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Is retail in Germany getting smarter?

Oct 13th 2011, 08:15


Is retail in Germany getting smarter?

I was fortunate enough to visit Germany last month and spent a great deal of time speaking to retailers and visiting stores. I also had the opportunity to visit the Real – Future Store, which is an enlightening step into the store of the (not too distant) future. It operates as a store open to the public while testing the latest technology innovations in retail at the same time.

There are a number of innovations in the store that are on the brink of being rolled out into mainstream retail, such as, self service checkouts and self payment options. But, the message that comes through strongly is that smart phones will be an integral part of the shopping experience sooner than you may think.

It was also alarming to see exactly how competitive the German retail environment is - not only between retailers, but also amongst brands and the ever dominance of private labels. Here, retailers operate on a trading margin of between .5 % and 1.5%. In South Africa retailers have it a little easier. Pick n Pay, which experienced a difficult year in 2010 operated with a trading margin of around 2.7% and Shoprite, a commendable 5.5%.

But, when operating in an environment, like Germany, where the selling price of goods is so competitive, retailers need to go to extreme measures to drive efficiency in their businesses and even the smallest saving is treated with a great deal of respect. This is particularly apparent when I visited an Aldi store, where SKU’s are kept to a minimum and private label products dominate the floor space. To be honest, it’s not a great shopping experience. but it’s cheap and it certainly keeps the competition sharp.

Private label products are the core of a retail offering in Europe and it is difficult to see how brands are able to maintain an effective presence, especially if they‘re not the dominant player in their category. Most retailers have three tiered offering of good, better and best. In certain categories the “best and Better” options are between 20% and 40% cheaper than the leading brand and “good” is at times more than 50% cheaper.

Suppliers have been under this pressure for some time now. Some brands have reduced the number of SKU’s while still developing new products in order to keep ahead in the race against retailer labels. Those brands that have excess capacity due to the delisting of products by European retailers will be looking for new markets and I have no doubt that we will soon be seeing European suppliers aggressively targeting the African continent.

Craig Ballantyne

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