The owner of discount supermarkets Lidl and Kaufland has charged into waste management despite the downfall of a big industry player, Duales System.
Where there’s a supermarket, there’s trash, and in a highly developed country yearning to dispose of that trash ecologically, that means opportunity.
The Schwarz Group, Germany’s largest retailer who owns Lidl and Kaufland supermarkets, has built up its own waste management group and is busy adding recycling to the mix. That business is called PreZero, formed after Schwarz took over another disposal firm, Tönsmeier, last year and merged it with its own activities to create Germany’s fifth-largest player in the sector.
Prozero, which already has annual revenue of €500 million ($572 million), has a near-term target of €750 million per year, just from trash collection. If it gains a foothold in recycling, revenues will be higher still.
German law forces producers and retailers to pay a charge on the packaging that ends up as consumer waste, from milk bottles to the parcel bags that online retailers use to ship books. The government hopes that the levy will ultimately reduce waste and boost the recycling rate. Meanwhile, the waste companies licensed to collect and recycle these materials get a cut of the levy, plus whatever profit they can glean from reprocessing.
Tapping a national obsession
Thanks to a deep-seated love of order, Germans are very good at sorting plastic, glass, cardboard and paper into the right bins, generating mountains of waste for recycling. The country’s top five waste management firms – market leader Remondis, along with Veolia, Suez, Chinese-controlled Alba and PreZero – collected €6.2 billion in revenue last year (see graphic below).
Schwarz enjoys an unusual advantage for a newcomer: It can start with its own trash. By processing the refuse of its large retail chains, the company is expecting annual fees of €100 million. Pending official approval of its recycling business, expected by 2021, PreZero can tap into that market.
The move is not without financial pitfalls. Last year, one of the big recycling specialists, Duales System Deutschland, went bankrupt. Because many companies dodged the packaging tax, DSD ended up processing a lot of trash that wasn’t paid for. Privately-owned Remondis, which has bought DSD pending antitrust approval, will surely be hoping that a new register and penalties for free riders will prevent similar mishaps in future.
Schwarz, however, shrugs off the potential danger. “We have great financial strength thanks to the Schwarz Group, and we intend to use it,” says Dietmar Böhm, managing director of PreZero. The unit will invest more than €100 million this year in recycling, including construction of two new sorting sites.
What about Aldi?
This unlikely incursion into the trash business by a food retailing group has competitors worried. “Lidl and Kaufland have tremendous purchasing power,” says Eric Rehbock, head of recycling industry association BVSE, who fears a distortion of competition. The grocery chains could compel their suppliers to use PreZero, he added.
Some are already looking to see what Aldi, a rival supermarket giant, will do. The discount chain pays recycling licenses to the tune of €90 million, almost equal to Schwarz’s.
Industry experts says Schwarz’s move will be tricky for management. “Waste disposal is very complex and isn’t part of a retailer’s core business,” notes Haluk Sagol, an expert at Inverto, part of the Boston Consulting Group.
At the same time, Inverto calculates that retailers, through their unique position in the recycling system, could shave one-fifth off the cost of waste disposal. So Schwarz may be on the right track. “It’s an innovative if gutsy move,” says Sagol, “that still has to prove itself.”