Germany: How the inflation spiral is changing the landscape of supermarkets

The bad news for supermarket customers continues, according to Handelsblatt. Not only did Aldi (one of Germany’s largest discount supermarket chains) raise prices for hundreds of products, but food prices across the industry rose again by more than 6% in March, by more than Prices for fresh vegetables increased by 14% and for cooking oil by 17%.

However, according to experts, this is far from the end of the price spiral. “We are experiencing an inflationary shock in the food retail trade,” said Chehab Wahby, a consumer expert and partner at consulting firm EY-Parthenon. “Lower-income teams will be hit particularly hard.”

Both Aldi and her partners will set the pace. “Discount companies are the driving force behind prices in the market,” explains Wahby, an industry expert. Price movements will have a broad impact. Because supermarkets will follow suit.

The big concerns of consumers are reflected in the current data of GfK market researchers: 85% of consumers expect that the prices of everyday goods will continue to rise. Before the start of the war in Ukraine, this figure was still 77%.

At the same time, the consumer climate is plummeting. For May, GfK forecasts a price minus 26.5 points – the lowest price ever measured. It is also significantly lower than the lowest price ever measured in the spring of 2020 during the Korona blockade.

Aldi and Lidl are gaining market share

“There is huge uncertainty in the population, which is already having a surprisingly strong impact on buying behavior,” says Robert Kecskes, an industry expert at GfK. The strongest effects are observed in meat and sausages. The entire meat industry is struggling with declining sales – Tönnies announced on Wednesday a drop in sales of almost one billion euros.

“Customer budgets have shrunk due to overall cost increases,” Kecskes explains. People are also spending more money on restaurants, which are then missing out on spending on food trade.

Consumers were looking for cheaper alternatives. This is reflected in GfK data: the share of retailers’ proprietary brands in total sales rose again in the first quarter of 2022 for the first time in years and now stands at 34.6%.

This is especially evident in breakfast products, where private labels have increased their share by 3.6 percentage points. But they also gained 2.9 percentage points in staple foods.

The clear winners of food price inflation, however, are Aldi, Lidl and Co. While full-range supermarkets were able to make significant gains during the Corona crisis, discounters are now expanding their market share. According to GfK, they lost only 4% of their turnover in March, while the market as a whole fell by 8%. In the niche trade, for example in butchers, sales fell by as much as 14% on average in March.

Sales of branded organic products are falling sharply
Experts are not surprised. “In every financial crisis to date, the share of discounters has increased by three to four percent – and has not decreased significantly since then,” said consumer goods expert Wahby. There is now huge pressure in supermarkets.

Discount companies like Aldi enjoy vast core consumer confidence. That’s why they can afford the current price hikes, Wahby said.

On the other hand, full range retailers have a lot to lose. “If they raise prices too much, customers will quickly become dissatisfied,” says the consultant. GfK Kecskes expert has a similar view: “It is now a Heraklion project for supermarkets to retain their customers,” warns. But it is possible. Edeka and Rewe will probably now try to distract customers from the inevitable price increases with discount campaigns and strong promotion of their own brands.

But many consumers are also in a dilemma in the face of skyrocketing prices. During the Corona crisis, the trend towards a more conscious diet intensified. Organic and vegetarian products were in great demand. But now many customers obviously can not or do not want to afford these things anymore.

Here, too, most people turn to retailer brands – at least to ease their conscience a bit. According to GfK, the turnover of branded manufacturers in the organic products sector decreased by 11.4% in the first quarter. However, retailers’ own organic brands managed to grow by 9.3%.