Retail trends from a German perspective – Part I

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As mentioned in one of my previous articles (here and here), there are two predominant trends in German, but also in European retail:

  • The rise of discounters.
  • The fast growth of online-business.

Especially the German top 4 retailers are benefitting from this situation. Edeka and ReWe are both growing with their discount daughters, but the new trend is advantageous particularly for Aldi and Lidl. With its global activities, the Schwarz Group (Lidl, Kaufland) is already ranking no. 1 in turnover on European level. According to new forecasts of Lebensmittelzeitung, especially Lidl will immensely expand their lead within the coming years. Referring to the same forecast, Aldi North and South combined will increase in 2018 and land at 67 €bn turnover. Which means by the end of this year Aldi will overtake Carrefour (65 €bn) and become Europe´s second largest retailer.

It is somehow surprising as Aldi and Lidl are leading in none of their markets, but their operations in individual markets combined add up to ranking first and second in Europe. Key drivers of Lidl´s and Aldi´s success are efficient logistics and excellent purchasing, a fast expansion in new markets as well as an ongoing “supermarketization”. Instead of only providing a core assortment to their customers, both are nowadays having close to 2,000 different items each in their permanent assortment. In addition, they are investing heavily into marketing activities as well as up-trading (new store installations, supermodel Heidi Klum at Lidl, Aldi´s mobile winebars and pop-up stores of both at rock-festivals). Decades ago discounters started their success story with putting plain pallets of a very limited assortment into very simple stores. Today, the look of their stores can often no longer be distinguished from tradional full-assortment supermarkets, even including global A-brands. On the other hand larger stores and large assortments are increasing operational costs, thus are decreasing historical advantages that came along with a concept of plain pallets.

With their strategy German discounters are successfully managing to defend their leading position against global competitors so far, but are experiencing attacks within the German market from new players executing core discount virtues. Dutch retailer Action as well as native German offenders like Kik and Tedi (“junk is our life”) are filling a vacuum of a dying German department store channel (Karstadt, Kaufhof) and provide assortments at entry-price level, often built from stocklots with low pricing. The popularity of these low budget retailers focusing mainly on nonfood items is documented by a fast growing number of outlets and overall increasing sales figures.

But even the food concept at discounters is under attack by f.e. Tesco with their new discount concept Jack´s in the UK as well as through new Sibirian player Torgservis. In the course of its ambitious international expansion the dynamically growing hard discounter Torgservis wants to enter Germany as well. The Russian retailer is planning to concentrate on old discount values with simple store designs and plain pallets in stores.

Of course being closely watched by all German retail giants, the new competitors will not only have to match low prices of traditional discounters or private label ranges of supermarkets, but especially prove being able to meet their high quality standards. Not an easy challenge as high quality coming from German discounters is manifested in consumers´ minds. An attempt which retailers from abroad, including US giant Walmart, painfully failed before and as a matter of fact pulled out of the German market.

Nevertheless, besides vivid competition, there are multiple threats to the market situation we are experiencing today. Threats are not only coming from competition within the market itself, but from a fast moving digital transformation and also from a general political shift within Europe.

[To be continued …]

Additional sources:
Matthias Queck, Research Director Lebensmittelzeitung – “LZ Breakfast Club 09/2018, Düsseldorf”
Lebensmittelzeitung 40/2018 – “Russischer Discounter will in Deutschland landen”

Photo: pixabay under Creative Commons license