Edeka bid for Tengelmann to impact retail property market

For investors in German retail portfolios involving the leading grocery chains, news of the announced takeover of Kaiser's Tengelmann by rival Edeka will be giving them distinct pause for thought, as it is likely to have a noticeable impact on the retail property market, at least regionally. Edeka want to take over its smaller rival by June 2015.

Although Mülheim-based Tengelmann’s market share of 0.6 % is low in the German grocery retail industry, overall its markets are concentrated within three regions of Germany.

According to Joachim Stumpf, CEO of Munich-based retail real estate consultancy BBE Handelsberatung, “Kaiser’s Tengelmann is primarily focused in North Rhine-Westphalia, Berlin and Bavaria, where especially in these areas, the landlords will suffer due to the concentration. At the end of the day, the quartet of Edeka, Rewe, Aldi and Lidl’s market power will be strengthened by the fusion.” These four leading retailers have collectively an 85% market share.

Stumpf believes that the takeover will considerably strengthen Edeka's market position, leading to the elimination of the Tengelmann brand, and the bolstering of Edeka's own discount chain Netto where the competitive situation allows. If the deal goes ahead – and it is now just waiting for the approval of the German cartel office – then the majority of Tengelmann's 450 stores in Bavaria, Berlin and North Rhine-Westphalia will be reflagged as Edeka markets by mid-2015, and "to avoid cannibalism effects, other Tengelmann markets will be turned into Netto markets where necessary."

The chain now with most to fear would seem to be fellow co-operative retailer Rewe, which has vowed to use every legal tool at its disposal to prevent the Edeka-Tengelmann takeover going ahead. In the three Länder where Tengelmann's is active, Rewe believes the new merged company would have a 35% market share, making it twice as big as Rewe and very capable of abusing its market position.