Hypermarkets-The Case of EROSKI-

For all of us is known the current aconomic and financial crisis which affects most of the world, and specifying a bit more, difficult time that the spanish society is going through, with figures as staggering as the indebtedness and unemployment among citizens.

This is why, one of the most affected sectors is that of consumption and retail distribution, among which is the food market represented by hypermarkets.

In view of my shopping, almost daily since my arrival in Madrid, in one of the many supermarkets located in the spanish ground  of the Eroski Group, I would like to look at its current situation in depth and let you know it through this post.

Eroski was founded in 1969, and during these last 41 years has been growing, becoming one of the most succeful companies of distribution in Spain (the third one, after Mercadona and Carrefour) because of its unique and cooperative model.

However, and as I stated earlier, since 2008, the group has suffered a decline in sales, reflecting a severe financial situation, getting worse due to its large  debt (increased financial and operating expenses). This is caused by large investments made in the years before the crisis, such as the commitment to a new brand trade “Caprabo” (assuming a bank debt of 1753 million €, which they hoped to pay back in 5 years). These economic downturns are reflected particularly in the areas of Madrid, Aragón and Andalucía (areas where were integrated Caprabo supermarkets within the Eroski network).

Trying to summarize the current situation of the company, it is worth pointing out as main figures of 2010:

• The reduction of its bank debt (its principle concern), achieving lower it in 454 million € (taking into account the long and short term financial debt).
• A 17% improvement in operating profit to reach 100 million € which, plus a cut in financial costs, is an increase of 20,4 million in the results before tax.
• EBITDA, amounting to 419 million €, is virtually repeated.

Therefore, the Eroski annual balance in terms of its sales activities is 8170 million €, a 3% drop in value compared to 2009. Mostly this is due to lack of consumer confidence in emerging out of the crisis, the increase of unemployment, the rise in VAT and the neccesary savings made by families to tackle their futures with greater certainty.

The company’s strategy to offer competitive prices in its products, while maintaining or even improving their quality (elimination of trans fat and generalization of nutrition labeling), represented a saving of over 143 million € for its customers (thanks to the development in the economical Eroski basic products, which already accounts for 12% of the sales of the in-house brands). This figure reflects why Eroski customers have grown by 3%, compared to 2009.

In conclusion, generally speaking, nowadays Mercadona is leading the alimentary distribution, growing at an incredible pace, even in crisis time, mainly for taking advantage of the customers’ trend to buy products at the best price. It is the reason why Eroski is putting great effort in this area, overcoming and consolidating in the third place in Spain in its sector, as it is reflected in the following chart:

Resources:

Eroski Report 2010: http://www.eroski.es/files/Pdf/memoria2010/en/memoria2010-ingles.pdf

Audit Report of Annual Accounts:

http://www.eroski.es/files/Pdf/pdf.aportaciones/Cuentas-anuales-e-informe-de-gestion-Scoop-2010.pdf

Comparison of market shares:

http://www.alimarket.es/media/images/20111006/detalle_art/73311/18707_high.pdf

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