Every year, the end of day one at ProWein sees a few producers heading out to dinner, looking shell-shocked. They’ve arrived in the world’s biggest wine import market bearing fine wines, only to be asked if they can supply quality wine at slash-and-burn prices. It gets worse. After the producers have consoled themselves with food, the waitress then announces she can’t accept the credit card and needs payment in cash. How can this be? Germany is one of the world’s most robust economies, seller of high-priced luxury cars. What’s with the penny-pinching?
The cold hard reality
Seventy to seventy-five percent of wine sold in Germany costs less than €3.00, according to Chris Swanepoel, head of marketing at distributor Mack & Schühle. “Three euros is the big bang,” he says.
There is a reason for this. Germany suffered hyperinflation and economic collapse in the 20th century and the memory of that has left Germans averse to debt and inflation. They are also a thrifty people, with one of the highest rates of household savings in the OECD. Put all of this together and the result is a retail market that is exquisitely sensitive to price. It’s not surprising to discover that the “hard discounters” — stores like Aldi and Lidl, which offer a diminished range of products at very good prices — are a German invention.
“Suppliers have to understand that this market is very challenging and competitive,” says Markus Hotze, managing director of distributor Eggers & Franke. “It’s a low-price market and dominated by the discount business. Wine consumption is flat.” Hotze goes on to say that the on-trade represents a maximum of 15 to 20 percent of the market, while a full 50 percent of wine sold in Germany flows through the discounters.
The good news, however, is that once a wine is established in the market, it can expect to sell for a long time, because Germans are conservative consumers who stand by their preferences. And if that wine is on the shelf of a big supermarket or retailer, it will sell major volumes. Also Swanepoel says that although a lot of wine is sold very cheaply, “there’s still a big market above that. There is a trend towards more premium wine, above €5.00.”
It’s all about regions
Distributors and buyers report that producers — particularly from the New World — approach Germany believing it operates like the UK, with the buying done by the head office of each national chain. In fact, it helps to think of Germany as more like the US — distinct markets in one country, except without the internal trade barriers. What’s on the shelves of big-name retailers can vary by region; in some cases, the local store may be a franchise, where the owner has discretion over what’s on the shelf.
The German markets most open to new styles of wine are those of the northern Hanseatic cities — trading centres that were once part of the mediaeval trade bloc known as the Hanseatic League. These include Hamburg, Germany’s second biggest city, and Bremen. These wealthy areas are also more likely to buy premium wines and less likely to buy extremely cheap wines. The same can be said for Frankfurt, Germany’s financial capital, and its surrounding cities. Munich, despite its wealth and sophistication, is more likely to embrace wines from Italy or Austria, its regional neighbours.
Germany is also a major wine-producing country and cities near wine regions have a bias towards their own wines. This isn’t always a road block — as wine consultant Kevin Gagnon points out, the local wine industry sets local prices. If the average bottle at cellar door is €7.00 or so, that’s what the locals will be willing to pay.
Gagnon suggests that entering a local market can be one way of testing the waters and building a reputation, especially for wineries that can’t supply volume or “must-have” brands. One potential route to market is to look for restaurants that serve specific communities, as restaurants can buy directly. “Let’s talk about Chile,” he says. “They have an excellent ex-pat community who will be much happier to get a Chilean wine than a French one.”
He cautions, however, that it’s important to find the right restaurant, because many just want the cheapest wine they can get. “The restaurants that are actually putting together a beverage programme will be far more interesting,” he says. Another possibility is looking at similar producers and seeing where their wines are listed in Germany. “Then contact those restaurants directly,” Gagnon suggests. “Agents are really quite open to the idea of having a well-stocked portfolio and are happy to have more than one producer from the same region, as long as they’re offering something a little bit different.”
It’s possible to approach independent retailers in a similar way. Gagnon advises against sending samples out of the blue and adds that, for independent retailers, the “sweet spot is €10.00 to €12.00”.
Hotze says that a regional strategy makes sense for producers of limited resources and “if there is uncertainty regarding the potential of a product. Sometimes, when it comes to highly competitive segments, t could make sense to focus on a specific region with a dedicated distributor.”
To appear on the shelves of the major retailer or prestige HoReCa, however, a national distributor with a deep market understanding is needed. “Some of the discounters only fill in Germany,” says Swanepoel, meaning they buy bulk wine or use a tender process. To find out when tenders are happening, producers either have to be on the email list of a buyer or “work through a distributor, because the big distributors know all the tenders”.
Swanepoel also advises that retail is very fragmented. “Edeka looks very big from the top. Rewe looks very big — 3,400 stores — but it’s also broken down into different regions. Groups like Edeka are heavily franchised and have private owners.”
To complicate things further, if a producer wants to enter the stores of a retailer that uses franchisees, they might need to get permission from the national purchase manager, which then allows them to work store by store. Another strategy the big chains use is to try out a product at a shop level before they consider further regional or national distribution. What this all means is that building national distribution can take time, even with the support of a major distributor. And it will requirement investment. “If you want fast-moving distribution, you’re going to have to invest in that and in making sure that your product is on promotion,” says Swanepoel. “It’s important to invest in point of sale and, from the start, to invest in the quality of the packaging.”
As for labels, Swanepoel says the market is still conservative and classically oriented. Hotze agrees that packaging is crucial. “We have cases where we’ve grown only by changing the packaging,” he says. “Sometimes it looks a bit old or 1990s and then, when you give it a little twist, it can really boost the business.”
Hotze adds that the German consumer prefers traditional labels. “We get offers for wines that have done well in the UK, but they don’t work in Germany,” he says. “There are some exceptions — Yellow Tail is doing well — but in our experience, modern labels rarely work well.”
He has more bad news for New World players; the category is mostly stagnating, apart from New Zealand, largely because Sauvignon Blanc is growing. Instead, consumers are returning to classic regions: Rioja, Bordeaux, Tuscany and so on. Hotze says he’s also seeing sweeter, fruitier wines with good acidity appearing: “But the Germans always drink sweeter wines, so it’s a bit difficult to say if it’s a trend.”
Swanepoel says he sees a trend towards bigger, sweeter reds, especially Primitivo and brands such as Apothic and Carnivor.
How to approach a distributor
It’s crucial to look first at the distributor’s portfolio, to see where their gaps are and then contact the office and ask how the distributor would like to be approached. Hotze says that Eggers & Franke conduct internal tasting assessments and welcome samples. “We have different tasting panels within our company. We look into the wine and make a decision on whether this wine or product is interesting. Then we would make an appointment.”
For other distributors, the appointment is the first step. ProWein is where most distributors will hold their meetings — but appointments fill up quickly and should be made the year before.
An important German ethic is transparency, and potential German partners will want full disclosures about production and pricing. Evidence of sales elsewhere will help, too. “Awards, points and medals definitely help,” says Hotze. He cautions, though, that point inflation means that points need to be 90-plus — and not all competitions are equal. “Mundus Vini has a very good acceptance, so that we would definitely communicate that.” But unfortunately the medals have to be Gold or above to have any marketing value.
Awards alone won’t sell a wine. “The first question we ask is ‘what vision do you have? What do you want to achieve?’” says Hotze. “Concepts that worked in the UK don’t necessarily work in Germany.”
Swanepoel says it helps if the producer has researched the market and put some thought into channels and strategies. “Spend time in the market — go and see the supermarkets and the restaurants.”
For producers willing to do the work, Germany offers not just volume but also loyalty. Germans value relationships and if something’s not working, distributors will typically devise a different strategy and work to overcome the problem, rather than simply severing ties. Even better, Germans are very clear about costs, margins and fees and there won’t be nasty surprises, as there are in other markets.
Swanepoel, who is from South Africa, says: “The Germans are very friendly people. They are very straightfoward but they are extremely good to work with. They pay on time.” He adds: “It’s a healthy country with a strong economy.”
The top five retailers by size
Retailers Retail brands
Edeka Group Edeka, Martkkauf, Netto, Plus, Treff 3000
Rewe-Group Penny, REWE, Kaufpark, Fegro, Selgros
Schwarz-Group Lidl, Kaufland, Handelshof
Aldi-Group Aldi Nord, Aldi Süd
Metro Group Real, Metro, C+C
Source: Lebensmittelzeitung 2016 via Germany Trade & Invest Industry Overview