Quality and price clashing in German grocery retailing
Germany has been regarded as the market that is dominated by the discounters. After all Germany is the home of the world’s biggest discount grocers, Aldi and Lidl.
These two discount giants are also biggest grocery retailers in Europe (internationally only Kroger and Walmart are bigger).
Germany is not only a country of discounters
Germany has a lot of beautiful grocery stores from some of the most innovative grocers in Europe. The Edeka stores run by the Zurheide brothers are something grocery retailers all over Europe flock to see. They are true innovators in the grocery store space.
©zurheide.feinekost.de
In terms of the market shares, Germany is divided between the Full assortment stores and the Discounters. Online channel represents around 1,5 % of the market. Besides small online share, notable in the image is the tiny segment of convenience. In many other major European markets convenience has grown to represent a significant channel.
Market shares - four big players
Germany can be regarded as rather competitive market. This can be said to be true despite the fact that the market leader Edeka has a rather big market share. With 32 % market share and 55 billion € in revenues (in Germany) Edeka is a clear market leader.
However, Edeka is challenged by three big grocers: Rewe, Schwarz Group and Aldi. All of them are in fact bigger retailers overall than Edeka, not just in Germany.
In terms of the market shares the German market resembles a bit the English market. Both markets have the market leader with around 30 % market share (Tesco dropped below over the recent years).
The market leader is challenged by three strong rivals. In Germany the rivals are much more powerful than in the UK. They are also more evenly strong rivals than in the UK. In UK Morrisons is number four with a significantly smaller market share (10 %) than what Aldi has in Germany. Aldi is one of the biggest in the world operating more than 11 000 stores in 20 countries.
Like in the UK and Germany, French grocery market has five rather equally big grocers. However, like in the UK, France only has three grocers with a market share of over 15 %.
This goes to illustrate that Germany has four retailers that all have significant possibilities to invest for the future. In fact, the German retailers are much bigger than the counterparts in the UK and France, as Aldi and Lidl are so big internationally.
Unlike the English and French grocers, the German grocers have not used their investments to drive the online grocery offerings.
Even though the German grocery market is bigger than the French or UK ones, the online channel has lagged for years. According to IGD, in 2018 the German online grocery market was only 10 % of the size of the UK online grocery market. All of the markets grew rapidly during the pandemic. Thus one can assume that there would not be big differences in the comparative sizes of the markets.
Source: IGD
Online - bubbling under
Despite the big size and investment capability of the German grocery players, they have not been investing in the online channel. One could say that the germans are too discount-oriented consumers to buy from online.
It would be too easy to explain the lack of online investment with the big market share of the discounters.
After all Germany is home to the fashion ecommerce giant Zalando and it is Amazon’s biggest market outside the US.
Thus the germans are willing and able to buy products online. Like in all other major western grocery markets, the pandemic generated a shift in the growth of the online channel.
Source: bvh.org
Four interesting online challengers
Last year has also marked a shift in the activity of the online grocery market players. Firstly, the dutch pure play online grocer Picnic has continued its expansion to Germany. The expansion started in 2018 and covers already 30 cities in the western Germany.
Interesting aspect of Picnic’s German expansion is that they have created close collaboration with the market leader Edeka. Edeka has invested in Picnic in multiple rounds and their ownership in Picnic currently stands at 10 %. Edeka and Picnic also created a sourcing alliance.
The Picnic collaboration is an interesting approach to online for Edeka. This way the retailer stays involved in the grocery industry’s move to online without too much operational disruption to the core business. In terms of the new kinds of capabilities needed in the online channel Edeka has the ability to see how a modern and fast growing online retailer operates and what makes it unique.
With all these learnings Edeka has a front row seat to learn about the online channel. It also leaves all the future options available for Edeka as they have the access to data and understanding of the Picnic business.
Another interesting addition to the German online grocery market will be the launch of the Norwegian Oda. Their efficient model has grown rapidly in Norway and will launch in Finland in early 2022. Oda has perfected their fulfilment center operations to be even more efficient than Ocado’s world renowned picking efficiency. Oda operates at UPH picking efficiency of 215, whereas Ocado has reported UPH efficiency of 170. Differing from Picnic, which entered Germany from the West, Oda seems to be entering Germany via Berlin.
A third interesting player entering Germany, again from a different region, is the Czech company Knuspr (known also as Rohlik). Knuspr enters Germany from the south launching in Munich. They promise the grocery delivery in two hours. This is an interesting combination of almost quick commerce speed with the traditional big assortment of online grocery. However, Knuspr doesn’t explain in their website how they make this possible.
Knuspr also has an interesting differentiation as they sell Marks & Spencer products. M&S is a quality leader in groceries in the UK and it will be interesting to follow how their products are adopted in Germany.
And then there is Amazon…
Germany is the biggest international market to Amazon (according to their financial reporting). The company launched it’s Fresh online grocery service in Germany already in 2017. Just like in the US, Amazon Fresh has not been a big success. However, with the scale of Amazon, a small success can be big compared to the upstarts listed above.
Also Amazon is a very patient company when it comes to developing new service. Grocery has been for years one of the most important investment areas for Amazon. So big that the retired CEO/founder Jeff Bezos has remained a position overseeing the company’s expansion into groceries.
And lastly a wild card speculation about a potential new entrant. Ocado co-founder/CEO Time Steiner speculated last summer about a possible expansion to Western Europe. When examines the list of Ocado international partners, it is not difficult to see that Netherlands and Germany the only major Western European markets where Ocado doesn’t have partners already. Others being Norway, Portugal, Denmark, Italy and Switzerland. Germany is by far the biggest market of those.
Who will conquer German online grocery?
Despite the big spending potential and the high population density, Germany isn’t as easy market to conquer for Ocado as it might have seemed a year ago. During the last year Germany has turned from an online grocery laggard into an attractive market with multiple serious challengers competing to get to the vast potential of the biggest market in Europe.
All of the big online challengers have somewhat different approaches:
Oda (traditional online with a very efficient warehouse)
Picnic (one next day delivery per area per day, but always free delivery)
Rohlik (two hour delivery)
Amazon (offering mixed, but the brand known by everyone).
It will be interesting to see which approach and retailer will come out as the winner. They all come to the market from different geographical directions. Eventually they will clash in some regions. That will be an interesting test of strength for these players and of course for the German consumer. The customer is after all the one who really wins in this battle over the supremacy of German online grocery.