"We perceive money as a scarce item," says Harry Bruijniks, chairman of the board of Dutch retailer Laurus. For any retailer confronted with fierce competition and wafer-thin margins, this is hardly surprising. But Laurus is a different game. Since Bruijniks started his clean-up operation in August 2002, he realised that he had to build confidence among all stakeholders: suppliers, employees, customers, financial institutions and investors.
Elsevier Food International, Vol. 6, Number 4, November 2003
Pascal Kuipers

Leading a debt-ridden retailer whose organisation is demotivated and which can only be cured through vigorous reorganisation measures. Calling this a challenge is an understatement. Bruijniks decided to pick up the gauntlet, knowing that several months earlier an important financial lifeline had been thrown by French retailer Casino, who in April 2002 acquired a 38.7 per cent share with an option to consolidate Laurus via a 51 per cent majority share before 31 December 2008. Generally, it is expected that Casino will not wait that long to exercise its option. Analysts expect this to happen next year already, all the more since Laurus is writing black figures again. "Yes, I think it will happen before 2008," says Bruijniks. "But when? I really do not know. Casino has now taken its first step and that is to see how Laurus develops."

Before his appointment as chairman of the board of Laurus in August 2002, Harry Bruijniks (47) worked for Royal Ahold for many years. After several positions in marketing and sales at Ahold's Dutch subsidiary Albert Heijn, he became vice president Commercial Affairs in 1992. In 1995, Bruijniks was appointed executive vice president responsible for Albert Heijri's commercial policy (buying and merchandising, marketing and communications and logistic management). He also joined Albert Heijn's executive board. In 2000, he became president and CEO of Ahold's Thai subsidiary CRC/ Ahold Thailand.

In the first half of 2003, Laurus finally managed to write black figures. Its press release of 29 August refers to the board's expectations that full year net results will be "moderately positive". On 9 September, Laurus announced to reduce its staff by 360 people. Are further drastic cost reductions needed to retain profitability?
"Laurus' performance was negatively affected by our cross-border operations in Spain and Belgium, for which we divested some €700 million. When we complete the divestment of our last Belgian stores early next year, all international operations will have been sold. Performance in our domestic market suffers from price competition, which means that increased costs cannot be compensated for by increasing consumer price levels. Cost reduction is therefore a necessity. Laurus is a relatively young company resulting from several mergers and acquisitions in the recent past. All companies involved had their own logistic structures. Now, we are finally in a position to exploit the synergies and reduce excess
capacity, which means that we will continue to close warehouses and combine the operations of other logistic facilities. We will also roll out our inventory management system SAP AWA Retail, which increases efficiency and reduces overhead in the warehouses. Furthermore, with one system installed, fewer IT people are needed for its maintenance."

Does Casino also work with this inventory management system? Or is it compatible? Has operational integration of Laurus into Casino already been taken into account?
"Casino has a different system named Gold that it is also rolling out. We of course look at which systems Casino installs, but we have a history with SAP. IT systems are never perpetual, so I do not rule out Laurus ever using parts of the Gold system. Although important, IT is currently not our priority. This year and in 2004 we focus on restructuring the back office and improving front office activities."

During the presentation of its 2002 annual figures, Casino said it expects Laurus' operational margin to reach the levels of Casino's supermarkets in France. In 2002, however, Laurus' EBIT margin was 0.7 per cent while Casino's EBIT margin was 4.1 per cent. Are the cost reductions that you described earlier sufficient to close this gap?
"Yes, but we are doing more. Our margin has been badly affected by our foreign operations. Their divestment will have a positive impact on the EBIT margin. Because the sale of the last stores in Belgium will be completed early next year, there will still be some negative effects on our 2003 operational margin. In the Netherlands, we divested a large number of loss-making and underperforming stores. Cleaning up our portfolio reduced market share but resulted in a better bottom line, which is our top priority. This year, we shall be investing €65 million in remodelling and if possible enlarging 140 stores and in 2004, I hope to invest in remodelling even more stores, which will surely lead to an improvement in the bottom line. Our Konmar subsidiary is still losing money but we expect to turn its red figures into black ones within a year. Konmar comprises the larger superstores and smaller sized supermarkets. This autumn, 30 Konrnar supermarkets will be remodelled and rebranded as mainly Super de Boer and Edah. Between January and May 2004, a further 49 Konrnar supermarkets will be integrated within these banners. We conducted a survey and it appeared that rebranding Konrnar supermarkets to either Super De Boer or Edah resulted in a similar sales level, but with a much better margin as both labour costs and loss levels are considerably lower. Konrnar is very much focused on fresh foods and too much space was allocated to these assortments. This resulted in leakage figures of over four per cent. Currently, this is some two per cent, which is also an improvement. In procurement, we are also aiming at drastic improvements. Laurus struggled for survival and had to ask its suppliers' consideration. Of course, this is an unfavourable position to negotiate purchasing conditions. After two years of standstill we currently embody continuity and represent a sizeable buying clout. Furthermore, we centralised our purchasing and separated fresh procurement from groceries and non foods. Our buying conditions will improve and this will surely have a positive effect on our bottom line."

Does Laurus benefit from Casino's buying capacity?
"Edah and Super De Boer are to increase their private label shares considerably and via Casino's private label suppliers base they can tap into new sources for their private label procurement. Casino is actively engaged in e-procurement. It participates in auctions via WWRE. Laurus is to join in for fresh foods and commodities. In general, Casino employs state-of-the-art procurement executives and two of its most senior buyers are now working in our buying and merchandising department. They help in adding further knowledge and professionalism to Laurus' buying department."

How are relations between the Dutch Laurus and the French Casino? Is there enough cultural fit to make this marriage work?
"Laurus is as a Dutch company listed on the stock exchange. Casino has acquired a large share in Laurus and it is Casino's philosophy to improve any foreign company in which it holds a stake. Casino offers us experienced people, knowledge and systems, but it is our decision here at Laurus if we want to take up this offer. Casino is managed by people that are well involved in retail's operational practise. They are well informed and experienced and provide relevant input. So far, it has not happened, nor do I expect it to happen, but should Laurus' executive board and Casino have widely differing views on the best strategy for Laurus, then I am accountable to our supervisory board that consists of four Dutch and three French members. This system works perfectly well. In my view, Casino is the best large shareholder any company could wish for."

Will this change when Casino holds the majority of shares? Will the relationship remain as cordial?
"Casino has contributed considerably in preventing Laurus' downfall. We are therefore committed to take up a constructive position in collaboration with Casino, which is an experienced retailer with a great deal of know-how and an excellent track record with its multi format strategy in France. Their Leader Price banner for instance is the fastest growing chain in France."

Casino's discount store chain Leader Price is represented in four foreign markets: Argentina, Thailand, Poland and Belgium. Can we also expect Leader Price to enter the Dutch market via Laurus?
"Never say never. However, currently this is not an issue. With Casino, we consider all kinds of back-office synergies, especially in buying and logistics. Edah looks at Leader Price as far as cost structure and private label is concerned and can benefit from the knowledge that is available via Leader Price. The front office is much more a specific Dutch enterprise. Edah and Super De Boer on a national level and Konmar Superstores regionally, are well-established banners with good consumer franchise that we will not throw overboard. We had to focus so much on operations and infrastructure, that the front end did not receive enough attention. We will therefore invest in distinguishing our banners from others in the Dutch marketplace as well as from themselves."

Laurus is a cash flow driven operation and profitability prevails over market share. How do you manage working capital?
"Every week we monitor what money flows into, and what money flows out of our company. Cash flow is a fixed item on the agenda of our board meeting. Because of our high debt burden, we adopted the philosophy of private equity investors. We perceive money as a scarce item and therefore speed up payments of our franchisees and third-party debtors. A second virtue of private equity firms is that they want to strengthen the company and improve its operations. We therefore do not shrink from taking drastic measures like divesting or outsourcing loss-making activities."

You recently stated that Laurus shortened payment terms to its suppliers. Cunning cash flow management however, learns that stretching these terms leads to extra cash. French retailers especially, are skilled at this. Is Laurus likely to change this in the future?
"Maybe. But you should take into account that this company emerged from the shambles and restoring relations with suppliers therefore has top priority. We told them that we are good for our money and that we intend to be punctual in paying our bills. It is all a matter of regaining trust. Payment terms are part of a total agreement on buying conditions. I cannot say how we will assess this in one or two year's time as this also depends on market developments, but at the moment, we will certainly not change our attitude."

What will Laurus look like in a couple of years?
"An essentially Dutch company with store concepts that are relevant to customers and that can keep pace with market growth on its own. A company that performs at least on market average and that generates a positive return. A company that at all levels employs people that take pride in working for Laurus. That is what we aim for in the years until 2007."

Will Laurus become a more centrally managed, hierarchical company when Casino owns the majority?
"I doubt that. Yes, naturally the French influence will be stronger, especially in buying and in operational infrastructure. However, Casino knows that it cannot take decisions, centrally from its headquarters in Saint-Etienne, for local market management worldwide."