German mainstream supermarkets are being squeezed from all sides: The discounters have started a price war. At the same time, consumer confidence is falling. I travelled to Germany to experience first hand what mainstream supermarkets are doing to retain their customers.
 

Germany’s state of the economy

There is no doubt that Europe’s largest economy is in a downturn. In the final 3 months of 2008, the economy shrank by 2.1%. Manufacturing, one of the backbones of the German economy, is being hit hard. Orders are down substantially, resulting in working hours being reduced across large swathes of the industry. The number of employees receiving wage subsidies to compensate for shorter working hours has surged from 16,000 a year ago to over a quarter of a million.

There is, however, some positive news. A recent government initiative to boost the car industry by paying €2,500 towards a new car to anyone willing to scrap their old car has brought a welcome short-term reprieve to that industry at least.
 

Edeka relies on innovation and service

Germany’s largest chain of supermarkets, Edeka, is banking on service and innovation to keep its customers. Edeka’s key strength lies in the great autonomy that regional areas are given to adjust their assortments according to the needs of their particular customers. Local sourcing is given a key emphasis in-store with few fresh items sourced from outside the region.

Recently it has opened new store concepts showcasing shopping as a pleasant experience - supermarkets that customers look forward to visiting.

One is what the locals proudly call the “Glass Edeka”, a statement of architectural beauty – not something generally associated with grocery retailing. I felt that it had a tremendous sense of space, generated by floor to ceiling glass on two sides, and 5m high ceilings.

	The small details make all the difference. Stefan Wider, Regional Manager, Edeka

Inside, the atmosphere is relaxing, with water features, down lighters, wooden flooring and the all important children’s play area in the centre. The store focuses heavily on its fresh ranges with produce appealingly merchandised, a broad organic section and a large wine assortment including a tasting table and a computer with barcode scanner providing information and food pairings on each wine line.

Another innovative Edeka store is aimed at those over 50. Originally a smaller-sized standard supermarket, it was re-fitted and launched in May 2008 under a new Neukauf 50+ fascia. It now features easy-to-manoeuvre shopping carts, magnifying glasses attached to fixtures, lower shelving units, a rest area with newspapers and a blood pressure monitor, as well as a range heavily focussed on the needs of the ‘golden generation’. The back of store post office concession is a key footfall driver. Shop assistants were hand picked for their friendly attitudes and patience, and given further training to hone their customer service skills., Families like using it because the wider aisles enable prams to get round the store more easily.
 

Real’s new own label

Real, Metro’s struggling hypermarket arm, is striking back by focusing on its own label. In-store, I found re-launched own label lines with redesigned packaging and 3 clear good, better, best segments. Effective merchandising made it hard to miss because the own label brands are block merchandised with shelf barkers to sign-post customers. Large pallets of the value line are set up mid aisle, and in a bid to drive home the value offering, each gondola end was packed with promotional offers and huge “Angebot” (offer) signs to direct customers to them. All the initial indications show that their efforts are not in vain and that their customer reactions must be positive. At Metro’s annual global senior management conference, CEO Eckhard Cordes recently used Real as an example of how to reverse declining sales.
 

Rewe connects with customers

At Rewe it was evident that a lot of work had gone into the ranges and merchandising with improved offerings and bright, quirky signposts. A key category within any good German supermarket is its fresh meat and delicatessen offering. Last year Rewe re-launched its deli own-label brand. The new brand, as well as the tall upright fridges displaying pre-packaged meat, gave it a more premium feel. Along the wall, instead of displaying the standard category names, the Rewe slogan was used creatively to signpost customers. The “better” in “Everyday a little better” was exchanged for… sweeter (confectionery), saltier (crisps), creamier (dairy), fitter (water) and so on for each category. The result was a laid back, hip feel to the store.
 

The discounters invest in brand image

The discounters still control a big segment of the German market. They have used recent falls in commodity prices to start a price war on basic food stuffs, but they are also putting a lot of effort into longer term projects and getting to the heart of one of the main reasons customers do not want to shop with them: the quality perception. Norma, for example, is heavily focused on improving this image – displaying large signs above each category and showcasing certain products that won food tasting awards. In contrast, Lidl is focusing on its own brands by highlighting its own-label logos on price tickets. In one Lidl store, there was a wall mural at the checkouts depicting the logos of its own brands. Aldi has introduced more organic lines as well as sustainable lines in a bid to appear more premium. The Penny store I visited featured a prominent produce humidifier – how is that for quality?
 

What does this all mean?

Grocery retailers have clearly yet to feel the full effect of the recession. Christmas trading was also stronger than expected, but with falling employment they will inevitably feel the pinch sooner or later.

For the moment, mainstream retailers are concentrating on price matching the discounters on their value lines alone. Unlike the discounters, however, they are not investing in the brand image of their value lines. There is no quality comparison as displayed in Norma, nor are there organic or fair-trade value lines. Their offering is simply presented as cheap and cheerful basic food. Instead, the mainstream supermarkets are going back to basics and concentrating on what they are good at: customer service, innovation and product choice.

More information:

	Retail Analysis
	For more information on the German grocery market, store visit reports and retailer photos, visit Retail Analysis, IGD's online guide to retailers, markets and channels.

	The Golden Generation report
	With an ageing population, it has never been more important to have an understanding of this growing and highly influential segment. How do they feel about the UK food and grocery industry, what are their expectations, and how can you target their needs? Find out in The Golden Generation, IGD’s time-saving one-stop guide to the older shopper.

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Erika Reid is a Senior Business Analyst at IGD. She has worked for both food manufacturers and retailers. At IGD she is responsible for UK and European research, publications, training and conferences and the publication and presentation of strategic analysis for major players in the industry.