Germany FOOD RETAIL COUNTRY REPORT
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Germany FOOD RETAIL COUNTRY REPORT September 2014 / Germany KantarRetail.com KantarRetailIQ.eu Contents Introduction: The End of Stability – Channel Reinvention and New Channels ...................................... 3 Discounters: The Need to Evolve and Changes to Their Three Pillars of Success .................................. 3 Pillar 1. Financial and Operational Discipline ..................................................................................... 4 Pillar 2. Geographic Focus .................................................................................................................. 5 Pillar 3. Shopper Focus ....................................................................................................................... 5 Discounter Evolution: 8 Changes Different Discounters Will Make from 2014-2020 ........................ 5 Supermarket Reinvention ....................................................................................................................... 6 Refurbishing stores under its new concept ........................................................................................ 6 Optimizing Store Network .................................................................................................................. 6 Growing its service offer ..................................................................................................................... 7 Property .............................................................................................................................................. 7 Shopper ............................................................................................................................................... 8 New channels .......................................................................................................................................... 8 Convenience/ Proximity ...................................................................................................................... 8 Online .................................................................................................................................................. 9 Stable channels ..................................................................................................................................... 10 Hypermarkets.................................................................................................................................... 10 Cash and Carry .................................................................................................................................. 11 Retailer Profiles ..................................................................................................................................... 11 Edeka ................................................................................................................................................. 11 Rewe ................................................................................................................................................. 12 Schwarz Group .................................................................................................................................. 12 Metro Group ..................................................................................................................................... 13 Aldi .................................................................................................................................................... 13 Conclusions ........................................................................................................................................... 15 8 Areas of Excellence – What Retailers Will Need to Do by 2020 .................................................... 15 ABOUT KANTAR RETAIL ......................................................................................................................... 17 INFORMATION AND INSIGHTS .......................................................................................................... 17 FOR MORE INFORMATION ................................................................................................................ 17 2 KantarRetail.com KantarRetailIQ.eu Retail in Germany from Today to 2020 Introduction: The End of Stability – Channel Reinvention and New Channels The German retail market is highly concentrated, with a small number of retailers controlling the vast majority of sales. Market concentration is particularly high in the supermarket channel, where Edeka and Rewe control over 80% of all supermarket sales. As a result of this two-retailer constellation, both Edeka and Rewe have positioned themselves at the center of the market in an effort to appeal to a broad spectrum of shoppers. Increasingly, this puts them in direct competition with “food discounters” – Aldi Nord, Aldi Sud, and Lidl – as discounters attempt to broaden their appeal and geographic reach. Concentration and format differentiation have had a “stabilizing impact” on retail. Apart from the market share gains from the discounter format in the period between 2005-2013, the German retail channel mix has been characterized by relatively high channel stability. German consumers, unlike other developed markets, tend to spend less on food away at home. This has resulted in food-at- home retail solutions in a state of flux as all retailers innovate in a battle for same-store sales growth. Market saturation and declining populations have strained store profitability. In a word, the age of stability is coming to an end. There are two dynamics driving this change: channel reinvention and the emergence of “new channels”. Whilst discounters evolve their business model and shopper proposition, supermarkets are reinventing themselves to cater to changing shopper needs. Coinciding with this is the growth of new channels like proximity and online, which are growing market share. In this report Kantar Retail will look at the changing dynamics of each channel and profile the key retailers that are driving this change. The best way to look at the German Landscape and how it will change from 2014-2020 is to look at the forces of change. We begin with the discounters. Discounters: The Need to Evolve and Changes to Their Three Pillars of Success Discounters dominate the German grocery retail market, ahead of supermarkets and hypermarkets. However, while the discounter channel has been growing rapidly in the past, growth is very likely to slow down because of increasing market saturation. In short, discounters need to evolve. Change is underway. Figure 1: Discounter Retailers (sales in EUR billion) 3 KantarRetail.com KantarRetailIQ.eu Source: Kantar Retail database The combination of the Nord and the Süd Aldi businesses creates the largest discounter in the German retail market, followed by Lidl (Schwarz Group), Netto (Edeka) and Penny (Rewe). The fifth- largest player in the discount channel is Norma—a family-run retailer concentrated in the southeast of Germany. The power distribution between the top five discounters is very unlikely to change dramatically during the next five years. The market has become highly saturated, which makes organic growth very difficult. However, discounter growth over this period has hinged on three pillars of success. The pillars display unprecedented discipline for running a very standardized, focused, and operationally efficient business. As discounters enter a new era of growth, each of these pillars is fundamentally shifting to adapt to new shopper needs. Each discounter is taking a different path forward, creating a wider range of differentiation and opportunity for partners. Pillar 1. Financial and Operational Discipline The basic principal of the discounter model is to sell a lot for a little and keep costs to a minimum. Whilst this financial and operational model is not inherently changing, the means to deliver results is. This is a result of discounters having to move to service and innovation to drive growth. One of the biggest changes to the discounter’s efficient model and tightly-controlled finances is the investment in labour. Not only are German discounters increasing wages to hire the “best, young” candidates, but they are also hiring more numbers in-store than ever before to work with the new in-store bakeries and other service-based additions to the model. Lidl leads this evolution in Germany, having recently implemented an initiative for all store managers. This initiative for store managers focuses on larger stores, as well as having more complex assortments and developing managerial responsibilities to work in a new discount environment with larger numbers of employees per store. 4 KantarRetail.com KantarRetailIQ.eu Pillar 2. Geographic Focus Discounters have added more stores than any other channel in the last 10 years in Germany. However, the years of rapid store expansion are over, as the likes of Lidl (Schwarz Group) are running out of space. Thus, there has been a significant shift in focus towards same-store sales growth. With proximity and not just price now a key driver for German shoppers, discounters have to open stores in “uncomfortable places” to get closer to the shopper. These “uncomfortable places” include train stations, high streets, and apartment blocks. The larger discounters such as Lidl and Aldi have the financial strength and experience in adapting their offer in smaller inner city locations. However, the likes of Rewe-owned Penny and Netto