A snake pit named Rewe

In fact Reischl was no dictator like the mentioned statesmen, but he managed the organisation of cooperative wholesalers “[…] in the style of an enlightened monarch and obviously this resulted in Rewe being synonymous to Reischl and Reischl to Rewe,” the German Lebensmittel Zeitung commented in 2004 on the announcement of Reischl’s retirement.
Reischl is the man who expanded Rewe into a bigger and bigger company, from the size of a regional player to a multinational in the European, yet global, top league. With Rewe’s star rising, so did that of Reischl. To expand the cooperative retailer into an ever-bigger company, Reischl needed a policy of divide and rule and had to act cautiously and diplomatically. Managing Rewe meant earning and receiving authority and doing whatever needed to stay in power. Or – to use Lebensmittel Zeitung’s metaphor – Reischl needed to be crowned king by the local ‘Genossenschaften’, as the cooperatives are called in German, who bestowed him with the authority to reign the Rewe empire from the Cologne headquarters.

Reischl toppled
Reischl ruled Rewe via an opaque network of information- and finance-systems, and by appointing his paladins on important positions. This obviously did not create the world’s most efficient organisation, but growth silenced the opposition. Who would dare argue with the visionary leader who built Rewe’s status as a star retailer?
But there was opposition, as power play is tricky business in an organisation of which the roots are essentially cooperative. Rewe Dortmund – one of the cooperative wholesale members – has always retained an independent position versus Rewe Central. Moreover, the supervisory board could – or should – check the deeds of the enlightened executive.
A major collision between Reischl and the supervisory board – embodied by its chairman Dr Klaus Burghard – took place in 2001. In that year Reischl decided to grant his business buddy Leo Kirch – a media tycoon who got into trouble because of expensive investments in a formula one racing team – a €128 million loan without prior approval of Rewe’s supervisory board. Reischl was reproached with authoritarian behaviour. He seemed to have forgotten that, in the end, he was only an employee, the German press commented. He should have known better, dealing with Leo Kirch, as only one year earlier Rewe had lost millions because of the acquisition of a main share in Kirch Media, one of Mr Kirch’s subsidiaries which, however, filed for bankruptcy a short while later.
Nevertheless, Kirch repaid the loan to Rewe with interest and within the agreed time frame. Apart from the German authorities who investigated the rightfulness of the payback procedure, the question of this loan as such was dealt with. But the internal opposition to Reischl’s self-willed behaviour, applying the rules of the game at will, was rising.
A radical split in Reischl’s relation with the supervisory board developed over the question on Reischl’s succession as Rewe’s chief executive. Who and how, that was the question. Reischl himself was already making the necessary preparations for his life after Rewe. He had in mind a seat in the supervisory board, but that was denied him, to Reischl’s astonishment. Rewe also opposed to Reischl becoming member of the supervisory board of department store retailer Karstadt Quelle. The reason for this is Rewe’s opinion that Karstadt is a competitor, especially in the tourism business (next to food retailing, tourism is the second pillar of the Rewe Group). What further caused the split is the fact that Rewe’s supervisory board – according to Reischl – was far too early in disclosing the name of Reischl’s successor. Already in February 2004, Rewe’s supervisory board announced that Ernst Dieter Berninghaus was to become the new successor as of 1 January 2005. Reischl disapproved with both the timing and the candidate and immediately decided to announce his resignation which would be effective as of 30 April 2004. Eight months earlier than expected.

A series of successors
In the months up to the announcement of his retirement in February 2004, Reischl was constantly questioned about who was going to succeed him. But he always evaded the question. If the name of the future Rewe-chief would be made public, Reischl could stick to drinking coffee, the German weekly Die Welt commented late April 2004. “The sly boots obviously feared a loss of authority, would he only be Chief at Request,” the newspaper read.
Dieter Berninghaus started as Rewe’s new chief executive on 1 May 2004 but his tenure only lasted five months. On 14 October Rewe announced Berninghaus’ resignation due to health reasons but soon it became clear that he was accused of tax fraud and deceit. He had secretly acquired shares in the Internet firm Nexum, which he sold to Rewe for a record price in 2000, during the Internet frenzy. He also kept secret provisions he received following this dubious deal. Berninghaus pleaded guilty and arranged a €11 million settlement with Rewe. He was also sentenced to two years suspended imprisonment.
The Rewe empire was subsequently managed by a triumvirate of Rewe-executives: Gerd Bruse, Josef Sanktjohanser and Hans Schmitz. From the outset this compromise solution was not a radical shift away from the past due to the presence of Bruse, one of the last remaining managers from Reischl’s inner circle. Gerd Bruse, the boss of Rewe’s tourism business, was said to have a tight personal link to the ousted chief Reischl. Bruse is known as a tax expert and he allegedly was the mastermind behind the financial myriad of the Rewe organisation during the Reischl era. It was even said that Bruse was Reischl’s personal tax consultant.
In April 2005, after an executive search of months, Rewe’s chairman of the supervisory board Burghard finally announced the appointment of a new chief executive: Dr Achim Egner. Putting him – up to then an outsider with no links to Rewe’s past – at the helm was part of a larger plan of the supervisory board which included ousting the powerful buying chief Hans Schmitz and appointing the French chief of Penny discount, Alain Caparros, in Rewe Central’s executive board.
At Rewe purchasing is power, so the powerful Schmitz had to go if Egner was to be granted a fair chance to really lead the embattled cooperative. Bruse, however, still retained his position. Four months later, however, in August 2005, Burghard told Bruse that his contract would be terminated.
Appointing an outsider and getting rid of a representative of the old regime did not lead to the peace and quiet the Rewe organisation needed so badly in order to finally restructure and reorganise. In early September 2006, only 16 months after his appointment, Egner handed in his notice to Burghard, after a dozen of disgruntled managers had gone to Burghard’s office to express their discontent with Egner’s reorganisation policy. Egner was reproached for disregarding the opinion of senior managers and listening solely to external advisors.
Rewe’s turbulence in recent years and Egner’s untimely demise raises the question whether the retailer has really come to grips with its past. Do decades of Reischl’s rule still affect Rewe? Should the retailer’s governance structures not be reorganised thoroughly for the new executive Alain Caparros to stand a fair chance?
A statement, allegedly expressed by Klaus Burghard after the Berninghaus-fiasco is significant in this respect. At that time the chairman of the supervisory board commented on Reischl’s involvement in the sudden disclosure on Berninghaus’ fraud. Burghard quoted the Roman philosopher Seneca: “A tyrant can kill numerous people, but not his successor.”
Apparently Reischl is an exception to this rule.

The dominance of purchasing
Reischl succeeded in turning the cooperative retailer Rewe into a partnership which was dominated by the central executive board. He had the exclusive personal right to make multi-million euro decisions and he had a right of veto within the executive board. Within his system centrally managed purchasing was the main power base. Operational managers in the Rewe wholesale companies were not given any information on purchasing conditions. One of them anonymously told Lebensmittel Zeitung that the central purchasing department abused its absolute power and skimmed profits upfront.
The power of the Rewe Central and especially the dominance of purchasing is something the cooperative members want to change. But how long does it take to change a business culture which has for decades been based on pure power play? The senior managers’ putsch of last August which resulted in Egner’s resignation in early September is not an encouraging sign that things have changed for the better.
According to Rewe observers, one of Egner’s mistakes was that he failed to create an internal group of trustees to provide him with a power base necessary to change things. Quite contrary, he stuck to the opinion of external advisors of the Boston Consulting Group (BCG) who reorganised the purchasing to increase cost efficiency. “BCG drastically reduced the number of buyers and intended to manage everything centrally, not only buying but also human resources, marketing, private label management, everything,” an insider comments. “But Rewe is a different brand than Penny or MiniMal. But the BCG advisors ignored this. Egner believed BCG and appointed people on key central positions that would do anything to curb the decision-making of the regional directors. Pricing, marketing, communication, everything should be organised centrally.”
All this rapidly caused opposition to Egner whose position became isolated. Moreover, it is said that Reischl still has connections with people within the company who are still indebted to him. This structure of delicate relations based on power is essentially opaque and still in place.

A difficult task ahead
Rewe Dortmund, the cooperative wholesaler who always retained an independent position, is also a source of friction. The self-willed wholesaler suddenly withdrew its support to Rewe’s Big Bang of 25 September. That day all banners were to be unified under one brand Rewe, and Rewe Dortmund had initially approved this. The reason for this last-minute change was that it had clinched a deal with Rewe Central so that the latter – in its everlasting attempt to draw Rewe Dortmund closer to its chest – would acquire shares of Rewe Dortmund. The latter, however, refused to lose any of its independence. As the supervisory board of Rewe Central suddenly postponed approval of this deal, Rewe Dortmund decided to postpone its support to the Big Bang as well.
This is further proof of internal suspicion so that the retailer’s management is occupied more with power than with consumers and the market. Burghard himself has been damaged by all the recent troubles and knows that Rainer Paas – the recently retired chief executive of Rewe Dortmund – is keen on his job as chairman of the supervisory board. At least, that is what one can hear through the grapevine in Germany. What Reischl was to the Rewe Central, Paas is to Rewe Dortmund, although Paas is considered more upright despite his lust for power. These are the prima donnas Caparros will have to deal with in the future, when the judge and the financial authorities will investigate the allegations regarding Reischl and – last but not least – customers will need to be serviced based on a new strategic plan.
Alain Caparros faces a difficult task, having to steer a company that has just changed its strategic plan but the governance structure of which remains based on old fashioned power play. If Caparros really succeeds in making Rewe ‘a little better every day’ – as is Rewe’s new slogan – he realises a hitherto unrivalled pace of change.

Late 1926, 17 German purchasing cooperatives decide to join forces and on 1 January 1927 start the Revisionsverband des Westkauf Genossenschaften (auditing association of western purchasing cooperatives), in short ‘Rewe’. In 1972, Rewe reorganises and creates the Cologne-based Rewe Central, with the Rewe wholesalers as registered shareholders. At the same time Rewe Central Finance is created which operates as a credit cooperative. Its members are the Rewe wholesalers.
In 1974, Rewe takes a 50 per cent stake in the Leibbrand Group, which operates the HL and MiniMal supermarket chains, Penny discount stores, Toom hypermarkets and Idea drugstores. This acquisition creates the backbone of a nationwide operating network of affiliated stores. In the following years Rewe adds regional retailer banners to its network. Globus (hypermarkets, 1983), Stüssgen (supermarkets, 1984), Deutscher Supermarkt (1988) are examples of Rewe’s acquisition zeal in the 1980s. In 1989, Rewe takes full control of Leibbrand.
In 1990, Rewe reorganises: the three-tier structure retail-wholesale-head office is replaced by a much more centrally managed governance structure. The up to then more independently managed Rewe wholesale companies transfer their business operations to Rewe Central. The exception is the traditionally independent Rewe wholesaler in Dortmund. Rewe expands in the former German Democratic Republic and in Germany’s south and south-western region by acquiring the 399-store base of the German Co-op AG.
In 1993, Rewe first ventures abroad by acquiring a stake in the British retailer Budgens. Intentions to create a British version of the Penny discount operation are not successful. From that time onwards Rewe actively expands its operations abroad, mainly to the emerging markets of central and eastern Europe (see Table 1).
In 2004, Hans Reischl – who actively pushed Rewe’s expansion abroad – retires after 27 years of service as the cooperative’s chief executive. From then on, developments at Rewe are turbulent as different factions try to fill the power vacuum.
On 25 September 2006 Rewe changes its 3,000 German supermarkets – except the 243 stores of Rewe Dortmund – to a single new logo. This Big Bang represents the kick-off for Rewe’s new retail strategy aimed at aligning with state-of-the-art European retail trends.