After a few rocky years, Dagrofa appeared to be getting its business back on track… until COVID-19 came along. But as CEO Tomas Pietrangeli tells ESM editor Stephen Wynne-Jones, it will take more than a pandemic to halt the Danish retailer's positive momentum.
This article first appeared in ESM Issue 4 2020.
While the COVID-19 pandemic is a ‘black swan’ event few could have predicted, Danish retailer Dagrofa appears prepared for the challenge.
Last year, the Danish retailer, which operates the Meny, Spar, Let-Køb and Min Købmand banners, announced a major transformation plan, ‘Stærkere Sammen’ (‘Stronger Together’), aimed at turning several years of financial deficit into a profit. In April 2019, it announced full-year losses of DKK 593 million (€79.5 million), due to a massive write-down of its foodservice business.
This year, that loss has been reduced to DKK 122 million (€16.4 million), and while the coronavirus has undeniably been a setback in its recovery process, chief executive Tomas Pietrangeli believes that the momentum is now very much with the Danish operator.
“The way I look at our reaction to COVID-19, it’s really been in three phases,” Pietrangeli tells ESM. “Our initial, short-term crisis management phase, which saw us get together as a management team and solve short-term challenges, worked out pretty well.
“The second phase was about working out how we ‘normalise’ the situation and get back to a normal operating structure, which, I think, from a leadership perspective, has been more challenging than the classic ‘crisis management’ phase. The third phase, which we are moving slowly into now, is about working out what has really changed in the landscape for the longer term, and what the strategic impacts are on the business.”
Dealing With The Fallout
Denmark was one of the first European countries to introduce lockdown measures – on 13 March – with the country registering approximately 12,600 cases and 600 deaths (including the Faroe Islands and Greenland) as of the time that ESM went to press.
The country reopened its borders on 27 June to visitors from all European countries except Portugal and neighbouring Sweden (countries that boast more than 20 new infections per 100,000 inhabitants per week), with foreign minister Jeppe Kofod saying that Denmark was “in a much better place than we had dared hope just a short time ago”.
At Dagrofa, Pietrangeli tells ESM that while, on the one hand, it is “too early” to gauge the speed of recovery on its business, particularly in foodservice, there have been some positive signs.
“We see tendencies in both directions,” he says. “After the restaurant sector opened up, there was quite a significant bounce-back, with many of our restaurant customers fully booked, but, on the other hand, there’s still a large part of that market which has completely stalled – conferences, hotels, tourism. There are indications that those sectors aren’t going to get back to a normal situation within the next six months, so that’s the key question for us: what effect will this have on the time frame for our strategy?”
On the retail side, the coronavirus pandemic has led to more consumers shopping locally, which has, in turn, benefitted the Dagrofa footprint, Pietrangeli adds.
“Being local and being part of the community has played a significant role during the coronavirus, and boosted our market share significantly,” he says. “The fact that our store footprint plays very much in residential areas has had a positive impact, and that has also prompted us to think about how much of that will remain in the future, and ways in which we can ‘dial up’ this element.”
COVID-19 also prompted much collaborative thinking across the sector, Pietrangeli adds, which was encouraging to see and helped mitigate the impact of the crisis on day-to-day operations.
“The attitude was, ‘Let’s not play games with each other,’ or use this for commercial benefit,” he says. “Let’s do what’s right for our personnel and for our consumers, and make sure we have a guaranteed food supply in place. It was a very united approach, and some very transparent discussions took place.”
Stronger Together
Had the coronavirus pandemic hit a year or so earlier, Pietrangeli and his team would likely have been less confident, however. The former managing director of Arla Foods’ UK operation joined Dagrofa as chief executive in June 2018 and set about improving the efficiency of what was a somewhat fragmented organisation.
“The business had historically been operating as a conglomerate, with different units running independently and not a lot of cross-company collaboration,” he says. “There was a very strong merchant set-up, with some independent store owners doing a fantastic job, but the business was still losing money. It was clear that we needed to focus on ways to drive value creation back into the business.”
Under the ‘Stærkere Sammen’ strategy, Dagrofa set about streamlining its value chain through the integration of IT, HR and salary functions, as well as engaging in ‘targeted work’ on in-store improvements, strengthening its existing partnerships, and seeking strategic supplier collaborations.
“Our independent store owners are very entrepreneurial and very good at what they do, but, historically, they have not been very coordinated,” Pietrangeli says. “That’s a big task, ensuring they retain their independence, but, at the same time, encouraging them to work together so that they can benefit from the economies of scale from purchasing, logistics, and other considerations.”
Pietrangeli and his team have sought to bring these merchants into the planning process, developing workshops to determine the future strategy of the business.
“In the past, Dagrofa would have come up with a strategy and then told our merchants, ‘This is what we are going to do,’ but with these workshops, you had several hundred merchants coming together and proposing solutions and feeling that they are part of the decision-making process,” he says. “We’ve just undertaken a net promoter score assessment of the satisfaction of our merchants, and it’s skyrocketing. We believe we have adopted the right strategy.”
The ‘Stærkere Sammen’ approach has also prompted the business to develop partnerships with service providers and complementary businesses. The past year saw it announce contracts with BC Hospitality Group (valued at DKK 75 million, approximately €10 million) and fuel business Q8 (worth DKK 600 million, approximately €80.5 million).
“Q8 has a very aggressive vision to improve its convenience offering, and that’s certainly something we are able to help with,” says Pietrangeli. “In general, the classic petroleum retail sector is under pressure and needs to redefine itself to become much more relevant to shoppers. That also provides us with additional learnings that we can bring into the retail space.”
Banner Performance
One year into the ‘Stærkere Sammen’ strategy, Pietrangeli says that all the group’s banners have seen an increase in profits and market share – a further indication that the business is on the right path.
“Meny is positioned as a high-end, service-orientated food retailer – the Danish equivalent of Waitrose – and we’ve stuck to that position, despite the changes to the marketplace,” says Pietrangeli. “There’s been a bit of a ‘race to the middle’ in Denmark recently, with the discounters moving up in terms of a more premium offering and many supermarket chains trying to compete with that, which has been of benefit to us.”
With Spar, meanwhile, Dagrofa is seeking to “dust off” the business and revitalise the offer, more in keeping with the needs of local communities.
“We’re making good progress,” says Pietrangeli. “One of the things that has been quite interesting at Spar is that we have developed a ‘crowd-funding’ concept, so a community can literally buy into their local store.”
The group’s smaller chains, Let-Køb and Min Købmand, have also seen investment. Let-Køb recently unveiled a new brand identity, which will be rolled out across the estate over the coming year. “Let-Køb and Min Købmand are very much local concepts,” says Pietrangeli. “From a macro point of view, there has been a trend towards urbanisation, and people moving into big cities, but there’s also a counter-trend to that, which is the need to maintain businesses in smaller towns and villages. The local grocer is a key part of that.”
It’s a promising outlook, therefore, from a retail group that only recently saw its annual overall revenue return to positive territory, but as for Dagrofa’s aim to return a positive operating profit?
“‘Stærkere Sammen’ was always seen as a three-year strategy, and we said that by 2021, we need to be back in the black,” says Pietrangeli. “In spite of coronavirus, I’m not giving up on that ambition. We are making lots of improvements to the business, so I’m quite confident that we will get there – if not next year, than certainly by 2022.”
© 2020 European Supermarket Magazine – your source for the latest retail news. Article by Stephen Wynne-Jones. Click subscribe to sign up to ESM: The European Supermarket Magazine
