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E-grocery. The last major growth potential in German food retailing?

Scientific Essay 2014 19 Pages

Business economics - Trade and Distribution

Excerpt

E-grocery: The last major growth potential in German food retailing?

1 Introduction, problem statement and objective

The recent evolution of the internet as a new major distribution channel has especially obtained much attention, as the online channel calls the viability of the traditional stationary retail formats into question. Indeed, e-commerce has become an essential channel of distribution in the retail sector: Whether books, clothing, tools, consumer electronics and much more, consumers increasingly purchase their goods online.[1] E-commerce has long since become a crucial and integral part of our everyday life. Why take a long trip to the travel agency, when flights can be booked comfortably from the home computer? Why queue for hours for concert tickets, when the promoter offers their tickets online? Why stretch one’s own patience to the very limits in over-crowded stores, when the merchandise can be delivered conveniently right to your doorstep? Wherever possible, consumers try to make their lives more pleasant and they constantly seek ways to get bothersome chores over and done with within minimum time and with minimal effort. It is therefore surprising that the vast majority of German consumers still prefer to carry heavy bags with their weekly supply of groceries home themselves, instead of conveniently shopping for groceries online.[2] Hence, solely the grocery e-commerce has not yet gained momentum in the German online retail business.[3]

E-grocery has been neglected by German retailers since the retail business saw the rise and fall of first-wave dot.coms in the early 2000s. Back then, numerous e-grocers tried to conquer the market all over the globe, but most failed shortly after due to uniquely problematic supply chain issues and strong consumer expectations.[4] Ever since, the German food retail sector has left the e-grocery business unattended. Meanwhile, however, European competitors have embraced and integrated the information and communication technologies (ICTs). E-grocers in neighboring countries successfully operate in the e-grocery business and have thereby developed a whole new market, since the innovative retail formats actually provide real additional value for the customer: E-grocery sales per capita in the UK, Switzerland and Belgium amount to 82 €, 23 € and 18 € respectively, while the E-grocery sales per capita in Germany only amounts to 2 €.[5] These positive developments in neighboring countries have started the ball rolling at executive levels in the German food retail business.

So, today, e-grocery is number 1 on the current agendas of Germany’s retailers - again. Due to over-saturated markets and progressing concentration processes, the growth rates in the stationary food retailing are stagnating. Since the majority of the market is saturated and the market potential is largely exhausted, raising the market share can be achieved only at the expense of competitors, which results in fierce predatory competition in German food retailing. However, the advance in information and communication technologies and the increasing omnipresence of the ICTs in today’s life are seen as a chance for grocery retailers to reinitiate growth. Since the German e-grocery business still lags behind the European average, the analysis points to a reasonable growth potential here: E-grocery could serve as an important driver and growth engine in the German food retail business.[6]

In the German food retail business, the new online channel has not yet come to light, in contrast to other European markets. At first glance, it seems that neither the retailers nor the consumers appear to show a significant interest in e-grocery. The reason for German retailers to neglect possibilities to sell groceries online, however, is based on the premise that German consumers would lack the acceptance and interest to do so. Herein, the paper’s objective is to analyze the sales potential for grocery e-commerce in the German food retailing.

2 The distinctive features of the German food retailing industry

2.1 General overview of the German food retailing industry

The German grocery market is the second largest grocery market in the EU, following France and slightly exceeding the UK.[7] In 2011, the total turnover in the German food retailing industry increased by 2.4 % from 225 to 231 BN €, while the food turnover itself increased by 3.6% from 163 BN € to 169 BN €. Hence, 73% of the total turnover is generated by food sales and 27% are generated by non-food sales. With an inflation rate of 2.3%, which however was largely only due to rising energy and fuel costs, the German food retailing industry experienced a considerable growth in turnover in real terms.[8]

illustration not visible in this excerpt

Fig. 1: The structure of the German stationary food retailing sector

Source: Own illustration, following (ACNielsen, 2012 pp. 16-17)

In German food retailing, the traditional stationary retail formats prevail in the market and account for the vast majority of the total revenue. Over the past decade, convenience stores and especially discounters have experienced an increase in their market shares in the German food retailing industry, whereby discounters in particular have been experiencing high growth rates in sales. Traditional supermarkets, however, are losing market share to the two up-coming retail formats named above.[9] Fig. 5 illustrates the structure of the German stationary food retailing sector regarding the market share of the retail formats over the course of the past six years.

Since the store-based formats have been and still are the driving force in the food retailing sector for several decades, the non-stationary formats –especially Internet-based types- have only played a minor role so far.[10] The most important non-store types are catalogue sales, e.g. bofrost*, a specialist for mail order of frozen foods, and e-grocery sales, e.g. www.lebensmittel.de, an e-retailer for all sorts of groceries. Moreover, nearly all large retail chains have built up online shops, which carry only general merchandise but no food in their assortments. Hence, there are experienced and also quite successful multichannel retailers in the German food retailing industry, but only in the field of non-food.[11]

The pure non-store formats can be considered as niches and have gained relatively little economic relevance.[12] Pure online retailers struggle with reaching a critical mass to enter the market on a large scale basis, since the price competition is fierce and the start-up costs are immense. Thus, pure online retailers mostly operate as niche providers in urban districts with a high population density where logistics can operate more cost-efficiently than in rural areas. Niche providers carry a relatively small assortment of high quality products in fresh categories for quality-conscious customers.[13] Currently, less than one per cent is buying their groceries online. In 2011, the Internet-based food retailing sector generated just 200 M €. This accounts for only 0.2 % of the total revenue of the German food retail business, however, according to experts, online food retailing has large potential to grow. Hence, experts expect the market share of online food retailing to be at 1.5 % in 2016.[14]

2.2 Characteristics of the market situation in the German food retailing industry

Currently, the German food retailing industry is marked by saturated markets, progressing concentration processes and an increasingly strong price focus of consumers driven by the dominance of discounters. As a consequence, this has triggered cut-throat competition in the food retail business that has been shattering the business for years mostly unabated.[15] According to Stefan Genth, Chief Executive of the German Retail Federation (HDE), “German food retailing is not a growing sector”, which is evident in the worse than average growth rates in comparison to other sectors.[16]

The cut-throat competition is especially evident in the fierce price competition and the therefore accordingly low margins: The destructive price wars that started out with the introduction of the Euro in 2001 have had a harsh impact on the economic situation of retailers and the branch structure of the whole market itself.[17] Germany has by far the lowest price levels for food in the whole of Europe. Additionally, the importance of the price in purchasing decisions is twice as high in Germany as in European comparison. Hence, as consumers consider low prices almost a matter of course, it is increasingly difficult for food retailers to differ on the price criterion.[18] A major reason for this development is the increasing importance of discounters, such as Aldi, Lidl, Penny and Netto, over the past decades. Today, discounters represent 38.3% of the German food retailing industry.[19] The discounters’ importance and their relentless pursuit of cost-effectiveness and the lowest possible price deter other retailers with a different focus from charging too high a premium. Since discounters are the lower benchmark that the consumers relate to, other retailers must prove that higher prices are justified by real value-adding features for the consumer.[20]

[...]


[1] (unknown, 2012 p. 5)

[2] (Hannen, 2013 p. 24)

[3] (E-grocery as a new distribution channel in the German food retailing, 2013 p. 126)

[4] (Berning, et al., 2005 p. 77)

[5] (Delfmann, 2011 p. 5)

[6] (E-grocery as a new distribution channel in the German food retailing, 2013 p. 126)

[7] (Delfmann, 2011 p. 6)

[8] (TradeDimensions, 2012 p. 1), (E-grocery as a new distribution channel in the German food retailing, 2013 p. 126)

[9] (E-grocery as a new distribution channel in the German food retailing, 2013 p. 126)

[10] (Passenheim, 2003 p. 49)

[11] (E-grocery as a new distribution channel in the German food retailing, 2013 p. 126)

[12] (Loderhose, 2011 pp. 1-3)

[13] (ATKearney (a), 2012 p. 10)

[14] (Plachetta, et al., 2012 p. 32), (E-grocery as a new distribution channel in the German food retailing, 2013 p. 126)

[15] (Theis, 2006 p. 463), (E-grocery as a new distribution channel in the German food retailing, 2013 p. 127)

[16] (Frühjahrs-Pressekonferenz, April 2013 p. 2)

[17] (Theis, 2006 p. 463)

[18] (Strüker, 2005 p. 67)

[19] (ACNielsen, 2012 p. 14)

[20] (Delfmann, 2011 p. 6), (E-grocery as a new distribution channel in the German food retailing, 2013 p. 127)

Details

Pages
19
Year
2014
ISBN (eBook)
9783656672159
ISBN (Book)
9783656684824
File size
759 KB
Language
English
Catalog Number
v274789
Grade
Tags
e-grocery german

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Title: E-grocery. The last major growth potential in German food retailing?