The organic market in Germany

Until 2008, Germany remains the largest market for organic food in whole Europe. The German market is supplied by domestic and import organic produce (Willer & Yuseffi, 2009).

In contrast to most European countries, different marketing channels for organic food exist in Germany ranging from direct selling to bakeries, and from health food stores to conventional supermarkets. Organic shops have held a dominate position for years (Wier & Calverley, 2002; Jonas & Roosen 2005; Hamm et al., 2002) that only recently has started to decline because of deep concentration in the retailing sector (Willer & Yuseffi, 2009). Hence, to

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understand the special structure of the German organic market, a brief overview of the main changes in the structure of conventional supermarkets will be providing.

From a historical perspective, the retailing sector in Germany was developed in three major phases. Firstly, after 1945 with a strong influence from the U.S.A, retailing introduced self-service into the food sector. Thereafter, the boom in supermarkets and neighborhood shops took place. Secondly, in the 1960s the design of various types of retailing establishments satisfied the different needs of consumers. These newly developed market segmentations and formats consolidated the sector. Between the 1970s and 1980s, new formats such as food hypermarkets and superstores and first discount outlets (discounters) appeared (Dawson, 2006). Thirdly, between 1990 and 2000 with the emergence of the common market in the European Union, internationalization of the food retailing sector began (Dawson, 2006).

Since 2000, food retailing has changed. Attempts have been made to develop a more centralized and integrated schematic approach to consumer needs in stores including non-foodstuffs and leisure related items (KPMG & EHI, 2006; Dawson, 2006). For instance, in 2000 the total turnover by discounters were around 33 million €, in contrast, in 2005, the total turnover concentrated by this retail channel increased between 52 million € (KPMG & EHI, 2006) (see Table 2).

Table 2: Development of the total turnover, total outlets and store formats in Germany 1995-2005 (in Billion €)

Retail Channels (Vendors)

Total area (in m²)

Total Turnover

(in Mio €) Total outlets Sales areas 1995 2005 1995 2005 1995 2005 Hypermarkets >4,000 27.1 33.00 2,038 2,880 4.31 5.80 Discounter 800 to

2,000

32.6 51.75 10,630 14,610 4.92 9.48 Supermarkets 400-800 32.2 29.30 9,635 8,770 6.80 6.83 Small retailers <400 19.6 13.40 54,100 35,200 7.70 6.46

Source: KPMG & EHI 2006.

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Moreover, the German market is characterized by discount and price orientation as main factors influencing the preference of consumption. In this context, change in preference of consumption lends itself to five scenarios of trends in food retailing: 1) strong price orientation, 2) experience in trading, 3) trends addressed to individualize offers, 4) changes in the traditional concept of retailing, and 5) value orientation (KPMG & EHI, 2006). At this point, organic food and fair trade products offered as premium products by discounters are of special relevance to consumers with an ethical buying behavior oriented concerning environmental and fair trade practices. Due to the price strategies by discounters arises the question whether organic food offered by discounters is really ethically concerned? With this regard a discussion will be provided in the further sections.

2.2.1 Historical factors that influenced the development of the organic market in Germany

As mentioned, Germany has the largest European organic market in terms of total turnover. In contrast to other European countries, Germany has developed a different market structure for organic food. A historical overview of the German market is required to understand its development. Initially, organic food was sold directly by farmers, which means that originally organic food was not distributed by food retailers as other countries (i.e., in the United Kingdom or Switzerland). Moreover, the origins of organic farming were more ideological and political. The historical evolution of the organic market in Germany is provided below.

Modern organic farming was first recognized when Rudolf Steiner started biodynamic agriculture in the early 1920s, after which the marketing and distribution of organic food led to direct selling (Haccius & Lünzer, 2000). In the 1970s, organic farming and organic food grew up as part of the environmental movement. During this time, the first organic shops and health food shops were opened, the last one was considered one of the main distribution channels until the early 2000s (Kreuzer 1996; Jonas & Roosen, 2005). In 1985, some conventional supermarkets started to offer organic assortments (Richter & Hempfling, 2003).

In 1987, the first organic supermarket “Alnatura” was opened (Alnatura, 2007). In addition, more food retailers began to offer small assortments of organic food. In the early 2000s,

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because of several food scandals (BSE, Nitrogen Scandal), consumers lost confidence in the food industry sector and organic food started to hold the interest of consumers as a reaction to the scandals. Thus, political efforts to increase organic farming started, as well as the participation of food retailers introducing massive quantities of organic food in conventional supermarkets.

Table 3: Economic relevance of the organic produce in Germany, 1999-2008

1999/2000 2002/2003 2004/2005 2005/2006 2006/2007 2008

Hectares 452,279 546,023 734,027 767,891 807,403 865,336 Number of farmers 10,400 12,732 16,603 16,476 17,020 18,703 Total of Turnover (in Billion €) 1.8 2.2-2.4 3.1-3.5 3.9-4.6 4.6-5.3 5.8 Source: Willer and Yuseffi, 2000; Willer and Yuseffi, 2001; Willer and Yuseffi, 2002; Willer and Yuseffi, 2006; Willer and Yuseffi, 2007; Willer and Yuseffi, 2009.

2.2.2 Political factors and national organic certification label

On the basis of its growing acceptance of organic agriculture the first private basic standard for organic produce were established in 1984 (Haccius & Lünzer, 2000). In the 1990s, organic farming was included in the EU Common Agricultural Policies (CAP), and the common regulation for organic farming 2092/91 was developed (Kreuzer, 1996).

For several years different organic association and certification agencies were using their own organic label. However, in 2001 on the basis of the EU Regulation of organic farming, the national German umbrella label for organic products “Bio-Siegel” was introduced to regulate the organic produce from national produced and foreign origins with the aim to make easier for the consumers the recognition of the organic produce (Bio-Siegel, 2010).

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2.2.3 Stage of the development of the market of organic food in Germany

While the small organic shops were, since the earlier stage of the organic market, the main retail channels of organic food in Germany until the early 2000s, from this period onward the boom of the organic food (“Bio-boom”; in ZMP, 2007) expanded into the conventional supermarket and discount market. The latter succeeded within a few years to dominate the distribution channels (Willer & Yuseffi, 2006) by means of different marketing strategies:

some of them, by launching their own organic private labels, others by establishing their own organic supermarkets. Consequently, the structure of organic market in Germany has been changing extensively, indicative of the percentage of sales by the mainstream retail channels of rapid transfer from the small organic shops to the large multiple retailers (Hamm & Rippin, 2007) (see Table 4).

As different consumer studies in Europe and Germany have shown, buyers in organic shops are demographically characterized as having high incomes and higher level of education (Aersten et al., 2009; Bolten et al., 2006; Bruhn, 2001; Hamm et al, 2002; Spiller, 2006; Wier

& Calverley, 2002). Therefore, on the one hand, distribution of organic products by discounters can be interpreted as a democratization of organic food in relation to the price and extending into convenience and consumption. However, this democratization process detrimentally affected small health food shops, small organic shops, and direct selling. In reference to the experience of other organic markets in Europe, e.g. Switzerland, where the multiple retailers Coop and Migros initiated the organic segment or Tesco and Sainsbury in the UK, price orientation in these food retail channels is stronger than in Germany (Gerlach &

Spiller, 2006). Although small organic shops are not yet a discharged model, their success is due to non-tangible aspects such as personal service, face-to-face interaction, freshness, and high quality of products (Bolten et al., 2006; Kratochvil & Leitner, 2005).

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Table 4: Recent trends in Germany’s organic marketing channels

Year

Source: Hamm & Rippin, 2007; Hamm & Rippin, 2009 in Haccius, 2009.