Comment: Retail giant Metro Group must focus on innovation

German retailer Metro Group is right to look beyond cost-cutting and focus on improving its like-for-like sales by driving innovation in its struggling retail formats if it is to turn its performance around.

Looking at Metro's first-quarter results today (3 May), it is hard to see beyond the group's dramatic increase in losses. The company revealed net losses had jumped to EUR82m (US$108m) in the first three months of the year, up from a loss of EUR3m last year, as a difficult economic climate and investments dented the bottom line.

However, Metro kept its forecast for annual underlying profits to "roughly match" 2011's levels.

Commenting on the group's performance, CEO Olaf Koch said that the firm will now focus on reducing costs and consolidating its operations in existing markets.

The company will aim to generate EUR100m in savings, including job cuts, Koch indicated. These measures will be "painful", he emphasised.

Metro is also scaling down its expansion plans, reducing the funds available for investment by 10% to EUR1.8bn and backing away from plans to enter the Indonesian market.

However, Koch - who took over as CEO at the start of the year - has also insisted the group must increase its focus on improving its like-for-like sales, rather than just taking measures to protect profits.

"In many areas, our measures to improve like-for-like sales are already beginning to show the desired effects," Koch said today.

Indeed, as Daniel Lucht, research director at Research Farm, tells just-food, despite the deeper losses, Metro's results "weren't all that bad".

"At the moment they have to spend quite a lot of money to get up to speed. If you just look at their quarterly figures, sales went up," Luch suggests.

Metro's group sales increased by 2.2% and this gain was led by its food formats. The group's cash and carry unit booked a 3.7% increase in total sales, while like-for-like sales in Germany gained 3.8%. Meanwhile, the Real hypermarket business - which has struggled against declining trends for some time - saw sales grow by 4.8%.

Contributing to this improved performance have been some interesting innovations that Metro has rolled out in these formats. In its cash-and-carry stores, Metro has launched a service to deliver goods to trade customers. In its Real outlets, the group has developed a click-and-collect option that Lucht says is "performing really well".

While these developments are in their early stages and therefore contribute little to Metro's overall sales total, their success does demonstrate the need for the retailer to keep driving innovation in order to remain relevant to its customers in the highly competitive German retail scene.