AVA AG (Allgemeine Handelsgesellschaft der Verbraucher AG)

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AVA AG (Allgemeine Handelsgesellschaft der Verbraucher AG)

Fuggerstrasse 11
D-33689 Bielefeld
Germany
Telephone: (49)(5205) 94-01
Fax: (49)(5205) 94-1029
Web site: http://www.ava.de

Public Company
Incorporated: 1892
Employees: 27,704
Sales: DM 9.78 billion ($5.85 billion) (1998)
Stock Exchanges: Frankfurt/Main Dusseldorf
Ticker Symbol: AVA
NAIC: 5411 Grocery Stores; 5311 Department Stores; 5231 Paint, Glass And Wallpaper Stores; 5995 Optical Goods Stores; 5499 Miscellaneous Food Stores

Active throughout Germany and in the Netherlands, AVA AG (Allgemeine Handelsgesellschaft der Verbraucher AG) is one of Germany’s leading retailers. Concentrating on large shopping facilities, AVA operates 110 Marktkauf discount department stores; 50 dixi hypermarket stores offering groceries, textiles, and other products; and 95 do-it-yourself outlets in Germany and nine in the Netherlands. AVA also holds a majority share in Delta Hauser Baumarkt GmbH & Co. KG, another do-it-yourself chain with 24 outlets. The company’s Krane optical chain with 83 shops is Germany’s third-largest optician in sales, while its real estate subsidiary, CEV, manages 14 large shopping centers under non-AVA brand names, four of which it owns. Since 1982, AVA has cooperated with the German Edeka Group, a food wholesaler and retailer, in purchasing. Their combined demand makes them Germany’s largest food purchaser. With 49.9 percent of its stock, Edeka is also AVA’s single largest shareholder.

Born Out of Hardship in 1892

The end of the war between Germany and France in 1870-71 brought about an economic boom, based on a united German Empire under chancellor Otto von Bismarck and fueled by French reparation payments in the billions. Bielefeld, a blue collar industrial town in the Ruhr, where many new enterprises of various kinds were founded, became a magnet for job-seekers. However, most of the workers were struggling at subsistence level. When a shortage of potato supplies in Bielefeld in 1891 pushed the price of 100 pounds to half a week’s wages, a few workers collectively purchased the essential food for “normal” prices in Saxony. This endeavor was so successful that the workers soon included other foodstuffs into their combined orders. On January 17, 1892 a meeting was held to found the Bielefelder Konsum Verein, a limited liability cooperative. Each of the 35 founding members invested about a week’s wages. The management board consisted mainly of locksmiths, carpenters, and foremen. The first warehouse was established in a former bowling alley, and the first piece of office furniture was a large crate.

Nine months later the Bielefelder Konsum Verein had 716 members, and management decided to establish six distribution centers, to hire a business manager, and to buy a cart. By 1893 the cooperative was renting a new warehouse and totaled 971 members. After a period of sluggish growth, sales increased three-fold between 1892 and 1896, and the cooperative was able to afford its own sleigh. In spring 1898 the Bielefelder Konsum Verein purchased a plot of land and moved into a newly built warehouse.

In 1903 the Bielefelder Konsum Verein passed the one million mark in sales mark. It purchased the neighboring plot of land and was able to afford the salary for a second manager. Over the next couple of years, other parcels of land were acquired to extend the business, and a third manager was added to the payroll. In 1909 the cooperative opened its own bakery and added production to its purchasing business. The new bakery was a hit and had to be enlarged after only a few weeks. A second large bakery was opened the following year.

Around 1900 consumption-cooperatives were on an upswing throughout Germany. They were organized under two umbrella organizations: the Zentralverband Deutscher Konsum-Vereine and the Reichsverband Deutscher Konsum-Vereine. In addition to purchasing and distributing food and other products, their central purchasing organizations began in 1910 to offer their own products and services. They established bakeries, butcheries, and shoe repair workshops. They also produced pasta, canned foods, matches, soap, laundry detergent and cigars in their own factories. Moreover, they offered savings accounts and insurance contracts. The Bielefelder Konsum Verein even entered the real estate development market in 1913 when it started building two shops and 69 apartments for workers. In that year, the cooperative had 17,200 members and generated millions in sales.

Wars and Crises Bring More Hardship Until 1945

The outbreak of World War I in 1914 interrupted the economic upswing in Germany, and made day-to-day business increasingly difficult for the Bielefelder Konsum Verein. With prices going up and more and more products being rationed, a rising number of people joined the co-op, where only members were allowed to shop. At the same time, the operating environment for the organization became more restrictive. All wholesale was under government control, and the shops of the Bielefelder Konsum Verein were only able to sell what they received; private initiative was impossible. Margarine was scarce, there was only one kind of sausage available, and cheese was just a rumor. In 1918, the last year of the war, only a few products were freely available, and over the four previous years the price of basic foodstuffs had doubled. Between August and November 1918, the German authorities even decreed four meatless weeks. Moreover, the Bielefelder Konsum Verein’s bakery had problems getting coal for their oven. Nevertheless, its membership reached 23,700 in the same year, up by more than one-third in comparison to the last prewar year.

The 1920s were even more challenging. The German government fought the heavy debt caused by the war and the reparations it was obliged to pay by printing new money. In 1920 the German currency was only worth one-tenth of the prewar value and by the summer of 1922 it was only worth one-hundredth. In 1923, the peak year of hyperinflation, an American dollar was worth 4.2 billion German Marks. A coachman of the Bielefelder Konsum Verein recalled that his coach was just as packed on his way back from the stores as it was before he had made his deliveries; instead of sugar, the sacks he carried contained bank notes. In order to bring all the money to the bank as soon as possible, he always pushed his horse to its limits. Even after the new Reichsmark replaced the old currency, customers continued to pay with the old money, while suppliers demanded the new currency. This resulted in losses of up to 50 percent for the Bielefelder Konsum Verein.

Membership of the consumer cooperatives jumped to new heights during these years. Although worker’s wages were only two-thirds of the prewar level, and prices began rising again in October 1924, the Bielefelder Konsum Verein’s bakery thrived. Fine baked goods for Sunday were the most sought after. Within one year the number of employees at the bakery jumped from six to 23. The cooperative also invested in better equipment for its coffee roaster and upgraded to a better quality of coffee. Despite another serious downturn in the local economy, the firm broadened its product line, including more household goods. It also invested heavily in store design to attract better clientele and opened a large store that successfully combined formerly separate stores, such as the bakery, the butcher shop, and the household store.

By 1930 consumer cooperatives accounted for 15 percent of the German food market. The Bielefelder Konsum Verein totaled 24,000 members that year. The depression following the 1929 crash of the stock market in New York created economic hardship in Germany. Moreover, there were other dark clouds onto the horizon as well. As mass unemployment rose, the Nazis began winning acceptance in Germany, and the party considered consumer cooperatives as Marxist, making it clear from the very beginning that there was no place for such organizations in their plans. Backed by small merchants who felt threatened by the new competitors, the Nazis, having gained political power in 1933, began to systematically destroy the Konsum system. The liquidation was executed in three steps. The Nazi threat began with anti-Konsum propaganda and violent terror; they distributed flyers requesting Konsum members to withdraw their memberships and savings, they arrested Konsum managers, and they vandalized stores. In the second step, they enacted new laws that merged the two umbrella organizations into one, forbade any promotional campaigns, and forbade the opening of any new stores. Finally, they enacted a law that obliged the Konsum cooperatives to pay all savings deposits back to their members by 1940. The Bielefelder Konsum Verein, like many other of its kind, went bankrupt, and its stores were privatized. Finally, in February 1941, a new law was enacted on the “adjustment of all Konsum cooperatives to war conditions” which served as the legal basis to abolish the surviving 1,200 cooperatives with their three million members and 12,000 stores.

Growth of Welfare Society Begins in 1948

After World War II was over the Konsum cooperatives once again emerged out of a hardship caused by postwar scarcity of literally everything, in particular food. As early as September 1946 the new Konsumgenossenschaft Bielefeld was officially registered. The newly founded business was able to attract 7,000 members by the end of 1947. Only five years later its number had again more than tripled. Almost ten years after the war ended, in 1954, the military government of the Western Allies gave the property that the Nazis had confiscated back to the Konsum cooperatives.

Company Perspectives:

Today as in the past AVA has pledged itself to providing consumers with low-price and quality; employees with secure employment which offers opportunities for a good salary and promotion; and shareholders with the chance to participate appropriately in its positive development.

The beginning of the 1950s marked an unprecedented economic boom in Germany’s history in which the Konsum cooperatives participated to a very great extent. Sales at the Bielefelder Konsumgenossenschaft increased almost ten-fold between 1947 and 1962. At the same time the cooperatives faced new challenges. While a new law enacted in 1954 allowed them to sell their goods to non-members, they found themselves competing for the same customers as the growing number of retail and food chains, department stores, and large supermarkets. Only consolidation enabled the cooperatives to survive. In 1956 the Bielefelder Konsumverein agreed to merge with the Bielefelder Haushaltsverein, another Bielefeld cooperative that was first founded in 1903.

In the mid-1950s, a novelty changed the retail business: self service. The idea, originating in the United States, soon won over German customers. The Bielefelder Konsumverein opened three self-service stores in 1957. Six years later these outnumbered the “old-fashioned” stores and were contributing 72 percent of all sales. Because the availability of goods at affordable prices was no longer an issue, another American concept—marketing—became more important. The central purchasing organization for all Konsum co-ops ventured into catalogue sales. In rural locations stores were enlarged and carried textiles and furniture. Beginning in 1962 the Bielefelder Konsumverein offered holidays trips to Italy, Spain, and other European countries. A member newsletter, fashion shows, and special events for homemakers or kids were organized to keep customers loyal and happy. Under a new cash-bonus system, members received bonus stamps with every purchase they made, put them in a booklet, and brought them to the Konsum store once a year to receive cash incentives. The same law that allowed the cooperatives to sell to non-members also restricted those reimbursements to three percent, so a Konsum member received between DM50 and DM200 on the average.

The Rise of Discounters Begins Around 1965

The advent of discount stores shook the German retail market in the mid-1960s. Offering a very narrow product line, discount markets lured customers with their extraordinarily low prices. Outside cities, but easy to reach by car, huge self-service outlets set up shop, offering a broad range of goods, including food, textiles, household goods, electric appliances, and automobile supplies at attractive prices. With competition becoming tougher, the Konsum cooperatives were under pressure to streamline their business. Smaller co-ops merged into bigger ones; smaller stores were closed, and new large stores opened.

In 1965 GEG, the Konsum’s central purchasing organization, took over 56 supermarkets from the German retailer Ekloh GmbH. Eight of them were located in Bielefeld and the nearby cities Bunde-Lubbeke, Herford, and Guetersloh. The takeover caused major logistical problems for the Konsum cooperatives in those towns since none of them was able to keep their new stores stocked, and the new stores had begun to draw large numbers of shoppers. For this reason, the four Konsum cooperatives eventually merged into the Konsumgenossenschaft Ostwestfalen. The new company had almost 60,000 members, operated 209 stores and generated about DM 75 million in sales.

The new co-op Ostwestfalen invested heavily in building large supermarkets, streamlining purchasing, logistics, and marketing, as well as in a new central warehouse. In summer 1970 it merged with the co-op Lage into the co-op Ostwestfalen-Lippe eG. Between 1964 and 1974 the number of store locations shrunk from about 200 to 75, while sales skyrocketed to DM 250 million during the same period. This success was driven by the Marktkauf GmbH, a newly founded subsidiary of the co-op Ostwestfalen-Lippe, which specialized in large discount department stores. The six Marktkauf stores alone contributed almost 40 percent of total sales, while 78 co-op markets and another department store accounted for the other 60 percent.

In 1972 a new umbrella organization was founded. The co-op, Zentral AG aimed at merging all Konsum cooperatives into 20 large regional companies which were to go public by 1974. However, the representatives of the co-op Ostwestfalen-Lippe decided to remain independent and transformed their business into a public company.

A Modern National Retail Group Is Born in 1975

On January 4, 1975 the Allgemeine Handelsgesellschaft der Verbraucher (AVA) started operations. One quarter of the shares issued by the company were purchased by AVA employees. To ensure the company’s independence, voting rights were limited to one-thousandth of the total share capital. The new player in the German retail market took off at an impressive speed. Only ten years after its founding, AVA’s sales had grown fivefold and its profits six-fold. The company’s workforce tripled, and the Verkaufsfláche was five times the size in 1985 as it had been ten years ealier. On August 21, 1986 the company’s shares were for the first time publicly traded at the Dusseldorf stock market.

Key Dates:

1892:: 35 workers found the Bielefelder Konsum-Verein.
1909:: Konsum Verein opens the first bakery of its own.
1930:: Cooperative reaches a record 24,000 members.
1941:: Konsum Verein goes bankrupt under Nazi pressure.
1946:: Konsumgenossenschaft Bielefeld officially registered.
1954:: Western Allies return property to the Konsum cooperatives; a new law allows co-ops to sell goods to non-members.
1965:: Four Konsum cooperatives merge to become the Konsumgenossenschaft Ostwestfalen.
1975:: The Allgemeine Handelsgesellschaft der Verbrau-cher AG (AVA) begins operations.
1986:: AVA’s stock trades on the Dusseldorf stock market.
1993:: Edeka Zentrale AG becomes AVA’s biggest shareholder.
1998:: AVA sells all of its supermarket operations.

The fall of the Berlin Wall in 1989 and the introduction of the Deutschmark in East Germany in 1990 suddenly enlarged AVA’s market. In September 1990 the first Marktkauf do-it-yourself outlet opened in the East German city of Greifswald. Two years later a brand-new logistics center was opened in the East German town Zarrentin. By 1992 the AVA was among the ten top German grocery chain operators, generating DM 320 million in sales. In 1993 one-fourth of AVA’s sales floor space was located in the former East Germany.

The unexpected boom that the German reunification brought to German retailers faded away in the mid-1990s. Consumer spending dropped, caused by falling real wages, rising unemployment, and taxes, as well as by the Germans’ rising skepticism about the future. Another factor that contributed to declining grocery sales was the growing concern about food quality in connection with several scandals including adulterating wines, hormones in meat and milk products, poisoning of certain brand products by blackmailers, and, more recently, dioxin-polluted chicken food and genetically engineered farm products. AVA fought falling sales by concentrating on large shopping facilities, strong communication concepts, and enlarging their network of shops. In October 1993 the company bought a 25 percent share in the Stuttgart-based Nanz Group with 11,000 employees and DM 2.8 billion in sales, as well as shares in two other former Konsum co-ops in western and southern Germany. In the same year the German grocery wholesaler and retailer Edeka Zentrale AG purchased 49.9 percent of AVA’s share capital and became its single largest shareholder.

The late 1990s did not bring the awaited consumer upswing. Although better off than other retailers, AVAs shareholders did not receive any dividends between 1995 and 1997. In 1998 the AVA management decided to institute rigorous reorganization program. It refocused AVA on it’s core business: large discount department stores, hypermarket stores, and 95 do-it-yourself outlets. It had sold all its supermarkets and shareholdings in other supermarket chains by mid-1998. It consolidated and integrated all large stores of the former Nanz group, and introduced its own brand for a line of 650 products, mainly food, in the lower price range. By the end of 1999 AVA took over the German do-it-yourself chain Delta Hauser Baumarkt GmbH & Co. KG from the Lidl & Schwarz group with 24 outlets and DM520 million in sales. In the same year company sold its nine do-it-yourself outlets in the Netherlands, but was planning to extend its activities in this market segment in the year 2000.

Principal Subsidiaries

Marktkauf Handelsgesellschaft mbH & Co. OHG; dixi Discount Handelsgesellschaft mbH; AVA-Baumarkt-Division; GHD GmbH; FG Frischwaren GmbH; Krane Optik und Akustik GmbH & Co. Betriebs KG (75%); Delta Hauser Baumarkt GmbH & Co. KG (51%); GDR Gesellschaft fur Datenverarbeitung und Rechnungswesen mbH; CEV Center Entwicklungs- und Verwaltungs-GmbH; Marktkauf Süd GmbH & Co. Handelsgesellschaft OHG (59.5%); Marktkauf Süd-West Handels-GmbH + Co. Verbraucherhmarkte (59.9%); Marktkauf Ost Handelsgesellschaft mbH & Co. SB-Warenhaus OHG (59.9%); EZA Einkaufszentrum für Alle GmbH & Co. KG (59.9%); AVA Immobilien und Anlage GmbH Betriebs-KG (94%); KAUFMARKT Vermietungs- und Verpachtungs-gesellschaft mbH; AVA-Beteiligungs-GmbH & Co. OHG.