Germany Food and Drink Report FY10 Q3; Over H110 indicators coming out of Germany have been somewhat subdued. For example, in January 2010, the Federal Statistical Office (Destatis) 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.
We expect real GDP growth in Germany to return in 2010, with a 1.7% expansion forecast . 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. We expect this trend to continue over the forecast period with value sales dropping by 4% by 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.
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 Germany is home to a multitude of craft brewers offering some of the finest beer in the world. The head of marketing at Krombacher Brauerei, which produces Germany's bestselling lager, recently said in an interview that the company estimated that overcapacity in the sector was at 30%. With consumption falling, an increasing number of producers will eventually be squeezed out. In another sector where Germany leads the European league, figures from the domestic 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 (US$7.7bn) 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, we believe the sector can be expected to deliver market beating growth in the coming years.
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. 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 for organics will rapidly return once consumer confidence picks up.
Germany Food and Drink Report Q3 2010: http://www.companiesandmarkets.com/r.ashx?id=TBM46W73Q290279&prk=637b3ac5d2736d92e5683930477cb0e4