Interview with CFO Telerik Schischmanow: “We will resolutely stay the course”

Telerik Schischmanow: That’s right. I’ve been familiar with most of the issues, processes and people involved for quite some time. I joined the REWE Group in 2006 as Head of Corporate Investment Management/Mergers and Acquisitions and in the years that followed I developed a good understanding of the group as a whole. In the intervening period, I have been CEO, chairman, governor, advisor, or shareholder representative at around 150 different companies, so there are very few issues that I haven’t come across. I therefore feel well prepared. And apart from that, the other board members and all the employees know what to expect from “the newcomer”. In my opinion, management stability and reliable decision-making are important things to have, particularly in challenging times like these.

Telerik Schischmanow: The air is getting thinner and we will need to adapt. But, thanks to our broad diversification, we’re well placed to weather these difficult economic times, the last two and a half years being the latest example: the start of the pandemic saw the tourism business come to a standstill, yet the food retail business was booming, especially the full-range stores and, at times, the DIY sector. We are now experiencing growth in the discount sector due to increasing customer price-sensitivity. And tourism is also reporting excellent booking figures again. Our broad portfolio protects us from major downward swings. As a cooperative group of companies, we take a long-term view and take decisions without having to adjust to stock market prices at short notice.

Telerik Schischmanow: Over the last two to three years, we have managed to increase our profitability and our earnings. But if we want to continue to afford high and rising investment volumes and not radically prioritise them, then our absolute earnings must further increase in the medium and long term. The food retail market is under pressure. There are gaps between producer and consumer price inflation that we as retailers are absorbing – and have to absorb! As Lionel Souque has said on many occasions: In difficult times, everyone has to shoulder part of the burden. Many people have already run out of financial wiggle room, and it’s therefore foolish to believe that we can pass cost increases on to the customer in their entirety.

I am also concerned about the rapidly increasing costs in other areas. For instance, the construction sector is currently experiencing price hikes that would have been unthinkable just a few months ago. There is a shortage of technical components, such as charging stations. Previously, the delivery time for a power supply transformer was a fortnight; now, it is a year. In this context, it is vital to carefully consider which expenditure is really necessary – where proactive savings and increases in efficiency can be achieved.

Telerik Schischmanow: Right now, it’s important not to panic and stop all future investments, whether in digitalisation, sustainability or climate protection. Because that is more or less cancelling the future. In the past, the REWE Group has made significant investments in order to grow its business. That was the right thing to do, and we will stay the course. We’re a hugely innovative company, and if you want to implement a range of great ideas, you need the appropriate financial resources. Nonetheless, we will need to review and discuss investments in even greater depth moving forwards.

Telerik Schischmanow: We have primarily invested in technology and digitalisation, including warehouse automation technologies, self-scanning systems, Pick & Go and autonomous convenience stores such as the “Josefs nahkauf Box”. Investing in real estate is another priority, particularly in Germany, where we have built state-of-the-art warehouses and have begun purchasing rather than leasing our stores. This has been a shrewd decision: as owners, we have the power to decide what we do with a property and can undertake extensions or alterations, such as photovoltaic systems and EV charging stations, more rapidly. We can also secure good locations for the long term and, last but by no means least, it’s generally a more prudent business proposition for us to buy than to lease. Of course, we continue to have a leasing strategy. For instance, if an owner doesn’t want to sell – which is often the case with good sites – but we really want to use the location.

Telerik Schischmanow: No, I’m not saying that. We need to continue making substantial investments in order to expand our core business and open up new areas of growth. We must also continue to consolidate and expand our leading position in the field of sustainability. For example, we will need to invest further in technology, such as refrigeration technology, heating systems, insulations, and new building materials, in order to achieve our climate target. Nor can sustainability be neglected when it comes to the finance sector. In the years to come, green finance will become significantly more important. Companies without an active sustainability strategy will find it difficult to obtain attractive loan conditions in the future.

We must further enhance our profitability, however, to ensure that we do not have to prioritise too much across all of these important projects in the future. This is a challenge because personnel and material costs are rising markedly. We have achieved great results in the past two to three years, but they are not enough to continue to finance high or even growing investments. To put it bluntly, we need to make enough cash to cover our investments.

Telerik Schischmanow: We want to grow both organically and inorganically. In the past, the REWE Group has always had a strong record of acquisitions, both nationally and internationally. We will continue to pursue this in the future if appropriate opportunities arise. To this end, we intend to continue to develop new store formats and make the ranges even more attractive, for example, by expanding our own brands and innovating. We will also push ahead with the digital and omnichannel business, establish more in-store collection lockers at retailers, promote Click & Collect and expand the delivery service.

Telerik Schischmanow: Yes, we have taken on much more debt in recent years. That is not always a bad thing. A rapidly growing corporate group can allow itself to borrow. What matters is maintaining a healthy debt-to-profitability ratio at all times. Profitability needs to be high enough to ensure that the company isn’t forced to take on additional major loans each year to fund its investments and that it can instead perhaps even begin to reduce its debts. Thanks not least to our recently improved S&P rating, as well as our sustainable direction, we do have scope for further credit financing. If necessary, we will increase our borrowing – but this must be done with caution and on the basis of a long-term strategy. We have to think very carefully about how we spend the money. In view of the sharp rise in interest rates, it will cost us significantly more than it once did. This will also mean making sacrifices.

Telerik Schischmanow: It means scrutinising structures and processes more closely and asking: of all the issues we have, what will really make the difference to our success? From what I have seen, many issues are handled too many times before a solution is found. We need leaner, shorter processes, fewer contact points and more seamless media continuity. The question we need to ask is: how can we do what we do more simply and straightforwardly, more quickly and with greater automation and standardisation? With as much standardisation as possible, and only as much individualisation as absolutely necessary. Let’s consider shopping trolleys. Many of our competitors have no more than a handful of different models that they buy for use throughout Europe or even worldwide. Somehow, we’ve ended up with over a hundred different versions across the group. Isn’t there another way? For this reason, among others, we launched a successful campaign to reduce the variety of models and to initiate a group-wide tender.

Telerik Schischmanow: And opportunities! And to make the most of them, we still need a lot more employees. And this brings me to another point: We are heading into a demographic trap. In the coming years, we will face a staggering shortage of skilled workers. We are already seeing that our vacancies are becoming more difficult to fill. We need to keep investing in this area too. We need to become an even more attractive employer. For example, by offering flexible working more widely than we do at present. I believe that this is entirely possible. Even I work from home every once in a while, and, if my children happen to be there, then I inform the people I’m speaking to in advance that they might see a balloon fly across the room in the background…