Grupo Eroski History

Company Perspectives:

Mission of the Grupo Eroski: Our group distributes high consumption products and services. We endeavour as the expression of our social responsibility, to: Provide satisfactory solutions for our customers by means of permanent innovation. Create a company project and model aimed at integrating people. Promote the workers' personal and professional development. Achieve positions of leadership on the Spanish market. Obtain profits in order to achieve a wealth-generating growth. Distribute the profits in a framework of shareholder cooperation and participation. Commit ourselves to defending the consumer. Foster environment-friendly management. Contribute to improvement of the community in which we operate.

Key Dates:

1958:

San Jose Consumers Cooperative in Mondragon, part of the Mondragon Corporacion Cooperativa (MCC), is founded.

1959:

Four MCC coops found their own bank, Caja Laboral.

1969:

Ten local food coops join together to form Comerco.

1970:

Commerco becomes Eroski, the distribution arm of MCC.

1975:

Eroski begins opening hypermarkets and selling non-food items.

1978:

The company launches its own in-store brand.

1979:

Eroski opens its own research and development laboratory for new products.

1990:

A partnership with Valencia-based Consum is formed.

1997:

Eroski merges with Unide, Mercat, and Vegonsa.

1998:

The company creates a new private label brand, Consumer.

1999:

Cenco, Disbor, and Aundia are acquired.

2000:

Supera is acquired.

2002:

Eroski forms an international partnership with Les Mousquetaires (Intermarche).

2004:

Consum pulls out of its partnership with Eroski, which then rebrands its stores under the Eroski, Eroski Center, and Eroski City names.

Company History:

Grupo Eroski is the distribution arm and the largest part of Spain's powerful cooperative group Mondragon Corporacion Cooperativa. Eroski is also Spain's second-largest retail distribution group, trailing only France's Carrefour. Eroski operates more than 800 supermarkets throughout Spain. Since the pull-out of partner Consum--which left with more than 400 supermarkets as well as the group's former Consum and Charter banners--Eroski has restructured its operations around three core banners. The group's nearly 70 large-scale hypermarkets remain under the Eroski banner, while the company's more than 500 supermarkets have been rebranded under the Eroski Center name. More than 250 smaller, urban stores have now adopted the Eroski City banner, reinforcing the Eroski name as a whole. In addition, Eroski oversees 305 franchised stores and 28 wholesale cash & carry centers. In a move to diversify its distribution base, Eroski has built a network of 176 Eroski Travel Agencies and nearly 150 perfume stores under the If name. The company also operates 28 gasoline stations as part of its retail network and plans to extend that operation, placing fuel pumps at all of its stores. At the same time, Eroski has begun building an Internet presence, launching e-commerce enabled retail and travel agency sites. While most of Eroski's sales remain in Spain, the cooperative has made some moves into the south of France. It has also entered a strategic partnership with France's Intermarche, providing for international purchasing and logistics cooperation and creating Europe's third-largest supermarket entity. Eroski operates along an employee-consumer ownership model, producing more than EUR 5.2 billion per year in revenue. Despite the departure of Consum, Eroski remains committed to leading the consolidation of the Spanish retail food distribution sector and has added such regional supermarket players as Udama (Aragon and Andalusia), Supera (Madrid and elsewhere), Vergonsa (Galicia), and Mercat (Balearic Islands).

Cooperative Origins in the 1950s

The Basque region suffered more than other parts of Spain following that country's civil war. The region's resistance to Franco-led forces left it subject to reprisals following the establishment of the dictatorship following the war. The Franco government adopted a discriminatory policy against the region, banning the Basque language, among other repressive acts. At the same time, the Basque region became discriminated against economically as well, and into the 1950s it continued to struggle to rebuild following the devastation brought on by the civil war. Low levels of government investment brought about a high level of poverty throughout the region.

This situation, however, provided fertile ground for the development of a strong cooperative movement and especially the rise of the Mondragon Corporacion Cooperativa (MCC) as one of Spain's industrial and economic forces. The MCC was founded by Father José Maria Arizmendiarrietta, who had come to the small town of Mondragon in 1941. Arizmendiarrietta, who had been sentenced to death during the Spanish Civil War but had managed to escape, originally worked to provide social welfare programs and opportunities to the local population, organizing sporting, cultural, and educational events. In 1943, he founded a school that later evolved into the University of Mondragon. The new school provided essential education and training for a new generation that were to transform Mondragon itself into a regional economic center.

By the mid-1950s, the region possessed a strong, talented pool of young and enthusiastic workers. Led by Arizmendiarrietta, the decision was made to develop a home-grown industrial base in the region. In 1956, the MCC backed the founding of Talleres Ulgor, which began producing stoves and heaters. That company grew strongly and was later transformed into Fagor Electrodomesticos, one of Europe's leading manufacturers of home appliances.

Inspired by the work of Robert Owen, considered to be the founder of the European cooperative movement in the mid- and late 19th century, Arizmendiarrietta now began promoting the creation of a series of local worker cooperatives in the Mondragon valley and surrounding areas, starting with the San Jose Consumers' Cooperative, founded in 1958 in Mondragon itself. By the end of 1959, there were already four worker cooperatives in operation, and these joined together to create their own bank, the Caja Laboral. This unusual move was later credited for providing the backbone for MCC's national and international expansion and for the emergence of Eroski as one of Spain's top retailers.

By the end of the 1960s, the Basque region boasted more than 40 cooperatives, including a growing number of consumer cooperatives, working either under or in association with MCC. By then, however, the shift in traditional food retailing that had already swept through the United States and through much of Western Europe, bringing modern self-service supermarket formats and centralized buying practices, had begun to make itself felt in Spain as well. In the new environment, the small-scale cooperatives were forced to recognize that they would be increasingly hard pressed to compete in the emerging modern retail market.

In 1969, ten of the smaller consumer cooperatives in the region decided to join together and create a new, more powerful cooperative entity, originally called Comerco. By the following year, however, the organization had found a new name, Eroski. Backed by the Caja Laboral, Eroski began expanding throughout the Basque region, opening a number of supermarkets and adding a number of existing cooperatives as well. During the economic crisis of the 1970s, the group adopted a new ownership model, becoming a hybrid worker-consumer cooperative. This change enabled the company not only to survive the difficult economic period but to thrive.

By the end of the 1970s, Eroski had already claimed the position as the clear leader in the Basque region supermarket sector. The company began pioneering new store formats, notably by importing the "hypermarket" department store and supermarket hybrid. While the company's hypermarkets offered both food and non-food items for sale, Eroski also launched its first non-food stores in 1975 as well. The rise of the Eroski name in the region led it to launch its own Eroski line of foods in 1978, a move that was backed by the opening of a new research and development facility in Elorrio, the following year.

National Expansion in the 1990s

Eroski continued to grow throughout the 1980s, while remaining focused on its Basque regional base. Yet the cooperative's success, and its worker-consumer ownership structure, attracted interest from cooperative groups from other parts of Spain. In the mid-1980s, representatives from a Valencia region cooperative came to visit with MCC in order to study aspects of Eroski's success, then returned with backing from MCC in order to found their own worker-consumer cooperative, named Consum. Others followed suit, such as the S. Coop chain.

Consum quickly grew into the leading food retailer in the Valencia region. With this confirmation that the Eroski formula could be exported to other regions--and was therefore not dependent on the highly close-knit nature of the Basque community--Eroski began plans to expand itself to a national level.

A new factor intervened to ensure Eroski's success. The supermarket sector began a new transformation in the 1990s, as the rising competition among Spanish retailers was joined by the appearance of a new wave of competition from foreign retail groups. The entry into Spain by such European retail powerhouses as Carrefour and Auchan of France and Ahold of the Netherlands placed the country's highly fragmented national supermarket sector under a new level of competitive pressure.

The arrival of new competition led Spain's cooperatives to cooperate with each other. In 1990, Eroski formed an alliance with the S. Coop chain and the Consum Coop group, launching Eroski onto the national scene. That alliance provided the basis for the expansion of the Eroski-branded chain of hypermarkets, which topped 60 by the end of the 1990s. At the same time, Eroski rebranded its own supermarket operations under the Consum and Charter names, which enabled Eroski to become part of a nationally operating, widely recognized brand.

By the mid-1990s, the Spanish retail food distribution, like its European counterparts, had entered an era of heightened competition and consolidation. While the Spanish market remained highly fragmented, increasing numbers of smaller, regional chains and independent supermarkets found themselves unable to compete against the juggernaut of the multinational giants. Consolidation became the sole means of survival for many of Spain's supermarket groups, including Eroski.

Eroski began a drive to gain scale and to emerge as a truly national retail player in the second half of the 1990s. The company launched a massive growth strategy, more than doubling in size in just five years. At the same time, the company looked beyond its cooperative base, adding an increasing number of new supermarkets, many of which were placed under a franchise model.

A decisive turning point for Eroski came in 1997, when it agreed to a three-way merger with Madrid-based Group Unide, the Galicia region's Vegonsa, and Group Mercat, then the largest supermarket group on the Baleares Island chain. The merged group became a national powerhouse, second only to Carrefour. Eroski nonetheless remained committed to its cooperative model.

Following the merger, Eroski began rolling out a new branding strategy. While the group retained the Eroski name for its hypermarkets, it decided to adopt partner Consum's name for its national supermarket network. Backing up its national aspirations, Eroski launched its own private label brand, Consumer, in 1998. In 1999, the company began rolling out a new, smaller convenience store format for the city center market, which adopted partner Consum's Charter brand format.

International Connections in the 2000s

Eroski continued to build its network at the turn of the 21st century. In 1999, the company acquired three supermarket chains: Cenco, based in Castile and Leon; Disbor, serving the Catalan region; and Aundia, based in the Navarrese. The following year, the company added the Supera! Chain as well. By 2001, Eroski had gained more than 500 new stores in just five years.

Eroski had also added new business lines during that period, launching its own travel agency service, Eroski Travel Agencies, which neared 200 branches by 2004. Another retail format, the If perfume store, proved popular with the consumer public, and by the early 2000s Eroski operated almost 150 stores. The company had also begun rolling out its own network of service stations, beginning with its hypermarket chain. As it approached the middle of the decade, Eroski already operated more than 30 service stations, with plans to add fuel pumps to all of its supermarkets.

By 2002, Eroski's more than EUR 4.5 billion in sales gave it a solid second-place position in Spain, with a market share of more than 12.5 percent. Eroski had also surpassed MCC's industrial operations by then, becoming the largest part of the cooperative and forcing it to revise its own long-term strategy.

In the meantime, the European retail sector turned towards new developments. The lowering of trade barriers, the introduction of the single European currency, and the prospect of an enlargement of the European Community in 2004 promised increased cross-border competition. At the same time, European retailers braced themselves for the entry of a new--and daunting--competitor, Wal-Mart, which threatened to repeat its U.S. success in Europe.

These factors encouraged Eroski to begin looking for a partner in order to give it a stronger presence throughout the international market. In 2002, Eroski signed an agreement with France's Les Mousquetaires, which operated the InterMarche retail group, the third largest in Europe with annual sales of more than EUR 26 billion. The deal gave the partnership the second place among Europe's retailers. At the same time, Eroski strengthened its relationship with Italy's Co-op Italia, that country's largest food retailer.

Eroski suffered a setback at the beginning of 2004, when long-time partner Consum announced its intention to pull out of the partnership. The move meant the loss of some 450 Consum and Charter stores owned by Consum, as well as the Consum and Charter brand names. Despite having lost some one-third of its total retail park, Eroski quickly discovered a new opportunity in the end of the relationship. By April 2004, Eroski announced a restructuring of its retail network. The group's 62 hypermarkets retained the Eroski name, while its supermarkets were rebranded as Eroski Center and the smaller convenience stores as Eroski City. This move helped reinforce the Eroski name as a national brand.

Eroski continued to look for growth opportunities, while remaining committed for the time being at least to its domestic market. The announcement of Ahold in 2004 that it intended to sell its 160 stores in Spain represented a new opportunity for Eroski to gain scale, as the company acknowledged its interest in bidding. From a small local coop, Eroski has grown into one of Europe's top 50 retailers.

Principal Competitors: Centros Comercial Carrefour S.A.; Distribuidora Internacional de Alimentacion S.A.; Mercadona S.A. Tavernes Blanques; Alcampo S.A.; Ahold Supermercados S.A; Caprabo S.A.; Superdiplo S.A.

Further Reading:

• Bruce, Anna, "Playing at Leapfrog," Grocer, February 3, 2001, p. 40.
• "Consum Decides to Go It Alone," FoodAndDrinkEurope.com, February 6, 2004.
• Dowdy, Clare, "Eroski Holds Its Own with Wagstaffs' Help," Design Week, July 30, 1999, p. 6.
• "Eroski to Change Supermarket Banner," FoodAndDrinkEurope.com, April 7, 2004.
• "Intermache/Eroski Purchasing Partnership," European Report, October 9, 2000.
• Thompson, David, "Mondragon Retail Strategy: Eroski Partnership Path," Cooperative Grocer, November-December 2002.

Source: International Directory of Company Histories, Vol.64. St. James Press, 2004.

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