Grocery retailers are facing an unprecedented opportunity in Germany. Since early 2020, with foodservice largely restricted, most food spending was channelled into grocery stores which suddenly found themselves with the cash needed to reinvest in their businesses and strengthen their market positions. Stores have been remodelled in some cases, an increasing number of private label ranges featuring organic “bio” and regional products have appeared on store shelves, and most retail chains are exploring their options in terms of e-commerce and grocery delivery. Meanwhile, private savings in Germany increased by 5.4% in 2020, according to national statistics. With fewer options in dining and travel, many consumers spent more on groceries, trading up to premium products and convenience. Per capita spend in supermarkets alone increased by 6.2% in 2020 according to Euromonitor International’s Passport Retailing data.
Grocery spending in 2020 was of course, exceptionally high and will likely retreat somewhat in 2021. However, organic growth is still likely in the years ahead. New routines established at home have created a new market for at-home convenience, while delivery start-ups have helped shape a new universe of meal fulfilment options around grocery retail. Dark store concepts such as Gorillas or Flink now make it possible to deliver groceries within 10 minutes of ordering for a nominal delivery fee. This unbelievable speed is changing consumers’ expectations regarding what is possible, while it places pressure on the foodservice market as operators navigate a post-pandemic return to normal.
New routines, new grocery delivery models
During the pandemic, consumers’ everyday lives were profoundly disrupted, with many spending prolonged periods of time at home. Some learned to cook for the first time, while others experimented with new ingredients and products from grocery retailers. As consumers had time to explore their options, new routines emerged, then settled into the new “normal” that now exists. The centre of most consumers’ lives remains the home, now more so than ever before, as opposed to the place their office may be located or dense city centres.
This rapidly created a unique market opportunity for grocery delivery players in Germany. Consumers were eager to make those trips to the grocery store more convenient (and perhaps safer by limiting social contact). They also quickly adapted to digital channels such as smartphones to purchase products and access services. Greater time at home makes deliveries of Amazon packages, pizzas and importantly, fresh food and perishable grocery items, more viable, accelerating the opportunity for delivery players. An increasing number of delivery services have emerged to meet this surge in demand, as even older generations of consumers looked to download the apps – perhaps for the first time – of companies such as Picnic or navigate websites such as Kaufland.de or Rewe.de. These learned behaviours have established a new benchmark for channels and access in Germany, with no signs of retreating.
As consumption shifted to the home, commercial activities shifted outwards from city centres to residential locations. Neighbourhood convenience stores, petrol stations and package collection centres became local nodes of distribution and collection. New start-ups opened dark store fulfilment locations, creating a new layer of opportunity in impulse food and beverage delivery. Residential real estate is cheaper than in city centres and dark stores are simple and functional because they are not consumer-facing. This also brings them very close to where consumers actually live, making 10-minute delivery times feasible.
The foodservice question
This new market for at-home meals and the services that now make this more convenient has thrust grocery retailers into the spotlight, just as foodservice operators slowly return to business. With the capital to invest in new offerings, major grocery retail chains will likely partner with or buy out local delivery already present to further expand growth opportunities. Even with untested, venture capital-dependent business models in long-term profitability, grocery delivery adds value to the overall grocery experience in the context of a retailer’s brand universe. Omnichannel offerings build brand loyalty and help solidify the gains in share of meals now being consumed more often at home.
This is going to be a challenge for foodservice channels such as restaurants, especially in Germany given the collective strength that grocery retail brands already and traditionally have in the market, let alone the additional advantage the pandemic helped create. With less consumer traffic flowing through on-the-go foodservice establishments and fewer breakfast and lunchtime occasions for workplace commuters, foodservice operators will need to lean more heavily on meals as a service and dining for experience, to differentiate from the opportunity in dining for convenience that is quickly and increasingly being fulfilled by grocery retailers. This opportunity is expected to be worth EUR15.6 billion in organic growth (the absolute positive growth by 2026 compared to 2019, excluding inflation) in the grocery retail space. With so much at stake, companies will need to move rapidly.
Further insight into this topic can be found in the following global strategy reports: The Future of Grocery Shopping and Meals at Home and The Era of Food on Demand.