Germany Country Profile

Market Overview:

Focus Economics reports that German Gross Domestic Product (GDP) is expected to contract steeply this year due to the global health crisis and associated containment measures weighing heavily on domestic and foreign demand.  On the other hand, the government’s loose fiscal stance should cushion the fall somewhat, paving the way for a strong recovery next year.  A prolongation of the crisis is a key downside risk, however. Exports project the economy to contract 6.1% in 2020 and to grow 4.8% in 2021.

  • The real value of private final consumption has seen only modest growth for several years.  Gains of 1.6% were recorded in 2019 and a fall of 6.2% is expected in 2020.  Spending is limited by COVID-19 related temporary business closures, curfews and social distancing measures.
  • Unemployment was 3.1% in 2019 and it will rise to 4.2% in 2020.  Many businesses are struggling to weather the COVID-19 crisis and are laying off staff or facing closure, despite the government’s stimulus measures.  The country’s 2.3 million public sector workers will receive wage increases of more than 8.8% over the next three years.

The German economy should bounce back in 2021 and reach a more mature state over the next few years.  Fiscal policy is also likely to be more expansive.  Employment growth, however, will gradually slow as a result of both demographic and migratory factors.  This will amplify the shortage of skilled labor which is already becoming evident in some sectors.  Germany’s workforce will begin shrinking in 2020.  Policies to tap into the potential of women, older workers, and migrants can help offset this decline. Expanding childcare and after-school programs would provide greater opportunities for women to pursue full-time employment.  Pension and labor market reforms that make it more attractive to stay in the workforce longer can lower the public pension bill, raise growth, and reduce the need to save.

Another long-term problem is that Germany faces a broad-based decline in population. Its birth rate is the lowest of all advanced countries while approximately 500,000 people are retiring each year.  Germany’s population has been falling gently over time.  In 2020, total population stood at 80.1 million (CIA World Factbook Est.), only slightly above the figure for 2000.  The number will grow to 83.5 million in 2030.  Germany also has one of the world’s oldest populations.  The median age was 47.8 years in 2020.  This was 7.7 years greater than the figure for 2000 and well above the regional average.  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 that Germany has 80 plus million of the world’s wealthiest consumers and is by far the biggest market in the European Union.  The German market offers good opportunities for U.S. exporters of consumer oriented agricultural products.  In 2019, total U.S. exports of agricultural products to Germany reached US$1.5 billion. The largest segments were tree nuts, soybeans, Alaskan pollock, whiskies, salmon and miscellaneous food preparations.

In 2019 U.S. exports of consumer ready foods to Germany totaled US$930.2 million, an increase of 7% over the same period in 2018.  U.S. exports of processed food products to Germany dropped 5% in 2019 to US$384 million.  Top processed foods exported to Germany in 2019 included:

  • Food Preparations
  • Distilled Spirits & Other Alcoholic Beverages
  • Beer & Wine
  • Processed Fruit
  • Prepared/Preserved Seafood
  • Condiments & Sauces
  • Fats & Oils
  • Snack Food
  • Non-Alcoholic Beverages
  • Dog & Cat Food

The German market offers a number of benefits to U.S. exporters, but it is not without difficulties:

Advantages

  • Germany is the biggest market in Europe with one of the highest income levels in the world.
  • The demand for sustainable food ingredients and sustainable foods is growing.
  • Germany is among the largest food importing nations in the world.
  • Germany is centrally located in Europe with excellent transportation channels.  Food processors are well situated to export products to other EU countries.
  • Germany has a large, well developed food processing industry requiring a wide range of ingredients, from low-value, unprocessed foods to high-value, highly processed ingredients.
  • The United States has a reputation as a reliable supplier of food inputs in terms of availability, delivery, and quality.

Challenges

  • German consumers demand both high quality and low prices.
  • Private sector sustainability standards can act as a barrier to trade.
  • U.S. exporters face competition from tariff-free products from other EU member states and FTA partners.
  • Listing fees paid to retailers limit the introduction of new U.S. brands.
  • Non-tariff barriers such as phytosanitary restrictions and traceability requirements can make exporting to Germany complicated
  • Some products of modern biotechnology are prohibited as they are not approved in the EU.

Retail Sector:

According to Euromonitor, retail sales in the packaged food market in Germany had been estimated at US$97.1 billion in 2019.  That represents growth of 5% and US$4.6 billion since 2015.  By the year 2024, the retail sales in the packaged food market in Germany is expected to reach US$106.1 billion, growth of 2.7% or US$2.8 billion.  High growth categories in the forecast include:

  • Savory snacks
  • Ice cream & frozen desserts
  • Confectionery
  • Baby Food
  • Processed Fruit & Vegetables
  • Dairy
  • Breakfast cereals
  • Sauces, Dressings & Condiments
  • Sweet Biscuits, Snack Bars & Fruit Snacks

Post reports that Germany is by far the biggest market for food and beverages in the European Union.  The food retail sector is saturated, highly consolidated, and competitive.  The Covid-19 related lockdown measures have impacted German consumers’ shopping and consumption patterns.  It remains to be seen if and to what extent consumers continue to stick to these patterns once the pandemic is over.

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.  While many consumers are very price sensitive, the market also provides for many wealthy consumers who follow value-for-money concepts.  These consumers are looking for premium quality products and are willing to pay a higher price.  Germany has some of the lowest food prices in Europe.  German citizens spend only 14% of their income on food and beverages.  Low food prices result from high competition between discounters and the grocery retail sale segment.

COVID-19 related lock-down and physical distancing measures heavily impacted the German food sector as well as consumers’ shopping and consumption patterns.  With closure of schools and the majority of shops and services, and many people working in a home-office setting, much of the demand for food and agricultural products shifted from restaurant and food service sector to food retail and/or was significantly reduced. Consumers not only spent more money on food to build an emergency stockpile, they also shopped more consciously and focus on locally grown food, for instance.

Key Market Drivers and Consumption Trends:

  • Fair trade and organic products have become more important on the German grocery market.
  • Germany is the second largest organic market in the world (behind the United States) and presents good prospects for exporters of organic products.
  • Ageing population and increased health consciousness of consumers is fueling the demand for health and wellness products, as well as functional food products.
  • Increasingly high-paced society and the rising number of single households are driving the demand for convenient ready-to-eat meals, desserts, and baking mixes.
  • Ethnic foods, beauty and super foods, clean label foods, “free from” products (e.g. gluten or lactose free), and locally grown are further trends that attract more and more German consumers.
  • Increasing share of consumers who view their purchasing decision as a political or life-style statement (no GMO, “free-range” eggs, vegetarian or vegan diet, etc.).
  • Consumers increasingly require traceability and information about production methods.
  • Germany remains a price-focused market, but the share of consumers who are willing to pay for quality is increasing in most cities.
  • COVID-19 related lock-down measures fueled a new trend for home cooking.  A recently published report indicates that 30% of Germans are cooking more than before the crisis.

Consolidation, market saturation, strong competition, and low prices are key characteristics of the German retail food market.  The top four grocers account for around 70.2% of the total market.  The German market is largely dominated by domestic players. This is particularly true for hypermarkets, supermarkets, and discounters.  German consumers are very particular about what they like and what they do not like in their grocery retailers, and grocery retailers can count on a strong base of loyal customers.  The failure of Walmart to establish itself in Germany over a decade ago is the example for how hard it is for international players to successfully enter the German market.

Large grocery retailers in Germany are mainly driven by competition between each other. They are very well-established and compete mainly on price, outlet networks, and consumer trust, which amongst others require them to maintain their standards in terms of quality.  Retailers also try to differentiate themselves through additional services and standards which add value to their original value proposition.  The growth of discounters is slowing because of market saturation and the continuing trend towards shopping at supermarkets in convenient city locations.  As urbanization is growing and consumers’ lifestyles are changing, more and more people seek convenience when doing their grocery shopping.  To counter this, discounters are also attempting to adapt and expand in hopes of differentiation.  Additionally, they are focusing more on quality and choice rather than price with new concepts and the introduction of more premium and convenience foods.

Supermarkets benefit from the convenience trend as smaller outlets in convenient city and residential locations continue to increase in popularity.  Hence, the urban consumer of today is looking to save time, without having to drive to a hypermarket or a discounter, but still demands high-quality products and a wide product range.

Euromonitor reports that convenience stores are still a relatively underdeveloped channel in Germany.  While forecourt retail outlets – or convenience stores at petrol stations – are quite common, standalone convenience stores are not.  The primary reason for this is that the quick, convenient, in-and-out shopping occasions that convenience stores typically satisfy are already served by other grocery formats such as small-format discounters and supermarkets.  Additionally, all retail outlets except for forecourt retail shops are closed on Sundays in Germany, an advantage that convenience stores sometimes benefit from in other countries.

That said, there is demand from local consumers for convenient shopping occasions in high-traffic areas, especially for fresh, cheap, on-the-go snacks, drinks and meals.  The bulk of existing convenience stores are located in high-traffic transportation hubs like trains stations and airports.  However, there is emerging demand for chained convenience stores in standalone locations, such as in dense urban environments, although new outlets are being added at a relatively slow and calculated pace.

Unlike convenience stores, forecourt retailers have traditionally dominated this type of convenient shopping occasion in Germany.  In many ways, Germany is still a driver-friendly market, and many people own and use personal cars.  Additionally, nearly all major petrol station chains also have a shop at each refueling station because payment for fuel must be made inside the shop.  This means that forecourt retail outlets are open on Sundays and are often open 24 hours a day, so they remain a reliable outlets for purchasing retail products when all other retail stores are closed.

Because the channel is so attractive, two key grocery retail giants, Edeka and Rewe, have pushed into convenience through the forecourt retail channel.  Key partnerships between these retailers and large petrol chains have seen many forecourt retail outlets converted to Rewe To Go and Spar Express.  A key attraction for petrol stations is that consumers know and trust these grocery chains as food and grocery players, making these outlets more attractive in foodservice.  For this reason, Edeka and Rewe have also been taking over distribution to other forecourt brands.  Meanwhile, Edeka and Rewe also gain expertise in small-format logistics in this way, which they can apply to their convenience store business in the future.  This all points to the continued domination of the German grocery space by German retail chains.

Overall, slow growth is expected in this channel in Germany over the medium term.  In convenience stores, most high-traffic transport hubs are already saturated with existing convenience stores and, while standalone convenience stores are an opportunity, especially for the large grocery brands that are exploring this space, outlets will be very carefully chosen and tested.  There is an additional concern among the major grocery retail chains that any standalone convenience store outlet could have the potential to cannibalize sales at their regular supermarket and discounter locations, which often exist in the same types of locations.

Convenience retail is dominated by domestic players in Germany.  On the one hand, many convenience retail occasions are already served by German operators of small-format supermarkets and discounters, which show the relatively nascent conditions of the convenience store channel.  On the other hand, international chained operators have tried and failed to grow in Germany with their own convenience store brands.  The most recent example is the Dutch chain Albert Heijn through AH To Go, which first expanded in Germany in 2012, then closed all stores in 2018, citing tough competition.

The Covid-19 outbreak pushed consumers out of their routines and led to changing consumer attitudes and purchasing habits.  Whereas online grocery shopping was still a niche market in Germany accounting for 1% of the total food sales in 2019, it has seen a boost with increases of 50% or even more.  Local retail chains like Rewe and Edeka extended their delivery capacities to cope with this increasing demand.  The appetite for online grocery shopping also brings new players into the market.  The Czech online supermarket Rohlik plans its expansion on the German market with an accelerated launch of its activities in early 2021.  Rohlik would be the second non-German online supermarket in addition to the Dutch company Picnic.

Best Prospects:

Products in the market that have good sales potential:

  • Nuts: Almonds, walnuts, pistachios, hazelnuts, pecans
  • Fish and Seafood: Salmon, surimi, roe and urchin, misc. fish products
  • Dried and Processed Fruits: Raisins, prunes, cranberries
  • Fruit juices: Cranberry, grapefruit, prune
  • Beef and Game: Hormone-free beef, bison meat, exotic meat and processed meat products
  • Organic products

Products not present in significant quantities, but which have good sales potential

  • Bakery products
  • Pulses

Products not present because they face significant boundaries

  • Food additives not approved by the European Commission
  • Red meat and meat products with hormones
  • Most poultry and eggs
  • Biotech-derived products that are not approved in the EU

Food Service Sector:

Post reported that in Germany, the COVID19 sparked new business ideas amongst restaurants which helped some of them earn more revenue than before the epidemic. Take-out windows with lower-price and higher-volume menus and online shops selling their products and cooking boxes will likely be part of cornerstone restaurants in the future.  Also, a one-year tax cut of 12% on food items is supposed to stimulate business and help the restaurant sector to overcome the crisis.

After the sudden mid-March shutdown of public life due to COVID19, some restaurants closed down entirely while others found new business strategies. FAS Berlin noticed three main changes in strategy, as well as government measures and stimuli.  Instead of fully closing down their cornerstone restaurants, many business owners opened for a limited time a day with a lower-price and higher-volume simple menu, selling out of their shops’ windows for instance.  Also, many opened up online shops to sell readymade products, e.g. pesto, bread, wine etc., as well as cooking boxes for consumers to recook a full set dinner at home.  Hereby, the social media channel Instagram functions as their communicator to circulate the menu of the day and opening hours.

Post discovered that some mid-range to high-end restaurants in bigger cities in Germany are currently making more revenue under their new business operations, than before the COVID19 pandemic.  Restaurants as for example Lode&Stijn, Mrs. Robinson, and Prism, will integrate a part of their new profitable concepts after they are allowed to fully reopen.  In Germany, each Federal State has the authority to decide when to open up again.  In Berlin, restaurants reopened on May 15, under strict health and hygiene protection measures.

There is also relief expected for restaurants from the legislative side as the German Ministry of Finance announced tax cuts for restaurants, in place until June 2021.  In detail, VAT on food items will decrease from 19% to 7%; beverages and alcohol (due to EU law) are excluded from this relief.  As prices in Germany are always shown including tax, it will be easier for restaurants to charge the same price as before but keep the difference of the 12% as revenue.  Overall and in total, the German government is guarding and stimulating the economy with US$382 billion in monetary and fiscal measures and US$887 billion in guarantees and buying shares.

Food-Processing Sector:

Post reports that the German food industry represents the third-largest processing industry in Germany.  In a Pre-Covid 19 environment in 2018, Germany produced an estimated US$210 billion of processed food and drinks.   

The 6,119 food processing companies employed about 608,553 people in 2018.  The sector is dominated by small and medium size companies; 96% of which have less than 250 employees.  In 2018, the sector generated a turnover accounting for nearly 6% of the German GDP.  The largest subsectors by value were meat (24%), dairy (15%), confectionary (10%) and ice cream (8%), and alcoholic beverages (7%).

Sector Trends

  • The food product portfolio is becoming more specialized and complex.
  • The share of convenience and ready-to-eat products as well as smaller packaging sizes is increasing while the share of milk and dairy products, alcoholic beverages, and sugar is declining.
  • The food industry is adjusting to the increasing demand for organic products; the total number of organic-certified products rose from 24,000 in 2004 to 81,537 in 2019.
  • Food labeling with special seals is very common in Germany and has a large impact on the industry.  Various regional, organic, sustainability, and animal welfare labels are introduced or being discussed in Germany.  Most companies have a sustainability strategy that demonstrates sustainability in the entire chain from cultivation all the way through to food processing.

The main competitors for U.S. suppliers include domestic producers as well as producers in other EU member states such as the Netherlands, Italy, Spain, France, Austria, and Belgium.  However, for dried fruits and nuts the main competitors are Turkey (hazelnuts and raisins), Chile (dried prunes), South Africa (raisins), and Canada (cranberries).  The U.S. industry’s advantages include a good reputation for consistent quality and stable supply.  The main advantages of competitors are proximity and price.

Best Product Prospects

Post reports those products in the market that have good sales potential include:

  • Nuts: Almonds, Hazelnuts, Pecans, Pistachios, Walnuts
  • Fish And Seafood: Salmon, Surimi, Roe And Urchin, Misc. Fish Products
  • Highly Processed Ingredients (Dextrins, Peptones, Enzymes, Lecithin And Protein Concentrates)
  • Dried And Processed Fruit: Raisins, Prunes, Cranberries, Sour Cherries, Wild Berries
  • Fruit Juice Concentrates: Cranberry, Grapefruit, Prune
  • Essential Oils (Peppermint Oil)
  • Beef And Game: Hormone-Free Beef, Bison Meat, Exotic Meat and Processed Meat Products
  • Organic Products

Products not present in significant quantities, but which have good sales potential:

  • Ingredients for the natural and healthy foods industry
  • Bakery products
  • Pulses

 

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