Ceconomy and FNAC Darty

Has Mediamarkt group finally found the right way to tackle the French Household Appliances and Electronic market?

This is the question that first hit my mind after reading that the German Ceconomy bought the 24.33% stake of Artemis (Pinault Family Holding) in Fnac-Darty making it the number one shareholder of the French retailer and creating the leader organization in electro-domestic retailing in Europe.

Who is Ceconomy?

Ceconomy is the German entity regrouping the different distributors of electro domestic products, which was earlier part of Metro Group (MediaMarkt, Saturn and Redcoon.com). Only a few days after its official authorization to operate by the court Düsseldorf, the group led by Dutchman Pieter Haas spends 452 Million Euros to acquire the leading share in Fnac-Darty.

The Media Markt recipe.

It was back in 1979 that Helga and Erich Kellerhals, Walter Gunz and Leopold Stiefel came up with the idea for the very first MediaMarkt store. The DNA of the German retailer is a huge selection of brand-name products at permanently low prices offered on a large sales area situated in a commercial zone in Munich, Germany .This was the creation of what Americans would name as “category killer” which success led to 1023 stores and webstores in 15 countries in Europe and 22 billion Euros sales less than 40 years later.

The reasons behind the success.

MediaMarkt strategy relies on offering a very large choice of electro domestic products in one place, generally on the outskirt of cities, with huge price promotions operations to create in store traffic but with very few salesmen on the floor and very little advice to the consumer. The concept was particularly successful in countries where the distribution was not really organized when it was introduced.

In Germany, Austria, Poland and other Eastern European countries, it had to compete with numerous small specialists offering limited ranges, limited products per category and at a higher price.  And guess what?  It worked incredibly well.

Furthermore the strategy also evolved along the way, with the launch of private label products, the opening of smaller in city stores after the buyout of Saturn and the launch of a webstore.

The weaknesses in the Business proposition

In France or Switzerland on the contrary it had to face strongly organized General Retailers Hypermarkets (Coop, Migros, Carrefour, Auchan, Leclerc etc…) on prices and specialized “added value” chains (Fust, Darty or Boulanger) on choice and advice, the situation is much more complicated.

Then came Internet, Amazon and all the aggressive discount pure players. And guess what? The discount prices, all products in one place and no service strategy of MM could not compete with this new type of distributors…

German consumers were also among the most easily converted to e-commerce. That’s when MM started guaranteeing the best price even against the aggressive e-shops, bought the number one internet site in electro domestic products in Germany RedCoon.

The compensation for the lost margin was transferred to the suppliers in a tight negotiation based on the dominant position of the group.

MediaMarkt in France.

What few people know is that France was the first country which was selected for the international expansion in 1989 under the brand Hypermédia. A brand name which was clearly expressing the positioning of the retailer. (The brand was also a major issue in France as the stores were successively named Hypermédia, Media Markt, Planète Saturn and finally Saturn along the years).

At that time however the Hypermarkets were already distributing low price electro domestic products and added value specialized chain Darty already had more than 100 stores and was using TV Weather broadcast sponsoring on its “Confidence Contract”. And guess what? It did not succeed. A final attempt was led in 2005 under the brand Saturn, but with a similar low price strategy, which ended up with the 35 stores being sold to HTM, the Mulliez Family Holding of Boulanger, number 2 electro retailer in France.

The Future of MediaMarkt-Fnac-Darty.

The 24.33% that Ceconomy just acquired in FNAC-Darty allows them to play a major role in the strategy of the French retailer. The purchase price of 70 Euros per share may change if Metro or one of its units make a public takeover offer for Fnac Darty within two years.  Guess what? Although the Ceconomy’s management officially is “comfortable” with minority share, the Group will be allowed to sell its 9% participation in the Metro Group and (another wild guess) the cash should be used in buying a higher stake in FNAC Darty.

The sensible strategy going further way would be take the best of both groups and maximize the opportunities.

On the FNAC Darty side the image and notoriety of both brands are extremely strong and positive. The added value strategy with the “Contrat de Confiance” for Darty or the Membership Card for FNAC, the full service approach, the medium/high price range of products are also strong assets that would need to be kept. The trained and incentive staff of both retailer are also quite key for consumer advising and upselling.

On the other hand the buying strength of Ceconomy will give better purchasing prices. Its financial power to invest in new technologies, state of the art logistics and multi-channel strategy should boost the competitive position of FNAC Darty.  MediaMarkt’s branded shop in shop strategy as well of its strong promotional experience could also be a plus for the French retailer.

These would be my humble recommendations to make the best of the 7.4 billion sales of FNAC Darty with the 22 billion of turnover of Ceconomy

Will Pieter Haas be wise enough to finally avoid the “one best way” approach?