Rewe to boost international activities

The German retailer's chief executive, Achim Egner told Sueddeutsche Zeitung in a recent interview that Rewe plans to strengthen its portfolio and double its profitability.

The retailer has already cut its product range in favour of its private labels in a bid to bolster its market share in the European and international food retail markets.

Rewe currently has a 3.6 per cent of the European grocery retail market behind Tesco with 4.1 per cent, Metro Group with 5.1 per cent and market leader Carrefour with a 6.1 per cent share.

However analysts claim there is little room for growth in Western Europe as most markets there are now saturated and Rewe has already failed in France and Switzerland.

Instead it is thought that Rewe's plan to spend half of its €1billion investment budget for 2006 on expanding in Russia and Eastern Europe will help strengthen its position.

Boris Planer, analyst at Planet Retail believes this is Rewe's best option for growth as there is less competition in Central and Eastern European (CEE) countries and a good opportunity for long-term investment.

Planer explained that Rewe's home market in Germany is highly price competitive and although the retailer achieves 70 per cent of group sales there, they only account for a third of the total profits.

"It is a difficult job to increase profitability in Germany where margins are so low. It is a battle you have to fight in a hundred places",​ he said.

He argues it is better for the retailer to look to Eastern Europe where it can get a foothold and establish a brand, making it better acquainted with consumers, suppliers and local authorities which will ease any future expansion.

Rewe also aims to increase sales margins to 2-3 per cent from the current 1.5 per cent. Planer believes to do this the retailer must squeeze suppliers and become more efficient, while disposing of any underperforming aspects of the business.