Industry Overview Food Beverage Industry

7/22/2019 Industry Overview Food Beverage Industry

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IndustryOverview

The Food & Beverage Industryin Germany

Issue 2012/2013


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The Food & Beverage Industry in Germany

Germany: EuropesFood and BeverageMarket Leader

For many, German cuisine stillconjures up images more heartythan haute. Yet, the reality is, thatthe German national diet is far morediverse than prevailing cliches wouldlead to believe. Europes largest food

and beverage market offers muchmore for consumers and producersalike. Highly receptive to new culturalinfluences and culinary trends, theGerman food and beverage marketoffers business opportunities on allfronts. Germanys food industry isnot only driven by a commitment todeliver the very best, but also by adesire to actively respond to chang-ing consumer wants and needs.

Increasing health awareness, anaging population, and the result-ing demand for health and wellnessproducts have helped a number ofpreviously niche market actors tobecome significant industry players.Demand for functional foods alonehas established Germany as a Eu-ropean leader, with the organic foodsegment experiencing a threefoldincrease in sales within a decade.

Germany stands at the forefront offood and beverage market develop-ment as it rises to meet the interna-tional challenge of increased demandfor safe and healthy foodstuffs.

Ireland

UK

Russia

FinlandSweden

Norway

France

Spain

Portugal

Italy

Poland

GERMANY

Malta

Greece

Denmark

Czech Republic

Austria

SwitzerlandRomania

Netherlands

Belarus

Ukraine

Turkey

Serbia

Bulgaria

Lithuania

Latvia

Estonia

Bosnia-Herzegovina

SlovakRepublic

Hungary

RU

Moldova

Macedonia

Albania

Croatia

Slovenia

Montenegro

Dublin

London

Lisbon

Madrid

Paris

Luxembourg

Berlin

Belgium

Brussels

Amsterdam

Copenhagen

Oslo

Stockholm

Helsinki

Moscow

Minsk

Tallin

Riga

Vilnius

Warsaw

Kiew

Chisinau

Bucharest

Sofia

Athens

Tirana

Skopje

Belgrade

Rome

Valletta

Bern

Sarajevo

ZagrebLjubljana

Vienna

Budapest

Bratislava

Prague

Podgorica

1,

5h>

3hb

yp

lane

>

KosovoPristina

Source:GermanyTrade&Invest2012

Cartography:www.f

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The Industry inNumbers

Europes Largest Market

Around 82 million consumers helpedmake Germany the largest food andbeverage retail market in Europe.Total food retailing revenue reachedthe EUR 170 billion mark in 2011.Other important distribution chan-

nels include food service sales(EUR 66.4 billion) and exports (EUR48.4 billion).

Major Industry Sectors

Germanys food and beverage in-dustry is the fourth largest industrysector in Germany generatingproduction value of EUR 163.3 billion(8 percent increase on 2010) in 2011.The industry is best characterizedby its small and medium-sizedenterprise (SME) sector of around

6,000 companies employing 550,000.The largest industry segmentsby production value are meat andsausage products (23 percent),dairy products (16 percent), bakedgoods (9 percent), and confection-ery (8 percent). Leading companiesinclude well-known brand namessuch as Nestl, Dr. Oetker, VionFood Group, Tchibo, Coca-Cola, andKraft Foods. R&D spending in theGerman food and beverage industryreached EUR 355 million in 2010.

International Trade

In 2011, exports of processed foodsand agricultural commodities gener-ated around EUR 60 billion in sales.Around 30 percent of all processedfoods made in Germany are exported(80 percent to other EU memberstates). The country is a net importerof food and beverage products andthereby the most important Europeanmarket for foreign producers. Pro-

cessed foods and agricultural com-modities to the value of around EUR70 billion were imported in 2011.

Recent Investment Projects

Current significant investments in

the industry include Nestls plansto erect a Dolce Gusto productionplant in Schwerin (Mecklenburg-Vorpommern). The EUR 220 millionfactory investment will include 12production lines, producing twobillion coffee capsules a year as of2013. Four hundred fifty new jobswill be created in the northeastregion of Germany.

Beverage multinational PepsiCohas also made a EUR 17 millioninvestment in a new R&D facility inHamburg which will conduct inno-vative fruit and vegetable-basedingredient activities. Forty new jobshave been created by the investment.

Cargill has also announced EUR 20million modernization plans for twococoa and chocolate production fa-cilities it recently acquired in Berlin.The investment will see productionto both the German and eastern

European markets increased.

Market OutlookIndustry analysts forecast growth

of three percent in 2012, with grow-ing demand for convenience, health,and wellness food products. Thedomestic food and beverage sectorhas profited from the fast economicrecovery in Germany, with growingdemand for domestically producedfood products bringing the exportquota to an all-time high. Singleto two-digit growth was recordedin the dairy products, mill products,non-alcoholic beverage, and teaand coffee segments.

In 2011, food service market salesincreased by three percent on theprevious years results, represent-ing the highest growth rate over afive-year period. It is expected thatthe market will also record mod-erate growth in 2012 and beyond.Food-oriented business conceptsin particular are enjoying growingpopularity.

Industry Overview 2012 www.gtai.com 3

German Food and Beverage Industry Production Value 2007-2011

Source: Bundesvereinigung der Deutschen Ernhrungsindustrie (BVE) 2012

2007 2008 2009 2010 2011

200

150

100

50

0

30

25

20

15

10

5

0

Productionvalue(inEURbillion)

Exportrate

(inpercent)

36.9

109.9

146.841.4

114.3

155.7

39.2

108.5

147.7

42.8

109.0

151.8

48.4

115.0

163.3

Domestic sales International sales Export rate

25.126.5 26.5

28.730.0


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4 Industry Overview 2012

Market Opportunities

Market Segmentation

Dairy Products

Market

Germany is Europes largest dairyproducer. With milk production vol-ume of 30 million tons in 2011, thecountry ranks sixth globally. A totalproduction value of around EUR 21

billion, and more than 36,000 work-ers at around 100 German dairyprocessors, helped make the Ger-man dairy industry the countryssecond largest food and beveragesector. The milk, cheese, and freshdairy products produced by the Ger-man dairy industry make a majorcontribution to the well-being ofGerman consumers, underpinningthe sectors important role in thepromotion of a healthy lifestyle. Milkderivatives such as casein, whey,

and milk powder are used in a num-ber of food sectors as ingredientsin a large variety of products.

Competitive Landscape

The German dairy industry is largelymade up of small to medium-sizedplayers and can still be regardedas highly fragmented: the top threeplayers holding only 19 percent ofthe total market value. As such,international companies can enterthe marketplace more easily, al-though industry analysts predictan increasing consolidation trendtowards fewer but larger companiesin the future.

Opportunities

The dairy industry is one of Germanysmost innovative food and beverageindustry sectors. Companies areconstantly improving existing pro-ducts through the application ofnew technologies and innovations.

The dairy industry has been quickto respond to increased consumerdemand for functional foods.

The trend for health and wellnessfood products provides excellentgrowth opportunities; not just for

dairy products using functionalingredients, but also for producerswith a focus on natural ingredientssuch as calcium or reduced-fatformulas for yogurts or desserts.

Baked Goods

MarketFuelled by an annual per capita breadconsumption of 75 kg, Germany is theEuropean leader in the production ofbread and rolls. In 2011, the industrygenerated sales of EUR 13.4 billion(3 percent increase on 2010) andproduced 6.4 million tons of bread.In 2010, the German biscuit markethad a market value of EUR 2 billion(2 percent increase) with chocolatecookies the largest subsegment (21percent), followed by butter-basedbiscuits (17 percent), and cream-filled cookies (14 percent). An aver-age annual market growth of morethan two percent is predicted until

2015, outstripping both the UK andFrench market forecasts.


Although the overall number ofcompanies operating in the German

baked goods industry has been de-creasing for years due to an ongoingconsolidation trend, the industryremains home to a wealth of marketactors, being made up of SMEs andleading multinational players alike.

Opportunities

The baked goods segment has firmlyestablished itself in the German re-tail consumer market. In 2010, arti-sanal bread and rolls sales accountedfor 62 percent of the German bread

market, followed by industrial pro-ducts (33 percent), and in-store ba-keries (6 percent) respectively. Arti-sanal production is increasingly be-ing replaced by industrial production.In-store bakeries are also expectedto continue to grow. Further growthpotential rests on niche and trendproducts such as Mediterranean,gluten-free products, and conve-nience baked goods (e.g. bakerysnacks, frozen rolls, tarts and tart-lets). Forecasts show that the do-

mestic market for bread and rollswill grow by eight percent by 2015.

The Food and Beverage Industry by Segment 2011

Source: Bundesvereinigung der Deutschen Ernhrungsindustrie (BVE) 2012

Meat 23.0

Dairy 15.9

Baked goods 9.0

Confectionery 7.8

Alcoholic beverages 7.8

Processed fruits &

vegetables 5.8

Convenience foods &

others 5.1

Non-alcoholic beverages

(incl. mineral water) 4.4

Edible oil & fats3.8

Mill products, starch3.6

Others7.0%Sugar1.8

Seasonings & sauces2.4

Coffee & tea2.6

Total 2011

production value:

EUR 163.3 billion


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Confectionery andSnacks

Market

High innovation levels and low bar-riers to new product market entryhave helped create a EUR 13 billionconfectionery and snack productionmarket in 2011. The leading seg-ments in terms of market value are

cocoa and chocolate products (EUR6.5 billion), fine pastries (EUR 2.3billion), and sugar confectionery(EUR 1.8 billion) respectively. Averageannual confectionery per capitaconsumption exceeded 32 kg (equi-valent to EUR 112).


Although the top three market actorsin the German confectionery indus-try occupy around 40 percent of thetotal market value, the industry is

fairly fragmented. The broad paletteof brands available (differentiated inquality and price terms) is such thatconsumer power is not the determin-ing factor in this market. Germanysattractive and competitive locationfactors are underpinned by an aboveaverage export quota rate of currently46 percent, which makes Germanythe worlds confectionery exportchampion considerably ahead ofthe Netherlands and Belgium (with

just half of German export volumerespectively).

Opportunities

International confectionery produc-ers increased their export share toGermany by 6 percent to reach EUR3.6 billion. Retail sales of savorysnacks, above all potato chips,peanuts, and nut mixes, againexceeded previous years resultsby three percent. Other growth seg-ments are powered by the health

and wellness trend, which has led toincreased demand for fat-free, low-sugar, and sugar-free confectionery.

Beverages

Market

Germany is Europes largest mar-ket for soft drinks and alcoholicbeverages. In 2011, the average per

capita consumption of soft drinks andmineral water increased by 2 and 3percent to reach 120 liters and 140liters respectively. In the same year,non-alcoholic beverages accountedfor EUR 11 billion in retail sales,whereby mineral waters (EUR 3.3billion), caffeine-based soft drinks(EUR 2 billion), and fruit juices (EUR1.5 billion) were the most importantcategories. Segments with above av-erage growth included energy drinks(40 percent increase), fruit watermixes, and sport drinks (12 percentincrease each).

Germany is Europes leading alco-holic beverages market around 17percent of all alcoholic beveragesconsumed in Europe are sold in Ger-many. With almost half of the marketshare, beer and flavored alcoholicbeverages represent the largestsubsegment, followed by spirits(29 percent), and wines (23 percent)

respectively.


Although a number of major inter-national players are present in theGerman soft drinks market, theindustry is highly differentiated.Like the German soft drinks indus-

try, the alcoholic drinks market isdiversified, with the leading compa-nies generating only a quarter of totalsales. This makes the German alco-holic beverage market an attractivebusiness proposition particularlyfor niche or value-added products.

Opportunities

Following the health and conveniencemegatrend, the industry offers op-portunities in segments and nichesegments such as functional drinks,smoothies, enhanced water, andorganic beverages in particular.Companies new to the market alsohave the chance to record smallerscale successes by stressing healthbenefits or unique production meth-ods. Current growth categories in thealcoholic beverages sector includebeer mixed drinks, fruit brandies,and alcohol-free beers. Changes inconsumer preferences have also ledto a higher consumption of organic

wines, beers, and spirits.

Confectioneryand Snack Production by Value 2011

Source: Bundesverband der D eutschen Swarenindustrie (BDSI) 2012

Chocolate products

Fine baked goods

Sugar products

Ice cream

Cocoa & chocolate semi-finished products

Snack products

Cocoa-containing food preparations

OthersConfectionery and snack (overall)

Value (in EUR billion)

4.9

2.3

1.6

1.1

1.0

0.8

0.6

0.2

12.5


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Frozen vegetables (33 percent) andcanned vegetables (28 percent) arethe most important subsegments ofthe vegetable industry. Savory po-

tato snacks (47 percent), frozen po-tato products (23 percent), and driedpotato products (10 percent) are thetop three single subsegments withinthe processed potato segment.


The German fruit and vegetableindustry is still fragmented, althoughsome companies are slowly enteringa consolidation phase. With mar-ket volume and value shares of 55percent and 45 respectively, dis-counters were the most importantdistribution channel for fresh fruitand vegetables in Germany in 2010.

OpportunitiesGermanys fresh fruit and vegetableconsumption is far behind other Eu-ropean countries. Current consumertrends include convenience productsincluding pre-packed fruit and veg-etable salads. Rising market pricesand the abolishment of EU common

marketing standards increases theattractiveness of the market andeases sales in Germany.

Besides organic production, themanufacture of meat products inaccordance with halal requirementswill become more important in

Germany thanks to more than 4million practicing Muslims.

Fruits and Vegetables

Market

Germanys fruit and vegetablemarket is of particular interest forforeign companies: just one fifthof consumed fruits and a third ofconsumed vegetables are locallysourced. More than half of Ger-manys fruit and vegetable importscome from Spain, Italy, and France.Sales of processed fruits and veg-etables (excluding juices) reachedEUR 5.6 billion in 2011. As such,fruits (EUR 2 billion) and vegetables(EUR 1.5 billion) make up for morethan 60 percent of overall produc-tion value. Potato products accountfor EUR 1.4 billion and mixed picklesfor around EUR 0.6 billion. In 2011,

jellies and jams (38 percent market

share) and fruit preparations (32percent) dominated the processedfruits market.


Meat and SausageProducts

Market

The meat and sausage productsindustry is the largest segmentin Germanys food industry. In 2011,it generated sales of around EUR38 billion (9 percent increase onprevious year). The major segments

include pork (68 percent), chicken(17 percent), and beef (14 percent).With a total meat consumption of90 kg per capita in 2010 (an increaseof 1.5 percent over 2009), includingaround 32 kg (2011) of sausage prod-ucts, Germany is one of the mostattractive markets in Europe.


The German meat processing indus-try is characterized by an ongoingconsolidation trend. The top four

industry players, for example, ac-count for around 60 percent of allpig slaughtering. As overall compe-tition in Germany can be regardedas strong, companies are promptto develop new products and ex-plore export markets (total exportsreached almost EUR 9 billion in2011). Some retailers follow a back-ward integration strategy and oper-ate own slaughterhouses, puttingadditional pressure on processors.

Opportunities

Recent market trends include pre-packed meat products (5.1 percentsales increase in 2010), sausages(2 percent increase in volume in2010), and fat reduced pre-packedmeat products (19 percent marketshare in 2010). Although organicallyproduced meat and sausage prod-ucts remained niche markets in2011, producers are shifting toorganic production to meet grow-

ing consumer demand. Clear labelproducts as well as poultry sausagevariations are gaining in popularity.

Source: Deutscher Fruchthandelsverband (DFHV) 2012

Apples

Bananas

Oranges

Easy peeler

Table grapes

Tomatoes

CarrotsCucumbers

Onions

Peppers

19.5

14.7

9.2

5.9

4.4

10.0

7.86.3

6.2

4.8

0 5 10 15 20

Consumption per private household (in kg)

Fruit and Vegetable Consumption in Germany by Volume 2010


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Market Trends

Recent consumer trends in theGerman food and beverage markethave, above all, been influenced by anumber of far-reaching changes insociety: an aging population is fuel-ing demand for health and wellnessas well as functional and organicfood products to prevent or over-come conditions including diabetes,

high blood pressure, and cholesterol.Healthy nutrition plays an importantrole in the lives of around 70 percentof the population.

The organic food movement haslong since achieved mainstreamstatus in Germany. More and moreconsumers are seeking to improvetheir sense of well-being, health,and even their performance levelsthrough the consumption of func-

tional foods. An increasingly fast-paced society and the rising numberof single households is driving de-mand for highly convenient food-stuffs including ready-to-eat meals,desserts, and baked goods.

Other trends include sales of fairtrade products, such as coffee andfruit juices, which grew by around 20percent reaching EUR 400 millionin 2011. Ethnic foods, beauty foods,and free of foods (e.g. lactose and

gluten-free products) are furthertrends currently finding favor withGermanys increasingly discerningconsumer base.

Organic Foods

With more than EUR 6.6 billion inorganic food sales in 2011, Germanyis a frontrunner in the productionand consumption of organic foodproducts, and by far the largestmarket in Europe followed by France(EUR 3.4 billion) and the UK (EUR 2

billion). Organic food sales accountfor around four percent of total food

retail sales. Per capita sales in Ger-many are with over EUR 70 morethan twice as high as the EU-27

average of around EUR 32. Aftertwo years of rather modest growth,organic food sales grew by almostten percent in 2011. Although someof the growth can be explained byincreased prices, some segments ex-perienced significantly real volumegrowth. Among those organic foodcategories with significant growthlevels are fresh meat (around 40percent increase), eggs (32 percentincrease), hot beverages (22 percentincrease), and meat substitutes(20 percent increase).

Other future growth segmentsinclude convenience foods, dairyproducts, confectionery, and non-alcoholic beverages variations toname but a few of the exciting areasof market opportunity. The risingdemand for organic foodstuffs inthe commercial catering sector although still nascent is furtherdriving the market.

Per capita consumption

(in EUR)

Source: Bund kologische Lebensmittelwirtschaft 2012

Germany

France

UK

Italy

Switzerland

Austria

SpainDenmark

Sweden

Netherlands

Belgium

Norway

3.4

In Germany, organic foods are in-creasingly being sold by supermar-kets and discounters. Most super-

markets and discounter chains havesuccessfully introduced their ownorganic label brands.

The strong trend towards organicfood products also makes itselfevident in the constantly increas-ing number of organic food shops.In 2011, approximately 2,400 shopsoperated in Germany selling solelyorganic-produced products. Theintroduction of the new EU-wideorganic food logo in July 2010 and abilateral trade agreement betweenthe US and the European Union fur-ther eased the import and distribu-tion of organic foods in Germanyand other EU member states.

European Organic Foods Sales by Country 2010

Domestic market sales

(in EUR billion)

6.0

2.0

1.6

1.2

1.0

0.9

0.8

0.8

0.4

0.1

52.3

32.2

25.7

152.5

117.7

142.9

86.1

39.60.7

38.8

23.2

73.6

19.7


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Functional Foods

More and more people in Germanysee food as a way to overcomegeneral health concerns (such asobesity, diabetes, and celiac disease)as well as improve their sense ofwell-being, and even their perfor-mance levels. The global functionalfoods market has grown significantly,with a 23 percent market increase(EUR 20.6 billion) forecast by 2014.

European regions (including Ger-many, France, UK, Spain, and Italy)will experience significant gains.According to market researcher GfK,German consumers spend a twodigit billion euro sum on functionalfoods each year with the trendset to increase. Discounters andinternet sales are gaining marketshare as these distribution channelsincrease their functional and well-ness food offerings.

In functional foods, highly nutriouscomponents like probiotics, fiber,and vitamins are added to make theeating experience more beneficial interms of positive health effects andtaste. Major segments in Germanyinclude probiotic yogurts, yogurtdrinks, and beverages such asvitamin-enhanced waters.

Although the Europe-wide imple-mentation of regulations on nutritionand health claims is likely to slowmarket growth, it is expected thatfunctional foods will become oneof the most dynamic and importantsegments of the food and beverageindustry, with most industry innova-tions forecast to take place in thisfast-growing sector. Increased de-mand for functional food will makethe sector a solid platform for newinvestment and continued successfor companies already active in thesector.

Convenience Foods

The rising number of single house-holds, as well as an increasinglymobile society, are changing foodand beverage consumption patternsin favor of the convenience foodindustry.

Germany already has the largestfrozen food market in Europe, withtotal sales of EUR 12 billion in 2011

(EUR 7 billion from retail and EUR 5billion from the catering sector).The largest retail segments aredeep-frozen ready-to-eat meals(18 percent) and vegetables (16 per-cent). Current growth segmentsinclude frozen dairy products andconfectionery (13 percent increaseon 2010), frozen fruits (3 percentincrease), and frozen baked goods(2 percent increase). The catering in-dustry has also recorded a grow-

ing demand especially for frozensnacks (11 percent increase), frozendairy products and confectionery(9 percent increase), and vegetables(7 percent increase). Experts predictfuture growth in both segments.

The German chilled and deli foodmarket grew by around 2 percent in2010 to reach EUR 26.3 billion. Delifoods such as fresh noodles, dips

and pickled vegetables account fortwo thirds of the market value fol-lowed by chilled meat products (22percent) and sandwiches & saladswith five percent of the marketvalue. Growth markets within thechilled food industry are fruit juices,soups and sauces, fresh pasta,desserts, ready-made meals, andsavory snacks. Organic convenienceproducts also promise growth.


Source: Metro Handelslexikon 2011/2012, 2012

Trends in Private Demand for Selected Food and

Beverages Segments 2007-2010

Chilled food

Ice cream

Delicatessen

Jams and spreads

Eggs

Cereals

Alcoholic beverages

Non-alcoholic beverages

Sweets and confectionery

Hot beverages

Frozen goods

Fruits, vegetables

Meat, meat products

Convenience foods

Dairy products

Canned goods

0

18.4

17.8

16.5

15.1

11.5

10.1

7.8

6.2

5.9

1.7

3.2

4.7

1.4

1.3

2 4 6 8 10 12 14 16 18 20

4.7

3.2

Increase for period 2007-2010 (in percent)


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Innovative Excellence

The German food industry and publicand private institutes alike continu-ously conduct R&D activities to devel-op new products, enhance nutrition,and improve general food safety.

Internal R&D spendings in the Ger-man food and beverage industry for2012 is expected to reach almost EUR

340 million. More than 2,600 peopleworked in food and beverage R&D in2010. More than 90 percent of all R&Dwas conducted in-house. Companiesput their main focus on experimen-tal development (50 percent of totalspending) and applied science (40percent of total spending).

Almost half of private R&D spendingin the German food and beverage in-dustry is foreign company derived

underpinning the importance of localR&D to adapt products to the localmarket. Local research teams areable to research and develop newproducts according to culinary cus-toms, tastes, and preferences.

The non-profit Research Associationof the German Food Industry (FEI)supports research projects in allfields of food science, food technol-ogy, and nutritional science. Themain focus of the FEIs activities are

the coordination and promotion ofindustrial collective research pro-

jects initiated by the Federal Ministryof Economy and Technology.

Germanys federal and regionalinstitutes support R&D activities witharound EUR 500 million every year.Germanys strong food industryR&D landscape is supported byworld-renowned public institutessuch as the Julius Khn-Institut(Federal Research Centre for Cul-

tivated Plants), the Max Rubner-Institut (Federal Research Institute

of Nutrition and Food), and six institu-tions of the Leibniz Association. Mainresearch areas include nutrition sci-ence, food technology, plant and ani-mal production, and aquaculture. Themajority of all completed and ongoingpublicly supported research projectsin production concern new techno-logical and biotechnological process-es. Bavaria, North-Rhine Westphalia,

and Hessen are the federal stateswith the highest R&D spending and


R&D Framework

number of researchers. In late 2012the German federal government willoutline future research objectivesin the fields of health preventionand nutrition research. Successivemeasures designed to enhance thecompetiveness of the German food &beverage R&D landscape andincrease innovation and productdevelopment in this sector will be

introduced. The program is equippedwith a budget of EUR 90 million.

Overview of R&D Projects in Food Technology

Sector Institutes Ongoingprojects

Finishedprojects

Allprojects

Food processing 142 57 291 348

Food chemistry 85 26 158 184

Food microbiology 48 21 80 101

Overview of R&D Projects in Nutritional Science

Nutrition

physiology 89 21 162 183

Nutritionalbehaviour 49 14 57 71

Toxicology 40 18 172 190

Home economics 14 0 15 15

Source: Bundesanstalt fr Landwirtschaft und Ernhrung 2012

Europes 10 Most Innovative Food Sectors 2009*

Dairy products

Frozen products

Soft drinks

Ready-made meals

Biscuits

Meat, fine foods, poultry

Chocolate products

Cheeses

Groceries for aperitifs

Condiments and sauces

0 2 4 6 8

Food innovations per sector (in percent)

Source: FoodDrinkEurope: Data and Trends of the European Food and Drink Industry 2011

7.6

7.1

6.4

6.3

6.1

5.2

4.3

3.9

3.6

2.7

*percentage of total European food innovation


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Investment Climate

Market LocationAdvantage

The German food and beveragemarket including food ser vice saleswas worth around EUR 230 billion in2011, making Germany the leadingEuropean food and beverage sectornation. Important contributory fac-tors include increasing purchasing

power, a strong local agriculturesector, and state-of-the-art infra-structure. Germanys position as aglobal consumer trends frontrunneris underscored by competitive laborand tax conditions. These factorscombine to make Germany the idealpoint of entry into both German andEuropean markets.

Retail LandscapeThe German food and beveragesretail landscape is consolidated

and mature, but remains relativelydiversified compared to manyother European countries.

This provides manufacturers withnumerous ways of marketing prod-ucts. In total, the top five German re-tailers (Edeka, Rewe Group, SchwarzGroup, Aldi Group, and Metro Group)have a market share of 73 percentof the entire German retail market.Edeka, Rewe Group, and SchwarzGroup operate chains in more thanone distribution channel (e.g. super-markets and discounters).

In 2010, the overall market shareof discounters offering a limited se-lection of mainly private label goodsat low prices remained stable ataround 41 percent. Hypermarketsand large-scale superstores (>2,500sqm) have a total sales volume of 28percent of the market. Conventionalsupermarkets (


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Logistics Excellence

Providing a regular supply of foodto a population of almost 82 millionpeople makes significant demandsof the food logistics sector: custom-er deliveries must be fast, secure,and on time. A high-performanceroad infrastructure is an essentialrequirement for customer-orienteddelivery of food.

Germanys infrastructure excel-lence is confirmed by a number ofrecent studies: The 2011-2012 GlobalCompetitiveness Report of the WorldEconomic Forum (WEF) ranked Ger-many second for infrastructure; sin-gling out Germanys extensive andefficient infrastructure for highlyefficient transportation of goods forspecial praise. Accumulated in thisscore for Germany are high marksfor the quality of roads and airtransport, excellent railroads and

port infrastructure, as well as itscommunications and energy infra-structure.

Trade

With total import and export valuesof around EUR 70 billion and EUR 60billion respectively, Germany was anet importer of processed foods andagricultural commodities in 2011.The rising share of exports under-pins Germanys competitive locationfactors and its excellent geographi-cal position to serve not only nation-al but also international markets.

Germanys main trading partnersare other EU countries. Both meatand sausage products and milk anddairy products are the leading foodand beverage segments in terms ofexports, representing total exportvalues of around EUR 9 billion andEUR 8 billion in 2011. Thanks to theenduring popularity of German-

made products abroad, the industryis expected to continue its steepgrowth curve in the coming years.

Despite the fact that they currentlyaccount for less than ten percentof total export value, eastern andcentral Europe in particular holdpromising mid-term prospects.

Labor Cost DevelopmentHigh productivity rates and steadylabor costs make Germany an at-tractive investment location. Laborcost increases have been the lowestin Europe in recent years, with amodest annual growth rate of 1.6percent for the total economy be-tween 2002 and 2011.

German productivity rates are morethan five percent higher than theaverage of the EUs 15 core nationaleconomies and more than onequarter higher than the OECDaverage. Highly flexible working

practices such as fixed-termcontracts, shift systems, and 24/7operating permits contribute to

enhance Germanys internationalcompetitiveness as a suitable invest-ment location for internationallyactive businesses.

Tax ConditionsGermany has developed one ofthe most competitive tax systemsin the world. Significant companytaxation reforms have resulted in adecrease of the corporate tax burdenby around 25 percent. The overallaverage corporate tax burden hassunk to just below 30 percent, witha number of federal states provid-ing even more competitive tax rates.Standard corporate income tax hasalso been reduced by ten percent to

just 15 percent on all corporate tax-able earnings.

0% 5% 10%

Source: Eurostat 2012

Labor Cost Growth in Total Economy 2002-2011

(annual average growth in percent )

1.6%

2.4%

3.0%

3.1%

3.3%

3.7%

5.7%

5.8%

7.5%

7.2%

Germany

France

Austria

Netherlands

Spain

UK

Czech Rep.

Poland

Hungary

Slovak Rep.


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Financing & Incentives

In Germany, investment projectscan receive financial assistancethrough a number of different ins-truments. These instruments maycome from private sources or con-sist of public incentives programsavailable to all companies regard-less of country of provenance. Theyfit the needs of diverse economic

activities at different stages of theinvestment process.

Early Stage InvestmentProject Financing

Technologically innovative start-ups in particular have to rely solelyon financing through equity such asventure capital (VC). In Germany,appropriate VC partners can be

found through the BundesverbandDeutscher Kapitalbeteiligungsge-sellschaften e.V(BVK GermanPrivate Equity and Venture CapitalAssociation). Special conferencesand events like the DeutschesEigenkapitalforum(German EquityForum) provide another opportu-nity for young enterprises to comeinto direct contact with potential VCpartners. Public institutions suchas development banks (publiclyowned and organized banks which

exist at the national and state level)and public VC companies may alsooffer partnership programs at thisdevelopment stage.

Later Stage InvestmentProject Financing

Debt financing is a central financingresource and the classic supplementto equity financing in Germany. It isavailable to established companies

with a continuous cash flow. Loanscan be borrowed for day-to-day

business (working capital loans),can help bridge temporary finan-cial gaps (bridge loans) or financelong-term investments (investmentloans). Besides offers from com-mercial banks, investors can accesspublicly subsidized loan programs inGermany. These programs usually

offer loans at attractive interest ratesin combination with repayment-freestart-up years, in particular for smalland medium-sized companies. Theseloans are provided by the state-owned KfW development bank andalso by regional development banks.

Cash Incentives for

Investment ProjectsWhen it comes to setting up produc-tion or service facilities, investorscan count on a number of different

public funding programs. These pro-grams complement the financing ofan investment project. Most impor-tant are cash incentives provided inthe form of non-repayable grantsapplicable to co-finance investment-related expenditures such as newbuildings, equipment or machinery.In Eastern Germany, investmentgrants are complemented by aninvestment allowance(Investitions-zulage IZ), which is usually allotted inthe form of a tax credit but which can

also be provided in the form of a tax-free cash payment.

Labor-related Incentives and

R&D Project Grants

After the location-based investmenthas been initiated, companies can

receive further subsidies for buildingup a workforce or the implementa-tion of R&D projects. Labor-relatedincentives play a significant rolein reducing the operational costsincurred by new businesses. Therange of programs offered can beclassified into three main groups:programs focusing on recruitmentsupport, training support, and wagesubsidies respectively. R&D projectfunding is made available through anumber of different incentives pro-

grams targeted at reducing theoperating costs of R&D projects.Programs operate at the regional,national, and European level and arewholly independent from investmentincentives. At the national level, allR&D project funding has been con-centrated in the so-called High-Tech-Strategy to push the development ofcutting-edge technologies. Substan-tial annual funding budgets are avail-able for diverse R&D projects.

Types of Incentives in Germany

1)only in Eastern Germany

CashIncentives

Investment IncentivesPackage

Operational IncentivesPackage

Interest-Reduced Loans

R&D IncentivesLabor-related

Incentives

GRW(Investment

Grants)

KfW Loans(National Level)

IZ(InvestmentAllowance1)

StateDevelopmentBank Loans

GrantsRecruitment

Support

LoansTrainingSupport

Silent/DirectPartnership

WageSubsidies

+

PublicGuarantees

StateGuarantees

Combined State/Federal

Guarantees


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Best PracticeExample: VIVA Coffee

A British-based investor decidedto further diversify his businessinterests by setting up an innovativeinstant coffee factory trading underthe VIVA Coffee name. The companyexpected to benefit from the sub-stantial growth being forecast in the

soluble coffee market in the MiddleEast and Europe thanks to strongprivate label strategy.

VIVA Coffees Objectives

VIVA Coffee required a location thatwould connect it to the world asit expected to make up to 60 per-cent of its revenue from exports.Accordingly, first class transportinfrastructure and close proximityto a seaport were decisive locationrequirements.

Additionally, a competitive coststructure and a large labor pool ofhighly qualified workers was neededin order to comply with internationalproduction standards. Potentialsynergy effects with existing foodand beverage manufacturers in theregion and the availability of attrac-tive investment programs comple-mented the companys locationrequirement criteria.

The Solution: Investing in Germany

Thanks to Germanys optimal loca-tion factors and the excellent workcarried out by Germany Trade &Investand its partners, the investorwas convinced of the benefits of add-ing Germany to the potential locationshortlist.

Within a brief period of severalmonths, our food and beverage in-dustry experts identified, analyzed,

and set up potential production sitevisits on behalf of the investor.

After a thorough selection processdesigned to refine and meet the ex-act needs and requirements of VIVACoffee, Upahl in the state of Meck-lenburg-Vorpommern was selectedas the preferred location.


Success Story

1 Aug. 2005 Initial contact

2 Sept. 2005 Site selection initiation and long list preparation

3 Nov. 2005 -Jan. 2006 Location short list and site visits

4 Feb. 2006 - June 2006 Due diligence

5 July 2006 Final site decision

6 Sept. 2006 -Spring 2009 Construction phase

7 Summer 2009 Test run

8 Spring 2010 Start of operations

VIVA Coffee Investment Project Time Line

Upahl was identified as the optimal production location thanks to anumber of important factors: its close proximity to the port of Hamburg,a competitive cost structure, and the availability of highly qualified staff.

Moreover, the strong presence of businesses in the retail grocery sectorin the vicinity and the synergy opportunities this created all workedstrongly in the locations favor.

Dr. Albrecht FrischenschlagerCEO, VIVA Coffee GmbH


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Our Investment Project Consultancy Services

Germany Trade &Invest Helps You

Germany Trade & Investsteams ofindustry experts will assist you insetting up your operations in Ger-many. We support your project man-agement activities from the earlieststages of your expansion strategy.

We provide you with all of the indus-try information you need coveringeverything from key markets andrelated supply and application sec-tors to the R&D landscape. Foreigncompanies profit from our rich ex-

perience in identifying the businesslocations which best meet their spe-cific investment criteria. We helpturn your requirements into concreteinvestment site proposals; providingconsulting services to ensure youmake the right location decision. Wecoordinate site visits, meetings withpotential partners, universities, andother institutes active in the industry.

Our team of consultants is at handto provide you with the relevantbackground information on Germa-nys tax and legal system, industryregulations, and the domestic labor

market. Germany Trade & Investsexperts help you create the appro-priate financial package for your in-vestment and put you in contact withsuitable financial partners. Incen-tives specialists provide you withdetailed information about availableincentives, support you with the ap-plication process, and arrange con-tacts with local economic develop-ment corporations.

All of our investor-related servicesare treated with the utmost confiden-tiality and provided free of charge.

Project Management Assistance

Coordination andsupport of nego-tiations with localauthorities

Joint projectmanagement withregional develop-ment agency

Project partneridentificationand contact

Market entrystrategy support

Business oppor-tunity analysis andmarket research

Location Consulting /Site Evaluation

Final sitedecision support

Site visitorganization

Site preselectionCost factoranalysis

Identification ofproject-specific

location factors

Accompanyingincentives applicationand establishmentformalities

Administrativeaffairs support

Organization ofmeetings withlegal advisors andfinancial partners

Project-relatedfinancing and incen-tives consultancy

Identification of re-levant tax and legalissues

Support Services

Decision & InvestmentStrategy Evaluation


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Imprint

Publisher

Germany Trade and InvestGesellschaft fr Auenwirtschaftund Standortmarketing mbH

Friedrichstrae 6010117 BerlinGermanyT. +49 (0)30 200 099-555

F. +49 (0)30 200 [email protected]

Executive BoardDr. Benno Bunse, Chairman/CEODr. Jrgen Friedrich, CEO

Author

Daniel Lindel, Senior Manager, Food & Beverages,Germany Trade & Invest, [email protected]

Editor

William MacDougall, Germany Trade & Invest

LayoutGermany Trade & Invest

Print

CDS Chudeck-Druck-Service, Bornheim-Sechtem

Support

Promoted by the Federal Ministry of Economics and Technology and the Federal GovernmentCommissioner for the New Federal States in accordance with a German Parliament resolution.

NotesGermany Trade & Invest, October 2012

All market data provided is based on the most current market information available at the time ofpublication. Germany Trade & Invest accepts no liability for the actuality, accuracy, or completenessof the information provided.

Order Number

13699

ontact


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EndnotesBundesanstalt fr Landwirtschaft und Ernhrung, Bonn, 2012.

Bundesamt fr Migration und Flchtlinge, Nrnberg, 20 09.

Bundesministerium fr Ernhrung, Landwirtschaft und Verbraucherschutz, Berlin/Bonn, 2012.

Bundesministerium fr Bildung und Forschung, Berlin, 2012.

Bundesverband der Deutschen Fleischwarenindustrie e.V., Bonn 2012.

Bundesverband der Deutschen Swarenindustrie e.V., Bonn, 2012.

Bundesverband der obst-, gemse- und kartof felverarbeitenden Industrie e.V., Bonn, 2012.

Bundesvereinigung der Deutschen Ernhrungsindustrie e.V., Berlin, 2012.

Bund kologische Lebensmittelwirtschaft e.V., Berlin, 2012.

Cargill Deutschland GmbH, Krefeld, 2012.

Datamonitor (Germany),Alcoholic Drinks, 2012.

Datamonitor (Germany), Biscuits, 2012.Datamonitor (Germany), Bread & Rolls, 2011.

Datamonitor (Germany), Chilled & Deli Food, 2012.

Datamonitor (Germany), Dairy, 2012.

Deutscher Fruchthandelsverband e.V., Bonn, 2012.

Deutsches Tiefkhlinstitut e.V., Kln, 2012.

Eurostat, 2012.

FoodDrinkEurope, Brussels, 2012.

GfK SE, Nrnberg, 2012.

Handelsblatt GmbH, Dsseldorf, 2012.

Lebensmittel Zeitung, Frankfur t a. M., 2010-2012.

Metro Group, Dsseldorf, 2012.

Milchindustrie-Verband e.V., Berlin, 2012.

Nestl Deutschland AG, Frankfurt a. M., 2012.Nutra Ingredients, Montpellier, 2011.

OECD, Paris, 2012.

PepsiCo Deutschland GmbH, Neu-Isenburg, 2012.

Statistisches Bundesamt Deutschland, Wiesbaden, 2012.

Stifterverband Wissenschaftsstatistik, Essen, 2012.

The Nielsen Company (Germany), Frankfurt a. M., 2012.

TransFair Verein zur Frderung des Fairen Handels mit der Dr itten Welt e.V., Kln, 2012.

Verband Deutscher Grobckereien e.V., Dsseldorf, 2011.

Verband der Fleischwirtschaft e.V., Bonn, 2012.

Wirtschaftsvereinigung Alkoholfreie Getrnke e.V., Berlin, 2012.

Zentralverband des Deutschen Bckerhandwerks e.V., Berlin, 2012.


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Photo:xxx

About Us

Germany Trade & Invest is

the foreign trade and inward

investment agency of the

Federal Republic of Germany.

The organization advises andsupports foreign companies

seeking to expand into the

German market, and assists

companies established in

Germany looking to enter

foreign markets.

All inquiries relating to

Germany as a business location

are treated confidentially.

All investment services and

related publications arefree of charge.

www gtai com

Photo:LaurentiuIordachewww.fotolia.de

Germany Trade & InvestFriedrichstrae 6010117 BerlinGermany

T. +49 (0)30 200 099-555F. +49 (0)30 200 [email protected]

About Us

Germany Trade & Invest is the foreign trade and inward investment

agency of the Federal Republic of Germany. The organization

advises and supports foreign companies seeking to expand into

the German market, and assists companies established in

Germany looking to enter foreign markets.

All inquiries relating to Germany as a business location are

treated confidentially. All investment services and related

publications are free of charge.

Promoted by the Federal Ministry of Economics and Technologyand the Federal Government Commissioner for the New FederalStates in accordance with a German Parliament resolution.

www.gtai.com

Documents

Industry Overview Food Beverage Industry