GERMANY is the largest market for food and drink in the EU. But the German retail scene is something of a mystery, particularly for Irish companies more used to selling to the less complex British market.
Germany has 80 million people, a strong, steady economy and high rates of disposable income. Yet the food market is characterised by fierce price led competition rather than added value, product range or service.
The German market is highly concentrated with six retailers for 43 per cent of sales. However, during the early 1990s, as British retailers concentrated on market share, customer service and increased margin via private label, German retailers invested in distribution networks to reach their new customers in East Germany and importantly, in establishing a presence throughout Europe.
Of the top ten retailers in Europe, five are German. Metro is established in eleven countries, Tenglemann in eight.
These same German retailers are now concentrating minds and resources once again on their home market. Private label has rapidly moved up the agenda. Although the share of private label grocery in Germany is about 25 per cent, this is distorted by the presence of Aldi, which sells almost all its produces under its own label.
Overall, private label penetration is forecast to grow to 28 per cent by 2000. Importantly, private label is being perceived by retailers as an opportunity to differentiate themselves from the competition, rather than just a price alternative. This trend may provide opportunities for Irish companies who have experience of supplying private label to Britain.
In a recent study commissioned by An Bord Bia, it emerged that German private label products are on average 33 per cent cheaper than branded competitors in the market. Private label penetration differs by category but the most attractive categories emerging appear to be ones where Irish suppliers are strong. These include yoghurt, frozen pizzas, mineral water and ready prepared meals.
In comparison to Britain, private label is at the early stage of its cycle. Few private labels in Germany carry the store's name. This is the model adopted by Aldi, the largest discount retailer. It aims to make its products look as if they are the manufacturers' brands.
In addition, many German retail groups have several different fascias. Private label must be transferable between the chains within the group. It is expected that non discount retailers will seek to increase the premium on their private label products in an attempt to improve profit margins.
Many retailers, learning from the British example, see the benefit of integrating private label within wider marketing strategies. For example, Edeka is providing more shelf space for private label and is emphasising quality.
At Rewe there has been an emphasis on quality, although the price is still heavily discounted against main brands. Tengelmann and Metro are both increasingly focusing on quality private label in their product market strategies.
They do not, however, have the same level of information on their customers as do the British multiples. They will need more assistance and information from Irish companies to help them develop new products.
The fact that private label is moving up German retailers' agendas does not mean that the other routes to the market are becoming less attractive. Irish branded or identified products have the potential to successfully compete in the German retail market.
Research undertaken by An Bord Bia amongst consumers in continental European markets revealed that German consumers have the most positive image of Ireland as a source of quality, natural, "green" products. Another emerging trend to plan for is the increasing power of the European Buying Alliances.
This suggests future Eurowide sourcing policies that will not take into consideration national boundaries. In the short term this trend may help Irish companies break down some of the cosy partnerships that have developed which make the German market so difficult to crack.
An Bord Bia is working with Irish companies to plan for these new challenges. They demand a more collaborative approach to the marketing of the Irish food and drink industry overseas. Irish companies are small in global terms - and they recognise the benefits that can accrue if the Irish food industry per se is perceived as modern, innovative and competitive.
This principle was accepted at the recent inaugural meeting in Dusseldorf of An Bord Bia's Export Council for Germany. One objective of the council, to provide a forum to assist Irish companies gain increased market penetration by providing a network of contacts, marks a new era in the marketing and promotion of Irish food and drink overseas.
While individual company requirements remain paramount, there are obvious advantages in sharing experiences, contacts and, where feasible, costs.
During the week of January 9th-26th Ireland celebrated its 25th year of participation at Green Week in Berlin. This is a remarkable commitment to the German market. It is time that the market began to repay the complement.
