. Frozen food and fruits were introduced in 1955, and special diet and health foods were introduced in 1957.

Product Innovations, Corporate Restructuring: 1960s-80s

EdK did not stop its modernization. Shops continued to change to self-service. In 1962 delegations of the co-op traveled to the United States to compare the Edeka system to similar American companies. Meanwhile, Europe took its first steps toward the Common Market. Edeka joined the Union of Food Co-ops (UGAL) in Brussels. From the foundation of UGAL in 1963, EdK helped lobby for co-op interests in the European market.

In its ongoing effort to sell a greater variety of goods, EdK started to sell meat in 1963. The wider range of EdK's goods enabled the co-op to survive in smaller villages and towns, since it meant that neighborhoods could buy all of their necessary food, such as bakery products, fruits, frozen food, and dairy products, from an Edeka store. In 1968 Edeka for the first time began to sell general household goods such as can openers and pens.

But competition was fierce, especially in the early 1960s, and many smaller retailers failed. To survive, EdK had to improve its weak points. Restructuring the stocking system through the use of rolling shelf containers helped retailers stock a wider variety of goods in the same space, helping mitigate rising rents. By 1965 regional computer centers were established to simplify communication among small retailers and Edeka's head office. Another important initiative to compete with other companies was education. EdK established a training center and started an international educational program in cooperation with Swiss and Austrian retailers in 1965.

Two years later two new subsidiaries were founded to help with the real estate problems of small retailers, especially retailers located in downtown areas. All of these organizational and educational steps, however, could not prevent the failure of 2,500 small retailers between 1968 and 1970.

Edeka decided to tighten its organizational structure; five regional offices were created, in Hamburg, Cologne, Frankfurt, Stuttgart, and Munich. Since 1970 each regional office was financed equally by the Edeka bank and the co-ops. Despite this change, however, Edeka was heavily criticized by the department of monopolies, which saw the size of the organization as proof of its monopolistic hold on the retail industry. Edeka claimed that it simply represented small retailers and did not, as state officials assumed, dominate them.

In the economic turmoil that followed the oil shock in 1973, small retailers had a particularly hard time in Germany. Public opinion turned away from Edeka and from co-ops in general, which were seen as old-fashioned. Edeka began to concentrate more on public relations, and it recruited employees through workshops and cooperation with local schools. By 1975, 6,000 trainees worked in shops all over Germany. Three of every four EdK shops were remodeled between 1965 and 1975. In 1978, Edeka entered an agreement with the department store Horten in which Edeka rented space in 58 department stores and set up food shops. The agreement came at a time when almost no Edeka stores had survived in the rapidly changing downtown areas. The EdK-Horten arrangement helped many retailers to survive, as renting one section of a department store was much cheaper than the rent for a separate street-level shop.

At the beginning of the 1980s, EdK was the biggest independent group of small retailers in Europe, with 18,200 small retailers who owned 20,300 shops. By the end of 1988, Edeka had 11,000 members who operated a total of 13,150 stores and had total sales of more than DM 20 billion. Some of this drop can be accounted for by the trend toward fewer, larger stores in the retail industry.

By the end of the 1980s each member was part of a regional co-op; together, these regional co-ops ran 22 wholesale businesses for the individual stores, and each was a member of Edeka Zentrale, the holding company. The regional co-ops were also members of Edekabank, which handled both credit and insurance for Edeka members. In addition to supplying individual retailers and operating their own meat processing facilities, Edeka wholesale businesses supplied hotels and large restaurants. After surviving more than 80 years of tumultuous change, Edeka remained a powerful force in the German retail industry.

European Unification: The 1990s

The formation of the Single European Market in 1993 had an understandably profound effect on the German food industry. In addition to exposing retailers to increased competition from rivals in neighboring countries, the opening of national borders also forced companies to comply to a host of new laws, which were enforced by the newly centralized governing body of the European Union. Since the integrated economy required an enormous degree of standardization to be effective, such areas as procurement, distribution, and food quality became subject to increased regulation.

To prosper in this highly competitive climate, Edeka was compelled to undergo its own transformation during the 1990s. The company recognized three keys to maintaining its role as a leading food retailer in Germany. The first key to Edeka's future success lay in the implementation of new technologies into its retail business model. In 1997 the company introduced an electronic pricing information system in its Baden-Wurttemberg outlet; the success of the venture led the company to launch the system in five additional stores the following year. In anticipation of the arrival of a single European currency in 1999, the system was designed to scan prices in both Deutschmarks and Euros. The company also made its official entrance into the world of e-commerce in 2000, when it joined the WorldWide Retail Exchange, an extensive Internet resource geared toward establishing an online marketplace for distributors and retailers around the globe. As a way of providing new incentives to its customers, Edeka introduced a computerized card for its shoppers in 2001, allowing them to accumulate bonus points with their purchases.

The second key to Edeka's success involved expansion of its market reach. The company made a number of strategic acquisitions in the late 1990s, most notably in 1998, when its retail division enjoyed overall growth of 19.2 percent. In 1999 the company entered into merger talks with Tengelmann Warenhandelsgesellschaft OHG, the fifth largest food seller in Germany. Tengelmann, which owned a number of well-known grocery chains throughout Germany (including Tengelmann and Kaiser's), had not done well in the unified economy, suffering losses of more than DM 200 million in its retail operations. The two sides reached an agreement in late 1999, wherein the Tengelmann stores became absorbed into the Edeka retail network.

At the same time, Edeka focused on consolidating its holdings, in order to streamline operating costs and increase efficiency. To this end, the company undertook a major restructuring in the late 1990s. The plan called for the reduction of its regional wholesalers by half, from 12 to six, as well as the closure of more than 300 of its food stores nationwide. Overall, Edeka hoped to increase operating profits by up to DM 500 million annually. These changes aside, the company was still performing extremely well in comparison to its competitors. The combination of the restructuring plan, strategic expansion, and the introduction of a wider selection of products placed Edeka in a very good position to remain Germany's leading food retailer well into the 21st century.

Principal Competitors: METRO AG; REWE-Zentral AG; Tengelmann Warenhandelsgesellschaft OHG.


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