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Germany Food and Drink Report Q3 2008Published by: Business Monitor International Published: Jul. 21, 2008 - 68 Pages Table of Contents
AbstractDemand for Germany’s technologically-advanced exports in rapidly industrialising emerging markets haspushed Germany’s rate of GDP growth above 2.5% over the past two years. This is much higher than therecent average and there are now signs that this relatively strong economic performance is starting to feedinto consumer confidence and push up spending on food and drink products, which in real terms had beenin long term decline. However, these phenomena may be short lived as rapid inflation and the significantslowdown in the US economy are both likely to damage confidence and could curtail spending.Unlike in previous years Germany’s Mass Grocery Retailers (MGRs) generally reported strong results for2006 and 2007. In April the country’s largest retailer, Edeka, reported that its revenues climbed by 4.4%in 2007 and Edeka’s chairman claimed that 2007 was the most successful year in the firm’s history. Thecountry’s second largest retailer Rewe is also expected to report strong growth for 2007 in keeping withits results for 2006 when it reported growth of 4.3%. This growth in 2006 can be compared to the periodbetween 2002 and 2005 when the firm’s domestic growth averaged a measly 0.3%. Per capita food consumption in Germany has therefore returned to growth after a long period ofstagnation and this trend has prompted retailers to stock more products that cater to consumers willing topay premium prices. For example Rewe has launched a new premium private-label brand with the name‘Rewe Exklusiv’ and has announced that all of its full-range supermarkets will stock more regionalproducts which will appeal to upmarket shoppers interested in eating local specialities. So far in 2008 this rate of spending has held up; however, two factors look like they could undermine thesector’s recent strength. Firstly the global rise in food prices threatens to undermine consumer confidence.The very high levels of price competition in Germany mean that both retailers and producers are alreadyworking with wafer thin margins and therefore neither has the ability to shield consumers from the recentcommodity price rises. This has meant that the rate of food inflation in Germany has been the secondhighest in Europe behind only Spain. If prices continue to rise at this rapid rate demand for premiumquality food and drink products is likely to fall away as consumers again start to focus purely on price. A second, perhaps more serious, issue is the recent decline in the US economy. Germany’s economy isparticularly dependent on exports and the US is Germany’s second largest export market. In addition arecession in the US is likely to reduce demand for Germany’s exports across the world, especially incountries that are also heavily reliant on trade with the US. There are already signs that Germany’s rate ofeconomic growth in 2008 will be much lower than in 2006 and 2007 and this will surely have an affect onconsumer spending. If the US manages to avoid a recession and returns to a reasonable level of growth by2009 then Germany’s food and drink producers may escape relatively unscathed. However, if the US doesenter a sustained period of economic contraction then the recent strength of Germany’s food and drinksector is likely to be severely undermined. Get Full Details About This Report >> |
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