German shoppers shift focus from price to quality

Updated 14 February 2014
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German shoppers shift focus from price to quality

BERLIN: The German grocery market, long dominated by discounters such as Aldi and Lidl, is undergoing a makeover as shoppers demand more upmarket products like organic meat and exotic cheeses and retailers take tentative steps onto the web.
Run down after years trying to match discounters on price, mid-market supermarkets Edeka and Rewe, as well as their listed rival Metro, have changed strategy and are investing billions of euros to bring their produce and stores up to a level taken for granted in countries like Britain and France.
And faced with Amazon aiming to expand into fresh produce in its second biggest market after the United States, German grocers are starting to move into e-commerce, which currently accounts for less than 1 percent of sales. After years of retail stagnation, Germans are more willing to spend than at any time since 2006 as the economy picks up and low interest rates make saving less attractive.
Retailers are also responding to a new willingness among shoppers - who have traditionally preferred to splash out on cars, homes and travel rather than food or clothing - to pay more for quality groceries and a better shopping experience.
Discounters still have a huge 43.9 percent of the market - compared with 7 percent in Britain and 15 percent in France - but that is down from a 2008 peak of 44.5 percent as mid-market supermarkets have risen to 26 percent from 23.6 percent.
"We are slowly moving away from 'Geiz ist geil'," said Martin Ohsawa, manager of a gourmet Frische Paradies supermarket in Berlin, referring to an ad slogan meaning "stinginess is cool" that had come to epitomize German retail. "A lot of people have changed their priorities because of food scandals. They will splash out on a liter of olive oil instead of a liter of motor oil," the trained chef added.
Originally set up as a supplier of ingredients to trade customers like restaurants and hotels, Frische Paradies has opened its stores up to ordinary shoppers in recent years to meet a growing demand among Germans for more quality produce.
"Most German supermarkets have just two types of potato. We have eight," said Ohsawa as he showed off pricey specialities like French cheese and butter, Italian capers, Himalayan rosa salt and a fresh fish counter he boasts is the best in Berlin.
GfK market research group predicts German grocery sales will grow at least 2 percent in 2014 after a 2.7 percent rise in 2013 - the fastest rate in five years - boosted by price rises. But retailers have a way to go to improve the shopping experience, with 59 percent of customers dissatisfied with the service they receive, according to a Porsche Consulting study.
Rewe Chief Executive Alain Caparros wants to attract shoppers to his stores with in-house bistros and sushi bars as well as events like oyster and caviar tasting. "Customers want sustainability, they want organic, they want the best quality and still at a reasonable price," he told the Handelsblatt business daily.
Rewe plans to invest 1.6 billion euros ($2.19 billion) this year in expanding and modernizing stores while Edeka says it will spend more than 1 billion. The two supermarkets invested 3 billion euros in total last year. Aldi and Lidl are also responding to the changing consumer mood, introducing more branded goods as well as in-house bakeries and a wider range of premium products like "Aldi Gourmet" and "Lidl Deluxe".
The shift, which GfK says led discounters to hike prices by 3.3 percent last year, has actually created opportunities at the super-budget end of the market. Metro's Real out-of-town hypermarkets are trying to exploit that with a "nameless" range
of low price own-brand products like toilet paper and pasta.
"Discounters have traded up so our chance with Real is to undercut the trend toward more quality to appeal to lower income and older people," said Metro Chief Executive Olaf Koch.
Germany, which has no big upmarket grocery retail chains like Britain's Waitrose, may look like an attractive target for foreign chains - but most will think twice about a full-scale assault after Wal-Mart beat a retreat in 2006.
The US retailer failed to capture market share in the cut-throat German market and acknowledged it had misunderstood the country's regulations, shopping habits and tastes. "Against the background of this trading-up trend, Germany could be of interest for those who have a quality range but this is still the most hotly contested market," said GfK retail expert Wolfgang Adlwarth.
Dutch supermarket group Ahold has opened six small Albert Heijn convenience stores in western Germany, but Swiss chain Migros ended a foray into the German market last year, closing its four stores in the south of the country.
Despite a recovery in consumer sentiment, Germany's underlying demographic trends - an ageing population and low birthrate - are not exactly attractive to retail investors.
That also helps explain why discounters may have lost ground. Pensioners have less need to do big bulk buys at discounters than cash-strapped families with young children.
Meanwhile, grocers are positioning for a rise in online ordering. Web sales make up less than 1 percent of the grocery market, compared with 5 percent in Britain. But consumer goods research group IGD sees German food e-commerce growing to 2.5 billion euros by 2016 from 1.1 billion in 2012.
"Online might bring in a dynamic that could redivide market share," said Markus Hepp, Boston Consulting Group partner.
Rewe has launched a delivery service for goods ordered on the web, Real is trialling "drive-in" pick-up for web sales and Deutsche Post has launched an online grocery store.


Edeka, Aldi and Lidl do not as yet offer grocery e-commerce.
Rewe boss Caparros said he is pushing online as part of a bid to overtake Edeka as the country's top grocer by sales.
"Our profession is in upheaval. Those that fail to keep up will find their names on a tombstone."


Oil prices fall as OPEC and Russia weigh output boost

Updated 55 min 5 sec ago
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Oil prices fall as OPEC and Russia weigh output boost

  • Russian Energy Minister Alexander Novak has had talks with Saudi Energy Minister Khalid Al-Falih on an easing of the terms of the global oil supply pact that has been in place for 17 months
  • The energy ministers of Saudi Arabia, Russia and the United Arab Emirates are discussing an output increase of about 1 million barrels per day

LONDON: Oil prices fell below $78 a barrel on Friday as OPEC and Russia considered easing supply curbs to offset disruptions in Venezuela and an expected drop in Iranian exports.
Russian Energy Minister Alexander Novak has had talks with Saudi Energy Minister Khalid Al-Falih on an easing of the terms of the global oil supply pact that has been in place for 17 months, Novak said on Friday.
The energy ministers of Saudi Arabia, Russia and the United Arab Emirates are discussing an output increase of about 1 million barrels per day (bpd), sources told Reuters.
Speaking in St. Petersburg, Falih told Reuters that “all options are on the table” when asked about the targets on production cuts.
Brent crude futures were down 80 cents at $77.99 a barrel by 0914 GMT, having hit their highest since late 2014 at $80.50 this month.
US West Texas Intermediate (WTI) crude futures were at $70.18 a barrel, down 53 cents.
“The debate about a possible relaxation of the production restrictions should preclude any renewed price rise,” Commerzbank analysts said.
“The $80 mark is likely to pose an obstacle that is difficult to overcome because it would significantly raise the probability of a production increase.”
The Organization of the Petroleum Exporting Countries (OPEC) as well as a group of non-OPEC producers led by Russia started withholding output in 2017 to tighten the market and prop up prices.
Global crude supplies have tightened sharply over the past year because of the OPEC-led cuts, which were boosted by a dramatic drop in Venezuelan production.
The prospects of renewed sanctions on Iran after US President Donald Trump pulled out of an international nuclear deal with Tehran have also boosted prices in recent weeks.
As a result, compliance with the deal to reduce output by 1.8 million bpd by the end of 2018 has been at 152 percent, sources said.
Amrita Sen, chief oil analyst at consultancy Energy Aspects, said: “Addressing overcompliance was always likely to be on the agenda amid a tight market and low inventories, but the volume to bring back is still up for debate.”

HIGHER PRICES AT A COST
While Russia and OPEC benefit from higher oil prices, up almost 20 percent since the end of last year, their voluntary output cuts have opened the door to other producers to ramp up production and gain market share.
US crude oil production has risen by more than a quarter in the past two years, to 10.73 million bpd. Only Russia produces more, at about 11 million bpd.
Output from the likes of the United States, Canada and Brazil, which are not bound by the OPEC/Russian-led pact, is likely to rise further as crude prices rise.