Sector Trend Analysis – Foodservice in Germany

Consumer profile and trend

Germany has a population of 83.2 million people (2020). The capital and largest city is Berlin, with about 3.3 million inhabitants. Germany has a highly developed social market economy. It is the largest national economy in Europe, the fourth largest by nominal GDP in the world and fifth by GDP (PPP).

Germany has the wealthiest consumers globally. Germany is the largest market for food and agricultural products in the European Union. The German market offers good opportunities for Canadian exporters of consumer-oriented products, particularly nuts, fish and seafood products, dried fruits, sauces and condiments, bakery products, organic products, and sweet potatoes. In 2019, German food service sales increased by 11.9%to US$110.8 billion (triple the growth from previous year), with all three major market segments–hotel, restaurant, and catering/institutional–enjoying increased sales. Restaurants led the food service market in 2019, with US$60 billion in sales. Key trends include sustainability, regional produce, convenience, health and wellness, and retail catering. COVID-19 related lock-down and physical distancing measures heavily impacted the German food sector and consumers' shopping patterns. (USDA 2020: Germany: Food Service - Hotel Restaurant Institutional)

Germany: Food Service - Hotel Restaurant Institutional

The German economy expanded 1.6% on quarter in the second quarter of 2021, slightly more than the preliminary estimate of 1.5%. It rebounded from a downwardly revised 2% contraction in the first three months of the year, supported by private consumption and state spending after COVID-19 restrictions were eased. Private consumption surged 3.2% (−5.2% in Q1), contributing 1.6 percentage points to overall growth. Public spending grew 1.8% (−0.7% in Q1), contributing 0.4%, while gross fixed capital formation was up 0.5% (−0.7% in Q1). However, both exports (0.5% vs 1.4%) and imports (2.1% vs 4.2%) rose at a slower pace. Year-on-year, the economy advanced 9.4%. Germany's GDP is expected to grow 3.7% this year, although it may miss full-year growth targets due to the coronavirus delta variant according to the Bundesbank (source: Federal Statistical Office).

Overall foodservice market and its size

Based on sales value, the top five EU foodservice markets are Italy, France, Spain, Germany and the United Kingdom. With 83 million of the world's wealthiest consumers, Germany is the largest market for food and agricultural products in the European Union. The German market offers good opportunities for Canadian exporters of consumer-oriented food and agriculture products, particularly nuts, fish and seafood products, dried fruits, sauces and condiments, bakery products, organic products and sweet potatoes. In 2019, German foodservice sales increased by 3.1% to US$99.5 billion, with all three major market segments–hotel, restaurant and catering/institutional–enjoying increased sales. Restaurants led the foodservice market in 2019, with US$53.3 billion in sales. Key trends include sustainability, regional produce, convenience, health and wellness, and Asian and ethnic cuisines.

The impact of COVID-19 on consumer foodservice sales

In 2020, COVID-19 had a direct and severe impact on consumer foodservice sales in Germany. To limit the spread of the virus, the German government imposed varying levels of restrictions on dining in restaurants starting as early as March 2020.

Since the onset of the COVID-19 pandemic, the food industry has been largely successful in supplying retailers with food. In the first few weeks of widespread quarantine, there was a surge in demand and some hoarding of durable foods such as canned food, flour and noodles. Despite some logistical challenges, the situation has mostly calmed down with grocery retail shelves largely restocked and the food industry is optimistic that it will continue to fulfill consumer demand. While the food industry has successfully dealt with the COVID-19 pandemic at the food retail level, there is another challenge: the collapse in demand from the foodservice sector. Products such as pre-cut vegetables and fruits, sauces, condiments, dried products, certain cuts of meat and fresh fish are facing a precipitous drop in demand. Canadian agricultural exports destined for the German foodservice sector could suffer losses. This includes fresh fish, beef and alcoholic beverages. Export losses may last longer than the duration of the restricted movements as many restaurants may go out of business and the loss of income may reduce consumers' ability to dine out. The restaurant sector will not recover quickly.

Early industry estimates indicate that sales from the food industry to foodservice dropped by 50% in March 2020 compared with March 2019, with projected sales for April 2020 down by 90% compared with the previous year. Besides the closure of restaurants, business is now nearly non-existent with caterers of airlines, trains, universities, schools and daycares, although supply to hospitals and nursing homes continues. Not all production is easily converted from foodservice to retail. The collapse of the foodservice market has had less of an impact on bigger companies, as they can more easily switch production lines since they often supply both retailers and foodservice. However, small companies are more affected since they often specialize in single products and the different needs of the foodservice sector in terms of packaging, size and product specifics. The sudden surplus of food in the foodservice industry left suppliers and foodservice entities scrambling for ways to use the perishable food. For example, McDonald's and the Arcona hotel group are donating raw materials and fresh produce to local food banks. Numerous restaurants are creating food boxes for pick-up or delivery, and some are selling leftover produce via online shops. A Michelin star chef from Berlin's Tulus Lotrek restaurant created a Germany-wide grassroots movement #KochenfürHelden [cooking for heroes], where restaurants deliver to hospitals, medical practices, nursing homes, etc. On a smaller scale, a closed daycare centre in Berlin is delivering three kilograms of fresh produce every other week to the families of the children who must now stay at home.

According to industry sources, the main challenge for the food industry besides the collapse of the foodservice sector is sourcing agricultural commodities. Starting on March 25, 2020, German borders were closed to seasonal agricultural workers from key countries, including Bulgaria and Romania. Germany relies on close to 300,000 seasonal agricultural workers, who make up nearly 30% of the agricultural workforce. This will primarily impact Germany's fruit and vegetable sectors, especially asparagus, strawberries, lettuce, various cabbages and cucumbers. Major suppliers of the German market like the Netherlands, Spain and Italy are facing the same problems. Therefore, the outlook for sourcing of agricultural commodities, and especially fruits and vegetables, is worrisome for the food industry. The German foodservice sector is large and highly fragmented but can be divided into the commercial and institutional foodservice markets.

The German commercial foodservice market includes hotels, restaurants, fast food and takeout outlets, bars, cafeterias, coffee shops and similar channels. The institutional foodservice market consists of hospitals, universities, nursing homes and cafeterias. German foodservice sales reached US$99.5 billion in 2018. Restaurants and fast food chains accounted for 53.3% of that total, hotels 35.4%, and canteens and caterers 10.3%. Foodservice suppliers consist of over 6,000 companies with 600,000 employees, and most of the companies are family-owned small and medium-sized companies. (the USDA FAS article of April 3, 2020).

German food processing industry

The German food processing industry consists of 6,119 companies, which employ 608,553 people. The sector is dominated by small and medium-sized companies, 96% of which have fewer than 250 employees. In 2019, the sector generated a turnover of roughly US$210 billion, accounting for around 5.25% of the German GDP. The largest subsectors by value were meat, dairy, bakery, confectionery and ice cream, and alcoholic beverages, accounting for 24%, 15%, 10%, 8% and 8%, respectively.

Food retail industry

German food retail sales reached US$273.9 billion in 2019. The sector is saturated and highly consolidated. The top five retail groups together account for more than 70% of sales. Online food sales show some growth, but it is still a niche market. While Germans are very price sensitive in general, many wealthy consumers are looking for premium quality products and are willing to pay a higher price.

Top 10 German food brands in Digital IQ Index

With a dense footprint of physical grocery stores in Germany, there are few digitally adept retailers to collaborate with for e-commerce. The top 10 brands in Gartner L2's Digital IQ Index: Food Germany cut through the private label and disruptor brand noise with engaging content that taps into major seasonal trends and adopt a multichannel marketing approach.

1. Barilla

Digital IQ: 146

Barilla grabs the top spot in the Index through strong performance across e-tailer platforms and outsize organic visibility against non-branded keywords. Its best-in-class product pages on Amazon feature extended content, which beef up discoverability through product descriptions and recipes that mention relevant keywords multiple times. On site, content optimization enables Barilla to shine on organic search against pasta keywords on Google search.

2. Dr. Oetker

Digital IQ: 142

Runner-up Dr. Oetker is the only Index brand to garner site visits comparable to e-tailers. It does so by leveraging an engaging recipe section and an Advent Kalendar, which accounted for a third of all page views in December. Investments in content development also render Dr. Oetker the only brand to outperform recipe sites on organic visibility against baking keywords on Google search.

3. Maggi

Digital IQ: 136

Maggi boasts a first-class recipe section, using multiple filtering options and an e-commerce plugin that facilitates the consumer journey by leading to a dedicated page on REWE, which is pre-populated with the required ingredients. Furthermore, its Facebook chat bot leverages site content to push recipes in Messenger and maintains the handoff to REWE.

4. Iglo

Digital IQ: 133

Iglo ranks in the top five for its digital investments focused on awareness. Iglo's efforts on YouTube video advertising contribute to it garnering the second-highest display video impressions on desktop. Meanwhile its bids on high search volume non-branded keywords secure it the highest text ad visibility in the frozen foods category.

5. Funny Frisch

Digital IQ: 131

Funny Frisch leverages its community on social media and site visitors to guide new product development. Its campaign, which asked users to vote for flavours, contributed to a considerable uplift in site visits.

Funny Frisch launched a campaign in which users were asked to vote for their favourite flavors. The results were also shared on social media.

6. Knorr

Digital IQ: 127

Knorr's notable investment in Sponsored Brands and Sponsored Products on Amazon make it an Index leader in sponsored visibility, even topping the number one brand in the study.

6. Milka

Digital IQ: 127

Milka's outsize investment in a mobile video display campaign to refresh the brand story across product lines resulted in impressions served equal to 43% of the whole Index.

8. Rügenwalder Mühle

Digital IQ: 126

Rügenwalder Mühle boasts the best guided selling section on site in the Index as it takes every opportunity to link downstream to product pages from educational content and the standalone ingredient library.

9. Lindt

Digital IQ: 126

Lindt complements strong performance on e-tailer platforms with a site that facilitates direct-to-consumers commerce. It justifies this investment by focusing on personalized creations and receives the most site visits in the confectionery category.

10. Bofrost

Digital IQ: 126

Bofrost's substantial investments in Google Ads and site optimization crown it the category-leader in both paid and organic visibility, resulting in the third highest site visits in the Index.

(Ganev, Kaloyan, Gartner Daily Insights, 2019)

Steps for market entry

Market structure

Purchasing by hotels, restaurants and institutions is fragmented and competitive. Few of these businesses import products directly from other countries, except for items that they purchase in large quantities. Most HRI companies would rather purchase from central buyers/distributors importing food and beverages. In general, these wholesalers have specialized in products or product groups. Some are even experts in food products from a specific country of origin. Specialized importers have an in-depth knowledge of importing requirements, such as product certification, labelling and packaging. They also typically handle shipping, customs clearance, warehousing and distribution of products within the country. The two major distribution channels for the German foodservice trade are "cash and carry" wholesalers and specialized distributors/wholesalers.

Cash and carry wholesalers operate large stores with food and non-food products. They sell to retailers, restaurants and other foodservice operators. Cash and carry stores offer a variety of products at competitive prices. They are not open to the average consumer.

Specialized distributors to the foodservice sector have dry and cold storage facilities with refrigerated/frozen trucks for deliveries. They buy from processing companies, importers and, occasionally, foreign exporters. To cover the entire German foodservice market, regional distributors have organized in groups, such as Intergast and Service Bund. Some of those distributors organize in-house food shows once or twice a year, during which their suppliers can showcase their products to potential customers. (USDA: German Food Service, 2020). This is an excellent opportunity for Canadian product suppliers to enter the German foodservice market.

Entry strategy

The German market offers good opportunities for Canadian exporters of consumer-oriented agricultural products. However, there are several challenges Canadian exporters must overcome before exporting to the German market. Success in introducing food products depends largely on knowledge of the market and personal contact with key decision makers. Canadian suppliers should analyze German/EU food law, packaging and labeling requirements, business practices, trade-related laws and tariffs, potential importers and the distribution system. The trade commissioners at the Canadian Embassy in Germany offer guidelines on business practices and import regulations.

Distribution and sub-sector profiles

Consumer foodservice sales are increasing across all sectors. Hotels were the second biggest sector in foodservice in 2019, with sales totalling US$35.8 billion. The top international hotel chains in Germany in 2019 (by size) were AccorHotels, Best Western, Marriott International, IHG and B&B Hotels (European Chains & Hotels Report 2019, Horwath HTL.).

Restaurants led the foodservice market with US$53.3 billion in sales. International chains have a very strong position in fast food; the biggest players in the German foodservice market in 2019 were McDonald's, Burger King, LSG Lufthansa (LSG Sky Chefs), Autobahn (T&R Raststätten/Autohöfe) and Yum! (KFC, Pizza Hut).

Institutions were the smallest sector in foodservice in 2019, with sales of US$11.7 billion. The in-house company restaurants made up over half of the total sales volume, followed by hospitals, retirement homes, new markets, and schools and universities. All institutions reflect the general growth trend of 2019. The majority of the institutional foodservice market is covered by caterers, of which the top five largest are Compass, Aramark, Sodexo, Klüh, and apetito.(USDA: German Food Service, 2020)

Competition

Trade within the EU28 bloc is significantly easier for Germany than trading outside the bloc, so it comes as no surprise that the top three exporters of most products to Germany are typically other European competitors to Canada. Therefore, the biggest competition for German market share is with Switzerland and Turkey, the US, China, Brazil and Thailand.

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Resources

• Euromonitor, 2021.
• Federal Statistical Office, Germany, 2021
• Ganev, Kaloyan, Gartner Daily Insights, October 14, 2019, Top 10 German Food Brands in Digital. Retrieved on September 24, 2021
• Global Trade Tracker, 2021
• International Trade and Investment Agreements (Global Affairs Canada), 2017. European Union – Chapter Summaries
• USDA Foreign Agricultural Service, April 3, 2020, "COVID19 Pummels German Food Service Sector". Assessed on October 11, 2021
• USDA Foreign Agricultural Service, October 9, 2020, "Germany: Food Service – Hotel Restaurant Institutional", accessed on October 7, 2021

Sector Trend Analysis – Foodservice in Germany
Global Analysis Report

Prepared by: Hongli Wang, Senior Market Analyst

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