Basic concentrating on the basics

At a press conference in Munich, the new top management at Basic AG used the expression “back to basic(s)” to describe its strategy of consolidation for the troubled company. By implementing drastic savings and returning to its strengths, the organic supermarket chain wants to be back in the black within a year. To combat the economic downturn Basic is being forced to close four stores.
(Picture: Basic in Munich)
At the Annual General Meeting on 20 August 2008, the whole management team of Basic was replaced after the Swiss ASI Nature Holding AG in Lucerne had taken over the shares of the Schwarz Group. The Swiss, now with 40 % of Basic’s share capital, launched a comprehensive restructuring. The recently announced strategy is the second stage in the plan to rescue the Munich organic supermarket chain.

“We have already passed through the vale of tears – in September customer numbers were back at the level before the crisis,” explained Joachim Kreuzburg (in the middle, picture on left). The current chairman of the Board, who is chief executive of the company during its transition period, was confident that the measures adopted would restore Basic AG to profitability again by the end of 2009. However, the restructuring programme has had some painful consequences: four unprofitable stores in Cologne (Severinstraße), Hagen, Münster and Karlsruhe had to be closed on 18 October. In Mr Kreuzburg’s words: “We want to get away from covering every area and concentrate on service.” Reports that the fate of more stores is in the balance were denied, but Mr Kreuzburg did admit that five more were under close scrutiny. Similarly, he would not confirm that competitors in the organic industry were taking over Basic’s premises. He said that the closed stores had not been rented to other companies. Thus, the rents are still a financial commitment for Basic.

The radical measures to economise reveal how serious the situation is: a deficit of six million euros has to be eliminated. The aim is to save over three million euros through cost reductions and staff adjustments, and a further 2.5 million euros through structural measures in the stores and by means of the closures. The company has stated that these measures will mean that the losses will be halved during the rest of 2008. “The crisis is 90 % beaten,” says Mr Kreuzburg. In 2008, Basic’s turnover is likely to be approximately 94 million euros (including the stores in Austria); last year turnover was 91.1 million euros.

After its financial rescue, Basic’s aim is to go for growth. Two new stores in Munich are planned in the short term. One will be opened in the middle of December in Amalienburgstraße, and another in Nymphenburgstraße in mid February. Both are located in the affluent Nymphenburg district in the north west of Munich. Mr Kreuzburg announced the opening of at least three more stores in Germany during 2009. If the plan succeeds, there will be a total of 27 Basic stores by the end of 2009. Before the current closures the figure was 26. The two stores to be launched shortly will create over 40 jobs, and the plan is to relocate some of the 59 employees affected by the closures. Twenty have already accepted the opportunity to work in different stores. The economic restructuring has meant that the company has downsized its workforce from 850 to 600 (full-time).

Explaining what the new strategy means in practice, Mr Kreuzburg said they would be concentrating more on customers’ wishes and expectations again. This embraced sustainable operations, regional commitment, the highest quality and freshness, a congenial shopping environment and excellent service. As well as returning to Basic’s core values, he emphasised the intention to grow organically. Another component in the recovery plan is improved communication with consumers that advertises competitive starter prices as well as promoting the image of Basic and its core values.

Basic’s management expressed its thanks to everyone who had made it possible to turn the company round. “The company will fulfil the trust placed in it,” said Mr Kreuzburg. The company’s gratitude also applied to suppliers and banks as well as shareholders. With their significant capital injection, they had facilitated the changes undertaken in the company. The shareholder structure stays unchanged until the share subscription deadline at the end of October. He said that if all shareholders continued, the ratio 3:1 would not change. The principal shareholder, having taken over the shares of the Schwarz Group, is the Swiss ASI (40 %). The founders of Basic, Johann Primeier and Georg Schweisfurth, each hold approximately 20 %, and Richard Müller holds 10 %. The rest of the shares are in the hands of small shareholders.