Retailers “foolish” to cut spend on supermarkets: study

Posted by Daniel Palmer on 7th July 2009

Food retailers would be “foolish” to cut spending on their supermarket chains even as they navigate an economy in recession, analysts BMI have claimed in a German-based report.

In recent months, the likes of Edeka and Rewe Group (two of Germany’s largest supermarket operators) have highlighted plans to expand their discount businesses to capitalise on growing consumer demand for value.

Edeka has earmarked a wave of store openings, both supermarket and discount outlets, but last week seemed to emphasise its plans for the discount sector. The retailer told just-food of plans to expand its discount business, with the opening of new stores and the integration of last year’s acquisition, Plus.

In April, Rewe said it would open 160 discount stores and 100 supermarkets in Germany this year.

However, in a report on the German food retail sector, BMI said supermarkets had put in a “strong performance” in 2006 and 2007 when the country’s economy was thriving.

That performance, BMI argued, should give the likes of Edeka and Rewe Group a “ray of hope” that supermarkets, where sales have been hit during the downturn, should bounce back once the German economy recovers.

“BMI is currently forecasting that German GDP growth will pick up again in 2010. The last economic cycle suggests that it takes around a year for consumer confidence to return after the economy picks up. This means that the supermarket sector could struggle up until at least 2011,” BMI said.

“Despite this, BMI thinks it would be foolish for any retailer to cut investment in the supermarket sector, as retail sales from 2006 and 2007 clearly reveal that once the economy starts to pick up it could be the discount format that faces a tough time.”

Nevertheless, BMI sees discount stores driving the growth of Germany’s mass grocery retail sector up to 2013.

When compared to 2008 figures, the analysts see the sector as a whole growing by 16% by 2013 to US$231bn (A$289b).

Discount store sales are forecast to grow by 23% to US$98bn (A$123b) over the same period, BMI forecast.

“This growth will be largely fuelled by new store openings, with traditional MGR operators such as Edeka and Rewe as well as discount veterans Aldi and Lidl all keen to stake their claim in the discount sector through new stores,” BMI said. “The sales growth of the other formats over the forecast period will be modest by comparison.”

Under BMI’s forecast, supermarket sales are to grow by 17% over the next five years, reaching US$54bn (A$68b) by 2013. Sales at hypermarkets are forecast to increase by 10% to reach US$51bn (A$64b).

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