Following our introduction on the frontpage, we will now go into more detail about the German consumer products and retail market, starting with some economic "hard facts" such as household incomes, spending patterns, life expectancy, purchasing power, and savings rate. Although economic data is sometimes considered less specific for certain industries, it is highly relevant for the consumer products and retail market since every citizen or visitor to Germany is also a consumer. Let's take a look.
1. A changing society - a matter of professional qualification
In the wake of globalisation, professional qualification has become a prerequisite for national wealth in Western countries. This also applies to Germany, being one of the biggest and most highly sophisticated economies in the world, with a GDP totalling € 2.5 trillion. Its strongest achievements can be observed in the export sector as products "made in Germany" stand for technological leadership and top quality. German expertise in the fields of engineering, automobiles, machinery, software development and hi-tec is sought after world-wide. Knowledge and qualification is the key to sustaining this competitive advantage.
At the same time, qualification also affects the economic situation of people within the country. Unskilled workers, for instance, are facing tough times since production capacities have been reduced by automatisation and outsourcing. Social welfare has been reduced. Young people without school-leaving certificates are struggling to enter apprenticeships. For most office jobs, university degrees are considered necessities.
It is this development that is reflected in both income and consumption patterns. Our first conclusion might not be surprising for most countries in the world, but Germany is only getting used to it: not everyone can afford everything. As you can see in the diagram, the highest incomes (top 10 percent) and the lowest incomes have significantly drifted apart. Consequently, a rising number of people have to make clear decisions in terms of buying private labels or brand products, opting for low prices or high quality (which is not always a contradiction as we shall see later), bargain stores or premium retailers.
2. Rising living expenses leave less room for consumption
Prices for housing, electricity, water, and fuel have strongly increased over the last few years, now taking a much bigger share in overall household expenses. At the same time, real income levels have been stagnating. Expenses for food and clothing have thus come under pressure, resulting in yet another strong gain for discount formats. As you can see on the graph, there have not only been rises in housing and energy expenses relative to the household budgets, but also in terms of costs for insurance services, education, healthcare, and transport.
3. A high savings rate owes to insufficient state pensions
Germans are not particular risk-takers. Ever since it became clear that state pensions will not be able to cover retirement expenses for the current workforce, people have increased their private savings schemes. This is especially true for young employees who are aware that their payments into the state-run pension system will result in a negative yield. Compared to other countries, the overall savings rate (i.e. the relation between savings and disposable income) can be considered above average, amounting to approximately 10 percent of disposable income, with some volatility depending on the respective economic development. It has risen over the last few years to 10.9 percent in 2008 after it had reached a low during the "New Economy" period (9.2 percent in the year 2000). German consumers are conscious to save instead of spending too much. This is especially true for everyday products.
4. Regional differences should be considered when offering products in Germany
While the purchasing power of its citizens is estimated at € 1.49 trillion (purchasing power is understood as disposable income, including transfers, but excluding taxes and social security expenses), it cannot be equally found throughout the country. Ever since the reunion between Western Germany and the former German Democratic Republic (GDR) in 1990, regional purchasing power can be differentiated into the so-called 'old' and 'new' (ex GDR) federal states. Per capita purchasing power is highest in Bavaria, Baden-Wurttemberg, Hamburg, Hesse, North Rhine Westphalia, Rhineland Palatinate, and Schleswig-Holstein. Conversely, and lowest in Mecklenburg Western-Pomerania, Saxony Anhalt, and Thuringia. 
It comes as no surprise that this divide is also reflected in unemployment figures, which tend to be quite high in the East but moderate to low in the West (the overall unemployment rate amounted to 9 percent in 2008). Especially Bavaria and Baden-Wurttemberg are considered economic powerhouses, a trend that is likely to continue for many years to come.
Another differentiation can be made between urban and rural living as well as between medium-sized and large cities. More and more people are moving to the cities to benefit from more options for work, social contacts, and culture. This is both true for young employees and pensioners. Cities such as Munich, Stuttgart, Frankfurt, Cologne, Dusseldorf, and Hamburg have grown significantly in the past. Furthermore, medium-size cities such as Munster, Osnabruck and Kassel attract many people from their large surrounding rural areas, especially for shopping on weekends. Thus, it can make a difference in which parts of Germany you intend to sell your products, especially when considering premium and luxury products. For instance, while they might be highly successful in urban areas of the old federal states, they might not be able to attract enough consumers in the rural parts of the East.
5. An ageing population and single households pose both challenges and opportunities
Currently the German population stands at 82 million inhabitants. Forecasts for the next 50 years indicate that this number might decrease to 70.8 million. People are living longer due to very high standards of medical treatment and healthcare: life expectancy is now 76.7 years for men, and 81.8 years for women. This has huge implications for the consumer products and retail sectors which so far have not been sufficiently realised. Lower supermarket shelves, barrier-free access to shops, better in-store orientation and services for the elderly are still rare observations. Easier handling of packaging and better readability are implications for producers. In addition to a declining number of young people, single households already represent 37.5 percent of the total 39.2 million private households in Germany. Some suppliers have reacted to that by offering smaller portions. To sum up, as the population gets older and more individualised, both retailers and producers are required to act upon these changes. Since these changes are more long-term, adaption will be more gradual as well.
6. Conclusion
To sum up the economic aspects mentioned so far, one could take a more negative stance by saying that the German population is both decreasing and losing wealth. However, this picture is too negative. Wide parts of the population are qualified; starting families; moving to the countryside; have a considerable income and can afford a lot of things. What should be mentioned is that consumer society as such is undergoing changes. Differences between layers of society are becoming more visible and people are more selective in their shopping behaviour - they might shop in discount stores and then make further purchases in luxury shops. These are major drivers that alter the consumer products and retail landscape. More details about this development will be presented under "market situation & drivers", the next menu item.
