Experience-hungry consumers vs. discount store dominance

The fact that large German retail syndicates went bankrupt this year indicates that new strategies are needed to survive. 90 lecturers and 1,200 decision-makers focused on these new strategies at the two-day German Retail Congress in Berlin, this November. Josef Sanktjohanser, the president of the German Retail Association and member of the board of the REWE Group spoke about strengthening profiles, a renewed cooperation of retailers and manufacturers and targeting new consumer groups. Johan Sjöstrand, Nielsen’s vice president in Europe said that despite consumer trust getting a bit stronger, many are still unsure about the future. He surveyed the changes in consumer behaviour and examined the possible responses by food retailers. He called attention to the constant growth of private label products – at the expense of non-market leader producer brands. This process was connected to the concentration of store networks. Nielsen’s expert mentioned Hungary as well, saying that it was a less concentrated market. He opined that it as worth looking for new ways to win customers and to increase the brand value of products and retail chains. The president of EuroCommerce said that politicians often underestimated the importance of retail and the EU focused on industry instead: according to Dr Rainhardt von Leoprechting, head of corporate relations at the Metro Group it was easier for politicians to relate to industry because it was something easily perceptible, while retail was more complex and harder to grasp. At the same time, retail constituted 11 percent of the EU’s gross domestic product, connecting 500 million consumers with the food industry. EuroCommerce carries out lobbying activity to further the cause of retail in Brussels. They try to convince politicians that problems of retail should not be solved by state intervention. George W. Mehring, Metro’s senior vice president introduced the strategies of an international retail syndicate during a global crisis. He was of the opinion that economic recession could be an opportunity for strong companies. The Metro Group’s priority was to maintain financial liquidity, they invested less and cut costs by launching their SHAPE 2012 programme (already before the crisis). At the same time, expansion is also on their agenda, after Russia now they are targeting Turkey, China and India. In his lecture, he touched upon Hungary as well: in January 2009 Media Markt and Saturn increased turnover by 4 percent and achieved a 20-percent market share. Manfred Esser, member of the board of the REWE Group emphasised the importance of cooperation with the food industry. He outlined their efforts for sustainability, which he thought was of utmost importance despite current hardships. He spoke about their pesticide reduction programme: by 2008, they reduced pesticide residues in their fruits and vegetables by 20 percent. REWE also launched a project in Panama’s Boca del Toro region (where 80 percent of their bananas come from) to make a 120-hectare land fertile. Another initiative was the ‘Power Bag’ project: in six schools of four German provinces, they give children a healthy breakfast in a bag, five days a week. Mr Esser’s conclusion was that food manufacturer should look on retailers as equal partners. Patrick Mannsperger, a partner of strategy consultants Roland Berger pointed out that discount stores still had potential for a surprise. He also envisaged further mergers and acquisitions in the retail sector. He told that German FMCG retail turnover reached the annual value of EUR 180 billion, of which EUR 15 billion was the profit of retailers and manufacturers. He expected the differences among retail channels to gradually become indistinct and retail to become increasingly discount store dominated, with producer brands losing ground not only in discount stores but also in other store types. Stephan Grünewald, the director of market and media analysts Rheingold said that even at the time of crisis consumers remained hungry for inspiration and experiences when shopping. In his opinion, retailers too often focused exclusively on prices, while shoppers valued a quality of life. Traditional small shops still had their charm, especially these days when German consumers were insecure and craving for experiences.