Tengelmann Group

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Tengelmann Group

Wissollstrasse 5-43
45478 Mülheim an der Ruhr
Germany
(49) 208 5806 0
Fax: (49) 208 5806 6401
Web site: http://www.tengelmann.de

Private Company
Founded: 1867
Employees: 200,000
Sales: DM 53 billion (US $34 billion) (1997)
SICs: 5411 Grocery Stores

Privately held Tengelmann Group is among the world’s largest retail supermarket and distribution groups, ranking number four behind Wal-Mart of the United States and Germany’s Rewe and Metro AG. With some 7,700 supermarkets, hypermarkets, discount markets, drugstores, and other specialty retail stores, Tengelmann is present in much of Europe, but especially in Germany, The Netherlands, Hungary, Austria, Poland, Italy, Spain, France, and the Czech Republic. In the United States and Canada, Tengelmann is represented through its majority control of the Great Atlantic and Pacific Tea Company, better known to North America’s shoppers as A&P, but also including the Kohls, Waldbaums, Super Fresh, and Food Emporium banners in the United States, and the Dominion and Miracle Food Mart names in Canada.

On the European continent, Tengelmann is present in nearly every food retail segment. In Germany, in addition to the flagship Tengelmann chain of supermarkets, the company also operates the Grosso and Magnet hypermarket formats, Kaiser’s supermarkets, the Ledi deep discount formula, the Plus convenience store chain, and the Obi do-it-yourself chain of building and hardware supplies. Beyond Germany, Tengelmann is represented by such names as Skala Co-Op (Hungary); Italy’s Su-peral, operated in partnership with the grocery chain of that country’s PAM Group; and Hermans Groep (The Netherlands).

Beyond retail distribution, Tengelmann long has been a major producer and distributor of such products as coffee and tea as well as candy and other confectionery goods, notably of the Gummi Bear brand. Tengelmann also has expanded into meat distribution and features an extensive line of private label products, under various labels, including the A&P label. In addition, Tengelmann operates as a wholesaler to third party distributors.

Tengelmann remains the property of the founding Scholl/Haub family. Erivan Haub, great-grandson of the company’s founder, and responsible for much of the company’s expansion and diversification, has been at the company’s helm since the late 1960s. In the 1990s, the elder Haub has been joined by his sons, Christian, who became A&P CEO in 1998, and Karl-Erivan, who has been in charge of the company’s European division since 1997.

From Coffee to Retail in the 19th Century

In the early 1800s the Scholl family provided ferry services on the Rhine River from their Mulheim home, near the border with The Netherlands. Joining the family business in midcen-tury was Louise Scholl. By then, the building of a bridge had ended the need for the family’s ferry service. The family now oriented its business toward river cargo, serving the growing industrial presence of the Ruhr valley region. Among the cargo the family carried were products from the German and other European colonies, including spices, tea, cacao, and coffee, which arrived in the Dutch ports to be transported throughout Europe.

Louise Scholl married Wilhelm Schmitz in 1867. Schmitz had operated a wholesale business, under the name of Schmitz & Lindgens, with a focus on colonial products. Upon their marriage, Schmitz and Scholl joined their business interests, forming the trading firm Wilh. Schmitz-Scholl. Louise Scholl would continue to play an active leadership role in the new Schmitz-Scholl family business.

The growing popularity of coffee led Schmitz-Scholl to explore a new market. For most of the century, coffee reached the end consumer as unroasted green beans. Customers were required to roast their own coffee, for better or worse. Wilhelm Schmitz saw an opportunity to provide an expanded service to his customers, and he determined to roast his own coffee for sale. His efforts would remain on a small scale, until the 1880s, when the company purchased an industrial-sized roasting oven. In that year the company opened a new coffee roasting plant, across the street from the company’s office headquarters.

By the mid-1880s the Schmitz-Schollschen Rosterei was producing more than 1,000 pounds of coffee each day. After adding a second roaster, the company moved its coffee roasting operations to a new, larger production plant.

The death of Wilhelm Schmitz in 1887 brought the next generation of the family’s leadership: sons Karl and Wilhelm Schmitz-Scholl took over the company’s operations and began orienting the company toward further expansion. The brothers began advertising their products, and the Scholl coffees soon reached new popularity under the Plantagen (plantation) Koffie and Storch (stork) Koffie brand names.

The popularity of the company’s products would again lead the Scholls to expand their operations. The Scholls were dissatisfied with their distribution arrangements—the company used third party distributors or sold directly to retailers, methods that could not provide a certain inflow of orders. In addition, the Scholls took pride in the quality of their products, in particular their coffee, a pride that was not always reflected in the care with which retailers stored and displayed their products. In the 1890s, therefore, the company determined to take their products’ distribution under the company’s wing.

The first Scholl family retail store opened in 1893 and was called Tengelmann’s, after long-time employee Emil Tengelmann, so that the Scholl family name would avoid being associated with the then socially unacceptable retail trade. A retail subsidiary, Firma Hamburger Kaffee-Import-Geschaft Emil Tengelmann, was set up under the Schmitz-Scholl operation. The Tengelmann store featured the company’s coffees, cacao, and teas, as well as other grocery items.

20th Century Distribution Giant

The new distribution format was a huge success. The Scholls quickly expanded the Tengelmann concept from a single store to a true retail organization with branches spreading throughout Germany. Driving this growth was the company’s coffee, which had become a popular brand name. The Scholl-Tengelmann operation would quickly become one of Germany’s—and Europe’s—leading coffee importers. The success of its wholesale and retail distribution activities encouraged the company to increase its production capacity. At the turn of the century the company opened three new grocery branches, which featured their own coffee roasting plants. The Tengelmann stores also were beginning to feature a wider assortment of goods, expanding to become full-fledged grocery stores.

Among the company’s import products were such items as vanilla, anise, cinnamon, cane sugar, and other spices, which, coupled with the firm’s cacao imports, would lead the Scholl-Tengelmann concern to expand in a new direction. At the turn of the century the company began producing its own sweets and confectionery products, establishing a second production line. This would take the form of the Rheinische Zuckerwarenfabrik GmbH, established in Dusseldorf in 1906 under the direction of Wilhelm Schmitz-Scholl. Among the candies that would later bring international success to the company were its Gummi Bears.

The launch into candies was followed quickly by the construction of the company’s own chocolate and cacao factory, in Mülheim, which opened in 1912. The company’s chocolate and cacao products would be sold under the Wissoll brand name, formed by the contraction of the Wilh. Schmitz-Scholl company name. Wissoll would later become the umbrella name for all of the group’s candy and confectionery products, which included brand names Lohmann, Galasana, Nipi, and Risco, in addition to the Gummi Bear and other candy items. In the 1920s the company began selling its candy products on the international market.

By the outbreak of the First World War, the Schmitz-Scholl company boasted more than 560 Tengelmann groceries. The hostilities—and the blockade of Germany by the Allies—would force the company to adapt its product assortment, limiting its offers. With the German defeat and the reparations toll, which included the loss of parts of German territory, including the Ruhr valley region, Tengelmann itself lost some 160 of its grocery stores. The postwar period would bring a depression and rampant inflation—to the extent that the mark became virtually worthless. To continue operations, Tengelmann—as the company now began to call itself—adapted its product assortment, adding inexpensive items such as ersatz coffee and pudding powders.

The institution of the Weimar Republic in the 1920s helped stabilize the Germany economy. Tengelmann, too, would profit from the return to growth by engaging on an expansion drive, dividing its operations now into regional divisions. The Tengelmann store design underwent a thorough modernization, and the leaner, more efficiently organized group looked forward to further expansion. The Weimar Republic was short-lived. By the beginning of the 1930s, however, a new economic depression, exacerbating the volatility of the German political scene, enabled the Nazi power grab. The Tengelmann group, too, had come under new leadership. With the death of Karl Schmitz-Scholl in 1993, son Karl Jr. became the company’s chief.

The Nazis’ power base among the fading small merchant class, among others, led to official measures against nationally operating grocery and department store chains. Among these measures was a stiff revenue tax. Tengelmann, associating with other firms, was able to gain an exemption from the revenue tax, at least for non-Jewish companies. But Tengelmann’s expansion efforts were nonetheless thwarted by protectionist policies that barred the opening of new branches or factories. The outbreak of the Second World War placed Tengelmann’s operations under the ultimate control of the Nazi government.

The end of the war had left not only the Reich in ruins, but much of Tengelmann as well. Its urban-based stores and factories had not been spared the bombing of the country by the Allied forces, while many of its undestroyed factories now were located in Soviet-controlled East Germany. Moreover, the shortage of goods following the war would make it difficult for the company to resume its operations; on top of this, company chief Karl Schmitz-Scholl had been placed in jail. Nonetheless, Tengelmann was able to resume operations in 1945, under direction of Schmitz-Scholl’s sister Elisabeth Haub. The company reopened shop using mobile trailers. Product assortment was limited, but the company developed several powdered products meant as protein supplements.

Postwar Expansion

Tengelmann was once again back on its feet in the 1950s. The company participated fully in the German economic reconstruction that would spark an economic boom that would last into the 1980s. Perhaps the most significant move that would enable Tengelmann to become one of the country’s top grocery concerns was the institution of an innovative shopping concept in 1953. That concept had been brought back from the United States by Karl Schmitz-Scholl Jr.’s nephew, Erivan Haub. Then 20 years old, Haub had been sent to the United States to spend time working for American supermarkets. There, Haub discovered the relatively new self-service concept that was quickly becoming a mainstay of the U.S. grocery market. Haub suggested that Tengelmann, too, adopt the self-service concept.

The first self-service Tengelmann opened its doors in 1953. The success of the new concept was immediate. By the end of the 1950s Tengelmann had restructured all of its stores to the self-service format. The company proved quick to adopt new technologies as well, including electric cash registers and computerized data processing. During the 1960s the company also began to seek expanding its retail operations into newly developing segments. The first was a new department store concept, which would become known as the hypermarket, which combined traditional supermarket operations with an expanded range of products, from hardware to small appliances to books and records, and more. In 1967 Tengelmann inaugurated its first hypermarket, under the Grosso-Markt name. The Grosso-Markt followed upon the launch of another concept store: the Tenga markets. These smaller stores took an opposite approach: vastly reduced product assortment at discount prices. Launched in 1966, the Tenga would eventually give way to other Tengelmann store names, including the Ledi and Plus discount formats.

By 1968 Tengelmann had grown into a nationwide chain of more than 400 branch operations, including more than 350 Tengelmann supermarkets, a growing number of Tenga discount stores and Grosso-Markt hypermarkets, and the company’s chocolate production operations. That year the company topped the DM 1 billion mark for the first time.

The death of Karl Schmitz-Scholl in 1969 brought nephew Erivan Haub to the company’s leadership. Haub, who had already introduced the self-service concept to the company, would be the chief architect of Tengelmann’s greatest expansion. Whereas Tengelmann’s previous expansion had been primarily internal, under Haub the company would begin a string of important acquisitions that would not only strengthen the company’s domestic position, but also transform it into an international major player while continuing its internal expansion, including the launch of a new Tengelmann Markt category, positioned between the discount and grocery format and the larger supermarket format, in 1970.

Tengelmann’s first acquisition came in 1971, when the company bought up its struggling arch-rival, Kaiser’s Kaffee Geschaft AG. Founded in 1880, Kaiser’s had grown into a chain of more than 500 supermarkets with revenues of DM 875 million. The company had run into difficulties, however, in the late 1960s. The acquisition by Tengelmann brought a restructuring of the Kaiser chain, including the conversion of a number of its smaller stores to the Tengelmann Plus format. Those stores, launched in 1972, took over the company’s Tenga discount operations, expanding the small store format to include fresh fruits and vegetables as well. Through the 1970s the company made a number of other domestic acquisitions, including firms such as C.F. Beck, Wedi, Carisch, Hillko, Bronner, Schwörer, and Schade & Füillgrabe.

At the same time the company was expanding domestically, it was looking toward international expansion. A first step was taken with the acquisition of the Austrian supermarket chain, Löwa, in 1972. This acquisition was followed at the end of the 1970s by the acquisition of a 24 percent controlling share of the Great Atlantic and Pacific Tea Company and its A&P chain of supermarkets. Once the world’s largest supermarket chain, with more than 12,000 branches, A&P had fallen into disarray by the 1970s. Under Tengelmann’s control, however, A&P was able to restructure rapidly and revitalize its operations, returning to profitability in the early 1980s. Tengelmann would continue to acquire shares in A&P, reaching more than 55 percent by the late 1990s.

During the 1980s Tengelmann would expand into The Netherlands, purchasing that country’s number four supermarket group, the Hermans Groep. By the end of the decade Tengelmann had moved into two more European countries: Italy, with the acquisition of the Superal chain, and Hungary, with the acquisition of the Skala-Coop chain of supermarkets. If Tengelmann’s international acquisition drive had come in part in response to the increasingly limited growth opportunities in Germany, due to market saturation and tightening restrictions on the opening of new supermarkets, the company nevertheless sought means to continue its growth in Germany.

For this growth, Tengelmann began to diversify beyond its traditional food-oriented distribution. In 1985 the company bought a share in the holding company Obi, and its chain of Obi do-it-yourself (DIY) hardware and building supply stores. By the end of the 1990s Obi could claim the crown as the German market’s number one DIY chain. Tengelmann next moved into clothing and accessories, with the launch of the discount center Rudis Reste Rampe and the takeover of the Modea clothing store chain.

The 1990s and Beyond

In the 1990s Tengelmann’s international expansion continued, with the extension of its Plus and other store formats into new markets, including Hungary and Poland. The end of the Cold War, which opened these markets, also brought down the Berlin Wall—and restored many of Tengelmann’s properties and factories that had been under Soviet control for nearly 50 years. The German reunification, however, would put extreme pressure on the Germany economy—at a time when the world was entering a global recession. Tengelmann would come to feel the brunt of the difficult economic period, especially the heightened competition that raged among super-marketers. In particular, a new category—that of the deep discount market—forced Tengelmann to respond, by opening its own chain of Ledi deep discount stores.

Tengelmann also would face a public relations crisis, brought on by the company’s announcement of plans to build a supermarket on the site of the Ravensbriick concentration camp. International protests forced the company to back down from the plan. With profits under increasing pressure into the mid-1990s, Tengelmann was forced to restructure its operations. After taking the decision to expand the Ledi deep discount formula, which reached more than 250 stores in 1998, Tengelmann announced its intention to convert its Plus stores from the discount format to a new convenience store format. In 1998 the company also reached an agreement to merge its Italian supermarket operations with Italy’s PAM supermarket group. At the same time Erivan Haub moved to confirm the family’s intention to maintain control of its supermarket empire. After appointing eldest son Karl-Erivan Haub the company’s European director in 1997, the elder Haub named youngest son Christian Haub leader of Tengelmann’s A&P group.