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November 18, 2011

German Organic Market Driven by Specialist Retail

Analyst Insight by Ewa Hudson.

Euromonitor International gives an overview of the world's second largest market for organic products, where a retail environment which is adapting itself to changing economic conditions is actually helping the category along.

Finding its way back to growth

Germany is Europe's largest market for organic packaged foods and beverages. On a global level, only the US beats Germany in terms of total value sales. In 2010, Germany's organic market managed to regain its positive growth trajectory after a stagnant 2009, achieving a modest value sales increase of 1%.

In contrast, the naturally healthy category remained at a virtual standstill for the third year running, demonstrating that organic retains its differentiating edge over more run-of-the-mill naturally healthy foods and beverages, justifying its price premium in the eyes of German consumers.

Packaged organic foods strongly dominate the organic product landscape in Germany, accounting for 86% of sales in 2010, while beverages accounted for the rest, accruing value sales of just over €300 million. As one would expect, organic dairy products is the biggest category, followed by organic bakery.

Both categories combined accounted for 43% of total organic product sales in 2010. In that year, the strongest growth (7%) was achieved by organic soy-based yoghurts as German consumers became increasingly switched on to the health benefits of soy.

Many health-conscious consumers also gained an awareness of the insidious effects that food intolerances can have on wellbeing. Dairy products are a common trigger of allergies and/or intolerances, and, as a result, a growing number of consumers tried either to reduce or at the very least eliminate dairy foods from their diets altogether, and this benefited sales of soy-based yoghurt.

Specialists benefit from mainstream retailers' delisting drive

According to a 2011 report published by the industry organisation Bund Ökologische Lebensmittelwirtschaft (BÖLW, Federation of Organic Food Producers), expansion activity among specialist organic and natural product retailers has acted as a major growth driver of the organics category.

The onset of the recession, although Germany was hit much less hard than other European countries, did have an impact on consumer grocery spending, especially where premium items were concerned, and as a result discounters and mainstream grocery retailers have responded by optimising their organic offerings over the past couple of years.

The BÖLW remarked in its report that the shelf space allocated to organic products in mainstream grocery retail outlets averaged around 20%, with many taking steps to reduce the number of lines and products in response to rising demand for economy lines.

Discounters, which dominate the German grocery retail landscape with a value share of 36%, responded to consumers' tightening purse strings by focusing only on high-turnover lines, and removing some of the less profitable ones. Lidl and Penny Markt, in particular, pared down their organic portfolios significantly during 2010.

Euromonitor International's health and wellness data confirm this trend, showing that in 2010 discounters' value share of the German organic market fell by one percentage point to 30%, after having peaked the previous year.

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