January 6, 2017

German retailers await Amazon Fresh in 2017

Medieval warrior with chain mail armour (photo: guerrieroale_Fotolia)
Ready for the challenge?
Flood the moat, raise the drawbridge, lower the portcullis! The robber barons of German retailing are making ready to protect their lands and traditional fiefdoms from the relentless advance of a foreign army carrying the banners of 'Prime Now' and 'Amazon Fresh'.

For years German retailers have tried to withstand the strong arm of progress. Customers with credit cards were turned away at the tills; private equity was met with vinculated shares; and CEOs continued to exercise feudal rights over their serfs. But these bastions have slowly crumbled.

To date they have at least been successful in keeping online food delivery to a mere 1 per cent of the trade. So will their castles be able to withstand the coming siege? Admittedly, these knights in shining armour are brave and ready to die for the cause of bricks & mortar, but will this help them when the invader has gunpowder?

US e-commerce giant Amazon already offers several thousand food lines via Prime Now in Berlin and Munich. The Americans intend to extend this super-fast online delivery service to at least one other big city this year. Lebensmittel Zeitung understands that they have been negotiating with regional food suppliers in, for instance, Bochum. Amazon Fresh is also expected to start in Germany this year.

True to form, the local lords of the manor seemed happier quarrelling among themselves in 2016 than preparing to meet the impending onslaught from overseas. We were thus treated to an unedifying squabble between retail giants Edeka and Rewe over the bones of a largely unprofitable regional multiple named Kaiser's Tengelmann.

Ritterburg (photo: fschuetz.Fotolia_13261289_L)
Go home Amazon: German retailers also offer Click & Collect
Meanwhile, Aldi Süd (Aldi South), who briefly flirted with an online shop in Australia and who still dabbles with one in the UK, refuses to act in its homeland. Germany's most profitable discounter claims that this would be incompatible with its mission to provide "the best quality (food) at consistently low prices".

Those German retailers who are ready to take up Amazon's gauntlet have concentrated their lines of defence on the big cities and particularly Berlin. Rewe CEO Alain Caparros has said in a recent interview that "a healthy paranoia is very helpful" when dealing with Amazon Fresh. Rewe aims for annual online sales of €800m by 2020 although the company is nowhere near to achieving this figure today.

At first blush, this goal may look impressive. After all, Lebensmittel Zeitung's new international trade analysis subsidiary, LZ Retailytics, estimates that Amazon Fresh and Prime Now will only post €90m viz. €70m by then. But the sum is peanuts given that Rewe Group could well gross over €60bn in three years' time.

Schwarz Group has confirmed that its hypermarket subsidiary, Kaufland, is building a food delivery service in Hamburg. The company has declined to give a starting date, but this is expected to be in 2017, and the project will doubtless be extended to other major conurbations.

Lidl Express under construction in Berlin (photo: LZ)
Sneak peek: Lidl Express under construction in Berlin
Parallel to this, Kaufland's sister company Lidl intends to launch its first multi-channel concept in Berlin this year under the 'Lidl Express' banner. This hybrid model has a completely new store layout and will combine a convenience assortment with an online pick-up point.

It is not known whether Lidl also intends to venture into the home delivery arena, but the discounter is certainly building a logistics infrastructure to support its e-commerce activities in the German capital.

One goody inherited by Edeka among the dusty relics of Kaiser's Tengelmann is online delivery service 'Bringmeister'. This pure player also owns a brand-new logistics centre in which at least several million euros have been invested. But, in the words of CEO Markus Mosa, online concepts have still to be developed which suit "the business model" of Edeka's independent retailers.

Given the belated rear-guard action of most German bricks & mortar retailers to our brave new online world, one is tempted to ask whether they know something we don't know as mere consumers?

Caricature by Oliver Sebel on page 1, edition 52 of Lebensmittel Zeitung
In this caricature Oliver Sebel portrays Rewe CEO Alain Caparros as an aggressive SUV driver crashing into Edeka's purchase of regional retailer Kaiser's Tengelmann on the autobahn. While the participants are thus absorbed, Amazon rushes past seemingly unnoticed in a bullet train...
After all, they have a lot of trump cards in their hands: Their food expertise is considerable and their vast buying power enables them to bully suppliers for the best terms & conditions. Having managed to overstore even a country with more than 80m inhabitants, Germany's retail oligarchs also own shops on virtually every street corner which could theoretically be used as local online pick-up points.

But the words of Erich Harsch, CEO of leading drugstore operator dm, sound ominous: "Large parts of Germany are very suited to online retailing." Here he cites Germany's high population density, numerous conurbations and modern infrastructure. "If it is possible to deliver chemists quickly, then one can also deliver households with fresh food."

Amazon, with its refreshingly American business attitude of 'can do', clearly wants to prove Erich Harsch right; the question is now whether local retailers 'will do'.


Related articles in German: 'Handel rüstet gegen Amazon auf' by Jens Holst & 'Markt der Möglichkeiten' by Jan Mende on page 4 of Lebensmittel Zeitung, no. 1, 06.01.2017


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