Germany Country Profile

Market Overview:

Euromonitor reports that Germany’s economy will slow in 2017. Real Gross Domestic Product (GDP) should grow by just 1.2% in 2017 – down from 1.8% in 2016. Public spending will slow but still provide support, along with a modest rise in wages. Investment will continue to be weak. Britain’s exit from the European Union (EU) or “Brexit” and other uncertainties are a downside risk. Employment in 2017 will be the highest since 1991. Annual rates of growth in real GDP will rise slightly in the future, reaching 1.3% per year by 2020. The fiscal stance will be mildly expansionary.

The real value of private final consumption has seen only modest growth for several years. Gains of 2% were recorded in 2016 and growth of 0.8% is expected in 2017. Consumer spending is fueled by the growing number of people in work, combined with rising wages. Unemployment was 4.2% in 2016 (a new post-reunification low) and it will stay at that level in 2017. Some characteristics of the tax system and health insurance deter second earners from taking a job or increasing their hours worked.

Germany’s population has been falling gently over time. In 2016, total population stood at 82.2 million, about the same as in 2000. The number will fall erratically over the next 15 years. Germany also has one of the world’s oldest populations. The median age was 45.8 years in 2016. This was 6 years greater than the figure for 2000 and well above the regional average. By 2030, median age will reach 46.8 years. The growing number of older consumers is altering the pattern of consumption and pushing up healthcare costs.

USDA’s Office of Agricultural Affairs, OAA, in Berlin, hereinafter referred to as “Post” reports Germany has 82 million of the world’s wealthiest consumers and is by far the most populous and economically powerful of the European Union’s 28 member states. In 2015, German imports of agricultural products (including forest products) totaled US$ 97 billion. Although there was an overall 11% decline in total imports in 2015, U.S. exports to Germany increased by over 4% reaching US$1.2 billion. The U.S. share of the German agricultural import market consists mostly of soybeans, almonds, walnuts, pistachios, Alaskan pollock, wine, beef, dried fruits, food preparations, sauces and other consumer-oriented products. Germany's main trading partners in the food sector are the other EU countries followed by Brazil, the United States, and China.

The German food market is heavily dependent on imports to meet its customer demands. In 2015 Germany imported US$55 billion in consumer-oriented agricultural products. Somewhat declining import volumes, however, appear to be a result of consumers developing a different attitude to and awareness of food consumption, rather than economic factors; namely, they are willing to consume less. By value, nearly one quarter of imported products came from the Netherlands. Italy (10%), Spain (9%) and France (8%) are the following major suppliers. After Switzerland and Turkey, the U.S. is the third largest non-EU supplier of consumer-oriented agricultural products. Although there was an overall 11% decline in imports in 2015, U.S. exports to Germany increased by over 5% to US$1.2 billion. Main drivers for the increase were almonds, pistachios, walnuts and hazelnuts, as well as food enzymes, food preparations, dried prunes, cranberries and dried grapes including raisins. Other important products were wine, meat of bovine animals, sauces, cocoa and peanuts.

U.S. exports of agricultural products decreased 26% to US$1.6 billion in 2016. That ranked Germany 14th as an export market from the U.S., and the 3rd largest in Europe. Exports of consumer ready food products from the U.S. represented nearly 49% of the agricultural total, and dropped 20% in 2016, to nearly US$799 million. In 2016 Germany also ranked 16th as a U.S. processed food market, although down 13% from 2015 at US$461.7 million. Top processed food exports to Germany in 2016 included distilled spirits and other alcoholic beverages, beer & wine, processed fruit, food preparations, prepared/preserved seafood, fats and oils, snack foods, non-alcoholic beverages and condiments and sauces.

Retail Sector:

According to Euromonitor, retail sales in the packaged food market in Germany had been estimated to reach US$90.1 billion in 2016. Currently, Germany is the 4th largest packaged food market in the world and the largest in the European Union (EU). That also represents a growth rate of 7.6% or US$6.3 billion since 2012. The forecast for growth in this market shows an increase of 10.3% or just over US$11.2 billion by 2021 to US$103.2 billion. High growth categories in the forecast which include confectionery, breakfast cereals, savory snacks, processed meat and seafood, dairy, ready meals, sweet biscuits, snack bars and fruit snacks and rice pasta and noodles.  

Consolidation, market saturation, strong competition and low prices are key characteristics of the German retail food market. The major chains face slim margins due to fierce competition in the sector. However, in recent years, there has also been a trend in consumer preference toward smaller grocery formats, including convenience stores, small grocery retailers and independents.

Euromonitor reports that with a population of over 82 million price-conscious and quality-demanding inhabitants, German grocery retailing was already one of the most competitive and challenging channels in the world. Now, grocery retailers are also having to adapt to demographic shifts, modern lifestyles and changing values. Furthermore, changes in eating habits and consumption behavior, particularly the continuous volume decline of food products, are additionally challenging the margins of grocery retailers and food manufacturers. In this regard, all major grocery retailers are currently investing heavily in modernizing and refurbishing their outlets so as to be able to meet new consumer demand for convenience, premium, fresh and regional products, as well as integration between their offline and online operations. This investment is already paying off, with sales per outlet continuing to rise in 2016, while the number of outlets continued to fall.

Supermarkets were the best performing channel in 2016 due to being the quickest to adapt to shifting eating habits and social change. Consumer demand for better quality, service and information, but also convenience and constant availability, has been best met by supermarkets in recent years, with this underlined by the fact that supermarkets was the fastest growing channel in grocery retailing over the last three years. Hypermarkets, in contrast, stagnated in 2016 as this format has not been able to cater for changing consumer demands and is currently going through a period of transformation. Nonetheless, hypermarkets remain popular in Germany, particularly in more rural or suburban areas as they offer considerable convenience as well as attractive prices.

In this regard, hypermarkets are increasingly focusing on non-grocery products, with the latter’s share of sales rising to 31% in 2016 compared to 69% for grocery products. The same situation is being seen in the supermarket channel, albeit on a different scale, with grocery products accounting for 88% of overall sales. This trend, however, shows the growing diversification of the product range in general as both channels are aiming to compensate for the decline in food consumption through non-grocery products.

The value growth of discounters in 2016 was higher than that of hypermarkets but lower than that of supermarkets. As consumers are increasingly seeking higher quality, price-oriented discounters continued to lose share to supermarkets, whose store and food concepts are more on-trend. Additionally, the channel suffered from ongoing turf wars between discounters themselves. In particular, Aldi is upgrading its assortment via the addition of attractive manufacturer brands at low prices, which has resulted in hefty price promotions from other discounters, while all also offer their own private label lines. Nevertheless, discounters remained the largest channel in grocery retailing in terms of value sales. Furthermore, when considering the maturity of the channel, its performance in 2016 can be seen as a solid one.

Internet retailing is continuing to gain share within groceries in Germany. However, it still accounted for a very low share in 2016 compared to store-based outlets as the country has a high density of food stores and dominant discounters. In this regard, despite the obvious benefits of time saving and convenience when ordering online, local consumers still prefer to visit grocery retailers and do their shopping themselves. This way, consumers ensure that they obtain the products they want, choosing them themselves instead of having someone else do it for them. However, in 2016, food and drink internet retailing continued to grow strongly as large operators such as Rewe and Edeka expanded their delivery services, while there were also a number of new start-ups.

In Germany, grocery retailing is consolidated, with there being only five major nationwide operators left, namely Edeka, Rewe, Schwarz Group, Aldi and Metro, which together held a 71% share of value sales in 2016. Besides the big five and the discounter Norma, which also operates nationwide, there are several other players with regional significance and which are partly also active as head of a purchasing cooperative, such as Bünting, Tengelmann, Bartels-Langness, Dohle Handelsgruppe, Globus and Klaas & Klock.

Germany’s largest grocery retailers run different types of outlets and differ considerably in terms of price, product range, quality, store locations etc. Discounters play a major role in modern grocery retailing in Germany, commanding around a 35% share of total value sales due to price playing a key role for consumers, although quality is also important. Retailers such as Edeka and Rewe have, in recent years, addressed the quality needs of German consumers through product and store differentiation as well as the grocery shopping experience as a whole. It is also particularly important to them that their product range reflects current trends and consumer needs.

Edeka Zentrale remained the leading grocery retailer in 2016, continuing to grow its value share. In particular, independently-run Edeka supermarkets contributed to its overall good performance through individual concepts, which help the company to engender customer loyalty and at the same time boost revenue potential. Overall, Edeka seeks to provide an enjoyable shopping experience and offer consumers good quality products. Additionally, Edeka has transformed the discounter Netto into a modern grocery discounter, with this starting to pay off. Edeka was also the fastest growing grocery retailer in Germany in 2016 among the top five players.

Third-ranked Rewe Markt recorded the second best performance in 2016. This was largely driven by its supermarket business. Rewe is successfully refurbishing old stores in convenient city areas. With its modern store concepts, Rewe is following international developments to set new domestic trends in grocery retailing in Germany. It is also addressing changing consumer behavior and demands through its innovative concepts.

As a mature channel, grocery retailing in Germany is not expected to see strong growth over the next five years but continue to grow steadily. A strong labor market and predicted GDP growth will both support rising expenditure on grocery products. However, consumers became more conscious of their consumption over the review period and so are expected to focus on more sustainable consumption. They will be willing to consume less but at the same time also have less time to shop and cook. Therefore, in terms of volume consumption, it can be assumed that the declining trajectory will continue but grocery retailers in Germany will at the same time remain highly efficient and further grow in terms of value sales.

Best Product Prospects:
For all sectors, U.S. products with the best export opportunities in German market meet one or more of the following criteria: The basic product is not produced in Europe in sufficient quantities or U.S. quality is superior; the product (usually fresh) is available on a counter seasonal basis; the product is unique to the U.S. These products include delicatessen and snack foods, novelty products, food products invented to the U.S., spices, dried vegetables, wild rice, and nutritional foods and supplements. Germany imports significant quantities of tree nuts, as well as peanuts and sunflower seeds, as well as a significant quantity and a wide assortment of dried fruits, for both the retail and food processing channels. Fruit juices, “niche” dairy products, pet food, seafood, and high quality beef and game products also have good potential in this market.

Food Service Sector:

Post reports that the German hotel restaurant and institutional (HRI) sector is large and highly fragmented, but can be divided into the commercial and institutional food service markets. The German commercial food service market includes hotels, restaurants, fast food and take-away outlets, bars, cafeterias, coffee shops, and similar channels. The institutional food service market is comprised of hospitals, universities, nursing homes, and cafeterias. Some key trends include sustainability, regional produce, convenience, health and wellness, Asian cuisine and retail catering. Sales of consumer foodservice continued to be led by full service restaurants, which are dominated by independent restaurants. Compared with other countries, chains still have a very low presence but some are also becoming popular. International chains have a very strong position in fast food. The biggest players in the German food service market are McDonalds, Burger King, LSG, Tank & Rast, and Nordsee.

Purchasing by the Hotel, Restaurant and Institutional segment (HRI) is fragmented and competitive. Few of them import products directly from other countries, except for items that they purchase in large quantities. Most HRI companies would rather buy from central buyers or distributors importing food and beverages. In general, these wholesalers have specialized in products or product groups and some are even experts in food products from a specific country of origin. Thus, specialized importers have an in-depth knowledge of importing requirements, such as product certification, labeling and packaging. They also typically handle shipping, customs clearance, warehousing and distribution of products within the country. The two mayor distribution channels for the German food service trade are Cash & Carry Wholesalers and Specialized Distributor/Wholesalers.

Cash & Carry wholesalers operate large stores with food and non-food products. They sell to retailers, restaurants, and other food service operators. C&C stores offer a variety of products to competitive prices. They are not open to the average consumer. Specialized distributors to the food service sector have dry and cold storage facilities with refrigerated/frozen trucks for deliveries. They buy from processing companies, importers and occasionally, foreign exporters. To cover the entire German food service market, regional distributors have organized in groups, such as Intergast and Service Bund. Some of those distributors organize in-house food shows once or twice a year where their suppliers can demonstrate their products to potential customers. This is an excellent opportunity for U.S. suppliers of products ready to enter the German food service market.

Best Product Prospects:
Post advises that U.S. products with the best export opportunities in German market meet one or more of the following criteria: The basic product is not produced in Europe in sufficient quantities or the American quality is superior; the product (usually fresh) is available on a counter seasonal basis; the product is unique to the United States

Food-Processing Sector:

Post reports that the German food industry represents the fourth–largest industry in Germany. In 2015, Germany produced an estimated US$187 billion of processed food and drinks. When meeting EU standards, the following products have good sales potential on the German market: nuts, fish and seafood products, fruit and vegetables, highly processed ingredients, bakery products, dairy products, pulses and specialty grains.

The German food industry is dynamic, assertive, and balanced, developing new products that address the demands of the domestic and export markets. Germany is the largest food and drink producer and the 2nd largest food industry in the EU. The retail market’s key characteristics are consolidation, market saturation, strong competition and low prices. Germany is an attractive and cost-efficient location in the center of the EU. The market provides many wealthy consumers who follow value-for-money concepts. These are looking for premium quality products and willing to pay a higher price.

Approximately 6,000 German food processing companies employ up to 570,000 people. The German food industry is characterized by small and medium-sized companies. About 95% of those firms have less than 250 employees and include many family-run and local businesses. Nevertheless, they successfully export German food specialties worldwide and the industry has grown steadily over the past years. Germany still has the lowest food prices in Europe; German citizens spend less than 12% of their income on food and beverages. Low food prices result from high competition between discounters and the grocery retail sale segment.

The most important sectors of the food industry in 2015 were meat products and dairy, poultry & egg, sweet & baking products, alcoholic & non-alcoholic beverages, the processing of juices, and fruits & vegetables. Also, fair trade and organic products have become more important on the German grocery market. At nearly US$9 billion per year, Germany is the second largest organic market in the world and presents good prospects for exporters of organic products. 49% of Germans consider food quality as highly important.  Another trend can be seen with regard to food standards. Food labeling is very common in Germany and having a large impact on the industry. The regional label, organic label and animal welfare label are all being introduced and discussed in Germany. Another trend in the German food processing ingredients sector is sustainability. That means most companies have a sustainable strategy that demonstrate sustainability in the entire chain from cultivation all the way through to food processing.

U.S. exporters of food processing ingredients usually enter the German market through a specialized ingredients importer. A good importer will be your partner in promoting your product to his or her customers. Germany’s food processing industry is well developed and has access to various food ingredients. U.S. products that have successfully entered the German market have a competitive advantage. This could include a lower price, higher quality, or a unique innovative quality. U.S. products not produced in the European Union or unavailable in large quantities usually fare well in Germany.

Best Product Prospects:
Post reports that products in the food processing sector with good sales potential include fish & seafood, (salmon, surimi, roe & urchin, misc. fish products), nuts, (almonds, hazelnuts, pecans, pistachios, walnuts), highly processed ingredients (dextrins, peptones, enzymes, lecithins and protein concentrates), dried & processed fruit, (cranberries, prunes, sour cherries, wild berries), fruit juice concentrates, (cranberry, grapefruit, prune), vegetable oils, beef & game: hormone-free beef, bison meat, exotic meat and exotic processed meat products, organic products and sunflower seeds. 

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