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Q4 2010www.businessmonitor.com
food & drink report
iSSn 1749-270Xpublished by Business Monitor international Ltd.
GerMAnYINCLUDES 5-YEAR FORECASTS TO 2014
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GERMANY FOOD & DRINK REPORT Q4 2010 INCLUDING 5-YEAR INDUSTRY FORECASTS BY BMI
Part of BMI’s Industry Report & Forecasts Series
Published by: Business Monitor International
Publication Date: August 2010
Germany Food & Drink Report Q4 2010
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CONTENTS
Executive Summary ......................................................................................................................................... 7
SWOT Analysis ................................................................................................................................................. 8
Germany Food Industry SWOT .............................................................................................................................................................................. 8 Germany Drink Industry SWOT ............................................................................................................................................................................. 9 Germany Mass Grocery Retail Industry SWOT ................................................................................................................................................... 10
Business Environment .................................................................................................................................. 11
BMI’s Core Global Industry Views ........................................................................................................................................................................... 11 Table: BMI Food & Drink Core Views ................................................................................................................................................................ 12
Western Europe Food & Drink Business Environment Ratings ................................................................................................................................ 13 Table: Western Europe Food & Drink Risk/Reward Ratings Q4 2010 ................................................................................................................ 16
Germany Food & Drink Business Environment Rating ............................................................................................................................................ 17 Macroeconomic Outlook ........................................................................................................................................................................................... 18
Germany – GDP By Expenditure ......................................................................................................................................................................... 21
Industry Forecast Scenario ........................................................................................................................... 22
Consumer Outlook .................................................................................................................................................................................................... 22 Food.......................................................................................................................................................................................................................... 24
Total Food Consumption ..................................................................................................................................................................................... 24 Table: Germany Food Consumption Indicators – Historical Data & Forecasts .................................................................................................. 25 Confectionery....................................................................................................................................................................................................... 25 Table: Confectionery Value/Volume Sales - Historical Data & Forecasts .......................................................................................................... 26
Drink ......................................................................................................................................................................................................................... 26 Soft Drinks And Bottled Water ............................................................................................................................................................................. 26 Table: Soft Drink Value Sales - Historical Data & Forecasts ............................................................................................................................. 28 Alcoholic Drinks .................................................................................................................................................................................................. 29 Table: Alcoholic Drink Value/Volume Sales - Historical Data & Forecasts ....................................................................................................... 30 Hot Drinks ........................................................................................................................................................................................................... 31 Table: Hot Drink Value Sales - Historical Data & Forecasts .............................................................................................................................. 32
Mass Grocery Retail ................................................................................................................................................................................................. 32 Table: Germany MGR Sector - Sales Value by Format - Historical Data & Forecasts ....................................................................................... 33
Trade ........................................................................................................................................................................................................................ 33
Food ................................................................................................................................................................. 34
Industry Trends And Developments .......................................................................................................................................................................... 34 More Retailers Embracing Private Labels ........................................................................................................................................................... 34 Organic Sector Resilient ...................................................................................................................................................................................... 35
Market Overview ...................................................................................................................................................................................................... 36 Food Sector ......................................................................................................................................................................................................... 36 Prepared Food ..................................................................................................................................................................................................... 36 Organic ................................................................................................................................................................................................................ 36 Dairy .................................................................................................................................................................................................................... 38
Drink ................................................................................................................................................................ 39
Industry Trends And Developments .......................................................................................................................................................................... 39 Domestic Wine Demand Resilient ........................................................................................................................................................................ 39 Falling Beer Demand Driving Consolidation ...................................................................................................................................................... 40
Market Overview ...................................................................................................................................................................................................... 41
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Soft Drinks ........................................................................................................................................................................................................... 41 Alcoholic Drinks .................................................................................................................................................................................................. 41
Mass Grocery Retail ....................................................................................................................................... 43
Industry Trends And Developments .......................................................................................................................................................................... 43 Expansion Across Sectors To Hedge Bets ............................................................................................................................................................ 43 Metro Searching For EM Growth, Could Be Split Up? ....................................................................................................................................... 44
Market Overview ...................................................................................................................................................................................................... 45 Table: Structure of Germany's Mass Grocery Retail Market by Estimated Number of Outlets ............................................................................ 46 Table: Sales Format by Value in Germany's Mass Grocery Retail Market (US$bn) ........................................................................................... 46 Table: Sales Format by Value in Germany's Mass Grocery Retail Market (EURbn) ........................................................................................... 47 Table: Annual Average Sales per Outlet by Format............................................................................................................................................. 47
Competitive Landscape ................................................................................................................................. 48
Table: Key Players in Germany's Food Sector (2008) ......................................................................................................................................... 48 Table: Key Players in Germany's Drink Sector (2008) ........................................................................................................................................ 50 Table: Key Players in Germany's Mass Grocery Retail Sector ............................................................................................................................ 51
Company Analysis..................................................................................................................................................................................................... 53 Food .................................................................................................................................................................................................................... 53 Oetker Group ....................................................................................................................................................................................................... 53 Nordmilch Group ................................................................................................................................................................................................. 54 Haribo ................................................................................................................................................................................................................. 55 Lieken Group (Barilla) ........................................................................................................................................................................................ 56 Drink .................................................................................................................................................................................................................... 57 Emig GmbH & Co KG (GerberEmig Group) ....................................................................................................................................................... 57 Radeberger Group (Oetker Group)...................................................................................................................................................................... 58 Anheuser-Busch InBev Germany ......................................................................................................................................................................... 59 Mass Grocery Retail ............................................................................................................................................................................................ 60 Lidl Group ........................................................................................................................................................................................................... 60 Rewe Group ......................................................................................................................................................................................................... 61
Appendix ......................................................................................................................................................... 62
Country Snapshot: Germany Demographic Data ..................................................................................................................................................... 62 Section 1: Population ........................................................................................................................................................................................... 62 Table: Demographic Indicators, 2005-2030 ........................................................................................................................................................ 62 Table: Rural/Urban Breakdown, 2005-2030 ....................................................................................................................................................... 63 Section 2: Education And Healthcare .................................................................................................................................................................. 63 Table: Education, 2002-2005 .............................................................................................................................................................................. 63 Table: Vital Statistics, 2005-2030 ........................................................................................................................................................................ 63 Section 3: Labour Market And Spending Power .................................................................................................................................................. 64 Table: Employment Indicators, 2001-2006 .......................................................................................................................................................... 64 Table: Consumer Expenditure, 2000-2012 (US$) ................................................................................................................................................ 64 Table: Average Annual Manufacturing Wages .................................................................................................................................................... 65
BMI Methodology ........................................................................................................................................... 66
Food & Drink Business Environment Ratings .......................................................................................................................................................... 66 Ratings Methodology ........................................................................................................................................................................................... 66 Ratings Overview ................................................................................................................................................................................................. 66 Ratings System ..................................................................................................................................................................................................... 66 Indicators ............................................................................................................................................................................................................. 66 Table: Limits Of Potential Returns ...................................................................................................................................................................... 67 Table: Risks To Realisation Of Potential Returns ................................................................................................................................................ 68
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Weighting ............................................................................................................................................................................................................. 69 Table: Weighting ................................................................................................................................................................................................. 69
BMI Food & Drink Industry Glossary ...................................................................................................................................................................... 70 Food & Drink ...................................................................................................................................................................................................... 70 Mass Grocery Retail ............................................................................................................................................................................................ 70
BMI Food & Drink Forecasting And Sourcing ......................................................................................................................................................... 72 How We Generate Our Industry Forecasts .......................................................................................................................................................... 72 Sourcing ............................................................................................................................................................................................................... 73
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Executive Summary
German consumers are characterised by high saving rates and extreme price sensitivity. In 2006 and
2007 there were signs this could start to change, as demand for Germany's technologically advanced
exports in rapidly industrialising emerging markets pushed the country's rate of GDP growth much
higher than the recent average; this economic performance fed into consumer confidence and pushed up
spending. However, this was short lived, as the global financial crisis led to a significant slowdown in the
German economy, which damaged confidence and curtailed consumption. We expect economic growth to
reach 2.0% in 2010, but in line with our global outlook forecast growth remaining fairly muted from
2011 onwards. We therefore see only modest growth in consumption going forward, with the German
consumer to remain scarred by the recent economic turbulence and price sensitivity to remain in evidence
throughout our forecast period.
Headline Industry Data
! 2010 per capita food consumption = +2.3%; forecast to 2014 = +14.5%
! 2010 alcoholic drink sales = -0.1%; forecast to 2014 = +2.3%
! 2010 soft drink sales = +1.7% ; forecast to 2014 = +10.3%
! 2010 mass grocery retail sales = +3.0%; forecast to 2014 = +22%
Key Company Trends
More retailers embracing private labels – At the end of 2009 German wholesaler Metro Cash & Carry
unveiled a revamped private label range as it seeks to adjust its offering in response to the downturn.
Currently 40% of the market is accounted for by private labels. However, this is largely down to the
success of the discount format and while large retailers in other European countries have for a long time
capitalised on the strength of their brand, this strategy has only just been embraced in Germany.
Consolidation in Beer – The German Federal Statistical Office (Destatis) has reported that beer sales in
Germany totalled 100mn hectolitres (hl) in 2009. The figure was down by 2.9mn hl from the previous
year, a fall of 2.8%. We envisage strong pressure towards further consolidation. The head of marketing at
Krombacher Brauerei, which produces Germany’s bestselling lager, said in an interview that it
estimated that overcapacity in the sector was at 30%. With consumption falling, an increasing number of
producers will eventually be squeezed out.
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Key Risks to Outlook
Slowdown in China – As an export driven economy the major risk to our German outlook is the prospect
of a more intense slowdown in China than we are currently forecasting. Chinese demand for Germany's
exports have helped drive the country's recovery in 2010. However, overly accommodative fiscal and
monetary stimuli in China have led to an overheating that could result in a sharp withdrawal in 2011.
Even if China manages to avoid this scenario, we are projecting a slowdown in Chinese import levels
towards the latter stages of 2010, as Beijing recognises the need to rebalance the economy towards
domestic consumption.
Eurozone debt crisis – A second risk is the prospect of further instability in the eurozone as a result of the
unsustainable debt levels built up by some member countries. However, this brings with it the prospect of
further weakening of the euro which, given Germany's export orientated economy, would not be entirely
unfavourable to German economic growth and to our consumption expectations.
SWOT Analysis
Germany Food Industry SWOT
Strengths ! German consumers are prepared to pay for high-quality goods and product innovations, with health, wellness and functional foods as well as organic products having significantly increased in popularity.
! Germany is the largest economy in Europe and the largest market for many food products.
! With a high level of research and development (R&D) spending, the German food sector is innovative and forward thinking.
Weaknesses ! High costs across the manufacturing base, coupled with a relatively high-value currency, the euro, can erode company profit margins.
! Price sensitivity, which had started to lessen in 2006 and 2007, has returned following the global financial crisis and a resulting downturn in consumer confidence.
Opportunities ! Value-added convenience foods continue to experience strong growth rates as they cater to the busy lifestyles of German consumers.
! Health-consciousness is influencing food sales.
! Organic and fair-trade product ranges have enjoyed considerable success in Germany, creating opportunities for development in these categories. Germany is the largest market for organic products in Europe.
Threats ! The global economic slowdown led to a real GDP contraction of 5% in Germany in 2009 and is likely to continue impacting economic growth in 2010.
! The rise of discounting threatens the margins of manufacturers with retailers passing these costs down the supply chain.
! The increasing premiumisation of retailers’ private label product ranges, together with higher consumer acceptance of private label products, threatens to undermine brand name products.
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Germany Drink Industry SWOT
Strengths ! German consumers are prepared to pay for high-quality goods and product innovations, with health, wellness and functional foods as well as organic products having significantly increased in popularity.
! Germany is the largest economy in Europe and the largest market for many drink products.
! With a high level of R&D spending, the German drink sector is innovative and forward thinking.
! Per capita beer consumption is the highest in Western Europe.
Weaknesses ! High costs across the manufacturing base, coupled with a relatively high-value currency, the euro, can erode company profit margins.
! The beer market remains very fragmented. Domestic breweries have been facing fierce competition from large multinational breweries that are beginning to consolidate the German beer market.
! Beer sales are in decline.
! Increased health-consciousness has led to stagnation in the carbonated drinks sector.
Opportunities ! Health-consciousness is influencing drink sales.
! More soft drinks are being consumed as consumers move away from alcohol.
! Alcohol drinkers are showing a preference for wine and spirits over beer, leading to the rapidly increasing consumption of wine and spirits.
! The bottled water and fruit juice sectors are experiencing strong growth.
! Organic and fair-trade product ranges have enjoyed considerable success in Germany, creating opportunities for development in these categories.
Threats ! The global economic slowdown led to a real GDP contraction of 5% in Germany in 2009 and is likely to continue impacting economic growth in 2010.
! The rise of discounting threatens the margins of manufacturers, with retailers passing these costs down the supply chain.
! The increasing premiumisation of retailers’ private label product ranges, together with higher consumer acceptance of private label products, threatens to undermine brand name products.
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Germany Mass Grocery Retail Industry SWOT
Strengths ! The sector is well developed, offering a modern retailing experience throughout the country.
! German consumers are prepared to pay for high-quality goods and product innovations, with health, wellness and functional foods as well as organic products having significantly increased in popularity.
! A flourishing discount sector which has expanded internationally.
Weaknesses ! The relaxing of strict opening hour laws has so far failed to attract sufficient consumer interest in most locations, limiting the success of the convenience sector.
! Intense price competition from discount chains means that supermarket operators are having to endure very tight margins.
! The hypermarket format has been losing ground to smaller retail outlets.
Opportunities ! Consumers remain extremely price-conscious, showing a marked preference for shopping at discount outlets. However, there is room for growth in private label products and an opportunity for supermarkets and convenience stores to offer their own range of discount brands.
! Convenience stores located at petrol stations are very popular and present an interesting opportunity for retailers interested in entering the local market.
! As the economy regains its strength and disposable incomes increase, retailers may increasingly introduce up-market sales strategies to complement their hard discount approaches.
Threats ! The global economic slowdown led to a real GDP contraction of 5% in Germany in 2009 and is likely to continue impacting economic growth in 2010.
! Price-conscious consumers and the rise of discounters have taken sales away from supermarkets. As a result, retailers now need to focus on volume rather than value growth in order to compete against the discount chains.
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Business Environment
BMI’s Core Global Industry Views
BMI's expectations for food and
drink (F&D) industry growth in
the short term are in keeping with
our global macro views: weak US
and eurozone growth and a post-
stimulus cooling of the Chinese
economy will prevent a robust
demand recovery. Fiscal austerity
further cools the picture for
discretionary spending – the
impact of this is likely to be felt
over more than just the short
term. As we flagged in early
2010, economic and industry data
might have hinted at signs of a
recovery, but this is not THE
recovery; employment and
consumer confidence remain too
weak and this has only been further exposed as the tailwinds of consumer-oriented government stimulus
packages have died out.
The extent of the challenge facing F&D companies can be seen in the table below. Yes, food is an
essential good and is thus more resilient to economic downturns than pure discretionary goods (see the
outperformance of food company sales relative to total consumer goods sales). However, gone is the myth
that the industry is fairly recession-proof! Having spent the months and years in the run up to late 2008's
financial crisis focusing on trading consumers up – even emerging market (EM) consumers – to ever
higher-value, more premium goods, that route to growth has now been suspended and the industry has
been hit hard by the effects of this.
F&D Proves Recession-Reliant, But Certainly Not Recession-Proof
Sector and Consumer Goods Sub-Sector Relative Value based on Trailling 12mth Sales Growth (%) - Global vs BRICs
Source: Bloomberg
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Of course, even within this demand weakness story, there is scope for outperformance. BMI's F&D core
views list highlights a number of these areas, as well as flagging what we perceive to be the key short-
term risks to growth, in order to identify and define strategies that will help F&D firms cushion the
impact of a secondary demand downturn, while also securing medium-and-long-term paths to growth. In
terms of identifying likely outperformance, this relates to both industry sub-sectors – discount retail over
convenience and off-trade alcohol drinks sales over on-trade – and to markets – private consumption-led
economies to outperform export-oriented economies. A key point to note, however, is that long term, the
EM consumer means that F&D remains a hugely exciting, high-growth and dynamic industry.
Table: BMI Food & Drink Core Views
Short-term Outlook
Consumer demand remains too weak to support a strong rebound in sector growth
Even in emerging markets, employment has lagged what remains a fairly benign recovery, weighing on demand growth
Commodity price volatility will continue to affect producer earnings; even as grains prices remain subdued, softs will remain volatile
Premiumisation will remain on hold
Private labels and off-trade alcohol drinks will outperform their respective sectors
Discount grocery retailers will continue to gain market share
Government fiscal policy – austerity – will be unsupportive of industry growth
Government monetary policy – the reduced likelihood of further rate hikes – will help limit demand destruction
Having scaled back capex in 2009, investment will return as producers look to secure future growth
Consolidation will continue as producers seek greater efficiencies
We continue to favour private consumption-led economies, over export-oriented states for consumer goods investment
Long-term Outlook
Companies with strong emerging market exposure will continue to outperform
Tension between producers and retailers will remain
Investment in innovation will increase as producers seek differentiation; emphasis will be placed on protecting innovations
Brand builders will continue to leave sectors under threat from private labels
Emerging market multinationals will increasingly pursue frontier market investments
Government legislation will play an increasing role in marginalising unhealthy food and beverage products; notably alcohol
Demand for convenience in retail and food will continue to grow
Functional foods will be the highest growth sector in developed markets
Beverage companies will continue to invest in diversification away from carbonated beverages and into healthier sub-sectors
Source: BMI
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Western Europe Food & Drink Business Environment Ratings
The global financial crisis has had a substantial impact on consumption habits across Europe and so far
any signs of a recovery in consumer demand have been weak and faltering. BMI expects this weakness to
be prevalent in the second half of 2010 and into 2011, with any return in consumer optimism constrained
by fiscal austerity measures. However, despite this subdued short-term outlook some countries are
showing signs of emerging from the downturn more strongly than others and offering better long-term
growth opportunities. These contrasts are reflected in our Western Europe Risk/Reward Ratings with the
Netherlands and the UK judged to offer the greatest long-term value for investors and Greece, Ireland and
Italy offering the worst balance of risk to reward.
Risk vs Reward
Across Western Europe the recovery in spending has so far been weak and looks particularly fragile due
to the underlying problems of the eurozone debt crisis. Across the region unemployment has already
reached a 12-year high of
10.1%. However, the inflexible
nature of some of the region's
labour market means that the
consequences of the recession
could take a long time to unwind
and unemployment may well
continue to rise for many more
months. Fiscal austerity
packages have been approved
across the region - in total EU
governments have announced
public spending cuts of around
EUR200bn - but these are still in
the process of being
implemented and will put
downwards pressure on
consumer spending as they come
into force. In general we are expecting stagnation across the region in 2010 and then very modest growth
in 2011. However, with the full impact of the economic crisis still to be felt by consumers that have been
able to remain in employment, there are certainly risks to the downside for this view.
Netherlands In Front, Greece Well Back Western Europe Food & Drink Risk/Reward Ratings Q4 2010
Source: BMI. Scores out of 100, with 100 highest
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In terms of risk the region as a whole scores well above the global average - a consequence of the
developed nature of the markets under scrutiny. However, it is notable that three of the so called PIIGs -
Ireland, Italy and Greece - all score well below the regional average, reflecting the continued risk posed
by these countries' significant economic and political issues.
UK and The Netherlands Top The Table
The Netherlands and the UK top our regional ratings. In both markets price-sensitivity remains an
important aspect of consumer behavior and a focus on price is likely to be a feature of the sector during
2010 and 2011. However, in both markets sales of food and drink items held up particularly well
during the downturn and are
expected to advance relatively
strongly as the European
region recovers. In addition, the
UK consumer is one of the most
enthusiastic in Western Europe,
and the food and drink industry
stands to benefit more strongly
than others from the eventual
rebound in regional growth.
Both markets are also judged
low risk places to do business;
this is largely thanks to a general
openness to trade and investment
while the food and drink-specific
risk factors are also judged
favourably, with few barriers to
entry, thanks to well-developed
infrastructures and a non-restrictive regulatory environment.
Spain is ranked third in our Western European ratings. A massive slump in its economy has put
significant pressure on spending and this is not expected to let up in the near term. However, the market
is judged to be less mature than others in our sample, resulting in more potential for growth and
translating into a stronger Reward rating. This is reflected in Spain's market entry potential, with
many opportunities for companies offering new value-added products to get their feet in the door, and
also by the continued investment into the market by large regional operators such as Carrefour and
Associated British Food.
Greater Reward Netherlands Risk/Reward Ratings vs Regional Average Q4
2010
Source: BMI. Scores out of 100, with 100 highest
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France and Germany are placed fourth and fifth respectively in our Western European ratings. In both
countries, food consumption has been fairly stagnant over recent years when compared to some Western
European markets; consumers have embraced the discount retail format which has led to increased price
competition, lower prices and lower overall consumption. France and Germany are both economically
stable, modern democracies so neither is deemed to be particularly risky to operate in. However, both are
judged to be less market-orientated than the countries above them in our ratings, while both also have
very strong labour regulations, making it difficult to adjust employee numbers and giving unions
considerable power during wage and conditions negotiations.
Italy, Ireland And Greece Bring Up The Rear
The three countries at the bottom of our ratings are characterised by weak expected growth in
consumption and higher than average risk. In these markets the ongoing trend towards cheaper
options and move towards private label options is likely to continue throughout the majority of our
forecast period and be accompanied by a reduction in the consumption of discretionary items. We
are therefore expecting weakness across almost every sector, reflected in our updated forecasts.
Ireland is now sixth in our regional ratings with a deep recession having had a significant impact on food
consumption. Ireland's dire fiscal situation also means that it is judged to be fairly risky, when compared
to others in our Western European sample. Italy is now placed seventh in our ranking of Western
European countries. Although Italians generally spend a large proportion of their income on food and
drink, sector maturity means that the overall level of consumption has stagnated for several years and the
potential reward from any investment is judged to be only moderate. Italy is also judged to be
significantly more risky than the countries above it in our rankings, with the country judged to have
greater risk of experiencing an economic or financial crisis, while also being burdened by significant
corruption and bureaucracy. Greece has moved to the bottom of the pile in our latest update, weighed
down by the ongoing economic and political uncertainty caused by the country's dire fiscal situation. The
country's relatively small population and comparatively low GDP per capita place a limit on the potential
returns from any investment. Meanwhile, labour costs are high and the country's competitiveness is
weighed down by bureaucracy and red tape.
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Table: Western Europe Food & Drink Risk/Reward Ratings Q4 2010
Reward Risk
Industry Reward
Country Reward Reward
Industry Risk
Country Risk Risk
Risk/ Reward Rating
Regional Ranking
Netherlands 68 63 65 75 77 76 68.6 1
United Kingdom 52 73 62 75 77 76 66.5 2
Spain 62 68 65 65 70 68 65.8 3
France 56 71 63 65 70 68 64.7 4
Germany 54 69 61 60 72 67 63.2 5
Italy 47 69 58 55 69 63 59.6 6
Ireland 59 59 59 50 66 59 59.2 7
Greece 41 57 49 65 62 63 53.1 8
Source: BMI. Scores out of 100, with 100 highest. The Food & Drink Risk/Reward Rating is the principal rating. It is comprised of two sub-ratings 'Reward' and 'Risk', which have a 70% and 30% weighting respectively.
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Germany Food & Drink Business Environment Rating
Germany is ranked fifth in BMI’s Western Europe Food & Drink Risk/Reward Ratings. The country
achieved a fairly mediocre score of 61 for its Reward rating, suggesting that the market might be fairly
mature and that food consumption levels are not expected to grow very quickly. The country achieved a
reasonable score of 67 for its Risks to Realisation of Potential Returns rating, suggesting that there are not
many political, economic or industry-specific dangers or limits that might inhibit a company’s ability to
grow its profits in this market.
The country’s mediocre Reward rating stems mainly from the country’s very high maturity and low
market entry potential; for example, the German retail market is one of the most consolidated and
competitive in Western Europe, making any market entry for a new company almost impossible. The
market for many individual food and drink products is also very mature, for example volume sales of
carbonated drinks, beer, spirits and confectionery have been fairly stagnant for several years. The Reward
rating is also suppressed by the country’s relatively low food consumption growth rates. The amount
spent on food and drink has stagnated over the last few years, largely due to slow economic growth and
the rise in prominence of the hard discount retail sector, which has forced prices down. Over 40% of all
grocery shopping is now done at discounters.
The country’s reasonable Risk rating stems from Germany’s relatively loose regulatory environment and
low barriers to entry. The country is judged to be free of restrictive food and drink industry regulations
that may hinder a company’s progress in this market, and is also judged to be free of industry-specific
barriers to entry that would make it difficult for an outside investor to compete against local firms. The
rating is also buoyed by Germany’s stable currency, banking sector and low risk of inflationary pressure.
However, the rating is suppressed by the country’s high cost of labour, complex legalisation governing
employment and slight lack of openness to foreign investment and trade. Germany also has complex
safety and recycling standards, in addition to those of the EU, which are zealously applied and make trade
more difficult and costly.
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Macroeconomic Outlook
2011 Slowdown, Lower Trend Growth Ahead
BMI View: While Germany's economy continues to fire on all cylinders, we believe that H110 will mark
the peak of the ongoing recovery. We caution that the anticipated slowdown in US and Chinese economic
activity will weigh on Germany's growth outlook through H210 and into 2011, suggesting to us that trend
growth will come in below the currently projected 2.0% real GDP growth rate for this year.
Germany's economic recovery is in full swing, as the improving domestic consumer climate and strong
foreign demand see the industrial sector firing on all cylinders. We reaffirm our above-consensus forecast
for 2.0% real GDP growth in Europe's largest economy this year. However, with the economy highly
geared towards the export sector, Germany remains vulnerable to cyclical downturns in global demand.
Given our three fundamental macroeconomic convictions of lacklustre eurozone demand, the fragile
nature of the US economic recovery, and the anticipated decline in Chinese activity in H210 and 2011, we
project German real GDP growth to peak this year and average a more moderate growth rate of 1.7% over
this decade.
Germany's economy remains in a robust state of expansion. Factory orders continue to pile in and the
output gap is rapidly narrowing. Indeed, Germany's Q110 GDP data largely corroborate this view, with
real GDP growing 0.2% (seasonally adjusted) over the previous quarter. In year-on-year (y-o-y) non-
seasonally adjusted terms, the German economy grew 1.7% in the first quarter of the year, marking the
first positive y-o-y growth reading since Q308. Though real household consumption and gross fixed
capital formation growth remained in negative territory during this period (-1.3% y-o-y and -1.1%
respectively), Germany experienced a marked improvement in export growth (7.5% y-o-y) in Q1,
outpacing the rise in imports (4.2%). This ties in nicely with our view that net exports will be the primary
driver of economic growth this year, contributing 1.1 percentage points (pp) to headline real GDP growth,
compared to a drag of 3.2pp on the headline number last year.
What is more, we expect household consumption and gross fixed capital growth formation to push back
into positive growth territory going forward, as domestic German demand lags the recovery in global
demand conditions. Germany's second quarter real GDP reading, therefore, is likely to remain robust, as
the recovery cycle peaks in H110. That said, we do not foresee a major boom in household spending any
time soon, and only project 0.5% real private consumption growth in 2010, up from a 0.2% contraction
last year, while gross fixed capital formation is set to grow at 1.0% this year, following a 9.0%
contraction in 2009.
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Stronger domestic and external demand has already seen manufacturing order numbers soar, with the
three-month moving average seasonally adjusted monthly growth rate remaining in the high 2.0% range
in May. On a y-o-y basis, base effects are beginning to peter out, having soared to as high as 30.1% in
April and coming off the boil slightly in May to post 24.8% y-o-y growth. Particularly interesting is the
breakdown by origin of new factory orders in 2010. During the first four months of the year, domestic
orders were up 20.7% y-o-y, well below the 29.8% y-o-y increase in factory orders coming from across
Germany's borders. Of these, non-eurozone orders experienced the sharpest growth during this period,
climbing 34.1% y-o-y, compared with 24.5% from the eurozone.
This is hardly surprising, in our view, underpinning our belief that German industrial activity will be
driven by foreign demand for the country's high-end manufacturing exports. At a time when the
eurozone's economic recovery is stymied by ongoing household deleveraging and fiscal austerity
measures across the region, Germany's economy continues powers forward on the back of stronger
demand from abroad, particularly in China and the US.
German industrial production growth has also started to come off its April y-o-y high, expanding at a clip
of 12.4% y-o-y in May. Nevertheless, monthly industrial production growth continued to impress, rising
to 2.6% m-o-m (seasonally adjusted), from 1.2% in April, further underpinning our belief that Q2 will
mark another quarter of robust economic activity. Furthermore, we highlight that capacity utilisation in
the manufacturing sector continues to climb, hitting 79.9% in Q210 according to the Federal Ministry of
Economics monthly bulletin for July, up from 75.5% in Q110, and 73.1% back in Q409, which is likely
to be reflected in Germany's Q2 GDP reading released later this year.
Manage Your Expectations
For the time being, it appears that the ongoing recovery in German economic activity could have further
to run, as the Purchasing Managers Index survey remains elevated for both the services and
manufacturing sector, implying confidence in the ongoing recovery. Though manufacturing sentiment
appears to be cooling somewhat, the uptrend currently remains in place. Indeed, we believe that the
direction of this survey is closely tied to the aforementioned new factory order numbers that continue to
post strong growth for the time being.
However, heading into H210 we are beginning to factor in a slowdown in global economic activity and
see limited scope for domestic consumption to replace falling external demand. Deflationary pressures in
China's housing market and ongoing monetary tightening in the country will begin to feed through to
lower Chinese order numbers across the global economy. Combined with the anticipated decline in US
economic activity and scope for fiscal consolidation in 2011, we note that the outlook for robust non-
eurozone foreign manufacturing order growth is looking increasingly slim.
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Indeed, this view seems to be corroborated by the Centre for European Economic Research (ZEW) economic
sentiment index, where the assessment of current conditions surprised to the upside in July, hitting 14.6, well
above the -1.2 expected in a Bloomberg survey for this period. While this reflects the sharp improvement in
Germany's economic situation, we note that the same ZEW survey continues to show a marked deterioration in
expectations for economic growth in July, with the index falling to 21.2 from 28.7 in June and 45.8 in May.
This assessment of Germany's economic situation and its outlook over the next six months seems to be echoed
by the Ifo business climate index – a monthly survey of roughly 7,000 firms in manufacturing, construction,
wholesaling and retailing. Assessment of the current situation has rebounded sharply, continuing to head higher
throughout the second quarter of the year – in line with our view that Q2 GDP will post another strong
performance. Meanwhile, the expectations index, which gauges business sentiment for the next six months, has
started to come in, resulting in the median business climate index beginning to flatten.
Looking at the balance value, which highlights the difference in percentages of responses ('good' and 'poor', or
'more favourable' and 'more unfavourable'), we see the business situation approaching positive territory, while
business expectations are beginning to head lower again. The two Ifo business climate charts, therefore,
reinforce our view that H210 will begin to mark a slowdown in the rate of Germany's economic expansion.
Domestic Picture Is Hardly Encouraging
Ongoing fiscal dynamics and the outlook for Germany's labour market suggest that private consumption will
remain subdued and the household savings rate elevated (by regional standards) – at 23.2% in Q1 compared
with 14.5% in France. With government stimulus measures also being retracted, we believe that the more
challenging external backdrop makes it highly unlikely that Germany's economy will grow at a faster pace over
the next few years than the 2.0% we have pencilled in for in 2010. Indeed, following the withdrawal of
Germany's car scrappage scheme in September 2009 (having been introduced in March of that year), new
vehicle registration numbers began to drop sharply, and y-o-y growth has since collapsed to -32.3% in June, as
the accompanying chart illustrates.
We are thus forecasting a slowdown in economic growth to 1.5% in 2011, with the combination of weaker
external demand, lower government spending and subdued private consumption – not least due to the
implementation of fiscal consolidation measures – paving the way for a more moderate expansionary path for
the German economy. Beyond the medium term, we believe that much will depend on Germany's ability to
cater to future demand from more vibrant emerging markets, where enormous infrastructural challenges
remain, and a more dynamic domestic consumer segment is turning increasingly more affluent, auguring well
for Germany's high-end car and high-quality engineering tools manufacturing sectors. Nevertheless, as outlined
previously, Germany's close trade integration with the eurozone means that a complete disconnect from the
economic trajectory in the bloc is unlikely, and we therefore do not expect a robust leg higher in real GDP
growth over our 10-year forecast horizon.
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Germany – GDP By Expenditure
2007 2008 2009 2010f 2011f 2012f 2013f 2014f 2015f
Real GDP growth, % change y-o-y 1 2.5 1.3 -4.9 2.0 1.5 1.8 1.7 1.6 1.6
Private final Consumption Exp., EURbn 1 1,339.0 1,372.0 1,375.0 1,389.0 1,422.0 1,462.0 1,491.0 1,519.0 1,551.0
Private final consumption, US$bn 1 1,835.0 2,017.5 1,924.9 1,792.0 1,734.8 1,841.6 1,863.6 1,899.0 1,938.8
Private final consumption, EUR real growth % y-o-y 1 -0.4 0.3 -0.2 0.5 0.8 1.0 0.8 0.6 0.6
Government final. cons. exp., EURbn 1 436.0 452.0 473.0 485.0 500.0 514.0 524.0 536.0 549.0
Government final consumption, US$bn 1 597.0 664.1 662.4 625.8 610.0 647.5 654.6 669.6 686.4
Government final consumption, EUR real growth % y-o-y 1 1.7 2.0 3.4 2.0 1.5 1.0 0.7 1.0 1.0
Fixed capital formation, EURbn 1 455.5 474.7 430.6 437.3 452.8 468.6 482.2 496.7 512.6
Fixed capital formation, US$bn 1 624.4 697.8 602.9 564.1 552.4 590.5 602.8 620.8 640.7
Fixed capital formation, EUR real growth % y-o-y 1 5.0 3.1 -9.0 1.0 2.0 1.7 1.7 1.7 1.7
Exports of goods & services, EURbn 1 1,139.5 1,179.4 982.3 1,056.3 1,115.0 1,190.7 1,266.9 1,346.7 1,431.6
Exports of goods and services, US$bn 1 1,561.9 1,733.7 1,375.2 1,362.6 1,360.3 1,500.3 1,583.6 1,683.4 1,789.4
Exports of goods and services, EUR real growth % y-o-y 1 7.5 2.9 -14.5 7.0 4.0 5.0 5.2 5.0 4.8
Imports of goods & services, EURbn 1 967.8 1023.7 872.3 920.6 967.2 1,023.2 1,076.4 1,133.4 1,195.8
Imports of goods and services, US$bn 1 1,326.5 1,504.8 1,221.2 1,187.6 1,180.0 1,289.2 1,345.5 1,416.8 1,494.7
Imports of goods and services, EUR real growth % y-o-y 1 4.8 4.3 -9.5 5.0 3.5 4.0 4.0 4.0 4.0
Net Exports of goods & services, EURbn 1 171.7 155.7 109.9 135.7 147.8 167.5 190.5 213.3 235.8
Net exports of goods & services, US$bn 1 235.3 228.9 153.9 175.0 180.3 211.1 238.1 266.6 294.7
Net exports of goods & services, EUR real growth % y-o-y 1 26.0 -5.1 -45.5 27.9 8.3 13.2 14.2 11.8 9.9
Notes: f=BMI forecast. Source: 1 Eurostat/BMI
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Industry Forecast Scenario
Consumer Outlook
German consumers are characterised
by high saving rates and extreme
price sensitivity and this, combined
with the rapid rise of the discount
sales channel, has led to low growth
in the food and drink sector over the
last ten years. In 2006 and 2007
there were signs this could start to
change, as demand for Germany's
technologically advanced exports in
rapidly industrialising emerging
markets pushed the country's rate of
GDP growth much higher than the
recent average; this economic
performance fed into consumer
confidence and pushed up spending. However, this was short lived, as the global financial crisis led to a
significant slowdown in the German economy, which damaged confidence and curtailed consumption
during 2008 and 2009. We expect economic growth to reach 2.0% in 2010, but in line with our global
outlook forecast growth remaining fairly muted from 2011 onwards (see chart 1). We therefore see only
modest growth in consumption going forward, with the German consumer to remain scarred by the
recent economic turbulence and price sensitivity to remain in evidence throughout our forecast
period.
Upturn In 2010
Germany's economic recovery is in full swing with base effects, the improving domestic consumer
climate and strong foreign demand all having a positive impact on growth. We are forecasting 2.0% real
GDP growth in Europe's largest economy in 2010 (see chart 1). However, with the economy highly
geared towards the export sector, Germany remains vulnerable to cyclical downturns in global demand.
Given our three fundamental macroeconomic convictions of lacklustre eurozone demand, the fragile
nature of the US economic recovery and the anticipated decline in Chinese activity in H210 and 2011, we
project German real GDP growth to peak in 2010 and to average a more moderate growth rate of 1.6%
from 2011 onwards.
Moderate Growth Beyond 2010
Germany Economic Forecasts
f = BMI forecast. Source: Eurostat, Bundesbank, BMI
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To some extent the consumer confidence indicator reflects this view, with the latest survey showing that
the number of pessimists still outnumbers the number of optimists. However, confidence has improved
rapidly in a very short period of time and is currently above its average level of the last ten years (see
chart 2). This suggests that in spite of the travails afflicting the eurozone, German consumers have a
relatively optimistic view of the future, which should have a positive bearing on consumption. However,
we believe an improvement in consumer sentiment will not be enough to fully offset other factors
weighing on consumption and over our five year forecast period expect German consumption to be
negatively impacted by weak wage growth, a high savings rate and poor demographic trends.
Consumption Weighed Down By Wages, Saving And Demographics
Unlike the US and the UK, German unemployment has remained largely flat through the recession (see
chart 1), with German firms preferring to reduce working hours as opposed to carrying out dramatic jobs
cuts. However, a reduction in working hours has had a negative impact on income levels and means that a
sharp upside bounce post-crisis is unlikely. While we expect the aggregate wage numbers to improve on
the back of the export bounce, we think the prospect for a strong expansion of the labour force and wages
is limited.
We also expect saving (rather than
borrowing) to remain in evidence
over the forecast period. Despite
record low interest rates we believe
that demand for borrowing will stay
subdued on the back of the weak
labour market and the long-term
impact of the economic crisis on
consumer sentiment. These factors,
in addition to Germany's weak
demographic profile, mean that that
private final consumption is forecast
to grow by an average of just 0.7%
from 2010-2014 - a growth rate
reflected across the majority of our
food and drink forecasts.
Bouncing Back Germany Consumer Confidence
NB. Below 100 indicates pessimists outnumber optimists. Source: National Statstics Office
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Our forecasts suggest that private final consumption is expected to lag growth in the wider economy over
our five year forecast period. In the food and drink sector one reason for this underperformance is the
continued growth of the discount retail sector. Hard discount retailers such as Lidl and Aldi sell food at
far lower prices than traditional supermarkets, hypermarkets and convenience stores, which introduces
price pressure throughout the retail sphere. Although discounters struggled somewhat during the mini
economic boom of 2006 and 2007, their market share is expected to continue to increase beyond 2010 as
a result of the long-term dampening effects of the downturn on consumer sentiment.
Risks To Outlook
As an export driven economy the major risk to our German outlook is the prospect of a more intense
slowdown in China than we are currently forecasting. Chinese demand for Germany's exports have
helped drive the country's recovery in 2010. However, overly accommodative fiscal and monetary stimuli
in China have led to an overheating that could result in a sharp withdrawal in 2011. Even if China
manages to avoid this scenario, we are projecting a slowdown in Chinese import levels towards the latter
stages of 2010, as Beijing recognises the need to rebalance the economy towards domestic consumption.
A second risk is the prospect of further instability in the eurozone as a result of the unsustainable debt
levels built up by some member countries. However, this brings with it the prospect of further weakening
of the euro which, given Germany's export orientated economy, would not be entirely unfavourable to
German economic growth and to our consumption expectations.
Food
Total Food Consumption
Measured in euros, BMI is predicting a
13.0% increase in total German food
consumption (food and drink, excluding
alcoholic drinks) over the next five years
to 2014, with much of the growth
forecast to come in the latter years.
Given that this is a nominal figure, it
represents low growth in real terms.
Because the German population is
relatively stable, per capita consumption
is expected to increase at almost exactly
the same rate. As a proportion of GDP,
total food consumption is expected to fall, reflecting the maturity of the market
Food Consumption
2006-2014
NB. nominal growth rate, excluding alcoholic drinks sales; e/f = BMI estimate/forecast. Source: Statistisches Bundesamt Deutschland, BMI
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Table: Germany Food Consumption Indicators – Historical Data & Forecasts
2006 2007 2008 2009 2010e 2011f 2012f 2013f 2014f
Food consumption (EURbn) 114.0 118.4 124.9 126.6 129.1 132.7 136.9 140.1 143.1
Food consumption (US$bn) 167.5 174.0 183.6 177.2 166.6 161.9 172.5 175.1 178.9
Per capita food consumption (EUR) 1,383 1,439 1,521 1,546 1,582 1,629 1,685 1,728 1,770
Per capita food consumption (US$) 2,034 2,115 2,236 2,165 2,041 1,987 2,123 2,160 2,213
Total food consumption growth (y-o-y) 2.88 3.86 5.51 1.37 2.01 2.73 3.21 2.29 2.17
Per capita growth rate (y-o-y) 2.00 3.00 4.71 0.67 1.31 1.97 2.46 1.55 1.44
Food consumption as % GDP 4.90 4.87 5.00 5.26 5.26 5.25 5.23 5.20 5.17
NB. nominal growth rate, excluding alcoholic drinks sales; exchange rate varies with year; e/f = BMI estimate/forecast. Source: Statistisches Bundesamt Deutschland, BMI
Confectionery
Data from the Association of the German Confectionery Industry reveals that in 2009 per capita
consumption of chocolate confectionery declined by 3.5% in volume terms and by 0.9% in value terms, to
reach 8.94kg and EUR46 respectively. In previous years levels of consumption have fluctuated between
expansion and contraction, indicating that the sector has largely been tied to the strength of the overall
economy and that the market is mature. Therefore, with German economic growth forecast to remain
subdued , sales are not expected to grow quickly in the short term. By 2014 sales are expected to rise
marginally by 3.1% to reach EUR4.0bn.
In 2007, per capita consumption of sugar confectionery declined by 6.8% in volume terms and 4.6% in
value terms to lie at 5.63kg and EUR19 respectively. Sales have been in long-term decline due to the
ageing of the German population (the majority of sugar confectionery is consumed by children) and
increased health-consciousness, which has pushed consumers towards healthier options including sugar-
free chewing gum. Over the next five years this trend is expected to continue, with sugar confectionery
sales falling by around 4% by 2014.
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Although the chewing gum sector has registered fairly stagnant growth over the last five years, going
forward, it is expected to be a beneficiary of the decline in sugar confectionery consumption. The sector is
also expected to benefit from the increased popularity and availability of functional varieties. In this
context, sales of chewing gum are forecast to rise by 5% over the next five years to reach EUR409mn in
2014.
Table: Confectionery Value/Volume Sales - Historical Data & Forecasts
2006 2007 2008 2009 2010e 2011f 2012f 2013f 2014f
Confectionery sales (000 tonnes) 838,412 834,220 837,972 823,323 826,423 830,849 836,033 841,213 846,156
Confectionery sales growth, tonne, (y-o-y) -0.50 -0.50 0.45 -1.75 0.38 0.54 0.62 0.62 0.59
Chocolate confectionery sales (EURmn) 3,696 3,770 3,885 3,900 3,925 3,953 3,978 4,001 4,021
Sugar confectionery sales (EURmn) 1,316 1,259 1,227 1,188 1,168 1,160 1,151 1,143 1,134
Chewing gum sales (EURmn) 368.6 376.0 387.4 389.7 393.1 397.6 402.1 405.9 409.2
Total confectionery sales (EURmn) 5,381 5,405 5,499 5,478 5,486 5,510 5,531 5,550 5,564
Confectionery sales growth, EUR, (y-o-y) -4.31 0.44 1.75 -0.37 0.14 0.44 0.39 0.34 0.25
Chocolate confectionery sales (US$mn) 5,433 5,542 5,711 5,461 5,063 4,822 5,012 5,002 5,026
Sugar confectionery sales (US$mn) 1,935 1,850 1,803 1,663 1,507 1,415 1,451 1,428 1,418
Chewing gum sales (US$mn) 541.9 552.7 569.4 545.6 507.1 485.0 506.6 507.4 511.5
Total confectionery sales (US$mn) 7,910 7,945 8,083 7,670 7,077 6,722 6,969 6,938 6,955
NB. nominal sales values; e/f = BMI estimate/forecast. Source = Association of the German Confectionary Industy (BDSI), BMI
Drink
Soft Drinks And Bottled Water
Data from the German Association of Alcohol-Free Beverages (WafG) reveals that the carbonated soft
drink market can be characterised as mature but, unlike in some other developed states, the market has not
shown any signs of contraction. BMI is currently forecasting that the value of the carbonated soft drink
market will stagnate for the next five years, neither growing nor shrinking to any great extent.
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In the past few years, sales of bottled water and ready-to-drink (RTD) tea and coffee have registered
consistent growth. In the five years to 2008, sales of bottled water in volume terms increased by nearly
20% representing a compound annual growth rate (CAGR) of around 4%. Over the same period sales of
RTD tea and coffee in volume terms increased by nearly 30%, representing a CAGR of over 6%. Both of
these sectors have benefited from the stagnation in the carbonated soft drinks sector and the perceived
health benefits of drinking water and tea.
BMI is not expecting this level of growth to have been replicated in 2009 due to a reduction in consumer
spending. However, over the long term we expect this growth to continue, with bottled water sales in
volume terms expected to increase by 10.1% over the five years to 2014, and RTD tea and coffee volume
sales expected to increase by 9.7% over the same period.
Meanwhile, sales of juice and juice drinks have fluctuated over the last five years, but generally moved in
an upwards direction. In the long term we expect continued growth in this sector, thanks to the healthy
image of juices, but in the short term sales are expected to stagnate as discretionary spending takes a hit.
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Table: Soft Drink Value Sales - Historical Data & Forecasts
2006 2007 2008 2009 2010e 2011f 2012f 2013f 2014f
Carbonated soft drinks (EURmn) 3,045 3,069 3,106 3,122 3,151 3,193 3,244 3,281 3,318
Fruit juice, juice drinks (EURmn) 712.3 716.0 721.7 724.1 728.1 733.9 741.6 747.7 753.2
RTD Tea and Coffee (EURmn) 187.9 194.5 204.9 211.0 220.7 232.2 245.9 255.6 265.6
Bottled water (EURmn) 2,296 2,346 2,423 2,452 2,520 2,601 2,699 2,771 2,841
Total soft drinks sales (EURmn) 6,241 6,325 6,456 6,509 6,620 6,761 6,931 7,056 7,179
Total soft drink sales growth, EUR, (y-o-y) 2.26 1.36 2.07 0.81 1.71 2.13 2.52 1.81 1.74
Carbonated soft drinks (mn litres) 6,852 6,983 7,053 6,780 6,826 6,909 7,002 7,091 7,180
Fruit juice, juice drinks (mn litres) 4,607 4,614 4,626 4,603 4,607 4,613 4,621 4,629 4,636
RTD Tea and Coffee (mn litres) 686.1 708.6 720.8 673.3 680.5 695.8 710.7 723.6 738.7
Bottled water (mn litres) 11,556 11,946 12,158 11,335 11,467 11,732 11,991 12,213 12,475
Total soft drinks sales (mn litres) 23,701 24,251 24,558 23,392 23,580 23,950 24,324 24,657 25,030
Total soft drink sales growth, litre, (y-o-y) 2.55 2.32 1.27 -4.75 0.80 1.57 1.56 1.37 1.51
Carbonated soft drinks (US$mn) 4,476 4,512 4,566 4,370 4,064 3,896 4,088 4,102 4,148
Fruit juice, juice drinks (US$mn) 1,047.1 1,052.6 1,060.9 1,013.8 939.3 895.4 934.4 934.7 941.6
RTD Tea and Coffee (US$mn) 276.2 286.0 301.2 295.5 284.7 283.3 309.8 319.5 332.0
Bottled water (US$mn) 3,375 3,448 3,562 3,432 3,251 3,174 3,401 3,464 3,552
Soft drinks sales (US$mn) 9,174 9,298 9,490 9,112 8,539 8,248 8,733 8,820 8,973
NB. nominal growth rate; exchange rate varies with year; e/f = BMI estimate/forecast. Source: Association of Alcohol Free Beverages (WafG) (2002-2006), BMI
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Alcoholic Drinks
Alcoholic drinks are expected to demonstrate a mixture of performance trends over the next five years,
with sales of wine and spirits both expected to gradually increase, but with beer sales predicted to
continue falling in volume terms but show a rise in value terms. The German Federal Statistical Office
(Destatis) has reported that beer sales in Germany totalled 100mn hectolitres (hl) in 2009. The figure was
down by 2.9mn hl from the previous year, a fall of 2.8%. Sales have fallen every year since Germany
hosted the 2006 World Cup but the decline in 2009 was the sharpest fall for 11 years.
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 10 years.
A health-conscious population is
increasingly favouring non-alcoholic
drinks or, when they are drinking alcohol,
are opting for wine, which has fewer
calories and offers health benefits from
antioxidants. The population is also
ageing and consumers generally tend to
drink less alcohol as they get older.
Younger drinkers are opting for
alternative alcoholic drinks such as
cocktails and spirits with mixers. These factors were compounded in 2009 by the economic downturn,
with the German economy posting its worst real GDP growth outturn since World War II
We expect real GDP growth to return in 2010. However, the social factors driving a downturn in beer
consumption will still be present, meaning that beer sales are likely to continue falling during 2010, albeit
not at the same rate as 2009. BMI expects this trend to continue over the forecast period with value sales
dropping by 4% to 2014. However, the value of beer sold is expected to decline less quickly than the
volume as beer manufacturers raise prices in line with rising costs and to offset declining sales.
Over the past five years, sales of wine in Germany have increased by 11.1% and BMI is forecasting
strong value sales growth of 9.5% to EUR3.5n in 2014. Over half of the wine consumed in Germany is
domestically produced and this figure is expected to rise as Germany’s wine industry continues to market
itself successfully. However, although wine can be expected to continue to erode the market share of beer
– and to some extent spirits – over the forecast period, a heavy reliance on the discount sector to fuel sales
means that low prices are likely to remain a predominant feature of the German wine sector. Value sales
Alcoholic Drinks Indicators (EURmn)
2006-2014
e/f = BMI estimate/forecast. Source: Federal Statistics Office, Deutscher Brauer-Bund, Federation of German Food and Drink Industries, BMI
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growth in the wine industry will be to some extent hindered by the reliance on shifting large volumes of
low-priced wine.
Industry sources estimate that the off-trade accounts for roughly 82% of wine sales in volume terms in
Germany with on-trade sales taking the remaining 18%. In the off-trade segment, about one-fifth
comprises direct sales from wineries. Another 10% is made through specialist wine shops with the
remaining 70% share sold through grocery retail outlets. Discounters in particular are important in this
area with Aldi classified as the largest wine retailer in the country. Evidence from the trade points to the
fact that the share of wine sales accounted for by grocery outlets continues to grow.
Meanwhile, the German spirits industry looks set to continue benefiting from its appeal to two age sectors
of the market: the over 55 year-olds, a growing population segment for whom many premium spirits are
seen as a sophisticated drink of choice, and younger drinkers, for whom vodka and imported spirits are
sold in stylish bottles and at fashionable establishments. For this sector BMI is forecasting value sales of
spirits to increase by 6.6% over the next five years to reach EUR4.0bn.
Table: Alcoholic Drink Value/Volume Sales - Historical Data & Forecasts
2006 2007 2008 2009 2010e 2011f 2012f 2013f 2014f
Alcoholic drink sales (mn litres) 825,000 829,200 831,426 822,631 824,349 827,009 830,123 833,234 836,204
Alcoholic sales growth, litres, (y-o-y) 3.01 0.51 0.27 -1.06 0.21 0.32 0.38 0.37 0.36
Alcoholic drinks sales (EURmn) 13,047 12,990 13,149 12,846 12,830 12,911 13,016 13,079 13,143
Alcoholic sales growth, EUR, (y-o-y) 1.57 -0.44 1.23 -2.30 -0.12 0.63 0.81 0.49 0.49
Beer sales (EURmn) 6,272 6,146 6,202 5,862 5,772 5,730 5,688 5,645 5,603
Wine sales (EURmn) 3,111 3,142 3,190 3,201 3,234 3,304 3,388 3,448 3,508
Spirits sales (EURmn) 3,665 3,702 3,758 3,782 3,824 3,877 3,941 3,986 4,033
Alcoholic drinks sales (US$mn) 19,179 19,095 19,329 17,985 16,551 15,752 16,400 16,349 16,429
Beer sales (US$mn) 9,219 9,035 9,117 8,207 7,446 6,991 7,166 7,057 7,004
Wine sales (US$mn) 4,573 4,619 4,689 4,482 4,172 4,031 4,268 4,310 4,385
Spirits sales (US$mn) 5,387 5,441 5,524 5,295 4,933 4,730 4,965 4,982 5,041
e/f = BMI estimate/forecast. Source: Federal Statistics Office, Deutscher Brauer-Bund, Federation of German Food and Drink Industries, BMI
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Hot Drinks
Germany’s coffee industry association has announced that coffee sales in the country increased by 1.4%
in 2008 to reach 519,160 tonnes. The increase follows a period of stagnation (in 2007 sales increased by
just 0.3%), and has been attributed to new fashionable coffee drinks and a rising number of coffee shops.
Although Germany is one of Europe’s largest coffee markets, per capita consumption of coffee has been
in decline over the last 15 years. According to the German Coffee Association, per capita consumption in
2007 stood at around 6.2kg a year, representing a 20% decrease since 1992. This fall can be attributed to
similar factors that have caused a decline in the country’s beer consumption – coffee is often seen as
unfashionable and unhealthy, particularly among many of the country’s younger consumers.
However, this is now starting to change and coffee is managing to shake off this image, thanks to the rise
in popularity of espresso coffee and US-style coffee chains. US firm Starbucks entered Germany in 2002
and now operates 119 coffee shops in more than 15 cities, while in 2008 production of espresso-type
coffee rose by 20% to reach 26,000 tonnes.
Coffee pods and coffee in RTD capsules, such as Nestlé’s Nespresso – which can easily replicate the
experience of espresso coffee in the home – are also gaining popularity as the necessary equipment
becomes more widespread. The improving image of coffee has also boosted sales of traditional instant
coffee, with sales in 2008 rising by 3.5% in value terms.
We expect this process to continue as the coffee shop and espresso culture continues to spread. BMI is
therefore forecasting that the rise in sales in 2008 is the start of a sustained period of growth and that the
industry will grow by 12.1% in local currency terms in the five years to 2014. T
he principal factor that could prevent this growth being realised is the economic downturn. However, in
July 2009, the chief executive of Germany’s coffee industry association DKV, Holger Preibisch, reported
that retail coffees are stable this year despite the economic slowdown. According to Preibisch, German
retail coffee trends seen in recent years continued in 2009, with strong growth being experienced in
espresso drinks and single portion coffee drinks. Espresso sales had risen 20% on the year in 2008 partly
because of increased popularity of drinks such as latte, macchiato and cappuccino in cafes for which
espresso is the basis. Sales of new generations of automatic coffee machines for both household and
catering use was also boosting demand for single portion drinks.
Germany Food & Drink Report Q4 2010
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Table: Hot Drink Value Sales - Historical Data & Forecasts
2006 2007 2008 2009 2010e 2011f 2012f 2013f 2014f
Coffee sales (EURmn) 4,580 4,580 4,657 4,669 4,732 4,864 5,017 5,126 5,235
Coffee sales (US$mn) 6,732 6,732 6,846 6,537 6,105 5,934 6,322 6,408 6,544
Tea sales (EURmn) 214.3 223.1 229.3 232.0 237.8 248.1 259.3 266.5 274.7
Tea sales (US$mn) 315.0 328.0 337.0 324.9 306.8 302.7 326.7 333.1 343.3
e/f = BMI estimate/forecast. Source: Federal Statistics Office, Federation of German Food and Drink Industries, BMI
Mass Grocery Retail
The recent financial turbulence and the economic downturn have once again sent consumer confidence
plummeting, pushing German consumers back into the arms of the discounters. Nevertheless the strong
performance of German supermarkets in 2006 and 2007, which came after more than a decade of stagnant
sales and declining market share, seems to have offered a ray of hope to beleaguered supermarket
operators and suggests that the discount format will not remain in ascendance in perpetuity.
BMI is currently forecasting that German GDP growth will pick up again in 2010. The last economic
cycle suggests that it takes around a year for consumer confidence to return after the economy picks up.
This means that the supermarket sector could struggle up until at least 2011. Despite this, BMI thinks it
would be foolish for any retailer to cut investment in the supermarket sector, as retail sales from 2006 and
2007 clearly reveal that once the economy starts to pick up it could be the discount format that faces a
tough time.
We predict that MGR sales will reach EUR168bn by the end of our forecast period in 2014 – an increase
of 22% from 2009. Despite the recovery of the supermarket and hypermarket format in 2006 and 2007,
discount stores are predicted to continue to dominate in terms of overall growth up until 2014.
Over the period 2009-2014, discount store sales are forecast to grow by a massive 29% to EUR71.6bn.
This growth will be largely fuelled by new store openings, with traditional MGR operators such as Edeka
and Rewe, as well as discount veterans Aldi and Lidl, all keen to stake their claim in the discount sector
through new stores.
The sales growth of the other formats over the forecast period will be modest by comparison. Sales at
supermarkets are forecast to grow by 17% over the next five years, reaching EUR37.2bn by 2014. Sales
at hypermarkets are forecast to increase by 15% over the next five years to reach EUR36.6bn by 2014.
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Table: Germany MGR Sector - Sales Value by Format - Historical Data & Forecasts
2006 2007 2008e 2009f 2010f 2011f 2012f 2013f 2014f
Supermarkets (EURbn) 29.09 30.25 31.30 31.68 32.34 33.50 35.05 36.03 37.16
Hypermarkets (EURbn) 30.00 30.75 31.29 31.82 32.49 33.54 34.79 35.69 36.61
Discount stores (EURbn) 48.91 51.56 54.15 55.38 57.67 61.21 65.45 68.53 71.60
Convenience stores (EURbn) 17.21 17.82 18.44 18.72 19.27 20.16 21.05 21.86 22.50
Total mass grocery retail sector (EURbn) 125.2 130.4 135.2 137.6 141.8 148.4 156.3 162.1 167.9
Total mass grocery retail sector growth, EUR, (y-o-y) 4.24 4.13 3.67 1.79 3.04 4.68 5.35 3.69 3.55
Supermarkets (US$bn) 42.76 44.47 46.01 44.35 41.72 40.87 44.16 45.04 46.45
Hypermarkets (US$bn) 44.10 45.20 46.00 44.54 41.91 40.92 43.84 44.61 45.76
Discount stores (US$bn) 71.90 75.80 79.60 77.53 74.40 74.68 82.47 85.66 89.50
Convenience stores (US$bn) 25.30 26.20 27.10 26.20 24.86 24.60 26.53 27.32 28.12
Total mass grocery retail sector (US$bn) 184.1 191.7 198.7 192.6 182.9 181.1 197.0 202.6 209.8
e/f = BMI estimate/forecast. Source: Federal Statistics Office, HDE, Federation of German Food and Drink Industries, BMI
Trade
Germany is a net-importer of food and
drink. This is largely due to the inability
of German agriculture to supply
sufficient quantities for the comparatively
large German population.
Over the forecast period to 2014,
Germany’s food and drink trade balance
is to become less negative with exports
set to climb by a slightly higher amount
than imports, with specific high-value
product ranges, such as the high-growth
organic food industry, contributing
considerably on the export side.
Food and Drink Trade Balance (US$mn)
2006-2014
-80,000
-60,000
-40,000
-20,000
0
20,000
40,000
60,000
80,000
2006
2007
2008
e
2009
f
2010
f
2011
f
2012
f
2013
f
2014
f
Exports Imports Balance
e/f=BMI estimate/forecast. Source: United Nations Conference On Trade and Development (up to 2006), BMI
Germany Food & Drink Report Q4 2010
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Food
Industry Trends And Developments
More Retailers Embracing Private Labels
At the end of 2009 German wholesaler Metro Cash & Carry unveiled a revamped private label range as
it seeks to adjust its offering in response to the downturn. Metro has revealed it will now sell six private
label lines – ranging between the entry-level Aro brand to the high-end Fine Food brand – and claims the
products will be 10-20% cheaper than similar branded products. Metro currently generates 10% of its
revenues from the private label segment and has set a target of increasing the share to 20% by 2012. The
move comes as German retailers are increasingly putting weight behind their private label lines to attract
price-savvy shoppers away from the discount format.
Western Europe leads the way in private label consumption and includes nine of the top 10 countries in
terms of private label sales as a proportion of total retail sales. Within Europe, Switzerland is the country
most dominated by private labels; they account for 54% of the market. Of the four largest economies, the
UK comes top of the list with 48% of products sold under private labels. Germany is not far behind with
40% of the market accounted for by private labels. However, this is largely down to the success of the
discount format and many of Germany's other retailers have been slow to embrace the segment. This is
demonstrated in Metro's results, with the firm only generating 10% of its revenues from the private label
sector.
This has meant that the proportion of products sold under private labels in Germany has stagnated over
the last three years, while in nearly every other European country it has advanced. Yet there are now clear
signs that this is set to change, with Germany's major retailers such as Metro, Edeka and Rewe all
increasing their focus on the segment. While large retailers in other European countries have for a long
time capitalised on the strength of their brand this strategy has only just been embraced in Germany.
'We've had our own brands for years, but we are now pushing them a lot more - they are one of our
business cards' said a spokesperson for Edeka recently.
Although bringing benefits to mass grocery retailers in terms of sales and margins, this trend is rightly
viewed with apprehension by manufacturers of branded products who face a significant threat to their
market share. In response manufacturers have ploughed more money into innovation to keep a clear
divide between what they are offering and what private label brands can offer. This strategy has had some
success in slowing the rise of private label products; however, with retailers across Europe now upping
their own pace of innovation and in a strong position to quickly recognise changes in consumption thanks
to their unique access to sales data, the continued rise of private label products in Germany and elsewhere
looks inevitable.
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At the end of March 2010, Anglo-Dutch consumer goods giant Unilever announced the sale of German
cheese-spread brand Brunch to French cheese-maker Bongrain. Financial details have not been disclosed
but Bongrain already acts as a manufacturer for the product, so the deal should be relatively straight
forward to implement. The move fits with our core view that major brand builders will focus on brands
less exposed to the threat from private labels and concentrating on products where their research and
marketing resources give them more of a competitive advantage.
Organic Sector Resilient
Figures from the German organic food federation, BOLW, suggest that the sector stagnated in 2009 but
did not experience a significant decline. The organisation reported that organic sales came in at about
EUR5.85bn for the year, which was ‘slightly less’ than in 2008. The small fall was attributed to price and
range reductions in discount stores – a strategy implemented to help prop up volumes. This stagnation
follows strong growth in 2008 but with the economic and consumer environment starting to improve,
BMI believes the sector can be expected to deliver market beating growth in the coming years.
Germany is the largest market for organic products in Europe and figures from Bonn-based research
group ZMP show that between 2002 and 2008 organic food consumption in the country doubled. In
2007, sales grew by 15% and this continued into 2008, when sales increased by a further 10%. The slight
drop in sales in 2009 comes against a very weak economic backdrop, with GDP contracting by 5% and
unemployment rising by 1.7 percentage points to 9%. Against this backdrop, the organic sector can be
said to have performed well – particularly given its premium position, which made it potentially
vulnerable to the trading down trend across all developed markets.
This resilience can be attributed to the fact the German organic market is very well established and the
benefits of organic farming are heavily ingrained into the psyche of German consumers, supported by the
active interest German retailers have taken in the sector. All of the major retailers offer organic private
label products and several firms have even developed store formats that exclusively sell organic products.
In 2005, Rewe launched a store selling only organic products under the banner Vierlinden and Schwarz
Group, the owner of discount chain Lidl, has made a play by taking a stake in organic supermarket chain
Basic.
These investments mean that organic products are available across a range of price levels and this is
surely one of the reasons why the sector has suffered less during the downturn than in countries where the
organic sector is less developed. This, combined with the rapid growth of the sector leading up to the
downturn, is why we are confident that demand will rapidly return once consumer confidence picks up.
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Market Overview
Food Sector
The largest industry subsector in the German food and drink industry is meat and poultry processing,
which accounts for around 26% of the entire industry. The dairy industry is the second-most important
sector (worth around 13% of the total). Other important sectors include bread and baked goods (11%),
alcoholic beverages (7.8%), confectionery products (4.5%), fruit and vegetable processing (4.6%), and
the production of mineral waters and soft drinks (3.7%). The value of fish processing and the preserving
of fish and fish products amounts to 1.2% of Germany’s food production industry. Meanwhile, the
German market for organic food is estimated to be worth approximately EUR4.5bn (representing around
2.8% of the total food and drink production industry). The German food industry is highly developed,
with German manufacturers maintaining a dominant position domestically and a strong position in export
markets worldwide. It is the fourth-most important industry in Germany. Growth over recent years has
been achieved mostly through the development of new market segments, including products for particular
age groups, or lifestyle products in line with trends such as fitness and wellbeing. Growth prospects have
also been seen increasingly in export markets, which currently account for around 17% of sales.
Prepared Food
An increasing number of single-person households and the growing number of working women have led
to the demand for convenience food steadily increasing in recent years. Coupled with this is increasing
health consciousness, which is having a considerable influence on German eating habits.
Although multinational companies such as Nestlé and Unilever dominate the German food and drink
industry, the market leader is the Oetker Group, a diversified conglomerate with interests including food
processing and soft and alcoholic drink production. The Dr Oetker brand occupies a leading position in
the local food industry and has become a common brand internationally.
In August 2009, Nestlé announced its intention to increase its stake to 74% in Germany-based frozen
pizza company Wagner Tiefkuhlprodukte with effect from January 1 2010, provided the German
market regulators' approve. Nestlé held a 49% stake in the company, which it acquired on January 1 2005.
Organic
Germany is the largest market for organic products in Europe, and a new report from Bonn-based
research group ZMP reveals that, in the last six years, organic food consumption in the country has
doubled. This has created opportunities for the country’s food producers and retailers, with organic
products often generating substantially higher margins than their non-organic equivalent.
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Figures from the German organic food federation, BOLW, suggest that the sector stagnated in 2009 but
did not experience a significant decline. The organisation reported that organic sales came in at about
EUR5.85bn for the year, which was 'slightly less' than in 2008. The small fall was attributed to price and
range reductions in discount stores – a strategy implemented to help prop up volumes. This stagnation
follows strong growth in 2008 but with the economic and consumer environment starting to improve,
BMI believes the sector can be expected to deliver market beating growth in the coming years.
In 2007, sales grew by 15% and this continued into 2008, when sales increased by a further 10%. The
slight drop in sales in 2009 comes against a very weak economic backdrop, with GDP contracting by 5%
and unemployment rising by 1.7 percentage points to 9%. Against this backdrop, the organic sector can
be said to have performed well – particularly given its premium position, which made it potentially
vulnerable to the trading down trend across all developed markets.
Despite the fact that Germany is one of the most well-established markets for organic produce in Europe,
it is only in the last few years that the country’s larger producers and retailers have paid the sector serious
attention. Frozen food specialist Frenzel Austria Frost is a conventional producer that has invested to
become an organic specialist. The firm now supplies private label organic vegetables, fruit and ready-
meals to retailers such as Rewe and Aldi. Pretzel producer Ditsch is another German firm that now offers
a substantial organic range with plans to extend organic offerings over the coming year. With
multinational firms such as Nestlé and Unilever also starting to offer organic versions of their best-known
products, the organic industry is clearly no longer a niche market.
With major producers now jumping on the organic bandwagon, the prospects for smaller, more
specialised producers looks less certain. Firms such as Bio-Zentrale, which has been selling organic
produce for over thirty years, but still has a relatively modest turnover, could face being crowded out of
the market. Until now, specialist organic producers have had a competitive advantage because of the
relatively small number of firms offering organic products.Yet if multinational firms leverage their scale
advantage to offer cheaper organic products, smaller organic producers may start to fall by the wayside.
Germany’s retailers are also taking more than a passing interest in the organic sector. All of the major
retailers offer organic private label products, and several firms have even developed store formats that sell
exclusively organic products. In 2005, Rewe launched a store selling only organic products under the
banner ‘Vierlinden’, and even Schwarz Group, the owner of discount chain Lidl, has made a play,
taking a stake in organic supermarket chain Basic.
These investments mean that organic products are available across a range of price levels and this is
surely one of the reasons why the sector has suffered less during the downturn than in countries where the
organic sector is less developed. This, combined with the rapid growth of the sector leading up to the
downturn, is why we are confident that demand will rapidly return once consumer confidence picks up.
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Dairy
Dairy products retain a high prominence within German diets, despite the dramatic changes that German dairy
production has seen in recent years. While the volume of German milk production has generally demonstrated
an upward trend since 2001, the value of milk production has, until recently, continued to display marginal
decline. The sector has seen a considerable degree of consolidation, and while output has grown, the number of
individual businesses producing this output has actually decreased. To offset the risk of long-term decline,
German dairy processors have been seeking ways of differentiating themselves, with strategies such as product
innovation being a focus.
The superior state of Germany’s dairy industry has helped to offset the problem of competition from the new
EU states in Eastern Europe. It had been feared that a flood of cheap imports from Eastern Europe would
reduce demand for German dairy. However, the trend has actually gone the other way, with Eastern European
consumers demanding German dairy products, which are perceived by some to be better quality. Increasingly,
it is China which is fuelling the demand for EU and, especially, German milk. This demand has led to
considerable price increases, not just of milk, but also of other dairy products such as butter and cheese.
Although German dairy farmers would like to increase production to cope with the current shortfall, they are
prevented from doing so by EU milk quotas, imposed in 1984 and in force until 2015. Instead, German dairy
farmers have taken the obvious step of putting up their prices, which they have long claimed were artificially
low.
In June 2009, the president of the association of German farming cooperatives, Manfred Nuessell, said that
German milk prices are likely to remain low and more emergency aid is needed for dairy farmers. According to
Nuessell, Germany's milk market remains in serious oversupply, partly because of EU reforms and partly
because of weaker demand. A month earlier, the German Federal Dairy Farmers Association (BDM), together
with other European dairy farmers represented by the European Milk Board (EMB), called for a series of short-
term measures that will sure up milk prices. These include establishing European quota reserves and freezing
the planned quota increase. In the longer term, the EMB has also suggested a number of other policies that it
believes will realign the relationship between supply and demand, such as the creation of a legal basis for the
‘amalgamation’ of milk producers and the establishment of producer-financed levies.
In 2006, around 250 innovations appeared in the German dairy sector, from brand new products, eg flavoured
cheeses and innovative dairy drinks promising health and wellness benefits, to new packaging solutions, eg re-
sealable packs to cater for the rising number of single person households. The emphasis on dairy product
innovation has, in part, been fuelled by the growth of Germany’s huge discount retail sector. Consolidation and
the creation of larger companies with higher development budgets have been viewed as essential survival
strategies. Dairy processors have already passed on the effect of rising manufacturing costs to dairy farmers
and this has resulted in a distinct cooling of relations between the two parties. For their part, dairy processors
have had to absorb the tight margins associated with low price sales in the discount channel. Increasingly
however, it appears that dairy farmers are responding to the recent upsurge in demand for milk exports with
their own price rises.
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Drink
Industry Trends And Developments
Domestic Wine Demand Resilient
Privately owned German wine and spirit producer Henkell & Co. Sektkellerei reported an
increase in sales during 2009, with turnover up by 5.8% to EUR628.6mn and volumes up by 8%
to 19.8mn. Henkell, which derives 66% of its sales from sparkling wine, attributed its results to
strong domestic demand and international expansion, with acquisitions in Poland, Slovakia and
Italy. During the year the firm is likely to have benefitted from a drop in demand for champagne
and an increased demand for cheaper substitutes, such as sparkling German wine
Henkell reports that sales at its sparkling wine unit grew by 7.8% to 13.2mn cases, driven by
demand for its portfolio of sparkling German wines that includes Henkell Trocken and
Kupferberg Gold. This growth comes during a year when producers of its more expensive
French cousin, Champagne, have reported falling sales and a substitute effect is likely to be part
of the reason behind this strong growth. A similar phenomenon has been witnessed in Spain and
Italy, with sales of Cava and Prosecco growing significantly during 2008 and 2009 against a
weak economic backdrop.
Henkell also reported strong growth at its still wine unit, where sales increased by 11.4% to
2.8mn cases. Both parts of the business will have been aided by a gradual shift from beer to wine
among the German population. Over the past five years, sales of wine in Germany have
increased by 11.1% and BMI is forecasting strong value sales growth of 15% to EUR3.4bn in
2014. This growth can be partly attributed to the successful marketing efforts of the domestic
wine industry. Over half of the wine consumed in Germany is domestically produced and this
figure is expected to rise as Germany’s wine industry continues to engender itself to consumers.
However, Although wine can be expected to continue to erode the market share of beer – and to
some extent spirits – over the forecast period, a heavy reliance on the discount sector to fuel
sales means that low prices are likely to remain a predominant feature of the German wine
sector. Value sales growth in the wine industry will be to some extent hindered by the reliance
on shifting large volumes of low-priced wine. This may partly explain why Henkell’s volumes
increased at a faster rate than its revenues in 2009, with the economic downturn meaning that
pricing pressure remained a key factor throughout the year.
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Falling Beer Demand Driving Consolidation
TheGerman Federal Statistical Office (Destatis) has reported that beer sales in Germany totalled
100mn hectolitres (hl) in 2009. The figure was down by 2.9mn hl from the previous year, a fall
of 2.8%. Sales have fallen every year since Germany hosted the 2006 World Cup but the decline
in 2009 was the sharpest fall for 11 years. With consumption on a steady downwards path, there
is significant overcapacity in the sector that will continue to push the industry towards
consolidation.
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 10 years. A health-conscious population is
increasingly favouring non-alcoholic drinks or, when they are drinking alcohol, are opting for
wine, which has fewer calories and offers health benefits from antioxidants. The population is
also ageing and consumers generally tend to drink less alcohol as they get older. Younger
drinkers are opting for alternative alcoholic drinks such as cocktails and spirits with mixers.
These factors were compounded in 2009 by the economic downturn, with the German economy
posting its worst real GDP growth outturn since World War II, a contraction of 5.0%.
We expect real GDP growth to return in 2010, with a 1.7% expansion forecast by BMI.
However, the social factors driving a downturn in beer consumption will still be present,
meaning that beer sales are likely to continue falling during the 2010, albeit not at the same rate
as 2009. BMI expects this trend to continue over the forecast period with value sales dropping
by 4% by 2014. The value of beer sold is expected to decline less quickly than the volume,
however, as beer manufacturers raise prices in line with rising costs and to offset declining sales.
With its strong brewing heritage, Germany is perhaps in a weaker position than other markets to
offset declining volume sales with higher value sales. German beer drinkers are already very
sophisticated and the country is home to a multitude of craft brewers offering some of the finest
beer in the world. Foreign brands that might be considered ‘premium’ in other markets, such as
SABMiller’s Grolsch or Grupo Modelo’s Corona, are unlikely to have the same impact in the
German market and premium-quality local beers already command a significant market share.
We therefore envisage strong pressure towards further consolidation. The head of marketing at
Krombacher Brauerei, which produces Germany’s bestselling lager, said in an interview that it
estimated that overcapacity in the sector was at 30%. With consumption falling, an increasing
number of producers will eventually be squeezed out.
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Market Overview
Soft Drinks
The German soft drinks market is large but mature. In many categories, including carbonated soft drinks
and fruit juice drinks, the market has not grown significantly for the last five years. However, there are
some categories, including bottled water and ready-to-drink (RTD) tea and coffee, where growth
opportunities still exist. The market is dominated by multinationals including The Coca-Cola Company
(TCCC) and PepsiCo, but all at the mercy of discount retailers, which account for the bulk of soft drinks
sold in the country.
Brands from TCCC dominate the carbonated soft drinks market and Germany is the largest contributor to
the firm’s sales in Western Europe. Bottling of Coca-Cola products is undertaken by Coca-Cola
Erfrischungsgetränke AG, a subsidiary of the US-based firm. Coca-Cola Erfrischungsgetränke was
established as a Coca-Cola subsidiary after a disastrous period of results in Germany led Coca-Cola to
take the existing fragmented bottling and distribution process under its own wing. This was done by
consolidating the existing 18 individual German franchise holders into one wholly-owned subsidiary.
This was deemed necessary after the existing bottlers had trouble getting Coca-Cola’s products into
Germany’s ever dominant discount retailers, leading to a dramatic decline in revenues. The merged entity
employs about 12,000 people and has annual sales in the region of 35mn hectolitres (hl).
In October 2009, Oetker-owned Radeberger acquired 70% of Bionade, the fourth most popular soft
drink in Germany. The organic soda business is targeting international expansion and stated that it needed
a larger partner to compete against the likes of Coca Cola. Bionade is currently testing its products in
European cities such as Brussels, Vienna, Zurich and Barcelona. Bionade is aiming for sales of about
EUR40mn (US$58mn) in 2009, roughly unchanged from 2008.
Alcoholic Drinks
Germany has one of the highest per capita rates of beer consumption worldwide. The German brewery
sector is extremely fragmented, with more than 1,200 breweries and around 5,000 brands. The majority of
small brewers are located in the south of the country, while the industry in the north is smaller but more
consolidated.
The two largest players in the Germany beer sector are Radeberger and the German arm of Anheuser-
Busch InBev (ABI). Despite being the two largest players in the German beer market, ABI and
Radeberger only control around 9% and 15% of the total market, respectively, reflecting the fragmented
nature of the sector.
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ABI built its position in the German market through the purchase of Diebels and Beck’s in 2001 and
2002, respectively. However, despite the fact that German drinkers consume the second largest amount of
beer per capita in the world, behind only the Czechs, the unit has seen relatively slow growth due to the
maturity of the market and the challenges posed by its fragmented nature. ABI’s growth in the market has
also been curtailed by huge variations in regional tastes and the dominance of local brands in a number of
areas. This has stifled opportunities for the firm to expand sales of the flagship Beck’s brand and is in
contrast to many markets, such as Brazil and the UK, where national tastes are more consistent.
Like the beer industry, the wine industry is highly fragmented. Large players in the wine sector include
FW Langguth (now owner of the Blue Nun brand) and Reh Kendermann, which are both focused on
the mass-market end of the price spectrum.
The international reputation of German wine has been steadily improving, which has proven to be a boost
to the country’s wine exports. Riesling and Pinot Noir are the most successful grape varieties
internationally and since 2002 exports of Riesling to the US have tripled. Despite this, the UK remains the
country’s most important export market, accounting for a quarter of all Germany’s wine exports.
In March 2009, the German Wine Institute reported that during FY08, wine exports in value terms
registered an increase of 11% y-o-y to reach EUR427mn (US$572mn). Exports to the Netherlands,
Russia, Belgium and China increased by 30%, 34%, 39% and 74% respectively, which helped counter an
8% (y-o-y) drop in exports to the US market. However, producers remain cautious about the level of
demand in 2009. At the beginning of April, the Institute signed a deal with Lufthansa airlines to supply
German wines on international flights. The deal, which the Institute described as ‘long-term’, is intended
to ‘foster a greater appreciation of quality wines made in Germany.’ In September 2009, the body forecast
a good vintage for 2009’s harvest. The association said that this year's crop is ‘well-ripened and in a
nearly optimal state of health thanks to outstanding weather in late summer’. In volume terms, the
organisation is expecting the harvest to come in ‘somewhat below the long-term average’ of 10mn
hectolitres, matching the volumes for the previous two harvests. In early 2010, the Institute reported that
domestic wine exporters had been affected by the 2009 global economic crisis, although the impact was
less severe than anticipated. Volume exports of wine declined by 6% in 2009 and value exports by 8%.
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Mass Grocery Retail
Industry Trends And Developments
Expansion Across Sectors To Hedge Bets
In recent years, one of the major themes of Germany’s food and drink retailing has been the decline in
sales at supermarkets and hypermarkets and the rise of hard discounters. This was fuelled by a weak
German economy, which dampened consumer confidence and made shoppers more price savvy, and also
by a failure of German supermarket and hypermarket operators to quickly adapt their approach in light of
this increased competition. Faced with this growth in the discount sector and strong competition by
dedicated hard-discount MGRs, such as Aldi and Lidl, major MGRs, such as Rewe and Edeka, have
expanded their own discount store activities and substantial investment in this sector looks likely to
continue.
Despite the global economic slowdown and a decline in consumer confidence, two of Germany’s largest
retailers have revealed that they will continue to invest in new stores. Edeka, Germany’s largest grocery
retailer by sales, announced plans to open around 1,000 new stores by the end of 2010. Meanwhile, Rewe,
Germany’s second-largest grocery retailer, confirmed plans to open an additional 750 outlets by 2014.
Edeka has plans to open around 200 supermarkets and 150 discount stores a year, while Rewe has
revealed that it will be expanding both its Penny discount network and its Rewe supermarket format. This
dual focus on both full-service supermarkets and discount stores reflects the current market conditions,
with the discount format likely to provide the best returns in the short term while consumer confidence is
low, but with the supermarket format likely to bounce back once the economic climate improves.
As both firms plan continued investment in their supermarket networks, it seems that they remain
confident that the format still has a substantial role to play in the German retail sector. This is borne out
by retail sales figures for 2006 and 2007, when the German economy was thriving and German
consumers were beginning to gain in confidence. While a return to growth will be positive for consumer
confidence and stem the move towards the discount store format, the muted recovery means that we do
not expect a strong revival for more upmarket stores. Edeka and Rewe’s decision to hedge their bets with
investment in a range of formats is therefore likely to prove astute over the longer term.
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Metro Searching For EM Growth, Could Be Split Up?
In May 2010, German retail giant Metro Group reported an increase in underlying earnings and sales for the
first quarter of its fiscal year aided by currency effects and cost savings under its Shape 2012 restructuring
programme. However, the firm’s core cash and carry business continues to register negative growth. Metro’s
long-term fortunes look likely to be tied to the successful revitalisation of the cash and carry format, with
further expansion into high growth markets in Asia and Africa appearing to be the best strategy to achieve this
goal
Over the last three years, sales at its cash and carry unit have gone backwards – falling by 3.4%. This can be
partly attributed to weaknesses in the Eastern European market, which was hit particularly hard by the global
financial crisis. As these markets gradually rebound, the firm’s results here should start to improve, with the
firm reasonably well positioned to capitalise on the growing domestic demand, which should filter through to
all forms of retailing including the independent convenience store channel, which is the staple purchaser at
Metro’s cash and carry outlets. Despite the proliferation of organised retailing across Eastern Europe, the
market is many years from maturity and the independent sales channel should continue to provide strong
growth opportunities for Metro’s cash and carry outlets to capitalise on.
However, the cash and carry unit also suffers from poor performance in the domestic German market and to
slowing sales in other Western European markets such as the UK. Here, there are signs that a trend away from
cash and carry outlets is structural rather than cyclical, with leading grocery retailers expanding their operations
into the convenience channel and reducing the base of independent outlets upon which Metro is reliant. This
trend has been driven by market maturity, with fewer sites for retailers such as Carrefour and Tesco to open
large supermarkets or hypermarkets, and by changes in consumer spending, with high petrol prices and
demographic changes pushing consumers driving demand for convenience which retailers are capitalising on
through rapid expansion. In these markets, Metro is sure to find it hard to reinvigorate growth and is likely to
focus on efficiency drives and cost savings in an attempt to continue growing earnings. The firm has already
announced a wave of job cuts under its Shaper 2010 efficiency programme, including over 1,300 in the German
market.
To offset this structural decline Metro will need to continue investing in emerging markets, with frontier
markets that have a limited organised retail sector particularly attractive. In 2009, the firm highlighted this
potential by opening its first store in Kazakhstan, with a further 14 scheduled to follow, and started work on its
first outlet in Egypt. In the first quarter of 2010, Metro’s cash and carry division registered growth of 4.5% in
Asia and Africa, including like-for-like growth of 5.4%. However, with these regions currently only
representing just 8.7% of total sales for the cash and carry unit the firm will have to expand heavily before
growth in these markets can offset continued weakness in Europe. Other markets with significant potential for
expansion include India, where retailing laws have curbed expansion of supermarkets and hypermarket by
multinationals, and politically stable sub-Saharan African markets, where organised retailing is very limited.
Markets we would highlight with relative political stability and strong forecasts for GDP growth include Ghana
and Kenya.
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Over the last three years, Metro’s results have been aided by strong growth at its electronics unit Media-
Saturn, while sales at its Real hypermarket business and its Galeria Kaufhof department stores have
stagnated. With limited overlap between its four units there is a strong argument for the business to be
split up – a move which would give the firm greater funds to invest in its core cash and carry operations.
To this end, the firm has already announced the possible disposal of it Kaufhof department store business,
with the firm announcing in April 2010 that was in early talks with several investors. Metro has also
hinted at the possible spinoff of its electronics unit, saying in March 2008 that its goal was to make
Media-Saturn fit for a potential IPO. This leaves the Real hypermarket business, which has also been the
subject of disposal speculation. However, so far the firm has said it is keen to hold onto its hypermarket
business – a decision that perhaps makes sense given the stronger overlap between the hypermarket and
the cash & carry operations.
Market Overview
The German MGR sector is characterised by a high level of consolidation, with the 10 largest operators
accounting for around 85% of total sector sales. The process of market consolidation, which started
several years ago, appears to be continuing with the most recent major development being Edeka’s
acquisition of a controlling share in Tengelmann’s Plus discount store operations, creating a new
discount giant. In July 2009 Belgian group Delhaize announced plans to exit the German market selling
its four stores in the country to Rewe.
German consumers are extremely price-conscious and typically opt for the lowest prices, buying retailers’
private label brands or shopping at the stores of Germany’s hard discount operators, such as Aldi and
Lidl. In a retail market characterised by sluggish growth, discount-store formats have seen improved
sales, while hypermarket and supermarket formats have suffered as a result. The trend towards discount
grocery shopping has been reflected in the competitiveness of the discount segment, which has seen an
ongoing price war between the major operators.
The leading players have continued to grow in size and have strengthened their positions since the 1990s.
This process has led to concentration and consolidation in the previously fragmented local MGR sector. A
further characteristic has been the large number of mergers and acquisitions as well as expansion both in
Germany and to neighbouring countries. Smaller, independent operators have lost out during this process
and are struggling to maintain market share in the face of tough competition. In October 2009, in a further
example of this consolidation, Rewe announced plans to acquire 39 sky supermarkets from Coop EG in
south west Germany.
In response to the increasing market share of discount operators, several other leading MGR operators
have developed their own discount formats. Furthermore, private-label development has been rapid,
accommodating consumer demand for cheap but good quality products. More than one-third of all
consumer spending on food and drink in Germany is accounted for by private label products. Discounting
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is no longer the reserve of any particular social class in Germany; it has become a widely acceptable and
desirable form of retailing. Interestingly, however, as discount retailing has grown in popularity and
become more acceptable, many operators have started to shift from their discount principles in order to
enhance their competitive position. Over the last few years, many discounters sought to diversify their in-
store offerings rather than just pursue growth through network expansion.
The ongoing enlargement of product ranges has been accompanied by growth in average outlet sizes. In
addition, some retailers have decided to abandon an element of their no-frills image in order to enhance
competitiveness and more money is now being committed to in-store displays and product labelling etc.
Similarly, discounters are now stocking greater ranges of non-food products. While such diversification
measures have boosted the image of discount stores, there is a risk of outlets beginning to resemble
supermarkets. It is becoming increasingly difficult for discounters to avoid passing on the cost of store
improvements to customers in the form of higher prices.
Table: Structure of Germany's Mass Grocery Retail Market by Estimated Number of Outlets
2002 2003 2004 2005 2006 2007 2008e 2009e
Supermarkets 8,810 8,787 8,770 8,740 8,715 8,718 8,702 8,710
Hypermarkets 2,409 2,431 2,443 2,450 2,455 2,460 2,465 2,470
Discount stores 13,400 13,750 14,214 14,697 14,998 15,299 15,600 15,990
Convenience stores 16,000 16,105 16,230 16,365 16,485 16,605 16,725 16,842
Total MGR Operators 40,619 41,073 41,657 42,252 42,653 43,082 43,492 44,012
Source: Official statistics, BMI
Table: Sales Format by Value in Germany's Mass Grocery Retail Market (US$bn)
2002 2003 2004 2005 2006 2007 2008e
Supermarkets 38.2 39.1 40.3 41.5 42.8 44.5 46.0
Hypermarkets 39.0 40.1 41.7 42.9 44.1 45.2 46.0
Discount stores 56.7 60.3 63.7 67.7 71.9 75.8 79.6
Convenience stores 21.6 22.7 23.6 24.5 25.3 26.2 27.1
Total MGR Operators 155.5 162.2 169.3 176.6 184.1 191.7 198.7
e = estimate; Source: Official statistics, BMI
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Table: Sales Format by Value in Germany's Mass Grocery Retail Market (EURbn)
2004 2005 2006 2007 2008e
Supermarkets 27.4 28.2 29.1 30.6 31.3
Hypermarkets 28.4 29.2 30.0 30.7 31.3
Discount stores 43.3 46.1 48.9 51.6 54.1
Convenience stores 16.0 16. 7 17.2 17.8 18.4
Total MGR Operators 115.2 120.1 125.2 130.4 135.2
e = estimate; Source: Official statistics, BMI
Table: Annual Average Sales per Outlet by Format
US$mn EURmn
Supermarkets 5.29 3.60
Hypermarkets 18.66 12.69
Discount stores 5.10 3.47
Convenience stores 1.62 1.10
Total MGR Operators 4.57 3.11
Source: BMI
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Competitive Landscape
Table: Key Players in Germany's Food Sector (2008)
Company Sub-sector Sales
(EURmn) Sales
(US$mn) Fiscal Y/E Established Employees
August Storck KG confectionery 1,200 (e) 1,860 (e) 31/12/2008 1903 4,000
B & C Tönnies Fleischwerk GmbH
Convenience, meat 3,000 4,650 31/12/2006 1970s na
Bahlsen GmbH cakes, biscuits,
crisps 545 845 31/12/2008 1889 2,838
Bayernland eG Dairy 608 942 31/12/2008 1930 na
Campina GmbH Dairy 1,462 2,266 31/12/2008 1996 2,200
Cobana Fruchtring GmbH Fruit 2,420 3,751 31/12/2008 1964 3,537
Ehrmann AG Dairy 650 1,008 31/12/2007 1920 1,500
Ferrero oHG Gmbh Confectionery 1,400 (e) 2,170 (e) 31/12/2008 na na
Hahne Mühlenwerke cereal na na na 1848 220
Halloren Schokoladenfabrik GmbH confectionery 53 82 31/12/2009 1804 na
Haribo GmbH confectionery 1,400 (e) 2,170 (e) 31/12/2008 1920 2,000
Harry-Brot GmbH Bread, baked
goods 500 (e) 775 (e) 31/12/2008 1688 na
Heristo AG Meat, sausage 1,340 2,077 31/12/2006 na 3,800
Hochland AG Dairy 900 1,395 31/12/2008 1927 4,100
Hochwald-Nahrungsmittel-Werke GmbH (Erbeskopf Eifelperle eG)
Dairy, ham, sausage 1,000 1,550 31/12/2008 1932 1,600
Humana Milchunion eG Dairy 1,900 (e) 2,945 (e) 31/12/2008 na na
Lieken Group (formerly Kamps) Bakery products 1,000 1,550 31/12/2008 1982 7,800
Kraft Foods Germany
Coffee, confectionery,
condiments 1,800 (e) 2,790 (e) 31/12/2008 na na
Masterfoods GmbH Confectionery 1,500 (e) 2,325 (e) 31/12/2008 na na
Moksel Group Meat 2,000 3,100 31/1/2/2008 na 2,500
Molkerei Alois Müller GmbH Dairy 2,300 3,565 31/12/2008 1896 4,560
Nestle Group Germany
coffee, confectionery,
cereal 3,800 (e) 5,890 (e) 31/12/2008 1867 17,190
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Table: Key Players in Germany's Food Sector (2008)
Company Sub-sector Sales
(EURmn) Sales
(US$mn) Fiscal Y/E Established Employees
Nordmilch Group Dairy 1,900 2,945 31/12/2009 1999 2,900
Oetker Group
Beer, wine, spirits,
packaged food 4,245 5,820 31/12/2008 1891 24,685
Pfeifer & Langen KG Sugar 989 1,533 31/12/2008 1870 2,028
Procter & Gamble GmbH
Snack food, packaged food 2,700 (e) 4,185 (e) 31/12/2008 1960 na
Stute Nahrungsmittelwerke GmbH
Fruit juice, jams, canned fruit,
vegetable preserves 900 (e) 1,395 (e) 31/12/2008 na na
Südzucker AG Sugar 5,780 8,959 01/03/2008 1837 18,642
Tchibo Holding AG Coffee,
chocolate 3,600 5,580 31/12/2008 1949 12,000
Unilever Germany
packaged food, condiments, ice
cream, tea 2,500 (e) 3,875 (e) 31/12/2008 1869 179,000
Vion N.V
Convenience, meat,
ingredients 9,600 14,880 31/12/2008 na 35,000
Westfleisch eG Meat 1,887 2,925 31/12/2008 na na
Wild GmbH ingredients, soft
drinks 600 (e) 930 (e) 31/12/2008 1931 2,500
Zur Mühlen Gruppe Meat, sausage 750 1,163 31/12/2007 na na
NB. For Germany based companies revenue figures will include international sales. For German subsidiaries and branches of international companies revenue figures will generally only include German sales; na = not available; e = estimate; Source: Allgemeine Fleischer Zeitung (General Butchers Newspaper), Investor Relations, Trade Press
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Table: Key Players in Germany's Drink Sector (2008)
Company Sub-sector Sales
(EURmn) Sales
(US$mn) Fiscal Y/E Established Employees
Bitburger Brewery (Carlsberg) Beer 1,000 (e) 1,550 (e) 31/12/2008 1817 1,000
Brau Holding International AG Beer 700 (e) 1,085 (e) 31/12/2008 2001 na
Coca-Cola Erfrischungsgetränke AG
Soft Drinks, bottled water 2,500 (e) 3,875 (e) 31/12/2008 2006 11,500
Eckes-Granini Group Fruit juice 917 1,421 31/12/2008 1857 1,527
Emig GmbH Fruit juice 329 (e) 510 (e) 31/12/2008 1968 na
AB-InBev Germany Beer 1,000 1,550 31/12/2008 1987 na
Karlsberg Brauerei Gmbh Beer 700 (e) 1,085 (e) 31/12/2008 1878 2,500
Kraft Foods Germany
Coffee, confectionery,
condiments 1,800 (e) 2,790 (e) 31/12/2008 na na
Krombacher Brauerei Bernhard Schadeberg GmbH Beer 642 995 31/12/2008 1803 866
Krüger GmbH
Coffee, tea, drinking
chocolate 1400 (e) 2170 (e) 31/12/2008 1971 4,000
Maxingvest AG (formerly Tchibo Holding AG) Coffee 9,194 14,251 31/12/2008 1949 33,978
Melitta Unternehmensgruppe Bentz KG Coffee 1,230 1,907 31/12/2008 1923 3,900
Nestle Group Germany
coffee, confectionery,
cereal 3,800 (e) 5,890 (e) 31/12/2008 1867 17,190
Radeberger Group (Oetker Group) Beer 1,600 2,480 31/12/2009 na na
Stute Nahrungsmittelwerke GmbH
Fruit juice, jams, canned
fruit, vegetable preserves 900 (e) 1,395 (e) 31/12/2008 na na
Unilever Germany
packaged food,
condiments, ice cream, tea 2,500 (e) 3,875 (e) 31/12/2008 1869 179,000
Warsteiner Brauerei Beer 542 840 31/12/2007 1751 2,500
Wild GmbH ingredients,
soft drinks 600 (e) 930 (e) 31/12/2008 1931 2,500
NB. For Germany based companies revenue figures will include international sales. For German subsidiaries and branches of international companies revenue figures will generally only include German sales; na = not available; e = estimate; Source: Allgemeine Fleischer Zeitung (General Butchers Newspaper), Investor Relations, Trade Press
Germany Food & Drink Report Q4 2010
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Table: Key Players in Germany's Mass Grocery Retail Sector
Parent Company
Sales In Germany (EURbn)
Sales In Germany (US$bn) Fiscal Y/E Fascias Format Outlets Emp. Est.
Edeka Group 32.0 49.6 31/12/2008 Total 10,834 262,241 1907
Edeka nah
und gut Convenience
stores na
Edeka
aktiv markt Supermarkets na
Edeka
neukauf Supermarkets na
Edeka center Hypermarkets na
Marktkauf Hypermarkets na
Edeka
C&C Cash & Carry 114
aktiv
discount Discount stores na
Netto Marken-Discount Discount stores 1000+
Spar
Supermarkets and
convenience stores 717
Metro Group** 26.5 41.1 31/12/2009 Total 1,529 263,794 1964
Extra Supermarkets 259
Real Hypermarkets 371
Metro Cash & Carry 122
Other 312
Rewe Group 34.6 53.6 31/12/2009 Total 8,939 268,907 1927
Rewe Supermarkets 3,000
Toom Hypermarkets na
Penny Discount stores 2,000
Vierlinden Organic grocery
stores 2
Handelshof, Fegro/
Selgros, C-Gro Cash & Carry 3,000
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Table: Key Players in Germany's Mass Grocery Retail Sector
Parent Company
Sales In Germany (EURbn)
Sales In Germany (US$bn) Fiscal Y/E Fascias Format Outlets Emp. Est.
Lidl & Schwarz Group
33 (e) 51 (e) 31/12/2008 Total 5,826 80,000 1970s
Lidl Discount stores 3,200
Kaufland Hypermarket 2,600
Basic Organic grocery
stores 26
Aldi Group 31 (e) 48 (e) 31/12/2008 Aldi Discount stores 4,100 na 1948
Tengelmann Group 9.5 14.7 31/12/2008 Total 3,615
150,880 ( Germany: 86,518) 1867
Plus* Discount stores 2,912
Kaiser's Tengel-
mann Supermarkets 703
na = not available; *70% Share of Plus stores sold to Edeka in 2007; **Sales figures include non-food outlets. Source: Official Statistics, Trade press, directories, BMI
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Company Analysis
Food
Oetker Group
Strengths ! Premiumisation has helped to buoy performance of sparkling wine, champagne and spirits.
! Involvement in a wide range of sectors, other than food and drink, offers protection against weak performance in single-product areas.
! With a strong international presence, the group is well positioned to benefit from increasing demand for packaged, branded food and drink products in emerging markets; expansion into India, China and the US will bring a major boost to the Group’s international activities.
Weaknesses ! Predominantly premium portfolio limits interest among low-income groups.
! Beer sales through Radeberger division have seen a significant decline.
! German food sales growth was weak in 2008 and 2009.
Opportunities ! Potential to offset losses in domestic beer sales through increased emerging market activity.
! Chilled and frozen fish products are proving to be an important growth area.
Threats ! Anti-alcohol marketing and advertising legislation and the introduction of anti-smoking legislation make Oetker vulnerable to sales losses in its beer, wine and spirits divisions.
! Faces growing competition in German wine sector from international sources.
Company Overview Oetker Group is a holding company for the business activities of the German Oetker family. The
company is active in food and drink production, shipping, financial services, insurance and real
estate. Oetker is present in 26 countries across the globe, with Germany accounting for just under
40% of sales. In the food and drink sector, Oetker’s main products include alcoholic drinks, frozen
and children’s foods, cereals and bakery mixtures.
Strategy The Group follows a strategy of risk minimisation through diversification, being active in business
areas that are characterised by different economic cycles. The parent company is split into six
operating divisions, including food, beer and non-alcoholic beverages, wine and spirits, shipping,
financial services, and other interests. In the food and drinks business, recent years have seen the
strengthening of the brand portfolio through a range of acquisitions, including Unilever’s frozen
pizza and baguette business, independent dairy company Onken and breweries Brau und Brunnen
AG and Freiberger Brauhaus. More than 50% of sales are achieved in international markets, with
Oetker being present in 32 countries worldwide. India, China and the US are expected to join the
Group’s international activities in the near future.
Company Data ! 2007 Food division revenue: EUR1.94bn (US$3bn); increase of 8%
! 2007 Beer and non-alcoholic beverages division revenue: EUR1.3bn (US$2bn)
! 2007 Wine & spirits revenue: EUR567mn (US$279mn); increase of 10.9%
! 2008 Food division revenue: EUR2bn (US$2.78bn): increase of 5.6%
! 2008 Beer and non-alcoholic beverages division revenue: EUR1.6bn (US$2.2bn)
! 2008 Wine & spirits revenue: EUR592mn (US$823.2mn); increase of 4.4%
! Number of employees: 24,685
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Nordmilch Group
Strengths ! One of the largest milk processors in Germany and ranks among the top ten in Europe.
! Promotion of key ‘Milram’ brand helps to ensure it stands out among retailers and consumers
! Exports of dairy products have been increasing.
! Global milk prices have been falling since the onset of the economic downturn which should reduce costs and boost earnings.
Weaknesses ! High degree of competitiveness in Germany’s dairy sector puts pressure on profit margins.
! Hard to achieve and maintain consumer loyalty in a particularly competitive and fast-consolidating consumer goods industry.
! Current infrastructure weaknesses and high investment levels needed in Nordmilch’s target markets suggest that returns on investment will take time to materialise.
Opportunities ! Restructuring programme should help to renew overall profitability.
! Investment in cheese sector is seen as offering healthy growth prospects; Edewecht cheese factory to be modernised and made to play a major part of the company’s future strategy.
! Significant potential to expand international sales, especially in Eastern Europe, China and South East Asia.
! Potential to strengthen the ‘Oldenburger’ brand in international export markets.
Threats ! Operates in a sector particularly threatened by the rising popularity of private labels.
Company Overview Nordmilch Group is one of Germany’s largest dairy products manufacturers. The firm was created
in 1999 through the merger of Nordmilch AG and three regional dairy companies. Nordmilch and
its subsidiaries are responsible for the processing of more than one-sixth of German milk volumes
and distribute a broad portfolio of dairy and cheese products. The group’s main brand, on which
marketing spending is focused, is Milram.
Strategy The Group is at present involved in a comprehensive restructuring programme of its German
operation, with 11 of its 21 locations closing in the face of a mature and highly competitive market.
In addition, several divestments have taken place, including the sale of cheese packers Baakes &
Heimes, Botterblom Gastro-Service and a 50% stake in Hansano. Investment is being focused on
the cheese sector, which is believed to offer growth prospects. Around EUR30mn has been
invested into the Edewecht cheese factory to turn it into the most modern and efficient cheese
factory in Europe, with total cheese production increasing to 100,005 tonnes per year. Nordmilch
aims to increase cheese products’ share of total sales from a current 26% to 40% and become a
cost leader in the sector. It also aims to increase its presence in international markets. A subsidiary
in Prague was established in 2005, and a representative office in China was opened in 2006. The
group’s objectives for 2009 included not only improving the milk payment at a comparable total
profit, but also further strengthening its equity capital and reducing debt financing by ploughing
back future profits. The other focus is strategic partnerships. In August 2009 Nordmilch acqujred
dairy company Pommermilch, which the firm states will increase its expertise in cheese production.
Company Data ! 2007 Revenue: EUR2.3bn (US$3.6bn); increase of 21%
! 2008 Revenue: EUR2.5bn (US$ 3.47bn); increase of 10%
! 2009 Revenue: EUR1.9bn (US$2.5bn); decrease of 24%
! Number of employees: 2,900
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Haribo
Strengths ! Leading domestic position and growing European market share.
! Haribo products are available in 99% of German outlets that sell confectionery.
! Portfolio of well-known brands, including Haribo, Dulcia and Maoam.
! Conservative approach has resulted in strong financial position.
Weaknesses ! Conservative financial approach may stifle growth.
! Limited presence in key emerging markets.
! Would be considered takeover target if not privately owned.
! In Western Europe demand for sugar confectionery has generally been stagnating or decliningmeaning the firm must gain market share to deliver growth.
Opportunities ! Continued growth of business in core European and North American markets.
! Expansion into emerging markets.
Threats ! Operates in a sector with a strong private label presence; most major retailers offer store-brand alternatives to its products.
! Increased health-consciousness has put downwards pressure on demands for sugar confectionery.
! Ageing population in Western Europe likely to reduce demand for sugar confectionery.
Company Overview Haribo is Germany’s largest producer of sugar confectionery, controlling around 60% of the
German market. Through acquisitions and expansion the firm has built up a portfolio of over 200
products which cover multiple categories including fruit gums, liquorice, fruit chews and
marshmallows. The company’s most famous product is its ‘golden-gummi bear’. Important brands
include Haribo (for fruit gum and liquorice products), Dulcia (for marshmallow products) and
Maoam (for fruit chews). In addition to its domestic operations, Haribo has built up a sizeable
international presence and now generates around half of its revenues outside Germany.
Strategy Privately held Haribo is led by Hans Reigel, the son of founder Peter Reigel, and has adopted a
conservative strategy of gradual expansion via acquisitions and organic growth. The firm has
financed acquisitions through its own earnings rather than taking on debt, meaning that it entered
the global financial crisis on a very firm footing. The company has expanded to become one of the
leading sugar confectionery manufacturers in Europe with 13 production facilities across the region
including in France, Italy, Spain, Ireland and Turkey. Haribo also has a significant US presence
having established its first sales office in the country in 1980. The company’s competitive position
is maintained through investments in marketing and innovation, with the regular launch of new
product variations. While the firm’s private status means its future plans are not public knowledge
BMI would expect the firm to continue expanding internationally, with moves into the high growth
markets of Asia and Latin America likely to be a long-term goal.
Company Data ! 2008 Estimated Revenue: EUR1.4bn (US$ 2.2bn)
! Number of employees: 2,000
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Lieken Group (Barilla)
Strengths ! Europe’s largest industrial bread maker with 80 bakeries.
! Operates across Germany, the Netherlands, France and Italy.
! Network of over 920 retail bakery outlets in Germany.
! Strong position in high-growth part-baked category.
Weaknesses ! Has posted declining sales for several years due to the decline in demand for retail bakeries.
! Operates in a sector with limited opportunities to add value.
Opportunities ! Expansion of high growth part-baked products.
! Development of retail bakeries to offer wider range of products.
Threats ! Branded bakery products exposed to rising market share of private labels.
! Consumers choosing to buy bread from supermarkets rather than bakeries.
Company Overview Formerly known as Kamps, the Lieken Group, began by operating a network of retail bakeries in
Germany, but grew to become Europe’s largest bakery firm via the acquisition of Germany’s
largest industrial bread maker Wendeln and French industrial bakery group Harry’s. These moves
were heavily leveraged and by 2001 the firm was struggling to make a profit. The firm’s share price
fell by 75% in a year and this prompted Italy-based Barilla to make moves to acquire it, which it
succeeded in doing in 2002. In addition to its network of around 1,000 retail bakeries the firm
operates an industrial bread unit that includes 80 industrial bakeries. This unit supplies bread and
baked goods to retail outlets in Germany, the Netherlands, France and Italy under the brand
names Golden Toast and Leiken Urkon and also supplies a range of private label brands.
Strategy Sales at retail bakeries in Germany have been in long- term decline as more and more consumers
buy their baked products from supermarkets. In the mid 90s this allowed Kamps to rapidly expand
as many small bakery chains, which were experiencing declining sales, were happy to sell out to
the larger chain. The Kamps network grew to around 1,000 bakery stores and for a while the firm
able to improve profits at the acquired stores through greater economies of scale. However the
long- term decline in local bakeries now looks to be catching up with Kamps and firm has
registered declining sales for several years. Barilla has attempted to rectify the group’s falling
profits and earnings by restructuring the firm to cut costs. This involved relocating the firm’s main
headquarters and closing several plants. The firm also has an opportunity to take advantage of the
growth in demand for part-baked products. Frozen and part-cooked bakery products are gradually
replacing their traditional equivalent and allow supermarkets, bakeries and the food service sector
to offer consumers freshly baked products and create the ambience of a traditional bakery, but
only requires a fraction of the manpower that producing baked goods from scratch needs. The
category is currently the most dynamic sector of the European bakery market.
Company Data ! 2008 Revenue: EUR1.0bn (US$1.6bn)
! Number of employees: 7,800
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Drink
Emig GmbH & Co KG (GerberEmig Group)
Strengths ! Over the last five years, juices and juice drinks have been one of the fastest growing subsectors of the overall soft drinks market.
! The GerberEmig Group is well established in the German market, possessing a significant degree of experience and extensive supply contracts with major European MGRs.
! The considerable scale of the company means that it is in a strong position to service Europe’s increasingly consolidated MGR sector, for which supplier rationalisation has been a key theme.
Weaknesses ! Focus on one market sector makes the company vulnerable to market disruptions or changes in consumer taste.
! Hard to achieve and maintain consumer loyalty in one of the world’s most competitive and fast-consolidating consumer goods industries.
Opportunities ! Potential to build on experience in Poland and Turkey with further expansion in Eastern Europe.
! Development of private-label business has created opportunities to sell to large MGRs outside Germany.
! Opportunity to capitalise on growing health awareness of consumers, through the promotion ofnutritional benefits of fruit drinks.
Threats ! Growing competition can be expected in several of GerberEmig’s markets, as major rivals tap into the growth opportunities in the juices and juice drinks sector.
Company Overview Emig is the leading German fruit juice manufacturer and, since 2001, has belonged to UK
company Gerber Foods Holding Ltd. The GerberEmig group is one of the largest fruit juice
manufacturers in Europe, with four factories (two in Germany, one in the UK, and one in Poland)
producing a range of fruit juices and refreshment beverages that are sold in more than 30
countries across the globe. The Group holds leading positions in Germany, Poland, France, Spain,
Turkey, and the UK.
Strategy The GerberEmig Group attributes its success to the fact that it focuses on one market sector,
juices and juice drinks, and has no intention of diversifying into other sectors of the grocery market.
Also of importance is the creation of close partnerships with raw material suppliers, which ensures
an uninterrupted supply of high-quality ingredients. Within the GerberEmig Group, Emig’s key
strategic focus is on the European private-label business, and the company supplies a number of
MGRs.
Company Data ! 2008 Estimated revenue: EUR329mn (US$510mn)
! 2007 Volume sales: 1.5bn litres
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Radeberger Group (Oetker Group)
Strengths ! Germany’s leading brewing company with a 15% share of the country’s beer market.
! Has a major strategic investor in the form of the Oetker Group.
! Radeberger’s only non-German brewery, Krusovice in the Czech Republic, continues to perform well, and is expanding sales in Russia.
Weaknesses ! Faces major challenges in a highly competitive and declining sector.
! Beer sales have been experiencing a significant decline in Germany and remain vulnerable to seasonable variables such as the weather and major events, such as sports tournaments.
! Hard to achieve and maintain consumer loyalty in particularly fragmented market.
Opportunities ! Increased emphasis on driving consolidation and taking excess capacity out of the market should help to ensure Radeberger’s long-term survival.
! Potential to increase international sales of most successful brands, particularly in Eastern Europe.
! Potential to build on the successes of non-alcoholic beer and mineral water brands – the company acquired soft drinks business Bionade in 2009.
! German unit of Anhueser-Busch InBev has been touted as possible acquisition target.
Threats ! Radeberger remains vulnerable to anti-alcohol marketing and advertising legislation.
! Sales in Germany may be hit by the introduction of anti-smoking legislation.
Company Overview Radeberger Group is Germany’s leading brewing company, having seized the opportunity to
consolidate and acquire smaller rivals as competition in the German beer industry has intensified.
Radeberger controls an estimated 15% of the local market, its flagship products being the
eponymous Radeberger brand and Sternburg. The company is a subsidiary of the Oetker Group.
Strategy Radeberger’s growth strategy is primarily two-fold. Domestically, it intends to continue acquiring
smaller regional brewers in order to consolidate and build its market share – with the aim of
increasing market share to 20% in the short term. Such acquisitions are the only means of
securing growth in the mature German market, as well as allowing Radeberger to diversify its
product portfolio with small regional brands that complement its two national brands. Outside
Germany, the company intends to expand slowly into Central and Eastern Europe in order to
capitalise on the greater growth opportunities that exist in these emerging markets. In October
2009, Radeberger acquired a 70% stake in organic soda maker Bionade with plans to launch the
soft drinks brand internationally.
Company Data ! 2009 Revenue: EUR1.6bn (US$2.5bn)
! Market share: 17.5%
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Anheuser-Busch InBev Germany
Strengths ! Germany’s second-largest brewer, with an estimated 9% share of the market.
! Has a major strategic investor in the form of Belgium-based Anheuser-Busch InBev.
! Has helped to fuel consolidation of the German beer industry, in order to benefit from the process; emphasises the strength of a handful of well-performing brands.
! Strong international presence has helped to ensure continued strong sales.
Weaknesses ! Faces major challenges in Western Europe in what is a highly competitive and declining sector.
! Beer sales have been experiencing a significant decline in Germany, and remain vulnerable to seasonable variables such as the weather and major events such as sports tournaments.
! Hard to achieve and maintain consumer loyalty in particularly fragmented market.
Opportunities ! Although AB-InBev’s global and national brands have proved popular in Germany, it will need to invest considerably in marketing and promotional support for its products.
! Potential to launch new and premium brands in high growth markets such as North and South America and Eastern Europe.
Threats ! Remains vulnerable to anti-alcohol marketing and advertising legislation.
! Sales in Germany may be hit by the introduction of anti-smoking legislation.
! Premiumisation has been a key strategy but could be hit by economic downturn.
Company Overview The local subsidiary of Belgian brewing giant Anheuser-Busch InBev (ABI) – the world’s largest
brewer in volume sales terms – is Germany’s number-two brewer. The company controls an
estimated 9% of the German beer market, through a combination of its flagship global brands such
as Beck’s, Leffe, Brahma and Stella Artois, strong national brands such as Hasseröder, and
smaller regional brands, including Gilde and Haake-Beck.
Strategy ABI’s strategy in Germany differs quite considerably from that of its closest rival Radeberger. While
the latter seeks constant expansion through acquisitions of small rivals, ABI is instead committed
to expanding its big flagship brands, irrespective of whether that means weakening smaller brands
or missing out on acquisition opportunities. In fact, in order to focus on growth of its leading
brands, ABI has actually divested breweries it considers to be too small to contribute to its national
objectives, including the Zwickau and Wolters breweries. Strategic brand development, leveraging
its powerful parent’s innovative technology and marketing know-how, will be of vital importance in
InBev achieving growth in Germany.
Company Data ! Estimated market share: 9.5%
! Estimated 2008 sales: EUR1bn (US$1.55bn)
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Mass Grocery Retail
Lidl Group
Strengths ! Discount strategy has helped Lidl to rapidly establish a major retailing presence in Germany and internationally.
! Low priority placed on store design and staffing has contributed to larger profit margins.
! Lidl has successfully buttressed its food and drink retail business in Germany with a growing non-food range of products and services, including a travel booking service, an online flower ordering service and a photo development service.
Weaknesses ! Has had to invest heavily in marketing and public relations in order to combat bad publicity surrounding its business practices.
! Emphasis on low prices limits scope for developing product ranges and store formats, without heavily eroding profit margins.
! Faces strong competition in some European markets, where well-established national retail brands have entered the discount game.
Opportunities ! Scope for much more expansion outside Germany, especially in CEE.
! Potential to further develop value-added private-label lines, including organic and fair trade products.
! Potential to further develop range of non-food services, particularly outside Germany.
Threats ! Investment in further store openings will also be costly with suitable real estate getting harder to come by at affordable prices.
! Faces major challenge of keeping its prices low while working on improving in-store product ranges and store displays; this may require significant re-investment of a share of its profits.
! An upturn in the German economy may see more affluent shoppers returning to conventional supermarkets and hypermarkets.
Company Overview Discount retailer Lidl, part of German retail major Schwarz Group, is the country’s second-ranked
hard discounter after market leader Aldi. The company operates a chain of some 3,200 discount
stores, while Schwarz is also responsible for the Kaufland hypermarket chain.
Strategy Lidl’s strategy to date has involved the continual expansion of its domestic store network, although
its greater focus has been on the diversification of its in-store product range, including the
establishment of value-added private label lines, including organic and fair trade. The company is
likely to continue to pursue growth in this manner, with new products having received a very
positive reception from consumers. Outside Germany, Lidl will continue to expand, particularly in
CEE markets, where price conscious consumers and relative ‘unsaturation’ present a host of
opportunities. The company intends to double the number of its outlets in Poland. Lidl’s store
network also continues to increase in Western Europe. Most recently, Lidl acquired 17 new outlets
in the Netherlands and entered Switzerland.
Company Data ! 2008 Estimated domestic revenue: US$51bn
! 2008 Estimated turnover per store: US$15.5mn
! Number of employees: 80,000
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Rewe Group
Strengths ! Germany’s second-largest grocery retailer, both in terms of revenue and retail outlets.
! Maintains a strong retailing footprint across both Western and Eastern Europe.
! Supplements its food and drink business with tourism and travel operations under the Rewe Touristik banner.
Weaknesses ! German business has recently been struggling to maintain sales growth and market share.
! Lost out to rival Edeka in the race to acquire the Plus discount stores sold by German retail conglomerate Tengelmann.
Opportunities ! The move towards the use of a single Rewe supermarket brand nationwide is expected to stimulate greater consumer preference and loyalty.
! Scope for greater investment in discount range of products, which lags behind those of rivals Aldi, Lidl and Edeka.
! Potential to expand range of added-value in-store products and services.
! Potential revival of supermarket sector as the German economy recovers.
Threats ! Recent change of strategic direction to place greater emphasis on German market could lead to reduced investment in international operations.
Company Overview Rewe is one of Germany’s largest retail groups. It operates supermarkets under the Rewe brands,
as well as Penny-branded discount stores and a chain of Toom-branded hypermarkets. Rewe has
an expanding network outside Germany across the CEE region.
Strategy CEO Alain Caparros appears to be refocusing on German operations, a U-turn from a previous
focus on international growth. Consequently, Rewe has announced ambitious expansion plans
with a focus on Germany and Austria. In 2007 the investment budget for the two countries
increased by 30% on 2006, to US$1.58bn. After opening 130 Penny discount stores in 2007, Rewe
increased the pace of expansion and opened 180 new outlets in 2008. Rewe also plans to expand
the Penny store format in Turkey. In addition, Rewe plans to launch a more upmarket supermarket
concept in prime inner city locations. In June 2009 there were reports that Rewe is planning to
launch a new premium own label line in time for the Christmas season. The retailer is
concentrating on further price cuts, making its operating structure more efficient (plans were
announced in August 2009 to merge the Rewe-Zentral grocery division with the Rewe Deutscher
Supermarket division) and further domestic acquisitions. In October 2009 the company acquired
39 sky supermarkets from Coop EG in south west Germany and in March 2010 acquired 65
supermarkets from local rival Kaiser's Tengelmann. The stores are in the Rhein-Main-Neckar
region and Rewe has said they will geographically complement its existing portfolio.
.
Company Data ! 2007 Revenue: EUR45.1bn (US$69.9bn), growth of 3.7%
! 2007 Domestic revenue: EUR31.6bn (US$49bn), growth of 1.3%
! 2008 Revenue: EUR49.8bn (US$69.2bn); increase of 10.5%
! 2008 Domestic revenue: EUR33.9bn (US$47.1bn); increase of 7.4%
! 2009 Revenue: EUR50.9bn (US$68.6bn); increase of 2.9%
! 2009 Domestic revenue: EUR34.6bn (US$46.6bn); increase of 2.6%
! Number of employees: 268,907
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Appendix
Country Snapshot: Germany Demographic Data
Section 1: Population
Source: UN Population Division
Table: Demographic Indicators, 2005-2030
2005 2010f 2020f 2030f
Dependent population, % of total 32.6 33.0 35.2 40.5
Dependent population, total, ‘000 26,922 27,031 28,574 32,147
Active population, % of total 67.3 66.9 64.7 59.4
Active population, total, ‘000 55,568 54,653 52,589 47,202
Youth* population, % of total 14.3 13.5 12.8 13.2
Youth* population, total, ‘000 11,868 11,059 10,397 10,509
Pensionable population, % of total 18.2 19.5 22.4 27.2
Pensionable population, total, ‘000 15,054 15,972 18,177 21,638
f = forecast. * Youth = under 15. Source: UN Population Division
-6.0 -4.0 -2.0 0.0 2.0 4.0
0-4
10-14
20-24
30-34
40-44
50-54
60-64
70-74
Population By Age, 2005 (mn)
Male Female
-6 .0 -4.0 -2.0 0.0 2.0 4 .0
0-4
1 0-14
2 0-24
3 0-34
4 0-44
5 0-54
6 0-64
7 0-74
Population By Age, 2005 (mn)
M ale Fema le
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Table: Rural/Urban Breakdown, 2005-2030
2005 2010f 2020f 2030f
Urban population, % of total 88.5 89.3 75.6 78.3
Rural population, % of total 11.5 10.7 24.4 21.7
Urban population, total, ‘000 73,158 73,842 61,386 62,163
Rural population, total, ‘000 9,531 8,859 19,775 17,185
Total population, ‘000 82,689 82,701 81,161 79,348
f = forecast. Source: UN Population Division
Section 2: Education And Healthcare
Table: Education, 2002-2005
2002/03 2004/05
Gross enrolment, primary 100 101
Gross enrolment, secondary 100 100
Gross enrolment is the number of pupils enrolled in a given level of education regardless of age expressed as a percentage of the population in the theoretical age group for that level of education. na = not available. Source: UNESCO
Table: Vital Statistics, 2005-2030
2005 2010f 2020f 2030f
Life expectancy at birth, males, years 75.60 76.4 77.9 79.1
Life expectancy at birth, females, years 81.4 82.1 83.4 84.6
f = forecast. Data estimated at 2005. Source: UNESCO
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Section 3: Labour Market And Spending Power
Table: Employment Indicators, 2001-2006
2001 2002 2003 2004 2005 2006
Economically active population, '000 39,966 40,022 40,195 40,047 41,150 41,601
– % change y-o-y 0.5 0.1 0.4 -0.3 2.7 1.1
– % of total population 48.5 48.5 48.7 48.5 49.8 50.3
Employment, '000 36,816 36,536 36,172 35,659 36,566 37,322
– % change y-o-y 0.5 -0.7 -1.0 -1.4 2.5 2.0
– male 20,629 20,336 19,996 19,681 201,355 20,462
– female 16,187 16,200 16,176 15,978 16,432 16,860
– female, % of total 43.9 44.3 44.7 44.8 44.9 45.1
Total employment, % of labour force 92.1 91.2 89.9 89.0 88.8 89.7
Unemployment, '000 3,150 3,486 4,023 4,388 4,583 4,279
– male 1,754 1,982 2,316 2,551 2,574 2,358
– female 1,396 1,504 1,707 1,836 2,009 1,921
– unemployment rate, % 7.9 8.7 10.0 11.0 11.1 10.3
Source: ILO
Table: Consumer Expenditure, 2000-2012 (US$)
2000 2007e 2008f 2009f 2010f 2012f
Consumer expenditure per capita 13,646 23,211 24,744 24,163 24,008 25,617
Poorest 20%, expenditure per capita 5,799 9,865 10,516 10,269 10,204 10,887
Richest 20%, expenditure per capita 25,176 42,824 45,653 44,580 44,296 47,264
Richest 10%, expenditure per capita 30,157 51,296 54,685 53,400 53,059 56,614
Middle 60%, expenditure per capita 12,418 21,122 22,517 21,988 21,848 23,312
Purchasing power parity
Consumer expenditure per capita 14,999 18,765 19,734 na na na
Poorest 20%, expenditure per capita 6,375 7,975 8,387 na na na
Richest 20%, expenditure per capita 27,673 34,621 36,410 na na na
Richest 10%, expenditure per capita 33,148 41,470 43,613 na na na
Middle 60%, expenditure per capita 13,649 17,076 17,958 na na na
e/f = estimate/forecast, na = not available. Source: World Bank, Country data; BMI
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Table: Average Annual Manufacturing Wages
2000 2006 2007e 2008f 2009f 2010f 2012f
EUR* 57,782 32,739 33,592 34,929 36,250 37,433 40,056
Wage growth, % y-o-y 0.9 0.9 2.6 3.9 3.7 3.2 3.6
US$ na 40,917 46,686 49,600 48,394 48,102 51,272
e/f = estimate/forecast, na = not available. * 2000 is Deutschmark. Source: ILO, BMI
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BMI Methodology
Food & Drink Business Environment Ratings
Ratings Methodology
BMI has revised the methodology of its Food & Drink Business Environment Rating. Our approach has
been threefold. First, we have redefined the risks rated in order to more accurately capture the operational
dangers to companies operating in this industry globally. Second, we have attempted, where possible, to
identify objective indicators that may serve as proxies for issues/trends that were previously evaluated on
a subjective basis. Finally, we have used BMI’s proprietary Country Risk Ratings (CRR) in a more
nuanced manner in order to ensure that only the aspects most relevant to the industry have been included.
Overall, the new ratings system – which now integrates with those of all 16 Industries covered by BMI –
offers an industry-leading insight into the prospects/risks for companies across the globe.
Ratings Overview
Ratings System
Conceptually, the new ratings system divides into two distinct areas:
Limits of Potential Returns: Evaluation of sector’s size and growth potential in each state, and also
broader industry/state characteristics that may inhibit its development.
Risks to Realisation of those Returns: Evaluation of Industry-specific dangers and those emanating from
the state’s political/economic profile that call into question the likelihood of anticipated returns being
realised over the assessed time period.
Indicators
The following indicators have been used. Overall, the rating uses three subjectively-measured indicators,
and 41separate indicators/datasets.
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Table: Limits Of Potential Returns
Food And Drink Market Structure
Food and drink consumption per capita, US$ Indicator denotes overall breadth of market. Large markets score higher
than smaller ones
Soft drink consumption per capita, US$ Indicator denotes overall breadth of market. Large markets score higher
than smaller ones
Alcoholic drink consumption per capita, litres Indicator denotes overall breadth of market. Large markets score higher
than smaller ones
Per capita food consumption growth (5yr %) Indicator denotes sector dynamism. Scores are based on total growth
over our five-year forecast period
Food and drink trade balance Indicator denotes market’s natural resources and dependency on imports
for food and raw ingredient supply
Country Structure
Economic structure
Rating from BMI’s CRR. It evaluates the structural balance of the economy; evaluating issues such as over-reliance on single
sectors/markets as well as past economic volatility
Population size Proxy for potential market size. Large countries are considered more
attractive
GDP per capita, US$
A proxy for wealth. Size of population is important, but needs to be considered in relation to spending power. High income states receive
better scores than low income states
Market entry potential/Maturity
Subjective rating based on the level of industry development and the level and strength of industry competition in a market. Mature and/or
competitive markets receive low scores
See Business Environment section of report for regional and country-specific ratings explanation
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Table: Risks To Realisation Of Potential Returns
Food And Drink Market Risks
Barriers to entry Subjective rating based on the prevalence of industry-specific barriers that might
impede investment and growth. States with many barriers receive low scores
Regulatory environment
Subjective rating based on the industry-specific regulatory environment and the presence of potentially restrictive legislation. Low scores reflect a heavily regulated
environment
Country Risks
Short-term economic growth Rating from BMI’s CRR. It evaluates likely growth trajectory over two-year forecast
period, based on BMI’s forecasts and projections of business and consumer confidence
Short-term financial risk
Rating from BMI’s CRR. It denotes risk of currency crisis and stability of banking sector. The former would hit revenues in hard currency; the latter would curtail investment
funding
Short-term monetary risk Rating from BMI’s CRR. It denotes the risk of inflationary pressures and interest rate
fluctuations, while taking into account the position of a country’s economic cycle
Short-term external risk Rating from BMI’s CRR. It denotes the state’s vulnerability to externally-induced
economic shock, which tend to be the principal triggers of economic crises
Characteristics of society Rating from BMI’s CRR. It evaluates impact of income distribution, poverty and ethnic
division on broader stability
Scope of state Rating from BMI’s CRR. Low state control markedly increases security risks, thereby
increasing costs in certain states
Institutions Rating from BMI’s CRR. It evaluates the risks to business posed by official bureaucracy,
the broader legal framework and corruption
Market orientation Subjective rating from BMI’s CRR to denote predictability of openness to foreign
investment and trade
Physical infrastructure Rating from BMI’s CRR. Poor power/water/transport infrastructure act as bottlenecks to
sector development
Labour infrastructure Rating from BMI’s CRR to denote cost/availability of labour. High costs will affect risk-
returns calculations
See Business Environment section of report for regional and country-specific ratings explanation
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Weighting
Given the number of indicators/datasets used, it would be wholly inappropriate to give all sub-
components equal weight. Consequently, the following weight has been adopted.
Table: Weighting
Component Weighting
Limits of potential returns 70%
– Food and drink market structure 50%
– Country structure 50%
Risks to realisation of potential returns 30%
– Food and drink market risks 40%
– Country risks 60%
See Business Environment section of report for regional and country-specific ratings explanation
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BMI Food & Drink Industry Glossary
Food & Drink
Food Consumption: All four food consumption indicators (food consumption in local currency, food
consumption in US dollar terms, per-capita food consumption and food consumption as a % of GDP)
relate to off-trade food and non-alcoholic drinks consumption, unless stated in the relevant table/section.
Off-trade: Relates to an item consumed away from the premises on which it was purchased. For
example, a bottle of water bought in a supermarket would count as off-trade, while a bottle of water
purchased as part of a meal in a restaurant would count as on-trade.
Canned Food: Relates to the sale of food products preserved by canning; inclusive of canned meat and
fish, canned ready meals, canned desserts and canned fruits and vegetables. Volume sales are measured in
thousand tonnes as opposed to on a unit basis to allow for cross-market comparisons.
Confectionery: Refers to retail sales of chocolate, sugar confectionery and gum products. Chocolate sales
include chocolate bars and boxed chocolates; gum sales incorporate both bubble gum and chewing gum;
and sugar confectionery sales include hard boiled sweets, mints, jellies and medicated sweets.
Trade: In the majority of BMI’s Food & Drink reports, we use the United Nations Standard International
Trade Classification, using categories Food and Live Animals, Beverages and Tobacco, Animal and
Vegetable Oils, Fats and Waxes and Oil-seeds and Oleaginous Fruits. Where an alternative classification
is used owing to data availability, this is clearly stated in the relevant report.
Drinks Sales: Soft drink sales (including carbonates, fruit juices, energy drinks, bottled water, functional
beverages and ready-to-drink tea and coffee), alcoholic drink sales (including beer, wine and spirits) and
tea and coffee sales (excluding ready-to-drink tea and coffee products, which are incorporated under
BMI’s soft drinks banner) are all off-trade only, unless stated in the relevant table/section.
Mass Grocery Retail
Mass Grocery Retail: BMI classifies mass grocery retail (MGR) as organised retail, performed by
companies with a network of modern grocery retail stores and modern distribution networks. MGR differs
from independent or traditional retail, which relates to informal, independent-owned grocery stores or
traditional market retailing. MGR incorporates hypermarket, supermarket, convenience and discount
retailing, and in unique cases co-operative retailing. Where supermarkets are independently-owned and
not classified as MGR, BMI will state so clearly within the relevant report.
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Hypermarket: BMI classifies hypermarkets as retail outlets selling both groceries and a large range of
general merchandise goods (non-food items) and typically over 2,500m² in size. Traditionally only found
on the outskirts of town centres, hypermarkets are increasingly appearing in urban locations.
Supermarket: Supermarkets are the original and still most globally-prevalent form of self-service
grocery retail outlet. BMI classifies supermarkets as over 300m², up to the size of a hypermarket. The
typical supermarket carries both fresh and processed food items and will stock a range of non-food items,
most commonly household and beauty goods. In addition, the average supermarket will increasingly offer
customers some added-value services, such as dry cleaning or in-store ATMs, etc.
Discount stores: Although most commonly between 500m² and 1,500m² in size, and thus of the same
classification as supermarkets, discount stores will typically have a smaller floor-space than their
supermarket counterparts. Other distinguishing features include the prevalence of low-priced and private
label goods, an absence of added-value services – often called a no-frills environment – and a high
product turnover rate.
Convenience stores: BMI’s classification of convenience stores includes small outlets typically below
300m² in size, with long opening hours and located in high footfall areas. These stores mainly sell fast-
moving food and drink products (such as confectionery, beverages and snack foods) and non-food items,
typically stocking only two or three brand choices per item and often carrying higher prices than other
forms of grocery store.
Co-operatives: BMI classifies co-operatives as retail stores which are independently owned but club
together to form buying groups, under a co-operative arrangement, trading under the same banner,
although each is privately owned. The arrangement is similar to a franchise system, although all profits
are returned to members. The term is becoming more archaic with fewer co-operatives remaining that
conform to this model. Most co-operative groups now have a more centralised management structure and
operate more like normal supermarkets and are thus classified as such within BMI’s reports.
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BMI Food & Drink Forecasting And Sourcing
How We Generate Our Industry Forecasts
BMI’s industry forecasts are generated using the best-practice techniques of time-series modelling and
causal/econometric modelling. The precise form of model we use varies from industry to industry, in each
case being determined, as per standard practice, by the prevailing features of the industry data being
examined. BMI mainly uses OLS estimators and, in order to avoid relying on subjective views and
encourage the use of objective views, BMI uses a ‘general-to-specific’ method. BMI mainly uses a linear
model, but simple non-linear models, such as the log-linear model, are used when necessary. During
periods of ‘industry shock’, for example a deep industry recession, dummy variables are used to
determine the level of impact.
Effective forecasting depends on appropriately selected regression models. BMI selects the best model
according to various different criteria and tests, including, but not exclusive to:
! R2 tests explanatory power; adjusted R2 takes degree of freedom into account;
! Testing the directional movement and magnitude of co-efficients;
! Hypothesis testing to ensure co-efficients are significant (normally t-test and/or P-value);
! All results are assessed to alleviate issues related to auto-correlation and multi-co-linearity.
BMI uses the selected best model to perform forecasting.
It must be remembered that human intervention plays a necessary and desirable role in all of BMI’s
industry forecasting. Experience, expertise and knowledge of industry data and trends ensures that
analysts spot structural breaks, anomalous data, turning points and seasonal features where a purely
mechanical forecasting process would not.
Within the Food & Drink industry, this intervention might include, but is not exclusive to: significant
company expansion plans; new product development that might influence pricing levels; dramatic
changes in local production levels; product taxation; the regulatory environment and specific areas of
legislation; changes in lifestyles and general societal trends; the formation of bilateral and multilateral
trading agreements and negotiations; political factors influencing trade; and the development of the
industry in neighbouring markets that are potential competitors for foreign direct investment.
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Example of Food Consumption Model:
(Food Consumption)t = β0 + β1*(GDP)t + β2*(Inflation)t + β3*(Lending Rate)t + β4* (Foreign Exchange
Rate)t + β5*(Government Expenditure)t + β6*(Food Consumption)t-1 + εt
Sourcing
BMI uses the following sources in the compilation of data, developments and analysis for its range of
Food & Drink reports: national statistics offices; local industry governing-bodies and associations; local
trade associations; central banks; government departments, particularly trade, agricultural and commerce
ministries; officially released information and financial results from local and multinational companies;
cross-referenced information from local and international news agencies and trade press outlets; figures
from global organisations, such as the World Trade Organisation (WTO), the World Health Organisation
(WHO), the United Nations Food and Agricultural Organisation (FAO) and the Organisation for
Economic Co-operation and Development (OECD).