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This week, we interviewed Dr. Lutz Anderie, General Manager, Advantage Germany, to hear his perspective on how COVID-19 is impacting life and retail in Germany.

Q1 - How has the pandemic affected the German CPG industry and where does the German market stand presently?

Germany has been affected by the pandemic in a very similar way to the rest of the world. Hoarding and empty shelves due to delayed deliveries were some of the phenomenon witnessed during the early phase of the lockdown.

The German CPG industry has tried its best to stay calm and react pragmatically to these new challenges. The logistical challenges were, for example, described as “just like Christmas only without lead time”. One of the consequences was that many retailers decided to put a halt to promotions, which led to an increase in average grocery prices.

Another effect was that online grocery buying increased by 30%. Non-food online purchases increased by even more than 30% and have kept freight forwarders very busy.

Most shoppers have reduced the frequency in which they go to the stores, relying on one main retailer for their weekly grocery shopping. Because of this, people are tending to choose supermarkets over discounters as their primary shopping location as supermarkets provide the wider selection and ability to get all their products in one visit. Consumer surveys are showing that price is less important during COVID-19 and that this could stay the case post-virus. It is also observed that regional products are becoming more popular, and these are generally not available from discounters.

Suppliers with a significant share of sales in the restaurant and out-of-home channel are facing a significant loss of revenue.

The meat industry in Germany was negatively affected as many workers were infected with COVID-19. Thus, many factories had to shut down their production. Price increases are predicted as one of the consequences of this.

Retailers and suppliers are still facing challenges in daily business, but they are recovering slowly from the worst of the situation. Demand volatility and availability of specific goods are still challenging.

Some suppliers and retailers are dealing with period revenue loss of up to 40%, but most of them are optimistic that this will be made up by the end of the year.

Overall, while presenting challenges, the pandemic has had a positive impact on the German CPG industry as its image has improved in various ways. Grocery store employees have gained a lot of respect and appreciation from the public, and companies in the industry have increased their reputation as responsible employers.

Q2 - With Germany beginning to ease lockdown restrictions, how are consumers and the industry reacting to this new level of “freedom”?

The industry is pushing for further easing of restrictions as they are hoping to retrieve sales losses as soon as possible (assuming safety guidelines are properly followed). While the government is withdrawing some restrictions, people do not seem to be quite ready for a complete “return to normal”. Town centers are far from being as busy as they were before the pandemic and purchase behaviour, in general, is still rather restrained due to several reasons:

  • Lack of spending power – some people have been hit hard financially due to layoffs.
  • Lack of spending confidence – people continue to feel insecure about the economic situation and would rather save money “in case of an emergency”.
  • Lack of positive shopping experience – retailers still have restrictions and hygiene measures in place, such as in-store security personnel controlling the number of consumers permitted in-store, and the requirement for shoppers to wear face masks. This type of shopping environment does not encourage extra spending.

Slowly but surely, normalcy is starting to return. Retailers are resuming some in-store promotions to stimulate additional sales. Stockpiling has ended and consumers are starting to purchase as they did in the past. And as a stimulus measure, the government is considering issuing citizens with “consumption vouchers” to boost spending.

The work environment of our clients is also starting to return to normal. With demand and supply stabilized, they are refocusing on production rather than on solving logistics challenges that manufacturers had to solve when the crisis first hit. Face-to-face meetings between retailers and suppliers are taking place again, although some retailers are erring on the side of caution and prefer to delay face-to-face meetings until autumn. With the worst of the crisis hopefully over, both suppliers and retailers are once again able to start planning for next year and are preparing for tough annual negotiations – a true sign that business in Germany has returned to normal.

Q3 - What are some of the innovations and changes made in the industry resulting from COVID-19? Do you anticipate these will continue into the long term?

There were some temporary, quick fixes done to deal with some of the supply issues faced. For example, to ease logistics bottlenecks, there was a temporary suspension of the Sunday traffic ban for trucks. Supermarkets also started to produce their own yeast to cope with the shortage of this product.

One of the main longer-term impacts will be an increased reliance on people working from home offices and the resulting changes in communication. The share of home office workspaces is expected to increase significantly after the pandemic, as the flexibility and convenience have generally been viewed as enriching to the German work culture. Companies have started to rely on and accept the value of digital communication tools and software such as Skype, Microsoft Teams and WebEx; this will contribute to better and faster development of digitalization in the German workplace.

As with any crisis, there will be some winners and losers, with some suppliers and retailers downsizing, while others go into acquisition and growth mode. Dr. Oetker, which produces heavily demanded products like oven pizza and baking powder, is doing very well and has announced that they are planning acquisitions. While Karstadt, a department store, is having to close 80 of its 160 outlets.