GerMAnY - WU Libraries Blogswulibraries.typepad.com/files/bmi_germany_food_and_drink_report_q… ·...

Q4 2010www.businessmonitor.com

food & drink report

iSSn 1749-270Xpublished by Business Monitor international Ltd.

GerMAnYINCLUDES 5-YEAR FORECASTS TO 2014

Business Monitor International Mermaid House, 2 Puddle Dock, London, EC4V 3DS, UK Tel: +44 (0) 20 7248 0468 Fax: +44 (0) 20 7248 0467 Email: [email protected] Web: http://www.businessmonitor.com

© 2010 Business Monitor International. All rights reserved. All information contained in this publication is copyrighted in the name of Business Monitor International, and as such no part of this publication may be reproduced, repackaged, redistributed, resold in whole or in any part, or used in any form or by any means graphic, electronic or mechanical, including photocopying, recording, taping, or by information storage or retrieval, or by any other means, without the express written consent of the publisher.

DISCLAIMER All information contained in this publication has been researched and compiled from sources believed to be accurate and reliable at the time of publishing. However, in view of the natural scope for human and/or mechanical error, either at source or during production, Business Monitor International accepts no liability whatsoever for any loss or damage resulting from errors, inaccuracies or omissions affecting any part of the publication. All information is provided without warranty, and Business Monitor International makes no representation of warranty of any kind as to the accuracy or completeness of any information hereto contained.

GERMANY FOOD & DRINK REPORT Q4 2010 INCLUDING 5-YEAR INDUSTRY FORECASTS BY BMI

Part of BMI’s Industry Report & Forecasts Series

Published by: Business Monitor International

Publication Date: August 2010

Germany Food & Drink Report Q4 2010

© Business Monitor International Ltd Page 2



CONTENTS

Executive Summary ......................................................................................................................................... 7

SWOT Analysis ................................................................................................................................................. 8

Germany Food Industry SWOT .............................................................................................................................................................................. 8 Germany Drink Industry SWOT ............................................................................................................................................................................. 9 Germany Mass Grocery Retail Industry SWOT ................................................................................................................................................... 10

Business Environment .................................................................................................................................. 11

BMI’s Core Global Industry Views ........................................................................................................................................................................... 11 Table: BMI Food & Drink Core Views ................................................................................................................................................................ 12

Western Europe Food & Drink Business Environment Ratings ................................................................................................................................ 13 Table: Western Europe Food & Drink Risk/Reward Ratings Q4 2010 ................................................................................................................ 16

Germany Food & Drink Business Environment Rating ............................................................................................................................................ 17 Macroeconomic Outlook ........................................................................................................................................................................................... 18

Germany – GDP By Expenditure ......................................................................................................................................................................... 21

Industry Forecast Scenario ........................................................................................................................... 22

Consumer Outlook .................................................................................................................................................................................................... 22 Food.......................................................................................................................................................................................................................... 24

Total Food Consumption ..................................................................................................................................................................................... 24 Table: Germany Food Consumption Indicators – Historical Data & Forecasts .................................................................................................. 25 Confectionery....................................................................................................................................................................................................... 25 Table: Confectionery Value/Volume Sales - Historical Data & Forecasts .......................................................................................................... 26

Drink ......................................................................................................................................................................................................................... 26 Soft Drinks And Bottled Water ............................................................................................................................................................................. 26 Table: Soft Drink Value Sales - Historical Data & Forecasts ............................................................................................................................. 28 Alcoholic Drinks .................................................................................................................................................................................................. 29 Table: Alcoholic Drink Value/Volume Sales - Historical Data & Forecasts ....................................................................................................... 30 Hot Drinks ........................................................................................................................................................................................................... 31 Table: Hot Drink Value Sales - Historical Data & Forecasts .............................................................................................................................. 32

Mass Grocery Retail ................................................................................................................................................................................................. 32 Table: Germany MGR Sector - Sales Value by Format - Historical Data & Forecasts ....................................................................................... 33

Trade ........................................................................................................................................................................................................................ 33

Food ................................................................................................................................................................. 34

Industry Trends And Developments .......................................................................................................................................................................... 34 More Retailers Embracing Private Labels ........................................................................................................................................................... 34 Organic Sector Resilient ...................................................................................................................................................................................... 35

Market Overview ...................................................................................................................................................................................................... 36 Food Sector ......................................................................................................................................................................................................... 36 Prepared Food ..................................................................................................................................................................................................... 36 Organic ................................................................................................................................................................................................................ 36 Dairy .................................................................................................................................................................................................................... 38

Drink ................................................................................................................................................................ 39

Industry Trends And Developments .......................................................................................................................................................................... 39 Domestic Wine Demand Resilient ........................................................................................................................................................................ 39 Falling Beer Demand Driving Consolidation ...................................................................................................................................................... 40

Market Overview ...................................................................................................................................................................................................... 41



Soft Drinks ........................................................................................................................................................................................................... 41 Alcoholic Drinks .................................................................................................................................................................................................. 41

Mass Grocery Retail ....................................................................................................................................... 43

Industry Trends And Developments .......................................................................................................................................................................... 43 Expansion Across Sectors To Hedge Bets ............................................................................................................................................................ 43 Metro Searching For EM Growth, Could Be Split Up? ....................................................................................................................................... 44

Market Overview ...................................................................................................................................................................................................... 45 Table: Structure of Germany's Mass Grocery Retail Market by Estimated Number of Outlets ............................................................................ 46 Table: Sales Format by Value in Germany's Mass Grocery Retail Market (US$bn) ........................................................................................... 46 Table: Sales Format by Value in Germany's Mass Grocery Retail Market (EURbn) ........................................................................................... 47 Table: Annual Average Sales per Outlet by Format............................................................................................................................................. 47

Competitive Landscape ................................................................................................................................. 48

Table: Key Players in Germany's Food Sector (2008) ......................................................................................................................................... 48 Table: Key Players in Germany's Drink Sector (2008) ........................................................................................................................................ 50 Table: Key Players in Germany's Mass Grocery Retail Sector ............................................................................................................................ 51

Company Analysis..................................................................................................................................................................................................... 53 Food .................................................................................................................................................................................................................... 53 Oetker Group ....................................................................................................................................................................................................... 53 Nordmilch Group ................................................................................................................................................................................................. 54 Haribo ................................................................................................................................................................................................................. 55 Lieken Group (Barilla) ........................................................................................................................................................................................ 56 Drink .................................................................................................................................................................................................................... 57 Emig GmbH & Co KG (GerberEmig Group) ....................................................................................................................................................... 57 Radeberger Group (Oetker Group)...................................................................................................................................................................... 58 Anheuser-Busch InBev Germany ......................................................................................................................................................................... 59 Mass Grocery Retail ............................................................................................................................................................................................ 60 Lidl Group ........................................................................................................................................................................................................... 60 Rewe Group ......................................................................................................................................................................................................... 61

Appendix ......................................................................................................................................................... 62

Country Snapshot: Germany Demographic Data ..................................................................................................................................................... 62 Section 1: Population ........................................................................................................................................................................................... 62 Table: Demographic Indicators, 2005-2030 ........................................................................................................................................................ 62 Table: Rural/Urban Breakdown, 2005-2030 ....................................................................................................................................................... 63 Section 2: Education And Healthcare .................................................................................................................................................................. 63 Table: Education, 2002-2005 .............................................................................................................................................................................. 63 Table: Vital Statistics, 2005-2030 ........................................................................................................................................................................ 63 Section 3: Labour Market And Spending Power .................................................................................................................................................. 64 Table: Employment Indicators, 2001-2006 .......................................................................................................................................................... 64 Table: Consumer Expenditure, 2000-2012 (US$) ................................................................................................................................................ 64 Table: Average Annual Manufacturing Wages .................................................................................................................................................... 65

BMI Methodology ........................................................................................................................................... 66

Food & Drink Business Environment Ratings .......................................................................................................................................................... 66 Ratings Methodology ........................................................................................................................................................................................... 66 Ratings Overview ................................................................................................................................................................................................. 66 Ratings System ..................................................................................................................................................................................................... 66 Indicators ............................................................................................................................................................................................................. 66 Table: Limits Of Potential Returns ...................................................................................................................................................................... 67 Table: Risks To Realisation Of Potential Returns ................................................................................................................................................ 68



Weighting ............................................................................................................................................................................................................. 69 Table: Weighting ................................................................................................................................................................................................. 69

BMI Food & Drink Industry Glossary ...................................................................................................................................................................... 70 Food & Drink ...................................................................................................................................................................................................... 70 Mass Grocery Retail ............................................................................................................................................................................................ 70

BMI Food & Drink Forecasting And Sourcing ......................................................................................................................................................... 72 How We Generate Our Industry Forecasts .......................................................................................................................................................... 72 Sourcing ............................................................................................................................................................................................................... 73



Executive Summary

German consumers are characterised by high saving rates and extreme price sensitivity. In 2006 and

2007 there were signs this could start to change, as demand for Germany's technologically advanced

exports in rapidly industrialising emerging markets pushed the country's rate of GDP growth much

higher than the recent average; this economic performance fed into consumer confidence and pushed up

spending. However, this was short lived, as the global financial crisis led to a significant slowdown in the

German economy, which damaged confidence and curtailed consumption. We expect economic growth to

reach 2.0% in 2010, but in line with our global outlook forecast growth remaining fairly muted from

2011 onwards. We therefore see only modest growth in consumption going forward, with the German

consumer to remain scarred by the recent economic turbulence and price sensitivity to remain in evidence

throughout our forecast period.

Headline Industry Data

! 2010 per capita food consumption = +2.3%; forecast to 2014 = +14.5%

! 2010 alcoholic drink sales = -0.1%; forecast to 2014 = +2.3%

! 2010 soft drink sales = +1.7% ; forecast to 2014 = +10.3%

! 2010 mass grocery retail sales = +3.0%; forecast to 2014 = +22%

Key Company Trends

More retailers embracing private labels – At the end of 2009 German wholesaler Metro Cash & Carry

unveiled a revamped private label range as it seeks to adjust its offering in response to the downturn.

Currently 40% of the market is accounted for by private labels. However, this is largely down to the

success of the discount format and while large retailers in other European countries have for a long time

capitalised on the strength of their brand, this strategy has only just been embraced in Germany.

Consolidation in Beer – The German Federal Statistical Office (Destatis) has reported that beer sales in

Germany totalled 100mn hectolitres (hl) in 2009. The figure was down by 2.9mn hl from the previous

year, a fall of 2.8%. We envisage strong pressure towards further consolidation. The head of marketing at

Krombacher Brauerei, which produces Germany’s bestselling lager, said in an interview that it

estimated that overcapacity in the sector was at 30%. With consumption falling, an increasing number of

producers will eventually be squeezed out.



Key Risks to Outlook

Slowdown in China – As an export driven economy the major risk to our German outlook is the prospect

of a more intense slowdown in China than we are currently forecasting. Chinese demand for Germany's

exports have helped drive the country's recovery in 2010. However, overly accommodative fiscal and

monetary stimuli in China have led to an overheating that could result in a sharp withdrawal in 2011.

Even if China manages to avoid this scenario, we are projecting a slowdown in Chinese import levels

towards the latter stages of 2010, as Beijing recognises the need to rebalance the economy towards

domestic consumption.

Eurozone debt crisis – A second risk is the prospect of further instability in the eurozone as a result of the

unsustainable debt levels built up by some member countries. However, this brings with it the prospect of

further weakening of the euro which, given Germany's export orientated economy, would not be entirely

unfavourable to German economic growth and to our consumption expectations.

SWOT Analysis

Germany Food Industry SWOT

Strengths ! German consumers are prepared to pay for high-quality goods and product innovations, with health, wellness and functional foods as well as organic products having significantly increased in popularity.

! Germany is the largest economy in Europe and the largest market for many food products.

! With a high level of research and development (R&D) spending, the German food sector is innovative and forward thinking.

Weaknesses ! High costs across the manufacturing base, coupled with a relatively high-value currency, the euro, can erode company profit margins.

! Price sensitivity, which had started to lessen in 2006 and 2007, has returned following the global financial crisis and a resulting downturn in consumer confidence.

Opportunities ! Value-added convenience foods continue to experience strong growth rates as they cater to the busy lifestyles of German consumers.

! Health-consciousness is influencing food sales.

! Organic and fair-trade product ranges have enjoyed considerable success in Germany, creating opportunities for development in these categories. Germany is the largest market for organic products in Europe.

Threats ! The global economic slowdown led to a real GDP contraction of 5% in Germany in 2009 and is likely to continue impacting economic growth in 2010.

! The rise of discounting threatens the margins of manufacturers with retailers passing these costs down the supply chain.

! The increasing premiumisation of retailers’ private label product ranges, together with higher consumer acceptance of private label products, threatens to undermine brand name products.



Germany Drink Industry SWOT

Strengths ! German consumers are prepared to pay for high-quality goods and product innovations, with health, wellness and functional foods as well as organic products having significantly increased in popularity.

! Germany is the largest economy in Europe and the largest market for many drink products.

! With a high level of R&D spending, the German drink sector is innovative and forward thinking.

! Per capita beer consumption is the highest in Western Europe.

Weaknesses ! High costs across the manufacturing base, coupled with a relatively high-value currency, the euro, can erode company profit margins.

! The beer market remains very fragmented. Domestic breweries have been facing fierce competition from large multinational breweries that are beginning to consolidate the German beer market.

! Beer sales are in decline.

! Increased health-consciousness has led to stagnation in the carbonated drinks sector.

Opportunities ! Health-consciousness is influencing drink sales.

! More soft drinks are being consumed as consumers move away from alcohol.

! Alcohol drinkers are showing a preference for wine and spirits over beer, leading to the rapidly increasing consumption of wine and spirits.

! The bottled water and fruit juice sectors are experiencing strong growth.

! Organic and fair-trade product ranges have enjoyed considerable success in Germany, creating opportunities for development in these categories.


! The rise of discounting threatens the margins of manufacturers, with retailers passing these costs down the supply chain.

! The increasing premiumisation of retailers’ private label product ranges, together with higher consumer acceptance of private label products, threatens to undermine brand name products.



Germany Mass Grocery Retail Industry SWOT

Strengths ! The sector is well developed, offering a modern retailing experience throughout the country.

! German consumers are prepared to pay for high-quality goods and product innovations, with health, wellness and functional foods as well as organic products having significantly increased in popularity.

! A flourishing discount sector which has expanded internationally.

Weaknesses ! The relaxing of strict opening hour laws has so far failed to attract sufficient consumer interest in most locations, limiting the success of the convenience sector.

! Intense price competition from discount chains means that supermarket operators are having to endure very tight margins.

! The hypermarket format has been losing ground to smaller retail outlets.

Opportunities ! Consumers remain extremely price-conscious, showing a marked preference for shopping at discount outlets. However, there is room for growth in private label products and an opportunity for supermarkets and convenience stores to offer their own range of discount brands.

! Convenience stores located at petrol stations are very popular and present an interesting opportunity for retailers interested in entering the local market.

! As the economy regains its strength and disposable incomes increase, retailers may increasingly introduce up-market sales strategies to complement their hard discount approaches.


! Price-conscious consumers and the rise of discounters have taken sales away from supermarkets. As a result, retailers now need to focus on volume rather than value growth in order to compete against the discount chains.



Business Environment

BMI’s Core Global Industry Views

BMI's expectations for food and

drink (F&D) industry growth in

the short term are in keeping with

our global macro views: weak US

and eurozone growth and a post-

stimulus cooling of the Chinese

economy will prevent a robust

demand recovery. Fiscal austerity

further cools the picture for

discretionary spending – the

impact of this is likely to be felt

over more than just the short

term. As we flagged in early

2010, economic and industry data

might have hinted at signs of a

recovery, but this is not THE

recovery; employment and

consumer confidence remain too

weak and this has only been further exposed as the tailwinds of consumer-oriented government stimulus

packages have died out.

The extent of the challenge facing F&D companies can be seen in the table below. Yes, food is an

essential good and is thus more resilient to economic downturns than pure discretionary goods (see the

outperformance of food company sales relative to total consumer goods sales). However, gone is the myth

that the industry is fairly recession-proof! Having spent the months and years in the run up to late 2008's

financial crisis focusing on trading consumers up – even emerging market (EM) consumers – to ever

higher-value, more premium goods, that route to growth has now been suspended and the industry has

been hit hard by the effects of this.

F&D Proves Recession-Reliant, But Certainly Not Recession-Proof

Sector and Consumer Goods Sub-Sector Relative Value based on Trailling 12mth Sales Growth (%) - Global vs BRICs

Source: Bloomberg



Of course, even within this demand weakness story, there is scope for outperformance. BMI's F&D core

views list highlights a number of these areas, as well as flagging what we perceive to be the key short-

term risks to growth, in order to identify and define strategies that will help F&D firms cushion the

impact of a secondary demand downturn, while also securing medium-and-long-term paths to growth. In

terms of identifying likely outperformance, this relates to both industry sub-sectors – discount retail over

convenience and off-trade alcohol drinks sales over on-trade – and to markets – private consumption-led

economies to outperform export-oriented economies. A key point to note, however, is that long term, the

EM consumer means that F&D remains a hugely exciting, high-growth and dynamic industry.

Table: BMI Food & Drink Core Views

Short-term Outlook

Consumer demand remains too weak to support a strong rebound in sector growth

Even in emerging markets, employment has lagged what remains a fairly benign recovery, weighing on demand growth

Commodity price volatility will continue to affect producer earnings; even as grains prices remain subdued, softs will remain volatile

Premiumisation will remain on hold

Private labels and off-trade alcohol drinks will outperform their respective sectors

Discount grocery retailers will continue to gain market share

Government fiscal policy – austerity – will be unsupportive of industry growth

Government monetary policy – the reduced likelihood of further rate hikes – will help limit demand destruction

Having scaled back capex in 2009, investment will return as producers look to secure future growth

Consolidation will continue as producers seek greater efficiencies

We continue to favour private consumption-led economies, over export-oriented states for consumer goods investment

Long-term Outlook

Companies with strong emerging market exposure will continue to outperform

Tension between producers and retailers will remain

Investment in innovation will increase as producers seek differentiation; emphasis will be placed on protecting innovations

Brand builders will continue to leave sectors under threat from private labels

Emerging market multinationals will increasingly pursue frontier market investments

Government legislation will play an increasing role in marginalising unhealthy food and beverage products; notably alcohol

Demand for convenience in retail and food will continue to grow

Functional foods will be the highest growth sector in developed markets

Beverage companies will continue to invest in diversification away from carbonated beverages and into healthier sub-sectors

Source: BMI



Western Europe Food & Drink Business Environment Ratings

The global financial crisis has had a substantial impact on consumption habits across Europe and so far

any signs of a recovery in consumer demand have been weak and faltering. BMI expects this weakness to

be prevalent in the second half of 2010 and into 2011, with any return in consumer optimism constrained

by fiscal austerity measures. However, despite this subdued short-term outlook some countries are

showing signs of emerging from the downturn more strongly than others and offering better long-term

growth opportunities. These contrasts are reflected in our Western Europe Risk/Reward Ratings with the

Netherlands and the UK judged to offer the greatest long-term value for investors and Greece, Ireland and

Italy offering the worst balance of risk to reward.

Risk vs Reward

Across Western Europe the recovery in spending has so far been weak and looks particularly fragile due

to the underlying problems of the eurozone debt crisis. Across the region unemployment has already

reached a 12-year high of

10.1%. However, the inflexible

nature of some of the region's

labour market means that the

consequences of the recession

could take a long time to unwind

and unemployment may well

continue to rise for many more

months. Fiscal austerity

packages have been approved

across the region - in total EU

governments have announced

public spending cuts of around

EUR200bn - but these are still in

the process of being

implemented and will put

downwards pressure on

consumer spending as they come

into force. In general we are expecting stagnation across the region in 2010 and then very modest growth

in 2011. However, with the full impact of the economic crisis still to be felt by consumers that have been

able to remain in employment, there are certainly risks to the downside for this view.

Netherlands In Front, Greece Well Back Western Europe Food & Drink Risk/Reward Ratings Q4 2010

Source: BMI. Scores out of 100, with 100 highest



In terms of risk the region as a whole scores well above the global average - a consequence of the

developed nature of the markets under scrutiny. However, it is notable that three of the so called PIIGs -

Ireland, Italy and Greece - all score well below the regional average, reflecting the continued risk posed

by these countries' significant economic and political issues.

UK and The Netherlands Top The Table

The Netherlands and the UK top our regional ratings. In both markets price-sensitivity remains an

important aspect of consumer behavior and a focus on price is likely to be a feature of the sector during

2010 and 2011. However, in both markets sales of food and drink items held up particularly well

during the downturn and are

expected to advance relatively

strongly as the European

region recovers. In addition, the

UK consumer is one of the most

enthusiastic in Western Europe,

and the food and drink industry

stands to benefit more strongly

than others from the eventual

rebound in regional growth.

Both markets are also judged

low risk places to do business;

this is largely thanks to a general

openness to trade and investment

while the food and drink-specific

risk factors are also judged

favourably, with few barriers to

entry, thanks to well-developed

infrastructures and a non-restrictive regulatory environment.

Spain is ranked third in our Western European ratings. A massive slump in its economy has put

significant pressure on spending and this is not expected to let up in the near term. However, the market

is judged to be less mature than others in our sample, resulting in more potential for growth and

translating into a stronger Reward rating. This is reflected in Spain's market entry potential, with

many opportunities for companies offering new value-added products to get their feet in the door, and

also by the continued investment into the market by large regional operators such as Carrefour and

Associated British Food.

Greater Reward Netherlands Risk/Reward Ratings vs Regional Average Q4

2010

Source: BMI. Scores out of 100, with 100 highest



France and Germany are placed fourth and fifth respectively in our Western European ratings. In both

countries, food consumption has been fairly stagnant over recent years when compared to some Western

European markets; consumers have embraced the discount retail format which has led to increased price

competition, lower prices and lower overall consumption. France and Germany are both economically

stable, modern democracies so neither is deemed to be particularly risky to operate in. However, both are

judged to be less market-orientated than the countries above them in our ratings, while both also have

very strong labour regulations, making it difficult to adjust employee numbers and giving unions

considerable power during wage and conditions negotiations.

Italy, Ireland And Greece Bring Up The Rear

The three countries at the bottom of our ratings are characterised by weak expected growth in

consumption and higher than average risk. In these markets the ongoing trend towards cheaper

options and move towards private label options is likely to continue throughout the majority of our

forecast period and be accompanied by a reduction in the consumption of discretionary items. We

are therefore expecting weakness across almost every sector, reflected in our updated forecasts.

Ireland is now sixth in our regional ratings with a deep recession having had a significant impact on food

consumption. Ireland's dire fiscal situation also means that it is judged to be fairly risky, when compared

to others in our Western European sample. Italy is now placed seventh in our ranking of Western

European countries. Although Italians generally spend a large proportion of their income on food and

drink, sector maturity means that the overall level of consumption has stagnated for several years and the

potential reward from any investment is judged to be only moderate. Italy is also judged to be

significantly more risky than the countries above it in our rankings, with the country judged to have

greater risk of experiencing an economic or financial crisis, while also being burdened by significant

corruption and bureaucracy. Greece has moved to the bottom of the pile in our latest update, weighed

down by the ongoing economic and political uncertainty caused by the country's dire fiscal situation. The

country's relatively small population and comparatively low GDP per capita place a limit on the potential

returns from any investment. Meanwhile, labour costs are high and the country's competitiveness is

weighed down by bureaucracy and red tape.



Table: Western Europe Food & Drink Risk/Reward Ratings Q4 2010

Reward Risk

Industry Reward

Country Reward Reward

Industry Risk

Country Risk Risk

Risk/ Reward Rating

Regional Ranking

Netherlands 68 63 65 75 77 76 68.6 1

United Kingdom 52 73 62 75 77 76 66.5 2

Spain 62 68 65 65 70 68 65.8 3

France 56 71 63 65 70 68 64.7 4

Germany 54 69 61 60 72 67 63.2 5

Italy 47 69 58 55 69 63 59.6 6

Ireland 59 59 59 50 66 59 59.2 7

Greece 41 57 49 65 62 63 53.1 8

Source: BMI. Scores out of 100, with 100 highest. The Food & Drink Risk/Reward Rating is the principal rating. It is comprised of two sub-ratings 'Reward' and 'Risk', which have a 70% and 30% weighting respectively.



Germany Food & Drink Business Environment Rating

Germany is ranked fifth in BMI’s Western Europe Food & Drink Risk/Reward Ratings. The country

achieved a fairly mediocre score of 61 for its Reward rating, suggesting that the market might be fairly

mature and that food consumption levels are not expected to grow very quickly. The country achieved a

reasonable score of 67 for its Risks to Realisation of Potential Returns rating, suggesting that there are not

many political, economic or industry-specific dangers or limits that might inhibit a company’s ability to

grow its profits in this market.

The country’s mediocre Reward rating stems mainly from the country’s very high maturity and low

market entry potential; for example, the German retail market is one of the most consolidated and

competitive in Western Europe, making any market entry for a new company almost impossible. The

market for many individual food and drink products is also very mature, for example volume sales of

carbonated drinks, beer, spirits and confectionery have been fairly stagnant for several years. The Reward

rating is also suppressed by the country’s relatively low food consumption growth rates. The amount

spent on food and drink has stagnated over the last few years, largely due to slow economic growth and

the rise in prominence of the hard discount retail sector, which has forced prices down. Over 40% of all

grocery shopping is now done at discounters.

The country’s reasonable Risk rating stems from Germany’s relatively loose regulatory environment and

low barriers to entry. The country is judged to be free of restrictive food and drink industry regulations

that may hinder a company’s progress in this market, and is also judged to be free of industry-specific

barriers to entry that would make it difficult for an outside investor to compete against local firms. The

rating is also buoyed by Germany’s stable currency, banking sector and low risk of inflationary pressure.

However, the rating is suppressed by the country’s high cost of labour, complex legalisation governing

employment and slight lack of openness to foreign investment and trade. Germany also has complex

safety and recycling standards, in addition to those of the EU, which are zealously applied and make trade

more difficult and costly.



Macroeconomic Outlook

2011 Slowdown, Lower Trend Growth Ahead

BMI View: While Germany's economy continues to fire on all cylinders, we believe that H110 will mark

the peak of the ongoing recovery. We caution that the anticipated slowdown in US and Chinese economic

activity will weigh on Germany's growth outlook through H210 and into 2011, suggesting to us that trend

growth will come in below the currently projected 2.0% real GDP growth rate for this year.

Germany's economic recovery is in full swing, as the improving domestic consumer climate and strong

foreign demand see the industrial sector firing on all cylinders. We reaffirm our above-consensus forecast

for 2.0% real GDP growth in Europe's largest economy this year. However, with the economy highly

geared towards the export sector, Germany remains vulnerable to cyclical downturns in global demand.

Given our three fundamental macroeconomic convictions of lacklustre eurozone demand, the fragile

nature of the US economic recovery, and the anticipated decline in Chinese activity in H210 and 2011, we

project German real GDP growth to peak this year and average a more moderate growth rate of 1.7% over

this decade.

Germany's economy remains in a robust state of expansion. Factory orders continue to pile in and the

output gap is rapidly narrowing. Indeed, Germany's Q110 GDP data largely corroborate this view, with

real GDP growing 0.2% (seasonally adjusted) over the previous quarter. In year-on-year (y-o-y) non-

seasonally adjusted terms, the German economy grew 1.7% in the first quarter of the year, marking the

first positive y-o-y growth reading since Q308. Though real household consumption and gross fixed

capital formation growth remained in negative territory during this period (-1.3% y-o-y and -1.1%

respectively), Germany experienced a marked improvement in export growth (7.5% y-o-y) in Q1,

outpacing the rise in imports (4.2%). This ties in nicely with our view that net exports will be the primary

driver of economic growth this year, contributing 1.1 percentage points (pp) to headline real GDP growth,

compared to a drag of 3.2pp on the headline number last year.

What is more, we expect household consumption and gross fixed capital growth formation to push back

into positive growth territory going forward, as domestic German demand lags the recovery in global

demand conditions. Germany's second quarter real GDP reading, therefore, is likely to remain robust, as

the recovery cycle peaks in H110. That said, we do not foresee a major boom in household spending any

time soon, and only project 0.5% real private consumption growth in 2010, up from a 0.2% contraction

last year, while gross fixed capital formation is set to grow at 1.0% this year, following a 9.0%

contraction in 2009.



Stronger domestic and external demand has already seen manufacturing order numbers soar, with the

three-month moving average seasonally adjusted monthly growth rate remaining in the high 2.0% range

in May. On a y-o-y basis, base effects are beginning to peter out, having soared to as high as 30.1% in

April and coming off the boil slightly in May to post 24.8% y-o-y growth. Particularly interesting is the

breakdown by origin of new factory orders in 2010. During the first four months of the year, domestic

orders were up 20.7% y-o-y, well below the 29.8% y-o-y increase in factory orders coming from across

Germany's borders. Of these, non-eurozone orders experienced the sharpest growth during this period,

climbing 34.1% y-o-y, compared with 24.5% from the eurozone.

This is hardly surprising, in our view, underpinning our belief that German industrial activity will be

driven by foreign demand for the country's high-end manufacturing exports. At a time when the

eurozone's economic recovery is stymied by ongoing household deleveraging and fiscal austerity

measures across the region, Germany's economy continues powers forward on the back of stronger

demand from abroad, particularly in China and the US.

German industrial production growth has also started to come off its April y-o-y high, expanding at a clip

of 12.4% y-o-y in May. Nevertheless, monthly industrial production growth continued to impress, rising

to 2.6% m-o-m (seasonally adjusted), from 1.2% in April, further underpinning our belief that Q2 will

mark another quarter of robust economic activity. Furthermore, we highlight that capacity utilisation in

the manufacturing sector continues to climb, hitting 79.9% in Q210 according to the Federal Ministry of

Economics monthly bulletin for July, up from 75.5% in Q110, and 73.1% back in Q409, which is likely

to be reflected in Germany's Q2 GDP reading released later this year.

Manage Your Expectations

For the time being, it appears that the ongoing recovery in German economic activity could have further

to run, as the Purchasing Managers Index survey remains elevated for both the services and

manufacturing sector, implying confidence in the ongoing recovery. Though manufacturing sentiment

appears to be cooling somewhat, the uptrend currently remains in place. Indeed, we believe that the

direction of this survey is closely tied to the aforementioned new factory order numbers that continue to

post strong growth for the time being.

However, heading into H210 we are beginning to factor in a slowdown in global economic activity and

see limited scope for domestic consumption to replace falling external demand. Deflationary pressures in

China's housing market and ongoing monetary tightening in the country will begin to feed through to

lower Chinese order numbers across the global economy. Combined with the anticipated decline in US

economic activity and scope for fiscal consolidation in 2011, we note that the outlook for robust non-

eurozone foreign manufacturing order growth is looking increasingly slim.



Indeed, this view seems to be corroborated by the Centre for European Economic Research (ZEW) economic

sentiment index, where the assessment of current conditions surprised to the upside in July, hitting 14.6, well

above the -1.2 expected in a Bloomberg survey for this period. While this reflects the sharp improvement in

Germany's economic situation, we note that the same ZEW survey continues to show a marked deterioration in

expectations for economic growth in July, with the index falling to 21.2 from 28.7 in June and 45.8 in May.

This assessment of Germany's economic situation and its outlook over the next six months seems to be echoed

by the Ifo business climate index – a monthly survey of roughly 7,000 firms in manufacturing, construction,

wholesaling and retailing. Assessment of the current situation has rebounded sharply, continuing to head higher

throughout the second quarter of the year – in line with our view that Q2 GDP will post another strong

performance. Meanwhile, the expectations index, which gauges business sentiment for the next six months, has

started to come in, resulting in the median business climate index beginning to flatten.

Looking at the balance value, which highlights the difference in percentages of responses ('good' and 'poor', or

'more favourable' and 'more unfavourable'), we see the business situation approaching positive territory, while

business expectations are beginning to head lower again. The two Ifo business climate charts, therefore,

reinforce our view that H210 will begin to mark a slowdown in the rate of Germany's economic expansion.

Domestic Picture Is Hardly Encouraging

Ongoing fiscal dynamics and the outlook for Germany's labour market suggest that private consumption will

remain subdued and the household savings rate elevated (by regional standards) – at 23.2% in Q1 compared

with 14.5% in France. With government stimulus measures also being retracted, we believe that the more

challenging external backdrop makes it highly unlikely that Germany's economy will grow at a faster pace over

the next few years than the 2.0% we have pencilled in for in 2010. Indeed, following the withdrawal of

Germany's car scrappage scheme in September 2009 (having been introduced in March of that year), new

vehicle registration numbers began to drop sharply, and y-o-y growth has since collapsed to -32.3% in June, as

the accompanying chart illustrates.

We are thus forecasting a slowdown in economic growth to 1.5% in 2011, with the combination of weaker

external demand, lower government spending and subdued private consumption – not least due to the

implementation of fiscal consolidation measures – paving the way for a more moderate expansionary path for

the German economy. Beyond the medium term, we believe that much will depend on Germany's ability to

cater to future demand from more vibrant emerging markets, where enormous infrastructural challenges

remain, and a more dynamic domestic consumer segment is turning increasingly more affluent, auguring well

for Germany's high-end car and high-quality engineering tools manufacturing sectors. Nevertheless, as outlined

previously, Germany's close trade integration with the eurozone means that a complete disconnect from the

economic trajectory in the bloc is unlikely, and we therefore do not expect a robust leg higher in real GDP

growth over our 10-year forecast horizon.



Germany – GDP By Expenditure

2007 2008 2009 2010f 2011f 2012f 2013f 2014f 2015f

Real GDP growth, % change y-o-y 1 2.5 1.3 -4.9 2.0 1.5 1.8 1.7 1.6 1.6

Private final Consumption Exp., EURbn 1 1,339.0 1,372.0 1,375.0 1,389.0 1,422.0 1,462.0 1,491.0 1,519.0 1,551.0

Private final consumption, US$bn 1 1,835.0 2,017.5 1,924.9 1,792.0 1,734.8 1,841.6 1,863.6 1,899.0 1,938.8

Private final consumption, EUR real growth % y-o-y 1 -0.4 0.3 -0.2 0.5 0.8 1.0 0.8 0.6 0.6

Government final. cons. exp., EURbn 1 436.0 452.0 473.0 485.0 500.0 514.0 524.0 536.0 549.0

Government final consumption, US$bn 1 597.0 664.1 662.4 625.8 610.0 647.5 654.6 669.6 686.4

Government final consumption, EUR real growth % y-o-y 1 1.7 2.0 3.4 2.0 1.5 1.0 0.7 1.0 1.0

Fixed capital formation, EURbn 1 455.5 474.7 430.6 437.3 452.8 468.6 482.2 496.7 512.6

Fixed capital formation, US$bn 1 624.4 697.8 602.9 564.1 552.4 590.5 602.8 620.8 640.7

Fixed capital formation, EUR real growth % y-o-y 1 5.0 3.1 -9.0 1.0 2.0 1.7 1.7 1.7 1.7

Exports of goods & services, EURbn 1 1,139.5 1,179.4 982.3 1,056.3 1,115.0 1,190.7 1,266.9 1,346.7 1,431.6

Exports of goods and services, US$bn 1 1,561.9 1,733.7 1,375.2 1,362.6 1,360.3 1,500.3 1,583.6 1,683.4 1,789.4

Exports of goods and services, EUR real growth % y-o-y 1 7.5 2.9 -14.5 7.0 4.0 5.0 5.2 5.0 4.8

Imports of goods & services, EURbn 1 967.8 1023.7 872.3 920.6 967.2 1,023.2 1,076.4 1,133.4 1,195.8

Imports of goods and services, US$bn 1 1,326.5 1,504.8 1,221.2 1,187.6 1,180.0 1,289.2 1,345.5 1,416.8 1,494.7

Imports of goods and services, EUR real growth % y-o-y 1 4.8 4.3 -9.5 5.0 3.5 4.0 4.0 4.0 4.0

Net Exports of goods & services, EURbn 1 171.7 155.7 109.9 135.7 147.8 167.5 190.5 213.3 235.8

Net exports of goods & services, US$bn 1 235.3 228.9 153.9 175.0 180.3 211.1 238.1 266.6 294.7

Net exports of goods & services, EUR real growth % y-o-y 1 26.0 -5.1 -45.5 27.9 8.3 13.2 14.2 11.8 9.9

Notes: f=BMI forecast. Source: 1 Eurostat/BMI



Industry Forecast Scenario

Consumer Outlook

German consumers are characterised

by high saving rates and extreme

price sensitivity and this, combined

with the rapid rise of the discount

sales channel, has led to low growth

in the food and drink sector over the

last ten years. In 2006 and 2007

there were signs this could start to

change, as demand for Germany's

technologically advanced exports in

rapidly industrialising emerging

markets pushed the country's rate of

GDP growth much higher than the

recent average; this economic

performance fed into consumer

confidence and pushed up spending. However, this was short lived, as the global financial crisis led to a

significant slowdown in the German economy, which damaged confidence and curtailed consumption

during 2008 and 2009. We expect economic growth to reach 2.0% in 2010, but in line with our global

outlook forecast growth remaining fairly muted from 2011 onwards (see chart 1). We therefore see only

modest growth in consumption going forward, with the German consumer to remain scarred by the

recent economic turbulence and price sensitivity to remain in evidence throughout our forecast

period.

Upturn In 2010

Germany's economic recovery is in full swing with base effects, the improving domestic consumer

climate and strong foreign demand all having a positive impact on growth. We are forecasting 2.0% real

GDP growth in Europe's largest economy in 2010 (see chart 1). However, with the economy highly

geared towards the export sector, Germany remains vulnerable to cyclical downturns in global demand.

Given our three fundamental macroeconomic convictions of lacklustre eurozone demand, the fragile

nature of the US economic recovery and the anticipated decline in Chinese activity in H210 and 2011, we

project German real GDP growth to peak in 2010 and to average a more moderate growth rate of 1.6%

from 2011 onwards.

Moderate Growth Beyond 2010

Germany Economic Forecasts

f = BMI forecast. Source: Eurostat, Bundesbank, BMI



To some extent the consumer confidence indicator reflects this view, with the latest survey showing that

the number of pessimists still outnumbers the number of optimists. However, confidence has improved

rapidly in a very short period of time and is currently above its average level of the last ten years (see

chart 2). This suggests that in spite of the travails afflicting the eurozone, German consumers have a

relatively optimistic view of the future, which should have a positive bearing on consumption. However,

we believe an improvement in consumer sentiment will not be enough to fully offset other factors

weighing on consumption and over our five year forecast period expect German consumption to be

negatively impacted by weak wage growth, a high savings rate and poor demographic trends.

Consumption Weighed Down By Wages, Saving And Demographics

Unlike the US and the UK, German unemployment has remained largely flat through the recession (see

chart 1), with German firms preferring to reduce working hours as opposed to carrying out dramatic jobs

cuts. However, a reduction in working hours has had a negative impact on income levels and means that a

sharp upside bounce post-crisis is unlikely. While we expect the aggregate wage numbers to improve on

the back of the export bounce, we think the prospect for a strong expansion of the labour force and wages

is limited.

We also expect saving (rather than

borrowing) to remain in evidence

over the forecast period. Despite

record low interest rates we believe

that demand for borrowing will stay

subdued on the back of the weak

labour market and the long-term

impact of the economic crisis on

consumer sentiment. These factors,

in addition to Germany's weak

demographic profile, mean that that

private final consumption is forecast

to grow by an average of just 0.7%

from 2010-2014 - a growth rate

reflected across the majority of our

food and drink forecasts.

Bouncing Back Germany Consumer Confidence

NB. Below 100 indicates pessimists outnumber optimists. Source: National Statstics Office



Our forecasts suggest that private final consumption is expected to lag growth in the wider economy over

our five year forecast period. In the food and drink sector one reason for this underperformance is the

continued growth of the discount retail sector. Hard discount retailers such as Lidl and Aldi sell food at

far lower prices than traditional supermarkets, hypermarkets and convenience stores, which introduces

price pressure throughout the retail sphere. Although discounters struggled somewhat during the mini

economic boom of 2006 and 2007, their market share is expected to continue to increase beyond 2010 as

a result of the long-term dampening effects of the downturn on consumer sentiment.

Risks To Outlook

As an export driven economy the major risk to our German outlook is the prospect of a more intense

slowdown in China than we are currently forecasting. Chinese demand for Germany's exports have

helped drive the country's recovery in 2010. However, overly accommodative fiscal and monetary stimuli

in China have led to an overheating that could result in a sharp withdrawal in 2011. Even if China

manages to avoid this scenario, we are projecting a slowdown in Chinese import levels towards the latter

stages of 2010, as Beijing recognises the need to rebalance the economy towards domestic consumption.

A second risk is the prospect of further instability in the eurozone as a result of the unsustainable debt

levels built up by some member countries. However, this brings with it the prospect of further weakening

of the euro which, given Germany's export orientated economy, would not be entirely unfavourable to

German economic growth and to our consumption expectations.

Food

Total Food Consumption

Measured in euros, BMI is predicting a

13.0% increase in total German food

consumption (food and drink, excluding

alcoholic drinks) over the next five years

to 2014, with much of the growth

forecast to come in the latter years.

Given that this is a nominal figure, it

represents low growth in real terms.

Because the German population is

relatively stable, per capita consumption

is expected to increase at almost exactly

the same rate. As a proportion of GDP,

total food consumption is expected to fall, reflecting the maturity of the market

Food Consumption

2006-2014

NB. nominal growth rate, excluding alcoholic drinks sales; e/f = BMI estimate/forecast. Source: Statistisches Bundesamt Deutschland, BMI



Table: Germany Food Consumption Indicators – Historical Data & Forecasts

2006 2007 2008 2009 2010e 2011f 2012f 2013f 2014f

Food consumption (EURbn) 114.0 118.4 124.9 126.6 129.1 132.7 136.9 140.1 143.1

Food consumption (US$bn) 167.5 174.0 183.6 177.2 166.6 161.9 172.5 175.1 178.9

Per capita food consumption (EUR) 1,383 1,439 1,521 1,546 1,582 1,629 1,685 1,728 1,770

Per capita food consumption (US$) 2,034 2,115 2,236 2,165 2,041 1,987 2,123 2,160 2,213

Total food consumption growth (y-o-y) 2.88 3.86 5.51 1.37 2.01 2.73 3.21 2.29 2.17

Per capita growth rate (y-o-y) 2.00 3.00 4.71 0.67 1.31 1.97 2.46 1.55 1.44

Food consumption as % GDP 4.90 4.87 5.00 5.26 5.26 5.25 5.23 5.20 5.17

NB. nominal growth rate, excluding alcoholic drinks sales; exchange rate varies with year; e/f = BMI estimate/forecast. Source: Statistisches Bundesamt Deutschland, BMI

Confectionery

Data from the Association of the German Confectionery Industry reveals that in 2009 per capita

consumption of chocolate confectionery declined by 3.5% in volume terms and by 0.9% in value terms, to

reach 8.94kg and EUR46 respectively. In previous years levels of consumption have fluctuated between

expansion and contraction, indicating that the sector has largely been tied to the strength of the overall

economy and that the market is mature. Therefore, with German economic growth forecast to remain

subdued , sales are not expected to grow quickly in the short term. By 2014 sales are expected to rise

marginally by 3.1% to reach EUR4.0bn.

In 2007, per capita consumption of sugar confectionery declined by 6.8% in volume terms and 4.6% in

value terms to lie at 5.63kg and EUR19 respectively. Sales have been in long-term decline due to the

ageing of the German population (the majority of sugar confectionery is consumed by children) and

increased health-consciousness, which has pushed consumers towards healthier options including sugar-

free chewing gum. Over the next five years this trend is expected to continue, with sugar confectionery

sales falling by around 4% by 2014.



Although the chewing gum sector has registered fairly stagnant growth over the last five years, going

forward, it is expected to be a beneficiary of the decline in sugar confectionery consumption. The sector is

also expected to benefit from the increased popularity and availability of functional varieties. In this

context, sales of chewing gum are forecast to rise by 5% over the next five years to reach EUR409mn in

2014.

Table: Confectionery Value/Volume Sales - Historical Data & Forecasts

2006 2007 2008 2009 2010e 2011f 2012f 2013f 2014f

Confectionery sales (000 tonnes) 838,412 834,220 837,972 823,323 826,423 830,849 836,033 841,213 846,156

Confectionery sales growth, tonne, (y-o-y) -0.50 -0.50 0.45 -1.75 0.38 0.54 0.62 0.62 0.59

Chocolate confectionery sales (EURmn) 3,696 3,770 3,885 3,900 3,925 3,953 3,978 4,001 4,021

Sugar confectionery sales (EURmn) 1,316 1,259 1,227 1,188 1,168 1,160 1,151 1,143 1,134

Chewing gum sales (EURmn) 368.6 376.0 387.4 389.7 393.1 397.6 402.1 405.9 409.2

Total confectionery sales (EURmn) 5,381 5,405 5,499 5,478 5,486 5,510 5,531 5,550 5,564

Confectionery sales growth, EUR, (y-o-y) -4.31 0.44 1.75 -0.37 0.14 0.44 0.39 0.34 0.25

Chocolate confectionery sales (US$mn) 5,433 5,542 5,711 5,461 5,063 4,822 5,012 5,002 5,026

Sugar confectionery sales (US$mn) 1,935 1,850 1,803 1,663 1,507 1,415 1,451 1,428 1,418

Chewing gum sales (US$mn) 541.9 552.7 569.4 545.6 507.1 485.0 506.6 507.4 511.5

Total confectionery sales (US$mn) 7,910 7,945 8,083 7,670 7,077 6,722 6,969 6,938 6,955

NB. nominal sales values; e/f = BMI estimate/forecast. Source = Association of the German Confectionary Industy (BDSI), BMI

Drink

Soft Drinks And Bottled Water

Data from the German Association of Alcohol-Free Beverages (WafG) reveals that the carbonated soft

drink market can be characterised as mature but, unlike in some other developed states, the market has not

shown any signs of contraction. BMI is currently forecasting that the value of the carbonated soft drink

market will stagnate for the next five years, neither growing nor shrinking to any great extent.



In the past few years, sales of bottled water and ready-to-drink (RTD) tea and coffee have registered

consistent growth. In the five years to 2008, sales of bottled water in volume terms increased by nearly

20% representing a compound annual growth rate (CAGR) of around 4%. Over the same period sales of

RTD tea and coffee in volume terms increased by nearly 30%, representing a CAGR of over 6%. Both of

these sectors have benefited from the stagnation in the carbonated soft drinks sector and the perceived

health benefits of drinking water and tea.

BMI is not expecting this level of growth to have been replicated in 2009 due to a reduction in consumer

spending. However, over the long term we expect this growth to continue, with bottled water sales in

volume terms expected to increase by 10.1% over the five years to 2014, and RTD tea and coffee volume

sales expected to increase by 9.7% over the same period.

Meanwhile, sales of juice and juice drinks have fluctuated over the last five years, but generally moved in

an upwards direction. In the long term we expect continued growth in this sector, thanks to the healthy

image of juices, but in the short term sales are expected to stagnate as discretionary spending takes a hit.



Table: Soft Drink Value Sales - Historical Data & Forecasts

2006 2007 2008 2009 2010e 2011f 2012f 2013f 2014f

Carbonated soft drinks (EURmn) 3,045 3,069 3,106 3,122 3,151 3,193 3,244 3,281 3,318

Fruit juice, juice drinks (EURmn) 712.3 716.0 721.7 724.1 728.1 733.9 741.6 747.7 753.2

RTD Tea and Coffee (EURmn) 187.9 194.5 204.9 211.0 220.7 232.2 245.9 255.6 265.6

Bottled water (EURmn) 2,296 2,346 2,423 2,452 2,520 2,601 2,699 2,771 2,841

Total soft drinks sales (EURmn) 6,241 6,325 6,456 6,509 6,620 6,761 6,931 7,056 7,179

Total soft drink sales growth, EUR, (y-o-y) 2.26 1.36 2.07 0.81 1.71 2.13 2.52 1.81 1.74

Carbonated soft drinks (mn litres) 6,852 6,983 7,053 6,780 6,826 6,909 7,002 7,091 7,180

Fruit juice, juice drinks (mn litres) 4,607 4,614 4,626 4,603 4,607 4,613 4,621 4,629 4,636

RTD Tea and Coffee (mn litres) 686.1 708.6 720.8 673.3 680.5 695.8 710.7 723.6 738.7

Bottled water (mn litres) 11,556 11,946 12,158 11,335 11,467 11,732 11,991 12,213 12,475

Total soft drinks sales (mn litres) 23,701 24,251 24,558 23,392 23,580 23,950 24,324 24,657 25,030

Total soft drink sales growth, litre, (y-o-y) 2.55 2.32 1.27 -4.75 0.80 1.57 1.56 1.37 1.51

Carbonated soft drinks (US$mn) 4,476 4,512 4,566 4,370 4,064 3,896 4,088 4,102 4,148

Fruit juice, juice drinks (US$mn) 1,047.1 1,052.6 1,060.9 1,013.8 939.3 895.4 934.4 934.7 941.6

RTD Tea and Coffee (US$mn) 276.2 286.0 301.2 295.5 284.7 283.3 309.8 319.5 332.0

Bottled water (US$mn) 3,375 3,448 3,562 3,432 3,251 3,174 3,401 3,464 3,552

Soft drinks sales (US$mn) 9,174 9,298 9,490 9,112 8,539 8,248 8,733 8,820 8,973

NB. nominal growth rate; exchange rate varies with year; e/f = BMI estimate/forecast. Source: Association of Alcohol Free Beverages (WafG) (2002-2006), BMI



Alcoholic Drinks

Alcoholic drinks are expected to demonstrate a mixture of performance trends over the next five years,

with sales of wine and spirits both expected to gradually increase, but with beer sales predicted to

continue falling in volume terms but show a rise in value terms. The German Federal Statistical Office

(Destatis) has reported that beer sales in Germany totalled 100mn hectolitres (hl) in 2009. The figure was

down by 2.9mn hl from the previous year, a fall of 2.8%. Sales have fallen every year since Germany

hosted the 2006 World Cup but the decline in 2009 was the sharpest fall for 11 years.

Germans consume the second largest

amount of beer per capita in the world,

behind the Czechs, but sales have been

steadily declining over the past 10 years.

A health-conscious population is

increasingly favouring non-alcoholic

drinks or, when they are drinking alcohol,

are opting for wine, which has fewer

calories and offers health benefits from

antioxidants. The population is also

ageing and consumers generally tend to

drink less alcohol as they get older.

Younger drinkers are opting for

alternative alcoholic drinks such as

cocktails and spirits with mixers. These factors were compounded in 2009 by the economic downturn,

with the German economy posting its worst real GDP growth outturn since World War II

We expect real GDP growth to return in 2010. However, the social factors driving a downturn in beer

consumption will still be present, meaning that beer sales are likely to continue falling during 2010, albeit

not at the same rate as 2009. BMI expects this trend to continue over the forecast period with value sales

dropping by 4% to 2014. However, the value of beer sold is expected to decline less quickly than the

volume as beer manufacturers raise prices in line with rising costs and to offset declining sales.

Over the past five years, sales of wine in Germany have increased by 11.1% and BMI is forecasting

strong value sales growth of 9.5% to EUR3.5n in 2014. Over half of the wine consumed in Germany is

domestically produced and this figure is expected to rise as Germany’s wine industry continues to market

itself successfully. However, although wine can be expected to continue to erode the market share of beer

– and to some extent spirits – over the forecast period, a heavy reliance on the discount sector to fuel sales

means that low prices are likely to remain a predominant feature of the German wine sector. Value sales

Alcoholic Drinks Indicators (EURmn)

2006-2014

e/f = BMI estimate/forecast. Source: Federal Statistics Office, Deutscher Brauer-Bund, Federation of German Food and Drink Industries, BMI



growth in the wine industry will be to some extent hindered by the reliance on shifting large volumes of

low-priced wine.

Industry sources estimate that the off-trade accounts for roughly 82% of wine sales in volume terms in

Germany with on-trade sales taking the remaining 18%. In the off-trade segment, about one-fifth

comprises direct sales from wineries. Another 10% is made through specialist wine shops with the

remaining 70% share sold through grocery retail outlets. Discounters in particular are important in this

area with Aldi classified as the largest wine retailer in the country. Evidence from the trade points to the

fact that the share of wine sales accounted for by grocery outlets continues to grow.

Meanwhile, the German spirits industry looks set to continue benefiting from its appeal to two age sectors

of the market: the over 55 year-olds, a growing population segment for whom many premium spirits are

seen as a sophisticated drink of choice, and younger drinkers, for whom vodka and imported spirits are

sold in stylish bottles and at fashionable establishments. For this sector BMI is forecasting value sales of

spirits to increase by 6.6% over the next five years to reach EUR4.0bn.

Table: Alcoholic Drink Value/Volume Sales - Historical Data & Forecasts

2006 2007 2008 2009 2010e 2011f 2012f 2013f 2014f

Alcoholic drink sales (mn litres) 825,000 829,200 831,426 822,631 824,349 827,009 830,123 833,234 836,204

Alcoholic sales growth, litres, (y-o-y) 3.01 0.51 0.27 -1.06 0.21 0.32 0.38 0.37 0.36

Alcoholic drinks sales (EURmn) 13,047 12,990 13,149 12,846 12,830 12,911 13,016 13,079 13,143

Alcoholic sales growth, EUR, (y-o-y) 1.57 -0.44 1.23 -2.30 -0.12 0.63 0.81 0.49 0.49

Beer sales (EURmn) 6,272 6,146 6,202 5,862 5,772 5,730 5,688 5,645 5,603

Wine sales (EURmn) 3,111 3,142 3,190 3,201 3,234 3,304 3,388 3,448 3,508

Spirits sales (EURmn) 3,665 3,702 3,758 3,782 3,824 3,877 3,941 3,986 4,033

Alcoholic drinks sales (US$mn) 19,179 19,095 19,329 17,985 16,551 15,752 16,400 16,349 16,429

Beer sales (US$mn) 9,219 9,035 9,117 8,207 7,446 6,991 7,166 7,057 7,004

Wine sales (US$mn) 4,573 4,619 4,689 4,482 4,172 4,031 4,268 4,310 4,385

Spirits sales (US$mn) 5,387 5,441 5,524 5,295 4,933 4,730 4,965 4,982 5,041

e/f = BMI estimate/forecast. Source: Federal Statistics Office, Deutscher Brauer-Bund, Federation of German Food and Drink Industries, BMI



Hot Drinks

Germany’s coffee industry association has announced that coffee sales in the country increased by 1.4%

in 2008 to reach 519,160 tonnes. The increase follows a period of stagnation (in 2007 sales increased by

just 0.3%), and has been attributed to new fashionable coffee drinks and a rising number of coffee shops.

Although Germany is one of Europe’s largest coffee markets, per capita consumption of coffee has been

in decline over the last 15 years. According to the German Coffee Association, per capita consumption in

2007 stood at around 6.2kg a year, representing a 20% decrease since 1992. This fall can be attributed to

similar factors that have caused a decline in the country’s beer consumption – coffee is often seen as

unfashionable and unhealthy, particularly among many of the country’s younger consumers.

However, this is now starting to change and coffee is managing to shake off this image, thanks to the rise

in popularity of espresso coffee and US-style coffee chains. US firm Starbucks entered Germany in 2002

and now operates 119 coffee shops in more than 15 cities, while in 2008 production of espresso-type

coffee rose by 20% to reach 26,000 tonnes.

Coffee pods and coffee in RTD capsules, such as Nestlé’s Nespresso – which can easily replicate the

experience of espresso coffee in the home – are also gaining popularity as the necessary equipment

becomes more widespread. The improving image of coffee has also boosted sales of traditional instant

coffee, with sales in 2008 rising by 3.5% in value terms.

We expect this process to continue as the coffee shop and espresso culture continues to spread. BMI is

therefore forecasting that the rise in sales in 2008 is the start of a sustained period of growth and that the

industry will grow by 12.1% in local currency terms in the five years to 2014. T

he principal factor that could prevent this growth being realised is the economic downturn. However, in

July 2009, the chief executive of Germany’s coffee industry association DKV, Holger Preibisch, reported

that retail coffees are stable this year despite the economic slowdown. According to Preibisch, German

retail coffee trends seen in recent years continued in 2009, with strong growth being experienced in

espresso drinks and single portion coffee drinks. Espresso sales had risen 20% on the year in 2008 partly

because of increased popularity of drinks such as latte, macchiato and cappuccino in cafes for which

espresso is the basis. Sales of new generations of automatic coffee machines for both household and

catering use was also boosting demand for single portion drinks.



Table: Hot Drink Value Sales - Historical Data & Forecasts

2006 2007 2008 2009 2010e 2011f 2012f 2013f 2014f

Coffee sales (EURmn) 4,580 4,580 4,657 4,669 4,732 4,864 5,017 5,126 5,235

Coffee sales (US$mn) 6,732 6,732 6,846 6,537 6,105 5,934 6,322 6,408 6,544

Tea sales (EURmn) 214.3 223.1 229.3 232.0 237.8 248.1 259.3 266.5 274.7

Tea sales (US$mn) 315.0 328.0 337.0 324.9 306.8 302.7 326.7 333.1 343.3

e/f = BMI estimate/forecast. Source: Federal Statistics Office, Federation of German Food and Drink Industries, BMI

Mass Grocery Retail

The recent financial turbulence and the economic downturn have once again sent consumer confidence

plummeting, pushing German consumers back into the arms of the discounters. Nevertheless the strong

performance of German supermarkets in 2006 and 2007, which came after more than a decade of stagnant

sales and declining market share, seems to have offered a ray of hope to beleaguered supermarket

operators and suggests that the discount format will not remain in ascendance in perpetuity.

BMI is currently forecasting that German GDP growth will pick up again in 2010. The last economic

cycle suggests that it takes around a year for consumer confidence to return after the economy picks up.

This means that the supermarket sector could struggle up until at least 2011. Despite this, BMI thinks it

would be foolish for any retailer to cut investment in the supermarket sector, as retail sales from 2006 and

2007 clearly reveal that once the economy starts to pick up it could be the discount format that faces a

tough time.

We predict that MGR sales will reach EUR168bn by the end of our forecast period in 2014 – an increase

of 22% from 2009. Despite the recovery of the supermarket and hypermarket format in 2006 and 2007,

discount stores are predicted to continue to dominate in terms of overall growth up until 2014.

Over the period 2009-2014, discount store sales are forecast to grow by a massive 29% to EUR71.6bn.

This growth will be largely fuelled by new store openings, with traditional MGR operators such as Edeka

and Rewe, as well as discount veterans Aldi and Lidl, all keen to stake their claim in the discount sector

through new stores.

The sales growth of the other formats over the forecast period will be modest by comparison. Sales at

supermarkets are forecast to grow by 17% over the next five years, reaching EUR37.2bn by 2014. Sales

at hypermarkets are forecast to increase by 15% over the next five years to reach EUR36.6bn by 2014.



Table: Germany MGR Sector - Sales Value by Format - Historical Data & Forecasts

2006 2007 2008e 2009f 2010f 2011f 2012f 2013f 2014f

Supermarkets (EURbn) 29.09 30.25 31.30 31.68 32.34 33.50 35.05 36.03 37.16

Hypermarkets (EURbn) 30.00 30.75 31.29 31.82 32.49 33.54 34.79 35.69 36.61

Discount stores (EURbn) 48.91 51.56 54.15 55.38 57.67 61.21 65.45 68.53 71.60

Convenience stores (EURbn) 17.21 17.82 18.44 18.72 19.27 20.16 21.05 21.86 22.50

Total mass grocery retail sector (EURbn) 125.2 130.4 135.2 137.6 141.8 148.4 156.3 162.1 167.9

Total mass grocery retail sector growth, EUR, (y-o-y) 4.24 4.13 3.67 1.79 3.04 4.68 5.35 3.69 3.55

Supermarkets (US$bn) 42.76 44.47 46.01 44.35 41.72 40.87 44.16 45.04 46.45

Hypermarkets (US$bn) 44.10 45.20 46.00 44.54 41.91 40.92 43.84 44.61 45.76

Discount stores (US$bn) 71.90 75.80 79.60 77.53 74.40 74.68 82.47 85.66 89.50

Convenience stores (US$bn) 25.30 26.20 27.10 26.20 24.86 24.60 26.53 27.32 28.12

Total mass grocery retail sector (US$bn) 184.1 191.7 198.7 192.6 182.9 181.1 197.0 202.6 209.8

e/f = BMI estimate/forecast. Source: Federal Statistics Office, HDE, Federation of German Food and Drink Industries, BMI

Trade

Germany is a net-importer of food and

drink. This is largely due to the inability

of German agriculture to supply

sufficient quantities for the comparatively

large German population.

Over the forecast period to 2014,

Germany’s food and drink trade balance

is to become less negative with exports

set to climb by a slightly higher amount

than imports, with specific high-value

product ranges, such as the high-growth

organic food industry, contributing

considerably on the export side.

Food and Drink Trade Balance (US$mn)

2006-2014

-80,000

-60,000

-40,000

-20,000

0

20,000

40,000

60,000

80,000

2006

2007

2008

e

2009

f

2010

f

2011

f

2012

f

2013

f

2014

f

Exports Imports Balance

e/f=BMI estimate/forecast. Source: United Nations Conference On Trade and Development (up to 2006), BMI



Food

Industry Trends And Developments

More Retailers Embracing Private Labels

At the end of 2009 German wholesaler Metro Cash & Carry unveiled a revamped private label range as

it seeks to adjust its offering in response to the downturn. Metro has revealed it will now sell six private

label lines – ranging between the entry-level Aro brand to the high-end Fine Food brand – and claims the

products will be 10-20% cheaper than similar branded products. Metro currently generates 10% of its

revenues from the private label segment and has set a target of increasing the share to 20% by 2012. The

move comes as German retailers are increasingly putting weight behind their private label lines to attract

price-savvy shoppers away from the discount format.

Western Europe leads the way in private label consumption and includes nine of the top 10 countries in

terms of private label sales as a proportion of total retail sales. Within Europe, Switzerland is the country

most dominated by private labels; they account for 54% of the market. Of the four largest economies, the

UK comes top of the list with 48% of products sold under private labels. Germany is not far behind with

40% of the market accounted for by private labels. However, this is largely down to the success of the

discount format and many of Germany's other retailers have been slow to embrace the segment. This is

demonstrated in Metro's results, with the firm only generating 10% of its revenues from the private label

sector.

This has meant that the proportion of products sold under private labels in Germany has stagnated over

the last three years, while in nearly every other European country it has advanced. Yet there are now clear

signs that this is set to change, with Germany's major retailers such as Metro, Edeka and Rewe all

increasing their focus on the segment. While large retailers in other European countries have for a long

time capitalised on the strength of their brand this strategy has only just been embraced in Germany.

'We've had our own brands for years, but we are now pushing them a lot more - they are one of our

business cards' said a spokesperson for Edeka recently.

Although bringing benefits to mass grocery retailers in terms of sales and margins, this trend is rightly

viewed with apprehension by manufacturers of branded products who face a significant threat to their

market share. In response manufacturers have ploughed more money into innovation to keep a clear

divide between what they are offering and what private label brands can offer. This strategy has had some

success in slowing the rise of private label products; however, with retailers across Europe now upping

their own pace of innovation and in a strong position to quickly recognise changes in consumption thanks

to their unique access to sales data, the continued rise of private label products in Germany and elsewhere

looks inevitable.



At the end of March 2010, Anglo-Dutch consumer goods giant Unilever announced the sale of German

cheese-spread brand Brunch to French cheese-maker Bongrain. Financial details have not been disclosed

but Bongrain already acts as a manufacturer for the product, so the deal should be relatively straight

forward to implement. The move fits with our core view that major brand builders will focus on brands

less exposed to the threat from private labels and concentrating on products where their research and

marketing resources give them more of a competitive advantage.

Organic Sector Resilient

Figures from the German organic food federation, BOLW, suggest that the sector stagnated in 2009 but

did not experience a significant decline. The organisation reported that organic sales came in at about

EUR5.85bn for the year, which was ‘slightly less’ than in 2008. The small fall was attributed to price and

range reductions in discount stores – a strategy implemented to help prop up volumes. This stagnation

follows strong growth in 2008 but with the economic and consumer environment starting to improve,

BMI believes the sector can be expected to deliver market beating growth in the coming years.

Germany is the largest market for organic products in Europe and figures from Bonn-based research

group ZMP show that between 2002 and 2008 organic food consumption in the country doubled. In

2007, sales grew by 15% and this continued into 2008, when sales increased by a further 10%. The slight

drop in sales in 2009 comes against a very weak economic backdrop, with GDP contracting by 5% and

unemployment rising by 1.7 percentage points to 9%. Against this backdrop, the organic sector can be

said to have performed well – particularly given its premium position, which made it potentially

vulnerable to the trading down trend across all developed markets.

This resilience can be attributed to the fact the German organic market is very well established and the

benefits of organic farming are heavily ingrained into the psyche of German consumers, supported by the

active interest German retailers have taken in the sector. All of the major retailers offer organic private

label products and several firms have even developed store formats that exclusively sell organic products.

In 2005, Rewe launched a store selling only organic products under the banner Vierlinden and Schwarz

Group, the owner of discount chain Lidl, has made a play by taking a stake in organic supermarket chain

Basic.

These investments mean that organic products are available across a range of price levels and this is

surely one of the reasons why the sector has suffered less during the downturn than in countries where the

organic sector is less developed. This, combined with the rapid growth of the sector leading up to the

downturn, is why we are confident that demand will rapidly return once consumer confidence picks up.



Market Overview

Food Sector

The largest industry subsector in the German food and drink industry is meat and poultry processing,

which accounts for around 26% of the entire industry. The dairy industry is the second-most important

sector (worth around 13% of the total). Other important sectors include bread and baked goods (11%),

alcoholic beverages (7.8%), confectionery products (4.5%), fruit and vegetable processing (4.6%), and

the production of mineral waters and soft drinks (3.7%). The value of fish processing and the preserving

of fish and fish products amounts to 1.2% of Germany’s food production industry. Meanwhile, the

German market for organic food is estimated to be worth approximately EUR4.5bn (representing around

2.8% of the total food and drink production industry). The German food industry is highly developed,

with German manufacturers maintaining a dominant position domestically and a strong position in export

markets worldwide. It is the fourth-most important industry in Germany. Growth over recent years has

been achieved mostly through the development of new market segments, including products for particular

age groups, or lifestyle products in line with trends such as fitness and wellbeing. Growth prospects have

also been seen increasingly in export markets, which currently account for around 17% of sales.

Prepared Food

An increasing number of single-person households and the growing number of working women have led

to the demand for convenience food steadily increasing in recent years. Coupled with this is increasing

health consciousness, which is having a considerable influence on German eating habits.

Although multinational companies such as Nestlé and Unilever dominate the German food and drink

industry, the market leader is the Oetker Group, a diversified conglomerate with interests including food

processing and soft and alcoholic drink production. The Dr Oetker brand occupies a leading position in

the local food industry and has become a common brand internationally.

In August 2009, Nestlé announced its intention to increase its stake to 74% in Germany-based frozen

pizza company Wagner Tiefkuhlprodukte with effect from January 1 2010, provided the German

market regulators' approve. Nestlé held a 49% stake in the company, which it acquired on January 1 2005.

Organic

Germany is the largest market for organic products in Europe, and a new report from Bonn-based

research group ZMP reveals that, in the last six years, organic food consumption in the country has

doubled. This has created opportunities for the country’s food producers and retailers, with organic

products often generating substantially higher margins than their non-organic equivalent.



Figures from the German organic food federation, BOLW, suggest that the sector stagnated in 2009 but

did not experience a significant decline. The organisation reported that organic sales came in at about

EUR5.85bn for the year, which was 'slightly less' than in 2008. The small fall was attributed to price and

range reductions in discount stores – a strategy implemented to help prop up volumes. This stagnation

follows strong growth in 2008 but with the economic and consumer environment starting to improve,

BMI believes the sector can be expected to deliver market beating growth in the coming years.

In 2007, sales grew by 15% and this continued into 2008, when sales increased by a further 10%. The

slight drop in sales in 2009 comes against a very weak economic backdrop, with GDP contracting by 5%

and unemployment rising by 1.7 percentage points to 9%. Against this backdrop, the organic sector can

be said to have performed well – particularly given its premium position, which made it potentially

vulnerable to the trading down trend across all developed markets.

Despite the fact that Germany is one of the most well-established markets for organic produce in Europe,

it is only in the last few years that the country’s larger producers and retailers have paid the sector serious

attention. Frozen food specialist Frenzel Austria Frost is a conventional producer that has invested to

become an organic specialist. The firm now supplies private label organic vegetables, fruit and ready-

meals to retailers such as Rewe and Aldi. Pretzel producer Ditsch is another German firm that now offers

a substantial organic range with plans to extend organic offerings over the coming year. With

multinational firms such as Nestlé and Unilever also starting to offer organic versions of their best-known

products, the organic industry is clearly no longer a niche market.

With major producers now jumping on the organic bandwagon, the prospects for smaller, more

specialised producers looks less certain. Firms such as Bio-Zentrale, which has been selling organic

produce for over thirty years, but still has a relatively modest turnover, could face being crowded out of

the market. Until now, specialist organic producers have had a competitive advantage because of the

relatively small number of firms offering organic products.Yet if multinational firms leverage their scale

advantage to offer cheaper organic products, smaller organic producers may start to fall by the wayside.

Germany’s retailers are also taking more than a passing interest in the organic sector. All of the major

retailers offer organic private label products, and several firms have even developed store formats that sell

exclusively organic products. In 2005, Rewe launched a store selling only organic products under the

banner ‘Vierlinden’, and even Schwarz Group, the owner of discount chain Lidl, has made a play,

taking a stake in organic supermarket chain Basic.

These investments mean that organic products are available across a range of price levels and this is

surely one of the reasons why the sector has suffered less during the downturn than in countries where the

organic sector is less developed. This, combined with the rapid growth of the sector leading up to the

downturn, is why we are confident that demand will rapidly return once consumer confidence picks up.



Dairy

Dairy products retain a high prominence within German diets, despite the dramatic changes that German dairy

production has seen in recent years. While the volume of German milk production has generally demonstrated

an upward trend since 2001, the value of milk production has, until recently, continued to display marginal

decline. The sector has seen a considerable degree of consolidation, and while output has grown, the number of

individual businesses producing this output has actually decreased. To offset the risk of long-term decline,

German dairy processors have been seeking ways of differentiating themselves, with strategies such as product

innovation being a focus.

The superior state of Germany’s dairy industry has helped to offset the problem of competition from the new

EU states in Eastern Europe. It had been feared that a flood of cheap imports from Eastern Europe would

reduce demand for German dairy. However, the trend has actually gone the other way, with Eastern European

consumers demanding German dairy products, which are perceived by some to be better quality. Increasingly,

it is China which is fuelling the demand for EU and, especially, German milk. This demand has led to

considerable price increases, not just of milk, but also of other dairy products such as butter and cheese.

Although German dairy farmers would like to increase production to cope with the current shortfall, they are

prevented from doing so by EU milk quotas, imposed in 1984 and in force until 2015. Instead, German dairy

farmers have taken the obvious step of putting up their prices, which they have long claimed were artificially

low.

In June 2009, the president of the association of German farming cooperatives, Manfred Nuessell, said that

German milk prices are likely to remain low and more emergency aid is needed for dairy farmers. According to

Nuessell, Germany's milk market remains in serious oversupply, partly because of EU reforms and partly

because of weaker demand. A month earlier, the German Federal Dairy Farmers Association (BDM), together

with other European dairy farmers represented by the European Milk Board (EMB), called for a series of short-

term measures that will sure up milk prices. These include establishing European quota reserves and freezing

the planned quota increase. In the longer term, the EMB has also suggested a number of other policies that it

believes will realign the relationship between supply and demand, such as the creation of a legal basis for the

‘amalgamation’ of milk producers and the establishment of producer-financed levies.

In 2006, around 250 innovations appeared in the German dairy sector, from brand new products, eg flavoured

cheeses and innovative dairy drinks promising health and wellness benefits, to new packaging solutions, eg re-

sealable packs to cater for the rising number of single person households. The emphasis on dairy product

innovation has, in part, been fuelled by the growth of Germany’s huge discount retail sector. Consolidation and

the creation of larger companies with higher development budgets have been viewed as essential survival

strategies. Dairy processors have already passed on the effect of rising manufacturing costs to dairy farmers

and this has resulted in a distinct cooling of relations between the two parties. For their part, dairy processors

have had to absorb the tight margins associated with low price sales in the discount channel. Increasingly

however, it appears that dairy farmers are responding to the recent upsurge in demand for milk exports with

their own price rises.



Drink


Domestic Wine Demand Resilient

Privately owned German wine and spirit producer Henkell & Co. Sektkellerei reported an

increase in sales during 2009, with turnover up by 5.8% to EUR628.6mn and volumes up by 8%

to 19.8mn. Henkell, which derives 66% of its sales from sparkling wine, attributed its results to

strong domestic demand and international expansion, with acquisitions in Poland, Slovakia and

Italy. During the year the firm is likely to have benefitted from a drop in demand for champagne

and an increased demand for cheaper substitutes, such as sparkling German wine

Henkell reports that sales at its sparkling wine unit grew by 7.8% to 13.2mn cases, driven by

demand for its portfolio of sparkling German wines that includes Henkell Trocken and

Kupferberg Gold. This growth comes during a year when producers of its more expensive

French cousin, Champagne, have reported falling sales and a substitute effect is likely to be part

of the reason behind this strong growth. A similar phenomenon has been witnessed in Spain and

Italy, with sales of Cava and Prosecco growing significantly during 2008 and 2009 against a

weak economic backdrop.

Henkell also reported strong growth at its still wine unit, where sales increased by 11.4% to

2.8mn cases. Both parts of the business will have been aided by a gradual shift from beer to wine

among the German population. Over the past five years, sales of wine in Germany have

increased by 11.1% and BMI is forecasting strong value sales growth of 15% to EUR3.4bn in

2014. This growth can be partly attributed to the successful marketing efforts of the domestic

wine industry. Over half of the wine consumed in Germany is domestically produced and this

figure is expected to rise as Germany’s wine industry continues to engender itself to consumers.

However, Although wine can be expected to continue to erode the market share of beer – and to

some extent spirits – over the forecast period, a heavy reliance on the discount sector to fuel

sales means that low prices are likely to remain a predominant feature of the German wine

sector. Value sales growth in the wine industry will be to some extent hindered by the reliance

on shifting large volumes of low-priced wine. This may partly explain why Henkell’s volumes

increased at a faster rate than its revenues in 2009, with the economic downturn meaning that

pricing pressure remained a key factor throughout the year.



Falling Beer Demand Driving Consolidation

TheGerman Federal Statistical Office (Destatis) has reported that beer sales in Germany totalled

100mn hectolitres (hl) in 2009. The figure was down by 2.9mn hl from the previous year, a fall

of 2.8%. Sales have fallen every year since Germany hosted the 2006 World Cup but the decline

in 2009 was the sharpest fall for 11 years. With consumption on a steady downwards path, there

is significant overcapacity in the sector that will continue to push the industry towards

consolidation.

Germans consume the second largest amount of beer per capita in the world, behind the Czechs,

but sales have been steadily declining over the past 10 years. A health-conscious population is

increasingly favouring non-alcoholic drinks or, when they are drinking alcohol, are opting for

wine, which has fewer calories and offers health benefits from antioxidants. The population is

also ageing and consumers generally tend to drink less alcohol as they get older. Younger

drinkers are opting for alternative alcoholic drinks such as cocktails and spirits with mixers.

These factors were compounded in 2009 by the economic downturn, with the German economy

posting its worst real GDP growth outturn since World War II, a contraction of 5.0%.

We expect real GDP growth to return in 2010, with a 1.7% expansion forecast by BMI.

However, the social factors driving a downturn in beer consumption will still be present,

meaning that beer sales are likely to continue falling during the 2010, albeit not at the same rate

as 2009. BMI expects this trend to continue over the forecast period with value sales dropping

by 4% by 2014. The value of beer sold is expected to decline less quickly than the volume,

however, as beer manufacturers raise prices in line with rising costs and to offset declining sales.

With its strong brewing heritage, Germany is perhaps in a weaker position than other markets to

offset declining volume sales with higher value sales. German beer drinkers are already very

sophisticated and the country is home to a multitude of craft brewers offering some of the finest

beer in the world. Foreign brands that might be considered ‘premium’ in other markets, such as

SABMiller’s Grolsch or Grupo Modelo’s Corona, are unlikely to have the same impact in the

German market and premium-quality local beers already command a significant market share.

We therefore envisage strong pressure towards further consolidation. The head of marketing at

Krombacher Brauerei, which produces Germany’s bestselling lager, said in an interview that it

estimated that overcapacity in the sector was at 30%. With consumption falling, an increasing

number of producers will eventually be squeezed out.



Market Overview

Soft Drinks

The German soft drinks market is large but mature. In many categories, including carbonated soft drinks

and fruit juice drinks, the market has not grown significantly for the last five years. However, there are

some categories, including bottled water and ready-to-drink (RTD) tea and coffee, where growth

opportunities still exist. The market is dominated by multinationals including The Coca-Cola Company

(TCCC) and PepsiCo, but all at the mercy of discount retailers, which account for the bulk of soft drinks

sold in the country.

Brands from TCCC dominate the carbonated soft drinks market and Germany is the largest contributor to

the firm’s sales in Western Europe. Bottling of Coca-Cola products is undertaken by Coca-Cola

Erfrischungsgetränke AG, a subsidiary of the US-based firm. Coca-Cola Erfrischungsgetränke was

established as a Coca-Cola subsidiary after a disastrous period of results in Germany led Coca-Cola to

take the existing fragmented bottling and distribution process under its own wing. This was done by

consolidating the existing 18 individual German franchise holders into one wholly-owned subsidiary.

This was deemed necessary after the existing bottlers had trouble getting Coca-Cola’s products into

Germany’s ever dominant discount retailers, leading to a dramatic decline in revenues. The merged entity

employs about 12,000 people and has annual sales in the region of 35mn hectolitres (hl).

In October 2009, Oetker-owned Radeberger acquired 70% of Bionade, the fourth most popular soft

drink in Germany. The organic soda business is targeting international expansion and stated that it needed

a larger partner to compete against the likes of Coca Cola. Bionade is currently testing its products in

European cities such as Brussels, Vienna, Zurich and Barcelona. Bionade is aiming for sales of about

EUR40mn (US$58mn) in 2009, roughly unchanged from 2008.

Alcoholic Drinks

Germany has one of the highest per capita rates of beer consumption worldwide. The German brewery

sector is extremely fragmented, with more than 1,200 breweries and around 5,000 brands. The majority of

small brewers are located in the south of the country, while the industry in the north is smaller but more

consolidated.

The two largest players in the Germany beer sector are Radeberger and the German arm of Anheuser-

Busch InBev (ABI). Despite being the two largest players in the German beer market, ABI and

Radeberger only control around 9% and 15% of the total market, respectively, reflecting the fragmented

nature of the sector.



ABI built its position in the German market through the purchase of Diebels and Beck’s in 2001 and

2002, respectively. However, despite the fact that German drinkers consume the second largest amount of

beer per capita in the world, behind only the Czechs, the unit has seen relatively slow growth due to the

maturity of the market and the challenges posed by its fragmented nature. ABI’s growth in the market has

also been curtailed by huge variations in regional tastes and the dominance of local brands in a number of

areas. This has stifled opportunities for the firm to expand sales of the flagship Beck’s brand and is in

contrast to many markets, such as Brazil and the UK, where national tastes are more consistent.

Like the beer industry, the wine industry is highly fragmented. Large players in the wine sector include

FW Langguth (now owner of the Blue Nun brand) and Reh Kendermann, which are both focused on

the mass-market end of the price spectrum.

The international reputation of German wine has been steadily improving, which has proven to be a boost

to the country’s wine exports. Riesling and Pinot Noir are the most successful grape varieties

internationally and since 2002 exports of Riesling to the US have tripled. Despite this, the UK remains the

country’s most important export market, accounting for a quarter of all Germany’s wine exports.

In March 2009, the German Wine Institute reported that during FY08, wine exports in value terms

registered an increase of 11% y-o-y to reach EUR427mn (US$572mn). Exports to the Netherlands,

Russia, Belgium and China increased by 30%, 34%, 39% and 74% respectively, which helped counter an

8% (y-o-y) drop in exports to the US market. However, producers remain cautious about the level of

demand in 2009. At the beginning of April, the Institute signed a deal with Lufthansa airlines to supply

German wines on international flights. The deal, which the Institute described as ‘long-term’, is intended

to ‘foster a greater appreciation of quality wines made in Germany.’ In September 2009, the body forecast

a good vintage for 2009’s harvest. The association said that this year's crop is ‘well-ripened and in a

nearly optimal state of health thanks to outstanding weather in late summer’. In volume terms, the

organisation is expecting the harvest to come in ‘somewhat below the long-term average’ of 10mn

hectolitres, matching the volumes for the previous two harvests. In early 2010, the Institute reported that

domestic wine exporters had been affected by the 2009 global economic crisis, although the impact was

less severe than anticipated. Volume exports of wine declined by 6% in 2009 and value exports by 8%.



Mass Grocery Retail


Expansion Across Sectors To Hedge Bets

In recent years, one of the major themes of Germany’s food and drink retailing has been the decline in

sales at supermarkets and hypermarkets and the rise of hard discounters. This was fuelled by a weak

German economy, which dampened consumer confidence and made shoppers more price savvy, and also

by a failure of German supermarket and hypermarket operators to quickly adapt their approach in light of

this increased competition. Faced with this growth in the discount sector and strong competition by

dedicated hard-discount MGRs, such as Aldi and Lidl, major MGRs, such as Rewe and Edeka, have

expanded their own discount store activities and substantial investment in this sector looks likely to

continue.

Despite the global economic slowdown and a decline in consumer confidence, two of Germany’s largest

retailers have revealed that they will continue to invest in new stores. Edeka, Germany’s largest grocery

retailer by sales, announced plans to open around 1,000 new stores by the end of 2010. Meanwhile, Rewe,

Germany’s second-largest grocery retailer, confirmed plans to open an additional 750 outlets by 2014.

Edeka has plans to open around 200 supermarkets and 150 discount stores a year, while Rewe has

revealed that it will be expanding both its Penny discount network and its Rewe supermarket format. This

dual focus on both full-service supermarkets and discount stores reflects the current market conditions,

with the discount format likely to provide the best returns in the short term while consumer confidence is

low, but with the supermarket format likely to bounce back once the economic climate improves.

As both firms plan continued investment in their supermarket networks, it seems that they remain

confident that the format still has a substantial role to play in the German retail sector. This is borne out

by retail sales figures for 2006 and 2007, when the German economy was thriving and German

consumers were beginning to gain in confidence. While a return to growth will be positive for consumer

confidence and stem the move towards the discount store format, the muted recovery means that we do

not expect a strong revival for more upmarket stores. Edeka and Rewe’s decision to hedge their bets with

investment in a range of formats is therefore likely to prove astute over the longer term.



Metro Searching For EM Growth, Could Be Split Up?

In May 2010, German retail giant Metro Group reported an increase in underlying earnings and sales for the

first quarter of its fiscal year aided by currency effects and cost savings under its Shape 2012 restructuring

programme. However, the firm’s core cash and carry business continues to register negative growth. Metro’s

long-term fortunes look likely to be tied to the successful revitalisation of the cash and carry format, with

further expansion into high growth markets in Asia and Africa appearing to be the best strategy to achieve this

goal

Over the last three years, sales at its cash and carry unit have gone backwards – falling by 3.4%. This can be

partly attributed to weaknesses in the Eastern European market, which was hit particularly hard by the global

financial crisis. As these markets gradually rebound, the firm’s results here should start to improve, with the

firm reasonably well positioned to capitalise on the growing domestic demand, which should filter through to

all forms of retailing including the independent convenience store channel, which is the staple purchaser at

Metro’s cash and carry outlets. Despite the proliferation of organised retailing across Eastern Europe, the

market is many years from maturity and the independent sales channel should continue to provide strong

growth opportunities for Metro’s cash and carry outlets to capitalise on.

However, the cash and carry unit also suffers from poor performance in the domestic German market and to

slowing sales in other Western European markets such as the UK. Here, there are signs that a trend away from

cash and carry outlets is structural rather than cyclical, with leading grocery retailers expanding their operations

into the convenience channel and reducing the base of independent outlets upon which Metro is reliant. This

trend has been driven by market maturity, with fewer sites for retailers such as Carrefour and Tesco to open

large supermarkets or hypermarkets, and by changes in consumer spending, with high petrol prices and

demographic changes pushing consumers driving demand for convenience which retailers are capitalising on

through rapid expansion. In these markets, Metro is sure to find it hard to reinvigorate growth and is likely to

focus on efficiency drives and cost savings in an attempt to continue growing earnings. The firm has already

announced a wave of job cuts under its Shaper 2010 efficiency programme, including over 1,300 in the German

market.

To offset this structural decline Metro will need to continue investing in emerging markets, with frontier

markets that have a limited organised retail sector particularly attractive. In 2009, the firm highlighted this

potential by opening its first store in Kazakhstan, with a further 14 scheduled to follow, and started work on its

first outlet in Egypt. In the first quarter of 2010, Metro’s cash and carry division registered growth of 4.5% in

Asia and Africa, including like-for-like growth of 5.4%. However, with these regions currently only

representing just 8.7% of total sales for the cash and carry unit the firm will have to expand heavily before

growth in these markets can offset continued weakness in Europe. Other markets with significant potential for

expansion include India, where retailing laws have curbed expansion of supermarkets and hypermarket by

multinationals, and politically stable sub-Saharan African markets, where organised retailing is very limited.

Markets we would highlight with relative political stability and strong forecasts for GDP growth include Ghana

and Kenya.



Over the last three years, Metro’s results have been aided by strong growth at its electronics unit Media-

Saturn, while sales at its Real hypermarket business and its Galeria Kaufhof department stores have

stagnated. With limited overlap between its four units there is a strong argument for the business to be

split up – a move which would give the firm greater funds to invest in its core cash and carry operations.

To this end, the firm has already announced the possible disposal of it Kaufhof department store business,

with the firm announcing in April 2010 that was in early talks with several investors. Metro has also

hinted at the possible spinoff of its electronics unit, saying in March 2008 that its goal was to make

Media-Saturn fit for a potential IPO. This leaves the Real hypermarket business, which has also been the

subject of disposal speculation. However, so far the firm has said it is keen to hold onto its hypermarket

business – a decision that perhaps makes sense given the stronger overlap between the hypermarket and

the cash & carry operations.

Market Overview

The German MGR sector is characterised by a high level of consolidation, with the 10 largest operators

accounting for around 85% of total sector sales. The process of market consolidation, which started

several years ago, appears to be continuing with the most recent major development being Edeka’s

acquisition of a controlling share in Tengelmann’s Plus discount store operations, creating a new

discount giant. In July 2009 Belgian group Delhaize announced plans to exit the German market selling

its four stores in the country to Rewe.

German consumers are extremely price-conscious and typically opt for the lowest prices, buying retailers’

private label brands or shopping at the stores of Germany’s hard discount operators, such as Aldi and

Lidl. In a retail market characterised by sluggish growth, discount-store formats have seen improved

sales, while hypermarket and supermarket formats have suffered as a result. The trend towards discount

grocery shopping has been reflected in the competitiveness of the discount segment, which has seen an

ongoing price war between the major operators.

The leading players have continued to grow in size and have strengthened their positions since the 1990s.

This process has led to concentration and consolidation in the previously fragmented local MGR sector. A

further characteristic has been the large number of mergers and acquisitions as well as expansion both in

Germany and to neighbouring countries. Smaller, independent operators have lost out during this process

and are struggling to maintain market share in the face of tough competition. In October 2009, in a further

example of this consolidation, Rewe announced plans to acquire 39 sky supermarkets from Coop EG in

south west Germany.

In response to the increasing market share of discount operators, several other leading MGR operators

have developed their own discount formats. Furthermore, private-label development has been rapid,

accommodating consumer demand for cheap but good quality products. More than one-third of all

consumer spending on food and drink in Germany is accounted for by private label products. Discounting



is no longer the reserve of any particular social class in Germany; it has become a widely acceptable and

desirable form of retailing. Interestingly, however, as discount retailing has grown in popularity and

become more acceptable, many operators have started to shift from their discount principles in order to

enhance their competitive position. Over the last few years, many discounters sought to diversify their in-

store offerings rather than just pursue growth through network expansion.

The ongoing enlargement of product ranges has been accompanied by growth in average outlet sizes. In

addition, some retailers have decided to abandon an element of their no-frills image in order to enhance

competitiveness and more money is now being committed to in-store displays and product labelling etc.

Similarly, discounters are now stocking greater ranges of non-food products. While such diversification

measures have boosted the image of discount stores, there is a risk of outlets beginning to resemble

supermarkets. It is becoming increasingly difficult for discounters to avoid passing on the cost of store

improvements to customers in the form of higher prices.

Table: Structure of Germany's Mass Grocery Retail Market by Estimated Number of Outlets

2002 2003 2004 2005 2006 2007 2008e 2009e

Supermarkets 8,810 8,787 8,770 8,740 8,715 8,718 8,702 8,710

Hypermarkets 2,409 2,431 2,443 2,450 2,455 2,460 2,465 2,470

Discount stores 13,400 13,750 14,214 14,697 14,998 15,299 15,600 15,990

Convenience stores 16,000 16,105 16,230 16,365 16,485 16,605 16,725 16,842

Total MGR Operators 40,619 41,073 41,657 42,252 42,653 43,082 43,492 44,012

Source: Official statistics, BMI

Table: Sales Format by Value in Germany's Mass Grocery Retail Market (US$bn)

2002 2003 2004 2005 2006 2007 2008e

Supermarkets 38.2 39.1 40.3 41.5 42.8 44.5 46.0

Hypermarkets 39.0 40.1 41.7 42.9 44.1 45.2 46.0

Discount stores 56.7 60.3 63.7 67.7 71.9 75.8 79.6

Convenience stores 21.6 22.7 23.6 24.5 25.3 26.2 27.1

Total MGR Operators 155.5 162.2 169.3 176.6 184.1 191.7 198.7

e = estimate; Source: Official statistics, BMI



Table: Sales Format by Value in Germany's Mass Grocery Retail Market (EURbn)

2004 2005 2006 2007 2008e

Supermarkets 27.4 28.2 29.1 30.6 31.3

Hypermarkets 28.4 29.2 30.0 30.7 31.3

Discount stores 43.3 46.1 48.9 51.6 54.1

Convenience stores 16.0 16. 7 17.2 17.8 18.4

Total MGR Operators 115.2 120.1 125.2 130.4 135.2

e = estimate; Source: Official statistics, BMI

Table: Annual Average Sales per Outlet by Format

US$mn EURmn

Supermarkets 5.29 3.60

Hypermarkets 18.66 12.69

Discount stores 5.10 3.47

Convenience stores 1.62 1.10

Total MGR Operators 4.57 3.11

Source: BMI



Competitive Landscape

Table: Key Players in Germany's Food Sector (2008)

Company Sub-sector Sales

(EURmn) Sales

(US$mn) Fiscal Y/E Established Employees

August Storck KG confectionery 1,200 (e) 1,860 (e) 31/12/2008 1903 4,000

B & C Tönnies Fleischwerk GmbH

Convenience, meat 3,000 4,650 31/12/2006 1970s na

Bahlsen GmbH cakes, biscuits,

crisps 545 845 31/12/2008 1889 2,838

Bayernland eG Dairy 608 942 31/12/2008 1930 na

Campina GmbH Dairy 1,462 2,266 31/12/2008 1996 2,200

Cobana Fruchtring GmbH Fruit 2,420 3,751 31/12/2008 1964 3,537

Ehrmann AG Dairy 650 1,008 31/12/2007 1920 1,500

Ferrero oHG Gmbh Confectionery 1,400 (e) 2,170 (e) 31/12/2008 na na

Hahne Mühlenwerke cereal na na na 1848 220

Halloren Schokoladenfabrik GmbH confectionery 53 82 31/12/2009 1804 na

Haribo GmbH confectionery 1,400 (e) 2,170 (e) 31/12/2008 1920 2,000

Harry-Brot GmbH Bread, baked

goods 500 (e) 775 (e) 31/12/2008 1688 na

Heristo AG Meat, sausage 1,340 2,077 31/12/2006 na 3,800

Hochland AG Dairy 900 1,395 31/12/2008 1927 4,100

Hochwald-Nahrungsmittel-Werke GmbH (Erbeskopf Eifelperle eG)

Dairy, ham, sausage 1,000 1,550 31/12/2008 1932 1,600

Humana Milchunion eG Dairy 1,900 (e) 2,945 (e) 31/12/2008 na na

Lieken Group (formerly Kamps) Bakery products 1,000 1,550 31/12/2008 1982 7,800

Kraft Foods Germany

Coffee, confectionery,

condiments 1,800 (e) 2,790 (e) 31/12/2008 na na

Masterfoods GmbH Confectionery 1,500 (e) 2,325 (e) 31/12/2008 na na

Moksel Group Meat 2,000 3,100 31/1/2/2008 na 2,500

Molkerei Alois Müller GmbH Dairy 2,300 3,565 31/12/2008 1896 4,560

Nestle Group Germany

coffee, confectionery,

cereal 3,800 (e) 5,890 (e) 31/12/2008 1867 17,190



Table: Key Players in Germany's Food Sector (2008)


(EURmn) Sales


Nordmilch Group Dairy 1,900 2,945 31/12/2009 1999 2,900

Oetker Group

Beer, wine, spirits,

packaged food 4,245 5,820 31/12/2008 1891 24,685

Pfeifer & Langen KG Sugar 989 1,533 31/12/2008 1870 2,028

Procter & Gamble GmbH

Snack food, packaged food 2,700 (e) 4,185 (e) 31/12/2008 1960 na

Stute Nahrungsmittelwerke GmbH

Fruit juice, jams, canned fruit,

vegetable preserves 900 (e) 1,395 (e) 31/12/2008 na na

Südzucker AG Sugar 5,780 8,959 01/03/2008 1837 18,642

Tchibo Holding AG Coffee,

chocolate 3,600 5,580 31/12/2008 1949 12,000

Unilever Germany

packaged food, condiments, ice

cream, tea 2,500 (e) 3,875 (e) 31/12/2008 1869 179,000

Vion N.V

Convenience, meat,

ingredients 9,600 14,880 31/12/2008 na 35,000

Westfleisch eG Meat 1,887 2,925 31/12/2008 na na

Wild GmbH ingredients, soft

drinks 600 (e) 930 (e) 31/12/2008 1931 2,500

Zur Mühlen Gruppe Meat, sausage 750 1,163 31/12/2007 na na

NB. For Germany based companies revenue figures will include international sales. For German subsidiaries and branches of international companies revenue figures will generally only include German sales; na = not available; e = estimate; Source: Allgemeine Fleischer Zeitung (General Butchers Newspaper), Investor Relations, Trade Press



Table: Key Players in Germany's Drink Sector (2008)


(EURmn) Sales


Bitburger Brewery (Carlsberg) Beer 1,000 (e) 1,550 (e) 31/12/2008 1817 1,000

Brau Holding International AG Beer 700 (e) 1,085 (e) 31/12/2008 2001 na

Coca-Cola Erfrischungsgetränke AG

Soft Drinks, bottled water 2,500 (e) 3,875 (e) 31/12/2008 2006 11,500

Eckes-Granini Group Fruit juice 917 1,421 31/12/2008 1857 1,527

Emig GmbH Fruit juice 329 (e) 510 (e) 31/12/2008 1968 na

AB-InBev Germany Beer 1,000 1,550 31/12/2008 1987 na

Karlsberg Brauerei Gmbh Beer 700 (e) 1,085 (e) 31/12/2008 1878 2,500

Kraft Foods Germany

Coffee, confectionery,

condiments 1,800 (e) 2,790 (e) 31/12/2008 na na

Krombacher Brauerei Bernhard Schadeberg GmbH Beer 642 995 31/12/2008 1803 866

Krüger GmbH

Coffee, tea, drinking

chocolate 1400 (e) 2170 (e) 31/12/2008 1971 4,000

Maxingvest AG (formerly Tchibo Holding AG) Coffee 9,194 14,251 31/12/2008 1949 33,978

Melitta Unternehmensgruppe Bentz KG Coffee 1,230 1,907 31/12/2008 1923 3,900

Nestle Group Germany

coffee, confectionery,

cereal 3,800 (e) 5,890 (e) 31/12/2008 1867 17,190

Radeberger Group (Oetker Group) Beer 1,600 2,480 31/12/2009 na na

Stute Nahrungsmittelwerke GmbH

Fruit juice, jams, canned

fruit, vegetable preserves 900 (e) 1,395 (e) 31/12/2008 na na

Unilever Germany

packaged food,

condiments, ice cream, tea 2,500 (e) 3,875 (e) 31/12/2008 1869 179,000

Warsteiner Brauerei Beer 542 840 31/12/2007 1751 2,500

Wild GmbH ingredients,

soft drinks 600 (e) 930 (e) 31/12/2008 1931 2,500

NB. For Germany based companies revenue figures will include international sales. For German subsidiaries and branches of international companies revenue figures will generally only include German sales; na = not available; e = estimate; Source: Allgemeine Fleischer Zeitung (General Butchers Newspaper), Investor Relations, Trade Press



Table: Key Players in Germany's Mass Grocery Retail Sector

Parent Company

Sales In Germany (EURbn)

Sales In Germany (US$bn) Fiscal Y/E Fascias Format Outlets Emp. Est.

Edeka Group 32.0 49.6 31/12/2008 Total 10,834 262,241 1907

Edeka nah

und gut Convenience

stores na

Edeka

aktiv markt Supermarkets na

Edeka

neukauf Supermarkets na

Edeka center Hypermarkets na

Marktkauf Hypermarkets na

Edeka

C&C Cash & Carry 114

aktiv

discount Discount stores na

Netto Marken-Discount Discount stores 1000+

Spar

Supermarkets and

convenience stores 717

Metro Group** 26.5 41.1 31/12/2009 Total 1,529 263,794 1964

Extra Supermarkets 259

Real Hypermarkets 371

Metro Cash & Carry 122

Other 312

Rewe Group 34.6 53.6 31/12/2009 Total 8,939 268,907 1927

Rewe Supermarkets 3,000

Toom Hypermarkets na

Penny Discount stores 2,000

Vierlinden Organic grocery

stores 2

Handelshof, Fegro/

Selgros, C-Gro Cash & Carry 3,000



Table: Key Players in Germany's Mass Grocery Retail Sector

Parent Company

Sales In Germany (EURbn)

Sales In Germany (US$bn) Fiscal Y/E Fascias Format Outlets Emp. Est.

Lidl & Schwarz Group

33 (e) 51 (e) 31/12/2008 Total 5,826 80,000 1970s

Lidl Discount stores 3,200

Kaufland Hypermarket 2,600

Basic Organic grocery

stores 26

Aldi Group 31 (e) 48 (e) 31/12/2008 Aldi Discount stores 4,100 na 1948

Tengelmann Group 9.5 14.7 31/12/2008 Total 3,615

150,880 ( Germany: 86,518) 1867

Plus* Discount stores 2,912

Kaiser's Tengel-

mann Supermarkets 703

na = not available; *70% Share of Plus stores sold to Edeka in 2007; **Sales figures include non-food outlets. Source: Official Statistics, Trade press, directories, BMI



Company Analysis

Food

Oetker Group

Strengths ! Premiumisation has helped to buoy performance of sparkling wine, champagne and spirits.

! Involvement in a wide range of sectors, other than food and drink, offers protection against weak performance in single-product areas.

! With a strong international presence, the group is well positioned to benefit from increasing demand for packaged, branded food and drink products in emerging markets; expansion into India, China and the US will bring a major boost to the Group’s international activities.

Weaknesses ! Predominantly premium portfolio limits interest among low-income groups.

! Beer sales through Radeberger division have seen a significant decline.

! German food sales growth was weak in 2008 and 2009.

Opportunities ! Potential to offset losses in domestic beer sales through increased emerging market activity.

! Chilled and frozen fish products are proving to be an important growth area.

Threats ! Anti-alcohol marketing and advertising legislation and the introduction of anti-smoking legislation make Oetker vulnerable to sales losses in its beer, wine and spirits divisions.

! Faces growing competition in German wine sector from international sources.

Company Overview Oetker Group is a holding company for the business activities of the German Oetker family. The

company is active in food and drink production, shipping, financial services, insurance and real

estate. Oetker is present in 26 countries across the globe, with Germany accounting for just under

40% of sales. In the food and drink sector, Oetker’s main products include alcoholic drinks, frozen

and children’s foods, cereals and bakery mixtures.

Strategy The Group follows a strategy of risk minimisation through diversification, being active in business

areas that are characterised by different economic cycles. The parent company is split into six

operating divisions, including food, beer and non-alcoholic beverages, wine and spirits, shipping,

financial services, and other interests. In the food and drinks business, recent years have seen the

strengthening of the brand portfolio through a range of acquisitions, including Unilever’s frozen

pizza and baguette business, independent dairy company Onken and breweries Brau und Brunnen

AG and Freiberger Brauhaus. More than 50% of sales are achieved in international markets, with

Oetker being present in 32 countries worldwide. India, China and the US are expected to join the

Group’s international activities in the near future.

Company Data ! 2007 Food division revenue: EUR1.94bn (US$3bn); increase of 8%

! 2007 Beer and non-alcoholic beverages division revenue: EUR1.3bn (US$2bn)

! 2007 Wine & spirits revenue: EUR567mn (US$279mn); increase of 10.9%

! 2008 Food division revenue: EUR2bn (US$2.78bn): increase of 5.6%

! 2008 Beer and non-alcoholic beverages division revenue: EUR1.6bn (US$2.2bn)

! 2008 Wine & spirits revenue: EUR592mn (US$823.2mn); increase of 4.4%

! Number of employees: 24,685



Nordmilch Group

Strengths ! One of the largest milk processors in Germany and ranks among the top ten in Europe.

! Promotion of key ‘Milram’ brand helps to ensure it stands out among retailers and consumers

! Exports of dairy products have been increasing.

! Global milk prices have been falling since the onset of the economic downturn which should reduce costs and boost earnings.

Weaknesses ! High degree of competitiveness in Germany’s dairy sector puts pressure on profit margins.

! Hard to achieve and maintain consumer loyalty in a particularly competitive and fast-consolidating consumer goods industry.

! Current infrastructure weaknesses and high investment levels needed in Nordmilch’s target markets suggest that returns on investment will take time to materialise.

Opportunities ! Restructuring programme should help to renew overall profitability.

! Investment in cheese sector is seen as offering healthy growth prospects; Edewecht cheese factory to be modernised and made to play a major part of the company’s future strategy.

! Significant potential to expand international sales, especially in Eastern Europe, China and South East Asia.

! Potential to strengthen the ‘Oldenburger’ brand in international export markets.

Threats ! Operates in a sector particularly threatened by the rising popularity of private labels.

Company Overview Nordmilch Group is one of Germany’s largest dairy products manufacturers. The firm was created

in 1999 through the merger of Nordmilch AG and three regional dairy companies. Nordmilch and

its subsidiaries are responsible for the processing of more than one-sixth of German milk volumes

and distribute a broad portfolio of dairy and cheese products. The group’s main brand, on which

marketing spending is focused, is Milram.

Strategy The Group is at present involved in a comprehensive restructuring programme of its German

operation, with 11 of its 21 locations closing in the face of a mature and highly competitive market.

In addition, several divestments have taken place, including the sale of cheese packers Baakes &

Heimes, Botterblom Gastro-Service and a 50% stake in Hansano. Investment is being focused on

the cheese sector, which is believed to offer growth prospects. Around EUR30mn has been

invested into the Edewecht cheese factory to turn it into the most modern and efficient cheese

factory in Europe, with total cheese production increasing to 100,005 tonnes per year. Nordmilch

aims to increase cheese products’ share of total sales from a current 26% to 40% and become a

cost leader in the sector. It also aims to increase its presence in international markets. A subsidiary

in Prague was established in 2005, and a representative office in China was opened in 2006. The

group’s objectives for 2009 included not only improving the milk payment at a comparable total

profit, but also further strengthening its equity capital and reducing debt financing by ploughing

back future profits. The other focus is strategic partnerships. In August 2009 Nordmilch acqujred

dairy company Pommermilch, which the firm states will increase its expertise in cheese production.

Company Data ! 2007 Revenue: EUR2.3bn (US$3.6bn); increase of 21%

! 2008 Revenue: EUR2.5bn (US$ 3.47bn); increase of 10%

! 2009 Revenue: EUR1.9bn (US$2.5bn); decrease of 24%




Haribo

Strengths ! Leading domestic position and growing European market share.

! Haribo products are available in 99% of German outlets that sell confectionery.

! Portfolio of well-known brands, including Haribo, Dulcia and Maoam.

! Conservative approach has resulted in strong financial position.

Weaknesses ! Conservative financial approach may stifle growth.

! Limited presence in key emerging markets.

! Would be considered takeover target if not privately owned.

! In Western Europe demand for sugar confectionery has generally been stagnating or decliningmeaning the firm must gain market share to deliver growth.

Opportunities ! Continued growth of business in core European and North American markets.

! Expansion into emerging markets.

Threats ! Operates in a sector with a strong private label presence; most major retailers offer store-brand alternatives to its products.

! Increased health-consciousness has put downwards pressure on demands for sugar confectionery.

! Ageing population in Western Europe likely to reduce demand for sugar confectionery.

Company Overview Haribo is Germany’s largest producer of sugar confectionery, controlling around 60% of the

German market. Through acquisitions and expansion the firm has built up a portfolio of over 200

products which cover multiple categories including fruit gums, liquorice, fruit chews and

marshmallows. The company’s most famous product is its ‘golden-gummi bear’. Important brands

include Haribo (for fruit gum and liquorice products), Dulcia (for marshmallow products) and

Maoam (for fruit chews). In addition to its domestic operations, Haribo has built up a sizeable

international presence and now generates around half of its revenues outside Germany.

Strategy Privately held Haribo is led by Hans Reigel, the son of founder Peter Reigel, and has adopted a

conservative strategy of gradual expansion via acquisitions and organic growth. The firm has

financed acquisitions through its own earnings rather than taking on debt, meaning that it entered

the global financial crisis on a very firm footing. The company has expanded to become one of the

leading sugar confectionery manufacturers in Europe with 13 production facilities across the region

including in France, Italy, Spain, Ireland and Turkey. Haribo also has a significant US presence

having established its first sales office in the country in 1980. The company’s competitive position

is maintained through investments in marketing and innovation, with the regular launch of new

product variations. While the firm’s private status means its future plans are not public knowledge

BMI would expect the firm to continue expanding internationally, with moves into the high growth

markets of Asia and Latin America likely to be a long-term goal.

Company Data ! 2008 Estimated Revenue: EUR1.4bn (US$ 2.2bn)




Lieken Group (Barilla)

Strengths ! Europe’s largest industrial bread maker with 80 bakeries.

! Operates across Germany, the Netherlands, France and Italy.

! Network of over 920 retail bakery outlets in Germany.

! Strong position in high-growth part-baked category.

Weaknesses ! Has posted declining sales for several years due to the decline in demand for retail bakeries.

! Operates in a sector with limited opportunities to add value.

Opportunities ! Expansion of high growth part-baked products.

! Development of retail bakeries to offer wider range of products.

Threats ! Branded bakery products exposed to rising market share of private labels.

! Consumers choosing to buy bread from supermarkets rather than bakeries.

Company Overview Formerly known as Kamps, the Lieken Group, began by operating a network of retail bakeries in

Germany, but grew to become Europe’s largest bakery firm via the acquisition of Germany’s

largest industrial bread maker Wendeln and French industrial bakery group Harry’s. These moves

were heavily leveraged and by 2001 the firm was struggling to make a profit. The firm’s share price

fell by 75% in a year and this prompted Italy-based Barilla to make moves to acquire it, which it

succeeded in doing in 2002. In addition to its network of around 1,000 retail bakeries the firm

operates an industrial bread unit that includes 80 industrial bakeries. This unit supplies bread and

baked goods to retail outlets in Germany, the Netherlands, France and Italy under the brand

names Golden Toast and Leiken Urkon and also supplies a range of private label brands.

Strategy Sales at retail bakeries in Germany have been in long- term decline as more and more consumers

buy their baked products from supermarkets. In the mid 90s this allowed Kamps to rapidly expand

as many small bakery chains, which were experiencing declining sales, were happy to sell out to

the larger chain. The Kamps network grew to around 1,000 bakery stores and for a while the firm

able to improve profits at the acquired stores through greater economies of scale. However the

long- term decline in local bakeries now looks to be catching up with Kamps and firm has

registered declining sales for several years. Barilla has attempted to rectify the group’s falling

profits and earnings by restructuring the firm to cut costs. This involved relocating the firm’s main

headquarters and closing several plants. The firm also has an opportunity to take advantage of the

growth in demand for part-baked products. Frozen and part-cooked bakery products are gradually

replacing their traditional equivalent and allow supermarkets, bakeries and the food service sector

to offer consumers freshly baked products and create the ambience of a traditional bakery, but

only requires a fraction of the manpower that producing baked goods from scratch needs. The

category is currently the most dynamic sector of the European bakery market.

Company Data ! 2008 Revenue: EUR1.0bn (US$1.6bn)




Drink

Emig GmbH & Co KG (GerberEmig Group)

Strengths ! Over the last five years, juices and juice drinks have been one of the fastest growing subsectors of the overall soft drinks market.

! The GerberEmig Group is well established in the German market, possessing a significant degree of experience and extensive supply contracts with major European MGRs.

! The considerable scale of the company means that it is in a strong position to service Europe’s increasingly consolidated MGR sector, for which supplier rationalisation has been a key theme.

Weaknesses ! Focus on one market sector makes the company vulnerable to market disruptions or changes in consumer taste.

! Hard to achieve and maintain consumer loyalty in one of the world’s most competitive and fast-consolidating consumer goods industries.

Opportunities ! Potential to build on experience in Poland and Turkey with further expansion in Eastern Europe.

! Development of private-label business has created opportunities to sell to large MGRs outside Germany.

! Opportunity to capitalise on growing health awareness of consumers, through the promotion ofnutritional benefits of fruit drinks.

Threats ! Growing competition can be expected in several of GerberEmig’s markets, as major rivals tap into the growth opportunities in the juices and juice drinks sector.

Company Overview Emig is the leading German fruit juice manufacturer and, since 2001, has belonged to UK

company Gerber Foods Holding Ltd. The GerberEmig group is one of the largest fruit juice

manufacturers in Europe, with four factories (two in Germany, one in the UK, and one in Poland)

producing a range of fruit juices and refreshment beverages that are sold in more than 30

countries across the globe. The Group holds leading positions in Germany, Poland, France, Spain,

Turkey, and the UK.

Strategy The GerberEmig Group attributes its success to the fact that it focuses on one market sector,

juices and juice drinks, and has no intention of diversifying into other sectors of the grocery market.

Also of importance is the creation of close partnerships with raw material suppliers, which ensures

an uninterrupted supply of high-quality ingredients. Within the GerberEmig Group, Emig’s key

strategic focus is on the European private-label business, and the company supplies a number of

MGRs.

Company Data ! 2008 Estimated revenue: EUR329mn (US$510mn)

! 2007 Volume sales: 1.5bn litres



Radeberger Group (Oetker Group)

Strengths ! Germany’s leading brewing company with a 15% share of the country’s beer market.

! Has a major strategic investor in the form of the Oetker Group.

! Radeberger’s only non-German brewery, Krusovice in the Czech Republic, continues to perform well, and is expanding sales in Russia.

Weaknesses ! Faces major challenges in a highly competitive and declining sector.

! Beer sales have been experiencing a significant decline in Germany and remain vulnerable to seasonable variables such as the weather and major events, such as sports tournaments.

! Hard to achieve and maintain consumer loyalty in particularly fragmented market.

Opportunities ! Increased emphasis on driving consolidation and taking excess capacity out of the market should help to ensure Radeberger’s long-term survival.

! Potential to increase international sales of most successful brands, particularly in Eastern Europe.

! Potential to build on the successes of non-alcoholic beer and mineral water brands – the company acquired soft drinks business Bionade in 2009.

! German unit of Anhueser-Busch InBev has been touted as possible acquisition target.

Threats ! Radeberger remains vulnerable to anti-alcohol marketing and advertising legislation.

! Sales in Germany may be hit by the introduction of anti-smoking legislation.

Company Overview Radeberger Group is Germany’s leading brewing company, having seized the opportunity to

consolidate and acquire smaller rivals as competition in the German beer industry has intensified.

Radeberger controls an estimated 15% of the local market, its flagship products being the

eponymous Radeberger brand and Sternburg. The company is a subsidiary of the Oetker Group.

Strategy Radeberger’s growth strategy is primarily two-fold. Domestically, it intends to continue acquiring

smaller regional brewers in order to consolidate and build its market share – with the aim of

increasing market share to 20% in the short term. Such acquisitions are the only means of

securing growth in the mature German market, as well as allowing Radeberger to diversify its

product portfolio with small regional brands that complement its two national brands. Outside

Germany, the company intends to expand slowly into Central and Eastern Europe in order to

capitalise on the greater growth opportunities that exist in these emerging markets. In October

2009, Radeberger acquired a 70% stake in organic soda maker Bionade with plans to launch the

soft drinks brand internationally.

Company Data ! 2009 Revenue: EUR1.6bn (US$2.5bn)

! Market share: 17.5%



Anheuser-Busch InBev Germany

Strengths ! Germany’s second-largest brewer, with an estimated 9% share of the market.

! Has a major strategic investor in the form of Belgium-based Anheuser-Busch InBev.

! Has helped to fuel consolidation of the German beer industry, in order to benefit from the process; emphasises the strength of a handful of well-performing brands.

! Strong international presence has helped to ensure continued strong sales.

Weaknesses ! Faces major challenges in Western Europe in what is a highly competitive and declining sector.

! Beer sales have been experiencing a significant decline in Germany, and remain vulnerable to seasonable variables such as the weather and major events such as sports tournaments.

! Hard to achieve and maintain consumer loyalty in particularly fragmented market.

Opportunities ! Although AB-InBev’s global and national brands have proved popular in Germany, it will need to invest considerably in marketing and promotional support for its products.

! Potential to launch new and premium brands in high growth markets such as North and South America and Eastern Europe.

Threats ! Remains vulnerable to anti-alcohol marketing and advertising legislation.

! Sales in Germany may be hit by the introduction of anti-smoking legislation.

! Premiumisation has been a key strategy but could be hit by economic downturn.

Company Overview The local subsidiary of Belgian brewing giant Anheuser-Busch InBev (ABI) – the world’s largest

brewer in volume sales terms – is Germany’s number-two brewer. The company controls an

estimated 9% of the German beer market, through a combination of its flagship global brands such

as Beck’s, Leffe, Brahma and Stella Artois, strong national brands such as Hasseröder, and

smaller regional brands, including Gilde and Haake-Beck.

Strategy ABI’s strategy in Germany differs quite considerably from that of its closest rival Radeberger. While

the latter seeks constant expansion through acquisitions of small rivals, ABI is instead committed

to expanding its big flagship brands, irrespective of whether that means weakening smaller brands

or missing out on acquisition opportunities. In fact, in order to focus on growth of its leading

brands, ABI has actually divested breweries it considers to be too small to contribute to its national

objectives, including the Zwickau and Wolters breweries. Strategic brand development, leveraging

its powerful parent’s innovative technology and marketing know-how, will be of vital importance in

InBev achieving growth in Germany.

Company Data ! Estimated market share: 9.5%

! Estimated 2008 sales: EUR1bn (US$1.55bn)



Mass Grocery Retail

Lidl Group

Strengths ! Discount strategy has helped Lidl to rapidly establish a major retailing presence in Germany and internationally.

! Low priority placed on store design and staffing has contributed to larger profit margins.

! Lidl has successfully buttressed its food and drink retail business in Germany with a growing non-food range of products and services, including a travel booking service, an online flower ordering service and a photo development service.

Weaknesses ! Has had to invest heavily in marketing and public relations in order to combat bad publicity surrounding its business practices.

! Emphasis on low prices limits scope for developing product ranges and store formats, without heavily eroding profit margins.

! Faces strong competition in some European markets, where well-established national retail brands have entered the discount game.

Opportunities ! Scope for much more expansion outside Germany, especially in CEE.

! Potential to further develop value-added private-label lines, including organic and fair trade products.

! Potential to further develop range of non-food services, particularly outside Germany.

Threats ! Investment in further store openings will also be costly with suitable real estate getting harder to come by at affordable prices.

! Faces major challenge of keeping its prices low while working on improving in-store product ranges and store displays; this may require significant re-investment of a share of its profits.

! An upturn in the German economy may see more affluent shoppers returning to conventional supermarkets and hypermarkets.

Company Overview Discount retailer Lidl, part of German retail major Schwarz Group, is the country’s second-ranked

hard discounter after market leader Aldi. The company operates a chain of some 3,200 discount

stores, while Schwarz is also responsible for the Kaufland hypermarket chain.

Strategy Lidl’s strategy to date has involved the continual expansion of its domestic store network, although

its greater focus has been on the diversification of its in-store product range, including the

establishment of value-added private label lines, including organic and fair trade. The company is

likely to continue to pursue growth in this manner, with new products having received a very

positive reception from consumers. Outside Germany, Lidl will continue to expand, particularly in

CEE markets, where price conscious consumers and relative ‘unsaturation’ present a host of

opportunities. The company intends to double the number of its outlets in Poland. Lidl’s store

network also continues to increase in Western Europe. Most recently, Lidl acquired 17 new outlets

in the Netherlands and entered Switzerland.

Company Data ! 2008 Estimated domestic revenue: US$51bn

! 2008 Estimated turnover per store: US$15.5mn




Rewe Group

Strengths ! Germany’s second-largest grocery retailer, both in terms of revenue and retail outlets.

! Maintains a strong retailing footprint across both Western and Eastern Europe.

! Supplements its food and drink business with tourism and travel operations under the Rewe Touristik banner.

Weaknesses ! German business has recently been struggling to maintain sales growth and market share.

! Lost out to rival Edeka in the race to acquire the Plus discount stores sold by German retail conglomerate Tengelmann.

Opportunities ! The move towards the use of a single Rewe supermarket brand nationwide is expected to stimulate greater consumer preference and loyalty.

! Scope for greater investment in discount range of products, which lags behind those of rivals Aldi, Lidl and Edeka.

! Potential to expand range of added-value in-store products and services.

! Potential revival of supermarket sector as the German economy recovers.

Threats ! Recent change of strategic direction to place greater emphasis on German market could lead to reduced investment in international operations.

Company Overview Rewe is one of Germany’s largest retail groups. It operates supermarkets under the Rewe brands,

as well as Penny-branded discount stores and a chain of Toom-branded hypermarkets. Rewe has

an expanding network outside Germany across the CEE region.

Strategy CEO Alain Caparros appears to be refocusing on German operations, a U-turn from a previous

focus on international growth. Consequently, Rewe has announced ambitious expansion plans

with a focus on Germany and Austria. In 2007 the investment budget for the two countries

increased by 30% on 2006, to US$1.58bn. After opening 130 Penny discount stores in 2007, Rewe

increased the pace of expansion and opened 180 new outlets in 2008. Rewe also plans to expand

the Penny store format in Turkey. In addition, Rewe plans to launch a more upmarket supermarket

concept in prime inner city locations. In June 2009 there were reports that Rewe is planning to

launch a new premium own label line in time for the Christmas season. The retailer is

concentrating on further price cuts, making its operating structure more efficient (plans were

announced in August 2009 to merge the Rewe-Zentral grocery division with the Rewe Deutscher

Supermarket division) and further domestic acquisitions. In October 2009 the company acquired

39 sky supermarkets from Coop EG in south west Germany and in March 2010 acquired 65

supermarkets from local rival Kaiser's Tengelmann. The stores are in the Rhein-Main-Neckar

region and Rewe has said they will geographically complement its existing portfolio.

.

Company Data ! 2007 Revenue: EUR45.1bn (US$69.9bn), growth of 3.7%

! 2007 Domestic revenue: EUR31.6bn (US$49bn), growth of 1.3%

! 2008 Revenue: EUR49.8bn (US$69.2bn); increase of 10.5%

! 2008 Domestic revenue: EUR33.9bn (US$47.1bn); increase of 7.4%

! 2009 Revenue: EUR50.9bn (US$68.6bn); increase of 2.9%

! 2009 Domestic revenue: EUR34.6bn (US$46.6bn); increase of 2.6%




Appendix

Country Snapshot: Germany Demographic Data

Section 1: Population

Source: UN Population Division

Table: Demographic Indicators, 2005-2030

2005 2010f 2020f 2030f

Dependent population, % of total 32.6 33.0 35.2 40.5

Dependent population, total, ‘000 26,922 27,031 28,574 32,147

Active population, % of total 67.3 66.9 64.7 59.4

Active population, total, ‘000 55,568 54,653 52,589 47,202

Youth* population, % of total 14.3 13.5 12.8 13.2

Youth* population, total, ‘000 11,868 11,059 10,397 10,509

Pensionable population, % of total 18.2 19.5 22.4 27.2

Pensionable population, total, ‘000 15,054 15,972 18,177 21,638

f = forecast. * Youth = under 15. Source: UN Population Division

-6.0 -4.0 -2.0 0.0 2.0 4.0

0-4

10-14

20-24

30-34

40-44

50-54

60-64

70-74

Population By Age, 2005 (mn)

Male Female

-6 .0 -4.0 -2.0 0.0 2.0 4 .0

0-4

1 0-14

2 0-24

3 0-34

4 0-44

5 0-54

6 0-64

7 0-74

Population By Age, 2005 (mn)

M ale Fema le



Table: Rural/Urban Breakdown, 2005-2030

2005 2010f 2020f 2030f

Urban population, % of total 88.5 89.3 75.6 78.3

Rural population, % of total 11.5 10.7 24.4 21.7

Urban population, total, ‘000 73,158 73,842 61,386 62,163

Rural population, total, ‘000 9,531 8,859 19,775 17,185

Total population, ‘000 82,689 82,701 81,161 79,348

f = forecast. Source: UN Population Division

Section 2: Education And Healthcare

Table: Education, 2002-2005

2002/03 2004/05

Gross enrolment, primary 100 101

Gross enrolment, secondary 100 100

Gross enrolment is the number of pupils enrolled in a given level of education regardless of age expressed as a percentage of the population in the theoretical age group for that level of education. na = not available. Source: UNESCO

Table: Vital Statistics, 2005-2030

2005 2010f 2020f 2030f

Life expectancy at birth, males, years 75.60 76.4 77.9 79.1

Life expectancy at birth, females, years 81.4 82.1 83.4 84.6

f = forecast. Data estimated at 2005. Source: UNESCO



Section 3: Labour Market And Spending Power

Table: Employment Indicators, 2001-2006

2001 2002 2003 2004 2005 2006

Economically active population, '000 39,966 40,022 40,195 40,047 41,150 41,601

– % change y-o-y 0.5 0.1 0.4 -0.3 2.7 1.1

– % of total population 48.5 48.5 48.7 48.5 49.8 50.3

Employment, '000 36,816 36,536 36,172 35,659 36,566 37,322

– % change y-o-y 0.5 -0.7 -1.0 -1.4 2.5 2.0

– male 20,629 20,336 19,996 19,681 201,355 20,462

– female 16,187 16,200 16,176 15,978 16,432 16,860

– female, % of total 43.9 44.3 44.7 44.8 44.9 45.1

Total employment, % of labour force 92.1 91.2 89.9 89.0 88.8 89.7

Unemployment, '000 3,150 3,486 4,023 4,388 4,583 4,279

– male 1,754 1,982 2,316 2,551 2,574 2,358

– female 1,396 1,504 1,707 1,836 2,009 1,921

– unemployment rate, % 7.9 8.7 10.0 11.0 11.1 10.3

Source: ILO

Table: Consumer Expenditure, 2000-2012 (US$)

2000 2007e 2008f 2009f 2010f 2012f

Consumer expenditure per capita 13,646 23,211 24,744 24,163 24,008 25,617

Poorest 20%, expenditure per capita 5,799 9,865 10,516 10,269 10,204 10,887

Richest 20%, expenditure per capita 25,176 42,824 45,653 44,580 44,296 47,264

Richest 10%, expenditure per capita 30,157 51,296 54,685 53,400 53,059 56,614

Middle 60%, expenditure per capita 12,418 21,122 22,517 21,988 21,848 23,312

Purchasing power parity

Consumer expenditure per capita 14,999 18,765 19,734 na na na

Poorest 20%, expenditure per capita 6,375 7,975 8,387 na na na

Richest 20%, expenditure per capita 27,673 34,621 36,410 na na na

Richest 10%, expenditure per capita 33,148 41,470 43,613 na na na

Middle 60%, expenditure per capita 13,649 17,076 17,958 na na na

e/f = estimate/forecast, na = not available. Source: World Bank, Country data; BMI



Table: Average Annual Manufacturing Wages

2000 2006 2007e 2008f 2009f 2010f 2012f

EUR* 57,782 32,739 33,592 34,929 36,250 37,433 40,056

Wage growth, % y-o-y 0.9 0.9 2.6 3.9 3.7 3.2 3.6

US$ na 40,917 46,686 49,600 48,394 48,102 51,272

e/f = estimate/forecast, na = not available. * 2000 is Deutschmark. Source: ILO, BMI



BMI Methodology

Food & Drink Business Environment Ratings

Ratings Methodology

BMI has revised the methodology of its Food & Drink Business Environment Rating. Our approach has

been threefold. First, we have redefined the risks rated in order to more accurately capture the operational

dangers to companies operating in this industry globally. Second, we have attempted, where possible, to

identify objective indicators that may serve as proxies for issues/trends that were previously evaluated on

a subjective basis. Finally, we have used BMI’s proprietary Country Risk Ratings (CRR) in a more

nuanced manner in order to ensure that only the aspects most relevant to the industry have been included.

Overall, the new ratings system – which now integrates with those of all 16 Industries covered by BMI –

offers an industry-leading insight into the prospects/risks for companies across the globe.

Ratings Overview

Ratings System

Conceptually, the new ratings system divides into two distinct areas:

Limits of Potential Returns: Evaluation of sector’s size and growth potential in each state, and also

broader industry/state characteristics that may inhibit its development.

Risks to Realisation of those Returns: Evaluation of Industry-specific dangers and those emanating from

the state’s political/economic profile that call into question the likelihood of anticipated returns being

realised over the assessed time period.

Indicators

The following indicators have been used. Overall, the rating uses three subjectively-measured indicators,

and 41separate indicators/datasets.



Table: Limits Of Potential Returns

Food And Drink Market Structure

Food and drink consumption per capita, US$ Indicator denotes overall breadth of market. Large markets score higher

than smaller ones

Soft drink consumption per capita, US$ Indicator denotes overall breadth of market. Large markets score higher

than smaller ones

Alcoholic drink consumption per capita, litres Indicator denotes overall breadth of market. Large markets score higher

than smaller ones

Per capita food consumption growth (5yr %) Indicator denotes sector dynamism. Scores are based on total growth

over our five-year forecast period

Food and drink trade balance Indicator denotes market’s natural resources and dependency on imports

for food and raw ingredient supply

Country Structure

Economic structure

Rating from BMI’s CRR. It evaluates the structural balance of the economy; evaluating issues such as over-reliance on single

sectors/markets as well as past economic volatility

Population size Proxy for potential market size. Large countries are considered more

attractive

GDP per capita, US$

A proxy for wealth. Size of population is important, but needs to be considered in relation to spending power. High income states receive

better scores than low income states

Market entry potential/Maturity

Subjective rating based on the level of industry development and the level and strength of industry competition in a market. Mature and/or

competitive markets receive low scores

See Business Environment section of report for regional and country-specific ratings explanation



Table: Risks To Realisation Of Potential Returns

Food And Drink Market Risks

Barriers to entry Subjective rating based on the prevalence of industry-specific barriers that might

impede investment and growth. States with many barriers receive low scores

Regulatory environment

Subjective rating based on the industry-specific regulatory environment and the presence of potentially restrictive legislation. Low scores reflect a heavily regulated

environment

Country Risks

Short-term economic growth Rating from BMI’s CRR. It evaluates likely growth trajectory over two-year forecast

period, based on BMI’s forecasts and projections of business and consumer confidence

Short-term financial risk

Rating from BMI’s CRR. It denotes risk of currency crisis and stability of banking sector. The former would hit revenues in hard currency; the latter would curtail investment

funding

Short-term monetary risk Rating from BMI’s CRR. It denotes the risk of inflationary pressures and interest rate

fluctuations, while taking into account the position of a country’s economic cycle

Short-term external risk Rating from BMI’s CRR. It denotes the state’s vulnerability to externally-induced

economic shock, which tend to be the principal triggers of economic crises

Characteristics of society Rating from BMI’s CRR. It evaluates impact of income distribution, poverty and ethnic

division on broader stability

Scope of state Rating from BMI’s CRR. Low state control markedly increases security risks, thereby

increasing costs in certain states

Institutions Rating from BMI’s CRR. It evaluates the risks to business posed by official bureaucracy,

the broader legal framework and corruption

Market orientation Subjective rating from BMI’s CRR to denote predictability of openness to foreign

investment and trade

Physical infrastructure Rating from BMI’s CRR. Poor power/water/transport infrastructure act as bottlenecks to

sector development

Labour infrastructure Rating from BMI’s CRR to denote cost/availability of labour. High costs will affect risk-

returns calculations




Weighting

Given the number of indicators/datasets used, it would be wholly inappropriate to give all sub-

components equal weight. Consequently, the following weight has been adopted.

Table: Weighting

Component Weighting

Limits of potential returns 70%

– Food and drink market structure 50%

– Country structure 50%

Risks to realisation of potential returns 30%

– Food and drink market risks 40%

– Country risks 60%




BMI Food & Drink Industry Glossary

Food & Drink

Food Consumption: All four food consumption indicators (food consumption in local currency, food

consumption in US dollar terms, per-capita food consumption and food consumption as a % of GDP)

relate to off-trade food and non-alcoholic drinks consumption, unless stated in the relevant table/section.

Off-trade: Relates to an item consumed away from the premises on which it was purchased. For

example, a bottle of water bought in a supermarket would count as off-trade, while a bottle of water

purchased as part of a meal in a restaurant would count as on-trade.

Canned Food: Relates to the sale of food products preserved by canning; inclusive of canned meat and

fish, canned ready meals, canned desserts and canned fruits and vegetables. Volume sales are measured in

thousand tonnes as opposed to on a unit basis to allow for cross-market comparisons.

Confectionery: Refers to retail sales of chocolate, sugar confectionery and gum products. Chocolate sales

include chocolate bars and boxed chocolates; gum sales incorporate both bubble gum and chewing gum;

and sugar confectionery sales include hard boiled sweets, mints, jellies and medicated sweets.

Trade: In the majority of BMI’s Food & Drink reports, we use the United Nations Standard International

Trade Classification, using categories Food and Live Animals, Beverages and Tobacco, Animal and

Vegetable Oils, Fats and Waxes and Oil-seeds and Oleaginous Fruits. Where an alternative classification

is used owing to data availability, this is clearly stated in the relevant report.

Drinks Sales: Soft drink sales (including carbonates, fruit juices, energy drinks, bottled water, functional

beverages and ready-to-drink tea and coffee), alcoholic drink sales (including beer, wine and spirits) and

tea and coffee sales (excluding ready-to-drink tea and coffee products, which are incorporated under

BMI’s soft drinks banner) are all off-trade only, unless stated in the relevant table/section.

Mass Grocery Retail

Mass Grocery Retail: BMI classifies mass grocery retail (MGR) as organised retail, performed by

companies with a network of modern grocery retail stores and modern distribution networks. MGR differs

from independent or traditional retail, which relates to informal, independent-owned grocery stores or

traditional market retailing. MGR incorporates hypermarket, supermarket, convenience and discount

retailing, and in unique cases co-operative retailing. Where supermarkets are independently-owned and

not classified as MGR, BMI will state so clearly within the relevant report.



Hypermarket: BMI classifies hypermarkets as retail outlets selling both groceries and a large range of

general merchandise goods (non-food items) and typically over 2,500m² in size. Traditionally only found

on the outskirts of town centres, hypermarkets are increasingly appearing in urban locations.

Supermarket: Supermarkets are the original and still most globally-prevalent form of self-service

grocery retail outlet. BMI classifies supermarkets as over 300m², up to the size of a hypermarket. The

typical supermarket carries both fresh and processed food items and will stock a range of non-food items,

most commonly household and beauty goods. In addition, the average supermarket will increasingly offer

customers some added-value services, such as dry cleaning or in-store ATMs, etc.

Discount stores: Although most commonly between 500m² and 1,500m² in size, and thus of the same

classification as supermarkets, discount stores will typically have a smaller floor-space than their

supermarket counterparts. Other distinguishing features include the prevalence of low-priced and private

label goods, an absence of added-value services – often called a no-frills environment – and a high

product turnover rate.

Convenience stores: BMI’s classification of convenience stores includes small outlets typically below

300m² in size, with long opening hours and located in high footfall areas. These stores mainly sell fast-

moving food and drink products (such as confectionery, beverages and snack foods) and non-food items,

typically stocking only two or three brand choices per item and often carrying higher prices than other

forms of grocery store.

Co-operatives: BMI classifies co-operatives as retail stores which are independently owned but club

together to form buying groups, under a co-operative arrangement, trading under the same banner,

although each is privately owned. The arrangement is similar to a franchise system, although all profits

are returned to members. The term is becoming more archaic with fewer co-operatives remaining that

conform to this model. Most co-operative groups now have a more centralised management structure and

operate more like normal supermarkets and are thus classified as such within BMI’s reports.



BMI Food & Drink Forecasting And Sourcing

How We Generate Our Industry Forecasts

BMI’s industry forecasts are generated using the best-practice techniques of time-series modelling and

causal/econometric modelling. The precise form of model we use varies from industry to industry, in each

case being determined, as per standard practice, by the prevailing features of the industry data being

examined. BMI mainly uses OLS estimators and, in order to avoid relying on subjective views and

encourage the use of objective views, BMI uses a ‘general-to-specific’ method. BMI mainly uses a linear

model, but simple non-linear models, such as the log-linear model, are used when necessary. During

periods of ‘industry shock’, for example a deep industry recession, dummy variables are used to

determine the level of impact.

Effective forecasting depends on appropriately selected regression models. BMI selects the best model

according to various different criteria and tests, including, but not exclusive to:

! R2 tests explanatory power; adjusted R2 takes degree of freedom into account;

! Testing the directional movement and magnitude of co-efficients;

! Hypothesis testing to ensure co-efficients are significant (normally t-test and/or P-value);

! All results are assessed to alleviate issues related to auto-correlation and multi-co-linearity.

BMI uses the selected best model to perform forecasting.

It must be remembered that human intervention plays a necessary and desirable role in all of BMI’s

industry forecasting. Experience, expertise and knowledge of industry data and trends ensures that

analysts spot structural breaks, anomalous data, turning points and seasonal features where a purely

mechanical forecasting process would not.

Within the Food & Drink industry, this intervention might include, but is not exclusive to: significant

company expansion plans; new product development that might influence pricing levels; dramatic

changes in local production levels; product taxation; the regulatory environment and specific areas of

legislation; changes in lifestyles and general societal trends; the formation of bilateral and multilateral

trading agreements and negotiations; political factors influencing trade; and the development of the

industry in neighbouring markets that are potential competitors for foreign direct investment.



Example of Food Consumption Model:

(Food Consumption)t = β0 + β1*(GDP)t + β2*(Inflation)t + β3*(Lending Rate)t + β4* (Foreign Exchange

Rate)t + β5*(Government Expenditure)t + β6*(Food Consumption)t-1 + εt

Sourcing

BMI uses the following sources in the compilation of data, developments and analysis for its range of

Food & Drink reports: national statistics offices; local industry governing-bodies and associations; local

trade associations; central banks; government departments, particularly trade, agricultural and commerce

ministries; officially released information and financial results from local and multinational companies;

cross-referenced information from local and international news agencies and trade press outlets; figures

from global organisations, such as the World Trade Organisation (WTO), the World Health Organisation

(WHO), the United Nations Food and Agricultural Organisation (FAO) and the Organisation for

Economic Co-operation and Development (OECD).

GerMAnY - WU Libraries Blogswulibraries.typepad.com/files/bmi_germany_food_and_drink_report_q… ·...

Documents

Transcript of GerMAnY - WU Libraries Blogswulibraries.typepad.com/files/bmi_germany_food_and_drink_report_q… ·...