Kaufland Australia

How Kaufland is managing its Australian withdrawal

January 27, 2020
By Alana House

Big questions are being asked about how Kaufland will manage its withdraw from the Australian market, after it blindsided suppliers, local councils, landlords and its staff with the decision last week.

Less than two weeks ago, owner Schwarz Group tipped in an additional $100 million into Kaufland Australia, bringing the total paid capital to $523 million, ASIC filings seen by SmartCompany have revealed.

The Australian reported: “All through 2019 the German supermarket giant Kaufland was keeping its lawyers, executives, buyers and marketing agents busy, filling up its cupboard with product trademarks for the chain’s big opening in 2021.

“There was to be a liquor brand called Glen Morgain … there was a beer with the wonderful name of Vunderbar.”

It added: “Suppliers have been left hanging. Many have spent thousands of hours negotiating, filling in forms, preparing business cases and devoting resources to win supply tenders for Kaufland only be told to throw all of their work in the bin. Indeed, many weren’t even told on Wednesday that Kaufland had changed its mind.”

The retailer noted on its website: “In light of Wednesday’s announcement of the coming withdrawal of Kaufland from the Australian market, please be assured that we are continuing to trade as normal until further notice.

“Our current focus is on looking after our Australian team. We will be in contact with more information, including about invoices and contractual arrangements, as soon as possible.”

Kaufland employs 200 staff in Australia and had poached a number of high-profile retail executives to head up its operations, including former Myer boss Richard Umbers. Many had spent six months in Germany on a training course.

Julia Kern Kaufland Australia

Kaufland employees were informed of the company’s decision to withdraw by Australian head Julia Kern (above, middle) and were said to be in a state of shock, as the company had still been recruiting new staff last week.

The Australian reported some retail executives had been preparing to quit their current roles to shift to Kaufland before the surprise announcement. Some had resigned in recent weeks and were still on gardening leave when the announcement was made.

“It is understood Ms Kern was told over the weekend in Germany that Kaufland was walking away from Australia, and she flew back from Europe to inform her staff on Wednesday,” the newspaper said.

Australian employees only found out about the closure a few hours before a press release was sent to media.

“Words cannot express the disappointment the Kaufland Australia team feels about the sudden withdrawal from the Australian market,” one department head noted on LinkedIn.

Another manager said he was “bitterly disappointed” about the news: “It saddens me when I drive past the sites where our stores had begun construction, knowing our dream will never be realised.”

“It saddens me when I drive past the sites where our stores had begun construction, knowing our dream will never be realised,” a junior manager said.

“The opportunity to bring one of the biggest global supermarkets into a new market is amazing, and while it didn’t work out, it was an experience none of us will forget.”

“It has been an amazing ride. No on in the industry was doing what we were doing, and on such an immense, national scale,” wrote a legal counsel.

Kaufland gave an assurance in a press release that “generous packages including all entitlements will be offered” to its staff “as part of a thorough support and consultation process for all”.

The Australian Financial Review reports: “Most Kaufland staff have been told they will have jobs until the end of March, but the retailer will retain a core team to help sell assets, which include at least 10 free-hold store sites, exit leases on another dozen stores and terminate contracts with builders and suppliers.”

What happens to Kaufland’s half-completed sites?

Kaufland had more than 20 prospective construction sites across the country at the time of its decision to abandon the market.

It had spent $25 million on buying a key site in South Australia, with Business News Australia reporting that concrete is still being transported to the site and construction is continuing as usual.

In addition, construction is well underway on the company’s $450 million distribution centre in Victoria.

According to a Kaufland spokesperson the sites will be dealt with as part of the German company’s “orderly winddown” of its Australian operations.

“Kaufland will take stock of where they are with each of [the sites]. There’s reports of concrete being delivered to the site in Adelaide, and understandably it would be because contracts are in place and construction is underway, but the company will review its position on each of those sites and determine what’s the best way forward,” the spokesperson said.

As for the distribution centre, the spokesperson speculated: “A site like that would probably continue to completion and be sold or other parties might come along and take it on.”

ACCC investigates cartel concerns

According to a report in the AFR, suppliers have alleged a formal or informal agreement between leading fresh food companies, including fruit and vegetable suppliers, to withhold supply from Kaufland.

They say it was one of the factors contributing to its shock decision to withdraw from Australia.

The ACCC is calling on individuals to come forward with any information about alleged agreements between suppliers to withhold supply from the German chain.

‘‘Agreements between competitors not to supply certainly raises cartel concerns and the law is pretty clear on this,” ACCC chair Rod Sims said.

‘‘We would be extremely keen to talk to anybody who has any information about this, we have very sophisticated processes for protecting the identity of anyone who does come forward.”

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