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 Run down after years trying to match discounters on price,
mid-market supermarkets Edeka and Rewe, as well as their listed
rival Metro <MEOG.DE>, have changed strategy and are investing
billions of euros to bring their produce and stores up to a level
taken for granted in countries like Britain and France.
And faced with Amazon <AMZN.O> aiming to expand into fresh produce
in its second biggest market after the United States, German grocers
are starting to move into e-commerce, which currently accounts for
less than 1 percent of sales.
After years of retail stagnation, Germans are more willing to spend
than at any time since 2006 as the economy picks up and low interest
rates make saving less attractive.
Retailers are also responding to a new willingness among shoppers — who have traditionally preferred to splash out on cars, homes and
travel rather than food or clothing — to pay more for quality
groceries and a better shopping experience.
Discounters still have a huge 43.9 percent of the market — compared
with 7 percent in Britain and 15 percent in France — but that is
down from a 2008 peak of 44.5 percent as mid-market supermarkets
have risen to 26 percent from 23.6 percent.
"We are slowly moving away from 'Geiz ist geil'," said Martin Ohsawa,
manager of a gourmet Frische Paradies supermarket in Berlin,
referring to an ad slogan meaning "stinginess is cool" that had come
to epitomise German retail.
"A lot of people have changed their priorities because of food
scandals. They will splash out on a liter of olive oil instead of a
liter of motor oil," the trained chef added.
Originally set up as a supplier of ingredients to trade customers
like restaurants and hotels, Frische Paradies has opened its stores
up to ordinary shoppers in recent years to meet a growing demand
among Germans for more quality produce.
"Most German supermarkets have just two types of potato. We have
eight," said Ohsawa as he showed off pricey specialties like French
cheese and butter, Italian capers, Himalayan rosa salt and a fresh
fish counter he boasts is the best in Berlin.
SUSHI BARS
GfK market research group predicts German grocery sales will grow at
least 2 percent in 2014 after a 2.7 percent rise in 2013 — the
fastest rate in five years — boosted by price rises.
But retailers have a way to go to improve the shopping experience,
with 59 percent of customers dissatisfied with the service they
receive, according to a Porsche Consulting study.
Rewe Chief Executive Alain Caparros wants to attract shoppers to his
stores with in-house bistros and sushi bars as well as events like
oyster and caviar tasting.
"Customers want sustainability, they want organic, they want the
best quality and still at a reasonable price," he told the
Handelsblatt business daily.
Rewe plans to invest 1.6 billion euros ($2.19 billion) this year in
expanding and modernizing stores while Edeka says it will spend more
than 1 billion. The two supermarkets invested 3 billion euros in
total last year.
Aldi and Lidl are also responding to the changing consumer mood,
introducing more branded goods as well as in-house bakeries and a
wider range of premium products like "Aldi Gourmet" and "Lidl
Deluxe".
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The shift, which GfK says led discounters to hike prices by 3.3
percent last year, has actually created opportunities at the
super-budget end of the market. Metro's Real out-of-town
hypermarkets are trying to exploit that with a "nameless" range of
low price own-brand products like toilet paper and pasta.
"Discounters have traded up so our chance with Real is to undercut
the trend towards more quality to appeal to lower income and older
people," said Metro Chief Executive Olaf Koch.
CUTTHROAT
Germany, which has no big upmarket grocery retail chains like
Britain's Waitrose, may look like an attractive target for foreign
chains — but most will think twice about a full-scale assault after
Wal-Mart <WMT.N> beat a retreat in 2006.
The U.S. retailer failed to capture market share in the cutthroat
German market and acknowledged it had misunderstood the country's
regulations, shopping habits and tastes.
"Against the background of this trading-up trend, Germany could be
of interest for those who have a quality range but this is still the
most hotly contested market," said GfK retail expert Wolfgang
Adlwarth.
Dutch supermarket group Ahold <AHLN.AS> has opened six small Albert
Heijn convenience stores in western Germany, but Swiss chain Migros
ended a foray into the German market last year, closing its four
stores in the south of the country.
Despite a recovery in consumer sentiment, Germany's underlying
demographic trends — an ageing population and low birthrate — are
not exactly attractive to retail investors.
That also helps explain why discounters may have lost ground.
Pensioners have less need to do big bulk buys at discounters than
cash-strapped families with young children.
Meanwhile, grocers are positioning for a rise in online ordering.
Web sales make up less than 1 percent of the grocery market,
compared with 5 percent in Britain. But consumer goods research
group IGD sees German food e-commerce growing to 2.5 billion euros
by 2016 from 1.1 billion in 2012.
"Online might bring in a dynamic that could redivide market share,"
said Markus Hepp, Boston Consulting Group partner.
Rewe has launched a delivery service for goods ordered on the Web,
Real is trialing "drive-in" pick-up for web sales and Deutsche Post
<DPWGn.DE> has launched an online grocery store. Edeka, Aldi and
Lidl do not as yet offer grocery e-commerce.
Rewe boss Caparros said he is pushing online as part of a bid to
overtake Edeka as the country's top grocer by sales.
"Our profession is in upheaval. Those that fail to keep up will find
their names on a tombstone."
(Editing by Pravin Char)
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