Germany Food and Drink Report Q4 2009

GDP growth in Germany fell to 1.3% in 2008 and BMI expects the economy to contract by 6.0% in 2009, representing one of the sharpest declines in Western Europe. The resulting deterioration in consumer confidence and affluence has created the ideal climate for the discount retail sector to flourish.

Indeed, in June Germany's largest grocery retailer by revenues Edeka reported that sales at its Netto discount division increased by 12.4% in 2008 to reach EUR4.2bn (US$5.86bn). This rapid growth contributed to Edeka's total sales increasing by 4.9% over the year to reach EUR32bn (US$44.6bn), while earnings before interest and taxes (EBIT) increased by 2.1% to EUR1.19bn (US$1.66bn). With Edeka's acquisition of the Plus chain of discount stores approved in December 2008 and the stores currently being consolidated into the Netto network, the company looks in a particularly strong position to weather the current downturn. The retailer has also affirmed plans to open 850 new stores under the Netto banner as well as convert up to 800 of the 2,300 Plus outlets to the group's smaller City-Markt banner.

The deal looks to have been very timely for Edeka, coming shortly before the global economic situation deteriorated, providing a boost for the no-frills discount format. The CEO of Edeka has suggested that 'in the next few years every second euro will be spent at discounters. Until now the market share has been 42%. The trend is unbroken and it is aided by the current crisis.' This fact has been to the cost of rival retailer Metro, which has reported that sales at its German Real hypermarkets fell by 3.6% in the first three months of 2009, with like-for-like sales down by 2.5%. This compares with like-for-like growth of 3.6% in 2008 and is an indication of how quickly the German retail landscape has changed.

Also during the quarter, Denmark-based Carlsberg agreed to sell its Braunschweig brewery in Germany to locally-based Oettinger Brauerei. The deal includes a number of discount and private label brands and Carlsberg revealed it sold the business as part of the 'continuous optimisation' of its brewery network.

The success of multinational brewers is being hampered by the sector's maturity; Germans consume the second largest amount of beer per capita in the world, behind the Czechs, but sales have been steadily declining over the past ten years. A health-conscious population increasingly preferring non-alcoholic drinks or, when they are drinking alcohol, are opting for wine which has fewer calories and offers health benefits thanks to its antioxidant content.

A final concern for multinational operators is the popularity of the discount channel as noted above and growing importance of private label brands. Years of economic stagnation have left German consumers extremely price conscious and, therefore, happy to experiment with private label beers that are usually of comparable quality to mainstream brands. All of these factors explain why Carlsberg is willing to downscale its German operations and why Anheuser Busch InBev has recently explored selling its German business. However, these trends are actually to the benefit of a firm such Oettinger Brauerei, which has few national brands but instead focuses on a wide range of discount and private label brands that are adapted for the local regional market.