Sunday, July 17, 2016

Marinopoulos - The Cascade Of A Possible Bankruptcy

The Economist Intelligence Unit provides a report about "Marinopoulos - the decline and fall of a retail giant". It provides for scary reading because it shows the follow-up damage which comes as the result when a large company goes bankrupt (n. b.: Marinopoulos is not bankrupt yet but it doesn't look good).

The casual newspaper reader might say ok, there is a large company going out of business; too bad for the employees but that's that. What that casual newspaper reader does not understand (yet) is that there are enormous consequences of such a bankruptcy which might even affect himself.

For starters, Marinopoulos has over 1,3 BEUR in liabilities, i. e. money which they owe to someone else. One might say ok, so the banks will have to take a loss but that's their problem because they made bad loans. When 4 banks have to take losses of over 500 MEUR, that may quickly turn out to be not only the banks' problem but someone else's, too.

Marinopoulos owes over 700 MEUR to trade creditors. Now the bullets are starting to hit closer to home because the reverse conclusion is that trade creditors may lose over 700 MEUR. Huge amounts of money are owed to individual large suppliers which raises the question how those suppliers will handle those losses and whether, perhaps, there will be another chain reaction among the suppliers and their creditors. But then there are also an assumed 3.000 small suppliers, perhaps even your small neighborhood farmer, who might be entirely wiped out by their losses.

Taken in sum, a Mariopoulos bankruptcy would cause shock waves throughout the Greek economy whose final impact can only be guessed at this point. And then the next question is: Will there perhaps be another Marinopoulos soon? 


  1. I remember in the 80's there were about 1/10th of these large supermarkets which dominate the market today. Something began to feel wrong when each neighborhood started having it's own supermarket.

    In the mid-90's I started noticing that Greeks were buying new cars en masse. Whereas in the 80's one family would have one car, by the late 90's each family member would have his individual car.

    By the early 00's, the real-estate boom was in full swing. It was a sight to behold. All these old-school single houses would get demolished, and in their place big apartment buildings would get built. That's when the impression that something was way off in the Greek economy got entrenched in my mind.

    What does all this have to do with the impending bankruptcy of the Marinopoulos supermarket chain? Not much I'm afraid. Of course such a large bankruptcy is going to have significant effects, both in the real economy and in the half-dead financial sector (shall we place bets on when the new recapitalization is going to take place?).

    Seven years into the Eurozone crisis and we're still no closer to solving simple problems when it comes to the functioning of the monetary union. Now that China is devaluing, it must be obvious that the world economy won't save the Eurozone (through an export-led recovery). Therefore I hope that the upcoming Italian constitutional crisis and Marine Le Pen's election in the French presidency will bring forth the EMU's dissolution.

    It's going to be painful, but at least we'll move on. Jesus, for the past seven years we've been standing still in a vain attempt to accommodate Germany's delusions. Enough is enough. Let the deficit countries deficit-spend through the central-bank (that's what central-banks are there for) or let go.

    1. Yes, I am afraid I have to agree. The way I see things -- as a former economist -- is that you have one of three choices in a globalised economy for microeconomic strategy:
      (1) follow market forces, or maybe try to manipulate them with market segmentation
      (2) use cross-subsidy, in order to protect sectors or businesses that need to survive and should not be foreign
      (3) as a temporary strategy, deny market forces by borrowing and accepting zero-profit activity simply to survive.

      Of course, these microeconomic strategies cannot work for the macroeconomy. They will destroy it, pretty rapidly. Essentially, that is what has happened with the eurozone. Strategies 1 and 2 are illegal; strategy 3 has been followed implicitly by the eurozone. Access to cheap credit led to overconsumption and non-rational state borrowing in Greece and southern Europe, which they all acclaimed (including the Germans) as a great success story. Even with massive current account deficits? Obviously, the eurozone is not a credible structure. Yet, an idiot with no grasp of economics (Schaeuble) is persisting with this structure, and blaming indebted countries for the foolish decisions of Germany and France. The only hope is for the global economy to destroy the eurozone.

  2. This is all typical top-down banking theory. When will bankers grow up and learn about how the real world works? You need detailed data on how Marinopoulos has been operating and continues to (just about) do so.

    Some of that you can glean by simply entering large Marinopoulos stores, and making intelligent observations. Here are some:
    (1) almost no customers, and the staff seem ecstatic when one person enters a large store
    (2) Large gaps on shelves where there used to be popular products that sell easily
    (3) Item prices are far too high compared with all competitors. Hoew does this make sense?
    (4) No attempt to market, just expecting idiots to buy things. Clearly, no strategy.
    (5) You have the feeling of having entered a morgue -- not a supermarket. Here is clear evidence that the company has already given up, and is just waiting to die.

  3. Mr. Kastner,

    Having worked my for Famar, a company of Marinopoulos, who also served the super market chain aside from the pharmaceuticals, leaves me sorrowful for the state that the family of the Marinopoulos has brought their giant business to the grave. And i mention family, because it is the descendants who are in disagreement with each other, to say the least, on the whole endeavor on what to do. It is very unfortunate, that one successful family will destroy so many livelihoods.

    Currently Marinopoulos is trying to stay afloat and avoid bankruptcy and get awarded Article 99 which allows old debts to be frozen and paid at a agreed time. The article basically states, if Marinopoulos is accepted, that creditors and suppliers who seek their debt to be paid must agree to continue to serve Marinopoulos on a cash against documents agreement while some bit of old debt are paid off slowly every x time period. If a creditor does not agree or sign on the old debt is written off.

    Now whether Marinopoulos is accepted into Article 99 or goes bankrupt one thing for sure, the shock waves will be felt in either case. Maybe if Article 99 is made and is sold off slowly the market will have a lesser blow, but i highly doubt it.

    If they bankrupt, the Marinopoulos story will be one of the main reason we will need the 5th new debtors agreement to save our banks once again.


  4. One wonders how Marinopoulos was allowed to work up a debt of 1,3 BEUR. We talk about a company with 13000 employees with a debt of EUR 100000 per employee. A company with no intangible capital in the form of R&D, know-how and other human capital, only their fixed capital.
    For the EU as a whole, for the sector trade, for all sizes of companies, the average fixed tangible capital is EUR 38000 per employee. For Greece it should be lower. For the sub-sector supermarkets it should be lower. For such a large company it should be lower.
    Where did the money go? The employees or suppliers? hardly.

    1. Hi Lennard,

      It is very easy. I can not get into all the details, but one main contribution is the manner in which payments where made.

      In the 80s Greece worked mainly on cod or maybe maximum 1 month credit. When the credit boom came likewise the 90's and 00's, there was a huge increase in payment days as money was cheap. Benchmark industries within Greece took on the tricks of the western commerce and used them but also in a detrimental manner. Carrefour, in 2004 which set the mark for all businesses in the same industry, was with payment terms of 12 months. So if you sold your products to them today you were paid in one year. The suppliers agreed because salesmen saw Carrefour as a sales cash cow. This set the mark for the whole market. Meanwhile if customer like Marinopoulos was bad at payment, debt was cheap. When the bubble burst and Carrefour left, Marinopoulos continued the same path but now he was taking on debt to pay older purchases. It spiraled out of control. Meanwhile his major debt is on companies and less on banks. The fear banks have is not the debt which they will lose from Marinopoulos but the possible debt of all the suppliers that served Marinopoulos.
      this will be very bad.

      Regardless, this chain is the last of the crap. If one good thing has come from the crisis is that the crappy, shady and inefficient, businesses have disappeared. This will leave the good healthy businesses left to grow and also as a benchmark on how to conduct business in the future.

      Greece needs another 5 painful years, if the global economy doesn't tank. I want to be hopeful that things will change.

      There are other aspects of the supermarket industry which also help contribute to such debt issues but i will not go into. Aside from the Marinopoulos issue i believe the rest of the industry is now healthy and or run efficiently.


  5. We did not have long to wait for our news of where the money went. According to Greek media 866 MEUR went to 6 offshore companies in the years 2012-2014. In 2012 they sacked KPMG accountants, stopped all public financial statements and introduced outrageous fee's to their BoD's. But their friendly bankers still lend them money and handled their money transfers.
    PS. We shall never know if KPMG were sacked or simply refrained from a very lucrative deal.

  6. @ V.
    You apparently fail to see that the success of this family IS the destruction of livelihood for these thousands of people. Marinopoulos did not create wealth; they just stole it from these people.
    As for the 13000 direct employed by Marinopoulos, the Greek authorities in June 2016 requested that the European Globalization Adjustment Fund (EGF) support them (and others). They are, however, not the victims of globalization, but of the Greek business model and greed. We therefore find ourselves in a situation where European taxpayers will pay for the Marinopoulos family's "success", amongst them citizens from far poorer countries.
    I can only agree with Jim Slip, let's wrap up the EU, it cannot be changed from inside.

    1. @ Lennard,

      Marinopoulos was a success as business and as family. For a great long time it was doing quite well. Meanwhile famar was the no1 pharma 3rd party manufacturer in the eu. It is a fine line success and failure in business.

      Even if the business tanks one way or another. I am very aware of exactly how much they made in the sale of their businessES, many, then buy backs cheaply, reinvest, exported all profit and allowed to tank. They are not screwing 13,000 employees, they spitting in the eyes of 10 million greeks.

      Directly 13,000 people, directly more than 100,000 who supplied them and indirectly 10 million greeks who will need a new bailout just for Marinopoulos. Very indirectly the eu citizens for the 5th bailout of Greece because lets not be silly. The bailouts of Greece are a very lucrative business for the eu elite.

      I don't agree with Jim. Crashing the walls of a failed system is not a way to move forward. It has come to my attention that it is the only system of the last century that is mildy successful. Even with the many flaws.

      I feel a great deal of uncertainty of humanity and what path we are taking. I am advocate and supporter of good hard working people regardless of background or race. I scorn thieves and elite who are not ethical. And yes there are indeed ethical elite. I have many examples. My hope is their example will be the template for the future.


    2. "It has come to my attention that it is the only system of the last century that is mildly successful. Even with the many flaws."

      IMO that's not necessarily true

      The currency unions that France set up for its former West/Central Africa colonies in the 60's are still operating, fairly successfully I believe.

      Differences include, not a custom union, the amount of inter country trade is relatively small, the culture, history and economic development state is similar.

      Interestingly a couple of countries have left the union(s), and at least one (Mali) subsequently rejoined. The currency union is backed by the French Treasury, which is backed by the ECB.

      Maybe 'no system' is best. Two of the best performing economies over the long run are Singapore and Australia - which ain't in any noteworthy economic regional 'systems', they get by with global institutions such as the WTO, IMF, Basel and relevant UN agencies

      Maybe independent free trading nations is the best system.

  7. @ V.
    Your defense of it as a success amounts to saying "the thief was highly successful until he was caught" or "Greece had fantastic growth until somebody pointed out that it was loans".
    PS. "But he hasn't got anything on", Hans Christian Andersen 1837.

  8. Will there be another Marinopoulos soon. It is hard to imagine one single one of the same magnitude, but if you will be satisfied with mere hundredths of million there are plenty to pick from, old as well as new. How about Euromedica, who managed to increase their outstanding debts from 14 MEUR in 2011 to the present liabilities of 380 MEUR? And that for a turn-over of 126 MEUR in 2015.
    How about the upcoming MEGA media issue? They don't have a license, they don't have assets, and they sure as hell have debt.
    How about the debt of the political parties?
    There are lots of zombies out there. Some have been patched up temporarily, and some just ignored. Some are at this very moment patching up and covering their tracks. Some are hiding behind mergers (car sales and supermarkets). "Merging 2 lousy companies make them bigger, not necessarily better" (quote Klaus Kastner, about Marfin).