Simplicity, efficiency, and sustainability in discount grocery

McKinsey: Can you tell our readers a little about the history of your company?

Ole Robert Reitan: My grandfather started it. He opened the first grocery store in Trondheim in 1948, a traditional store with him as the shopkeeper behind the counter. As the owners of the grocery store, my grandparents were at the center of their local community. They knew everyone, from the housewives and the schoolteacher to the priest and the soccer coach. My grandfather worked behind the counter all his life, and I grew up in his store.

McKinsey: How did that store evolve into the company you manage today?

Ole Robert Reitan: That’s where my father comes in. In 1972, he opened his own store. At the time, he and my grandfather had a very intense argument about whether a chain-operated retail model could work. My father envisioned a chain of stores. My grandfather thought that was a terrible idea and argued it would never work. He was convinced that the owner had to be on the shop floor all the time, watching over the customers, the local market, the inventory, the costs—everything.

McKinsey: How did they resolve their disagreement?

Ole Robert Reitan: The pivotal moment was a trip to the United States my father took in the mid-1970s. In America, he discovered the franchise system. McDonald’s and Holiday Inn made a big impression on him. Here was a system that combined the best of both worlds: the accountability of owner–operators and the scale of a chain.

McKinsey: So that was the magic moment?

Ole Robert Reitan: Exactly. It really is a miracle that these two guys with totally different perspectives on life and business found common ground after almost a decade of arguing. The next argument was around the actual concept. So my father took another trip: in 1977, he went to Germany and met the Albrecht brothers, the founders of ALDI. My father was thrilled, and he came home with the plan to create the first Norwegian discount concept. He opened the first outlet in 1979 and called it REMA 600, with an assortment of 600 SKUs. In 1980, he expanded the assortment to 1,000 SKUs, paving the way for the REMA 1000 brand.

McKinsey: And it took off right away?

Ole Robert Reitan: It did, thanks to my father’s focus on low costs, low prices, and high turnover. High turnover enabled him to reduce costs even further, and he passed the savings on to customers through even lower prices that led to even higher sales. It was a strong flywheel.

McKinsey: Let’s fast-forward to the present day: what was 2023 like for the Nordic grocery market?

Ole Robert Reitan: Inflation was the main topic. Prices increased by as much as 10 percent. That had a big impact on the market. In early 2023, it was a “wild West” situation in terms of pricing. Competition was fierce, and some prices we saw didn’t make sense to me. I just didn’t see how some of our competitors could cover their costs with those prices. Later on, it turned out that I was right, and things balanced out toward the end of the year.

McKinsey: How did all this affect REMA 1000?

Ole Robert Reitan: The first half of 2023 was challenging, even for us. But thanks to the price pressure, the market share of discounters grew, so that worked in our favor. As a company, we did well in 2023, especially in Denmark and Norway.

McKinsey: What was your biggest achievement in 2023?

Ole Robert Reitan: That’s easy. It was the acquisition of the majority of ALDI’s store network in Denmark. There had been similar milestones in the past, such as the takeover of Lidl stores in Norway in 2008, but the fact that the Albrecht brothers had been our idols from the start made this deal very special. So when I sat down with ALDI to sign the agreement in a hotel in Copenhagen, I had to pinch myself to make sure I wasn’t dreaming. I’m probably the only person on the planet who has signed such acquisition agreements with both Lidl and ALDI.

McKinsey: How do you expect the grocery market to evolve in the Nordics over the coming years?

Ole Robert Reitan: Because of the challenging macroeconomic situation, shoppers will keep looking for ways to save money. I think there is still room for growth for discounters, especially because they offer such high quality in the Nordics. In the big cities, supermarkets will have a hard time competing with soft discounters, at least for regular shopping trips for 90 percent of the population.

McKinsey: What is your aspiration for 2024?

Ole Robert Reitan: We want to be the market leader in discount grocery, and we are well positioned because we are the most efficient player thanks to simplicity, franchise, and standardization. We have only one grocery brand, REMA 1000, with one concept and one assortment. That creates a slim and efficient value chain all the way from sourcing to distribution. And thanks to the franchise system, we also have a slim administration.

McKinsey: And what is the biggest challenge you are facing in 2024?

Ole Robert Reitan: The biggest challenge is the integration of the stores we have acquired. In a normal year, we recruit 15 to 25 new franchisees. Now, we have to onboard 70 franchisees and 2,200 employees in nine months. With all these new people coming in, it won’t be easy to uphold our strong culture. But the ALDI deal has given the entire organization an adrenaline rush, so I’m confident we can pull it off.

McKinsey: What is your perspective on sustainability?

Ole Robert Reitan: Our credo is to offer the highest quality at the lowest price, delivered in a responsible way. We have a commitment to cut our carbon emissions in half by 2030, and that is a demanding task. We work with 10,000 suppliers from 200 countries, so the complexity is considerable. But what makes me optimistic is that I expect brand owners to address Scope 1 and 2 emissions. If everyone follows the same logic, it’s going to work.

McKinsey: Do you think retailers will have to change the way they run their business to promote sustainability?

Ole Robert Reitan: No doubt. Until now, you had the operations and an ESG [environmental, social, and governance] department. In the future, you have to put the ESG department in the heart and the mind of every employee. At Reitan, we are glad that we started working on sustainability years ago. Thanks to that head start, we have answers to some of the increasingly difficult questions consumers are asking today.

McKinsey: What are your thoughts on meat and dairy?

Ole Robert Reitan: Everyone is talking about reducing red meat and dairy. But you have to replace it with something. So you have to get creative with new production methods, new tastes, new recipes, new category management solutions, and new formats to entice shoppers to try plant-based alternatives. Food producers and food distributors have to take joint responsibility to make change happen. Right now, we are ahead of the policy makers, but if we fail to deliver, they might create an environment that’s even stricter than that of today.