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Germany Food and Drink Report Q4 2010
Business Monitor International, Aug 2010, Pages: 73
Germany Food and Drink Report provides industry professionals and strategists, corporate analysts, food and drink associations, government departments and regulatory bodies with independent forecasts and competitive intelligence on Germany's food and drink industry.
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.
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.
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