1. German food sales, retailers, sales area and store development
With food sales exceeding € 130 billion, Germany is one of the biggest markets in Europe. The food segment is being dominated by just five major players: Edeka, Rewe, Schwarz Group (Lidl / Kaufland), Aldi and Metro. Taken together, these retailers represent more than 70 percent of the market. More recently, Edeka took over most of discount chain Plus which used to be part of Tengelmann Group, another big market participant.
While German food sales are climbing steadily from year to year, the number of stores is decreasing quite quickly. In the year 2000, there were 70,500 food outlets in Germany - seven years later this number had dropped to 55,000. An important driver for this development is the growing sales area per store (today usually around 1,000 - 1,500 square metres) while outlets under 400 sqm are rapidly losing ground. This trend can also be observed in the discount format which keeps on listing an increasing number of articles, thus needing more space. Between 1995 und 2008, the total sales area in German food retailing has climbed 20 percent to 29 million sqm.
2. Food retail formats in Germany
Food discount has been somewhat invented in Germany and been exported to other countries, both within Europe and overseas. Corporate histories of Aldi and Lidl date back a long time. It is the discount format that has been very successful in Germany over the last 15 years - the combined market share of food discounters is now estimated at 43 percent. At the same time, hypermarkets as well as small shop formats have generally suffered (with Kaufland, a discount hypermarket, being an exemption). Supermarkets also faced enormous challenges during this time - however, quite a number of them have managed to concentrate on their core competence, which is offering very high quality, a broad assortment of fresh produce, and especially brands.
In a way, it is astonishing that food discounters who once were very contrary to supermarkets, are now becoming much more like them. But even though German discounters are broadening their product ranges and quickly adopting new trends, they manage to keep their advantages of low costs, low prices and pretty high quality - thereby still being able to drive other formats out of the market.
3. Recent developments and trends
As in other Western countries, the German food segment has been affected by new developments over the last few years.
Particularly, there has been a strong consumer demand for:
- organic food, i.e. green produce
- low fat & wellness products
- convenience food
- fair trade offers
Most interestingly, the listing of food products associated with these developments used to be the domain of non-discount formats, i.e. supermarkets as well as hypermarkets and specialist retailers. Today, however, the discount format has strongly implemented these food trends into their assortments. Fair trade products can be bought at Lidl outlets, chilled and fresh convenience food at Aldi and so forth. Today, all German discounters list organic products, although to a differing extent.
4. Organic food in Germany
Organic food (also known as green food) has been a major driver in the German food segment. While in the past most people used to smile condescendingly at others who spoke about their favourite places to buy organic food, the phenomenon has become mainstream. Organic food sales exceeded € 5.8 billion in 2008. Ironically, former specialist retailers (the so-called Naturkostfachgeschäfte) could not participate in this segment growth since it was mainly driven by large supermarket and especially discount stores. The discount format currently represents more than 50 percent of the total organic food market volume. In addition, specialised organic supermarkets have appeared in the German market, e.g. Basic and Alnatura. Their rapid expansion, however, has most recently resulted in closing a few stores.
So far, the organic food sector has not been affected by any major scandals such as conventional food being labelled as organic food. Or, at least, public knowledge about any such incident has been limited. However, the sector is constantly running danger of getting into a credibility crisis. For instance, when Schwarz Group (owner of Lidl and Kaufland) announced it had acquired shares in organic supermarket chain Basic, both customers and suppliers instantly turned away from the retailer, forcing Schwarz to end its engagement. It took several months to restore confidence into Basic. As a result, both retailers and manufacturers in the organic food section should consider developing strategies to deal with sudden unpleasant incidents.
5. Convenience food
Although there is no clear-cut definition of what convenience food actually is, there is a common understanding of some product groups which belong to this category. For instance, fresh chilled food (ready salads with dressing, fresh pasta & sandwiches, smoothies) is a part of the category as well as frozen food (pizza, French fries) or ready meals. There are also some dried products which might qualify for being convenience food. Taken together, a basic characteristic of convenience food is that it saves time and effort for the consumer. It is thus very attractive for single households and time-pressured people.
While convenience food used to be considered as mostly (unhealthy) fast food in Germany, optimised supply chains have allowed for linking the convenience aspect to the organic food aspect. Hence, organic c-food has become available in the German market, e.g. fresh chilled juices.
Some retailers have tried to introduce very fresh convenience food (so-called ultra fresh food). Its success depends heavily on consumer acceptance and it could be argued that a high customer frequency is essential to realise quick turnover since these products have a very short "best before" period. In addition, potential customers need to know that there is a regular and attractive convenience food offering available so that they be sure that their store visit will get them the convenient items they look for. Hence, convenience food is a future market in Germany with considerable margins but one needs to be aware of the fact that it might be difficult to get it started.
In absolute numbers, the convenience food sector can be estimated at approx. € 16.7 billion in 2008. It is mainly composed of four central product categories: chilled food, frozen food, dried ready food as well as wet ready food (rf. diagram).
