Loss-making Makro is putting on a brave face and insists it has Metro’s support but rivals believe it has no option but to sell up, says Beth Phillips

In June, Metro Group CEO Dr Eckhard Cordes declared Metro Cash & Carry had "stopped the downward trend". He must have overlooked the UK.

The latest financials for Makro Self Service Wholesalers, filed last week, make grim reading. Makro's pre-tax losses increased by £18m to £44.7m in the year to 31 December 2009. Sales were down 3.5% to £868m. Non-food sales fell by 11%.

It's a stark contrast to four years ago, when Makro made profits of £189,000 on sales of £1.07bn in the year to 31 December 2005.

So what are the prospects for Makro? How long can the Metro Group keep propping up the beleaguered wholesaler? And is it only loss of face preventing Metro from quitting the UK?

According to the accounts, the directors "have received confirmation that [Metro Group UK holding company] Makro Cash & Carry UK Holding Ltd intends to support the company for at least 12 months" up to 30 September 2011.

However, the goalposts seem to shift constantly. In 2007, when MD Hannes Floto joined, he said the wholesaler was on a three-year turnaround programme. In 2008 this had changed to five years, taking us to 2013. Is Metro effectively running out of patience?

Not at all, says Floto, who insists the turnaround is on track, with operating losses (after exceptionals following the closure of three depots, a head office restructure and the resulting redundancies) down from £21.6m to £20.6m.

"Industry insiders are using every opportunity to knock us," Floto says. But Makro is "well on the road to recovery after delivering a considerable improvement in operating profitability in 2009. We're on track to make a further significant improvement to our bottom line in 2010 and have no plans to leave the UK. Our focus on the catering professional is proving highly successful. It's not easily copied, and creating real competition."

To be fair, the UK is also not the only market in which Metro is struggling. This month, it will close three Metro Cash & Carry Germany depots and divest a fourth. In January, it also plans to merge Metro Cash & Carry Germany with its other German wholesale business, C+C Schaper.

"Metro is working hard to address poor sales performance in many mature markets," says a City analyst. "They know there are ways to get growth, such as online ordering, deliveries and own label."

And the analyst is convinced the UK operations will be propped up not to save face but to maximise the sale price. "If they did a deal right now, they'd get the wrong price," he says. "They are more likely to recover the business and then sell it."

But rival wholesalers are not convinced and now predict a hasty exit. "The question now is not if but when they will pull out of the UK," says one.

And while Bestway's solicitations have been rejected, The Grocer understands, "they'd get better value selling their property, as it owns most of the 30 remaining depots", says another, who believes Hilco, the well-known turnaround specialists, could be used.

Certainly no other obvious suitors appear likely to want the business as a going concern. While Makro has good coverage across the UK, Booker and Costco have surrounded Makro on all sides, says another wholesaler. "Costco is killing Makro in the UK," he says. "Over the past five years Costco has moved into areas like Croydon and the north west where Makro has been strong. If you look at the results since 2006, Costco's sales have gone up and Makro's have gone down. Non-food especially has headed to Costco."

Another wholesaler believes the mix of retail and industrial sites creates a further problem. Instead of warehouses, Makro needs a consumer-based proposition, he adds. "Makro is a great consumer brand name and used to be a fantastic business, but if I were head of Metro Europe, I'd change the sites to retail units."

Makro in the UK
Entered UK: 1971
Number of depots: 30
Locations: Aberdeen, Belfast, Birmingham, Bristol, Cardiff, Charlton, Croydon, Edinburgh, Enfield, Exeter, Glasgow, Hull, Ipswich, Leeds, Leicester, Liverpool, Manchester, Norwich, Nottingham, Park Royal, Poole, Preston, Queensferry, Rayleigh, Reading, Sheffield, Southampton, Stoke, Teesside, Washington
Number of staff: 5,086