Status: 10/30/2022 5:10 p.m
Prices are rising – manufacturers and food retailers are therefore in a clinch. The customers react: They often go to several markets for a purchase and often choose their own brands.
The sight of almost empty supermarket shelves is still something special in Germany. During the first corona wave, there was panic buying of pasta and toilet paper. That spring, the Germans feared that flour could become scarce because of the war in Ukraine. Photos of yawning empty shelves were very popular on social media, and songs were even written about German buying behavior. These days, consumers are rubbing their eyes again in amazement when looking for their favorite products: sometimes the preferred type of cola is missing in the supermarket or in the discounter, sometimes dog food or roll-on deodorant. Alone – this time it’s not up to the customers.
Mars argues with Rewe and Edeka
The background is the current price negotiations between large food manufacturers and established retailers. There’s a lot of money at stake, and it’s also a question of who’s more powerful when it comes to margins. Current example: The Rewe Group (including the discounter Penny) and the Edeka Group (including Netto and Marktkauf) are waiting in vain for deliveries from the US Mars Group. Mars makes billions – and not just selling candy bars. The portfolio also includes animal feed, pasta and rice.
The dispute has escalated and, unlike in previous years, it is also being carried out in public. At Rewe, there are reports of a new wave of price demands. Part of this cannot be explained by the currently high raw material and energy prices – hence the negative attitude. Edeka’s reaction is even clearer: In a statement, there is talk of aggressors and industrial groups that played off their market power: “Not only Mars, but also many other international brand groups such as Coca-Cola or Procter & Gamble are currently trying to ride the wave of inflation with exaggerated price demands, to increase their returns and use unilateral delivery stops as a means of exerting pressure on retailers,” says the Edeka press team.
Inflation ensures hardened fronts
Mars did not want to comment on the dispute with the German retail chains. However, whoever speaks to the press during this phase is the Markenverband, which represents around 400 companies – including Coca-Cola, Dr. Oetker and August Storck. Andreas Gayk, managing director for law and politics, calls on the food chains to negotiate again. He speaks of war rhetoric. “In our view, the limit of respect for the business partner has been exceeded.”
According to Thomas Roeb, the fact that the power struggle between manufacturers and dealers is being waged so hard and aggressively is due to the high inflation rate. The professor of marketing and commercial management at the Bonn-Rhein-Sieg University of Applied Sciences reports that prices are often set a year in advance. According to Roeb, if you get the inflation estimate wrong and negotiate badly, you will have a problem later. “A mistake in the price negotiations can have two, three or four times the impact it has had in the past.”
No-name trumps branded goods
Another reason for the price poker is the buying behavior of the Germans. Because that has changed in the past few months compared to previous years. The Society for Consumer Research has identified a strong increase in the propensity to save and in “cherry picking”. “Many shoppers have been actively looking for lower prices since June and therefore quickly go to a retailer that they haven’t had on their list before,” says GfK. More frequently than before, Germans are also turning to the retail groups’ own brands – “Good and cheap” for example from Edeka, “ja!” from Rewe or “K-Classic” from Kaufland.
Prices for these brands have also risen sharply in recent months. According to the consumer center, they are still up to 40 percent cheaper than comparable branded products. For years, the market share of own brands has been around 40 percent of total sales in food retailing. Experts assume that it could rise due to the current situation.
The days of white packaging are over
Brand sociologist Oliver Errichiello refers to the latest developments in this market segment. The time of plain white packaging is over, said the Hamburg professor. “The products hardly differ anymore. Private labels now have a design and quality-oriented claim. Rewe reports dynamic growth with its own brands. At times, the growth was even double-digit.
The importance of own brands for retail chains has even increased due to the price dispute with the manufacturers. It is not uncommon for supermarkets and discounters to actively advertise their own brands, referring to the often more expensive branded products. In order to secure its own brands and to position itself better in the dispute with the brand manufacturers, the Schwarzgruppe (Lidl and Kaufland) wants to buy the Erfurter Pasta Factory, Germany’s largest pasta factory. If the cartel office agrees, noodles from Erfurt – as private labels – will probably only be available from Lidl and Kaufland in the future.