In a hierarchy where the lowly manufacturer kneels at the feet of the mighty discounter and consumers have evolved into skilled bargain hunters, how can German food processors inject value into the marketplace?
In 2004, grocery turnover in Germany stagnated at £82.8bn and the decline in the number of stores continued to 59,288, says the head of Food from Britain's German division, Roy Edleston. "Each year, approximately 3,000 stores under 400m2 close," he says. "The trend is towards concentration."
Discounters now have a 40% share of total food retail turnover and this figure looks set to grow, claims Edleston. Historically, discounters were top-up shops and supermarkets were destinations, he says, but over the last eight years, the situation has reversed.
"The other mainstream retailers have realised that product differentiation is the only way to compete," he says. While discounters typically stock 600-1,200 lines, hypermarkets stock well over 15,000 products. "Retailers are interested in chilled convenience, an area where Britain rules the world," he says. "They are developing more private label and starting to look at premium private label, similar to Tesco Finest."
He adds: "We're finding that more and more firms are looking at Germany as the British market begins to stagnate, as growth is restricted and tastes become more international."
London-based chutneys and sauces manufacturer Geetas has been taking advantage of Germany's sparse ethnic market by exporting direct to German retailer Rewe. "Germans aren't used to Indian food," says operations manager Nitesh Shah. "We're the first Indian brand to come into this particular retailer's portfolio."
Shah puts much of the company's success down to there being minimal competition, but being a pioneer comes with its own set of challenges: "Britain has so many links to the Indian colonies that it was easy to get started," he says. "Germany is starting from scratch, so we're having to use instore demos to raise brand awareness." Despite teething difficulties, Geetas is finding that some consumers are willing to pay more for a premium brand and business is slowly gaining momentum.
"Names are very important," says Shah. "In the UK we can get away with an Indian name because people are aware of different types of Indian dishes, but in Germany we're starting a market that is not in existence yet." For example, Geetas butter-based tomato sauce, known as Makhari in the UK, is called Makhari Tikka Masala in Germany, so that consumers can familiarise themselves with the product.
Executive export assistant at UK ethnic producer Noon Laraine Mitchiner can relate to Geetas' battle for recognition. "Because they're still quite a way behind us, German consumers need selected products that agree with their palates - nothing too outrageous," she says. The firm exports a range of four chilled ready meals to a leading German retailer. "Introducing our products to Germany is a very slow process, but we will be looking to expand the range within the next 18 months."
So why aren't chilled convenience products being snapped up in Germany like they are in the UK? "Chilled convenience has not taken off as quickly in Germany because our way of life is very different to the UK," says Doris Busenkell, agricultural attaché at the German Embassy. Shops aren't open 24 hours a day like they are in other parts of Europe and Sunday trading is prohibited, so people have to plan, she says. "Many women stay at home and are content to buy canned and dried food, because they can afford the time to cook it," she adds.
However, Dr Gisa Koglin junior manager at the Federation of German Food and Drink, says that the convenience food market is growing because there has been an increase in working women who no longer have time to prepare meals. She adds: "Young people don't know how to cook food, because they have never been taught, and so they are starting to adapt to convenience food."
Money also plays an important role in consumers' food choices. "Germans look closely at prices and are used to products that last for weeks," says Koglin. "People have started to discover ready-made food, but fresh is much more expensive and has a shorter shelf-life."
Rock bottom prices put high pressure on German producers, but tough trading conditions have also given domestic manufacturers a certain advantage over foreign rivals. "We thought that new European Union members from Eastern Europe might cause a problem because they have lower wages," says Koglin, "but because processors are used to low margins, cheap imports are not a threat."
Discounters may be riding high now, but this was not always the case. "Fifteen years ago, it was embarrassing to go into discounters, because people assumed it meant that you didn't have enough money," says Alexandra Ippendorf, business course instructor at CMA, the German Agricultural Marketing Board. But increased consumer awareness of who supplies discounters has improved their reputation. "Now everyone knows that the main manufacturers are behind the discounters, so they don't have any qualms about shopping there," she says. Discounters are by no means complacent about their success though, and have been making serious strategy alterations in order to continue their expansion.
Leading discounter Aldi's decision to take on branded products last November caused a media frenzy. Matthias Queck, a consultant at retail analyst Planet Retail, says that it was a tactical move because of the difficulties encountered in trying to recreate the quality of branded confectionery products on a budget. "Some specifications are too hard to copy, such as Ferrero's Kinder products," he says. "These foods are also popular with children who are more influenced by advertising and less willing to accept imitations," he adds.
The recent introduction of Ferrero into Aldi caused much friction between the manufacturer and its other customers and there was much competition to undermine Aldi's low prices.
So is there a way for manufacturers to gain listings in all stores without causing friction between them? "One of the best solutions is to make separate lines for retailers and discounters," says Queck. "Unilever has customised two separate lines of its Iglo fishfingers: A 13 pack for discounters and a 15 pack for retailers," he says. "This stops stores and consumers from comparing prices."
The three-tier UK model of economy, standard and premium ranges does not translate over to Germany because discounter quality has improved, says Queck. So while an own-label product's price is the equivalent of the UK's economy range, the quality is that of its standard range, he claims.
"German consumers know that cheap doesn't mean unhealthy," he says. "They are spoilt by the over-capacity of offers." It will be hard to introduce premium range products, but not impossible, because consumers are fickle, he says. "Consumers are becoming more aware of what they are eating," adds Queck, "and the market is ripe for the picking." FM
FOOD MANUFACTURE'S GUIDE TO GERMANY
Food retail sales account for 43% of total retail sales; food and drink accounts for £63.4bn at retail value
The five major retailers: Edeka, Rewe, Aldi, Lidl & Schwarz and Metro
UK exports to Germany:
£549m (Jan-Nov 2005)
Principal imports (2004): Meat, dairy, fruit and veg
Principal exports (2004): Dairy, meat and bakery