Is price finally becoming less important?

One of the main challenges of entering the German market is the notoriously low price level. Today, food prices in Germany have reached a new peak. Does this mean it has now become easier to get on shelf for international food & drink producers?

The Federal Statistical Office of Germany Destatis recorded an inflation rate of 3.8% for January, which was lower than in previous months. However, measured against the starting point in 2020, the index now stands at 133.3, i.e. an impressive increase of 33.3%. That is a new record value. Prices are therefore stabilising at a high level. This is a good sign. It will hopefully lead to more appreciation for food and drink.

Unfortunately, this increase does not apply to all product prices. We are observing an unhealthy gap between brand and own label products, and it keeps on growing. Aldi and Lidl are lowering prices of many own label products, while prices of branded products are increasing. This puts manufacturers of branded products under even more pressure. Negotiations on further price increases with trade customers are ongoing but manufacturers have little hope for understanding from retailers – no matter the reason for these necessary increases. What will be the effect? It will probably further increase the already large gap between brand and private label products.

This significant gap is creating a special challenge: Many brands are offered with an unusually deep discount. The mistrustful German consumer perceives this as deception. Even retailers admit that the price difference is difficult to explain. If products are offered at a discount of over 60% (20% would be standard), the standard shelf price appears to be completely out of proportion. Consumers do not view them as a benchmark anymore and do not buy the products at the high standard price. This messes up retailers’ calculations, which require a stable standard business to sustain margins. How can this be solved?

We have heard about the odd manufacturer of branded products that – of their own accord – has suggested a lower recommended retail sales price to reduce the price gap. Not such a good idea and certainly not feasible for many brands. A step in the right direction is taken by retailers that create awareness for products that are not on promotion by featuring them in the sales leaflets with “from our range”. Another positive occurrence is the usage of FSDUs or off-shelf placements, even if the product is not currently on promotion. These measures are a welcome change, as they do not focus on price. Something that more retailers should have done a long time ago: focus more on reasons for consumers to buy a product that are not based on a low price.

The results from the shopper trend survey carried out with app users by Bring Labs show that German consumers are currently paying even more attention to quality and animal welfare than to the cost of products when shopping for food. Together with the mega trend of sustainability, as identified by consumer research institute Gfk, I would like to be cautiously optimistic that price is finally starting to lose some of its power and that consumers are shifting for good towards quality. No matter how all this will pan out, food & drink companies that want to enter the German market will still need patience, perseverance and a good plan after analysing the competitive set, fine-tuning USPs, adapting packaging weight and creating a bespoke German range.

Nicole Günther
Managing Director, Green Seed Germany

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