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bulwiengesa

MARKET STUDY

Food retail in Germany – market structure data 2016

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Ralf-Peter Koschny

Andreas Schulten

Thomas Voßkamp

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Hartmut Bulwien

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bulwiengesa Market study – Food retail in Germany - market structure data 2016

Produced for: TLG IMMOBILIEN AG Hausvogteiplatz 12 10117 Berlin

Project no.: P1705-3663

Munich, 21 June 2017

bulwiengesa AG Nymphenburger

Straße 5

80335 Munich

Tel. +49 89 23 23 76-0

Fax +49 89 23 23 76-76


© bulwiengesa AG 2017 – P1705-3663

CONTENTS

Page

1 MANAGEMENT SUMMARY 1

2 FOOD RETAIL PARAMETERS IN GERMANY 2

2.1 Demographic parameters 2

2.2 Spending power data 4

3 FOOD RETAIL 5

3.1 General structural data 5

3.2 Development of business types 10

4 RENTS AND YIELDS 19

4.1 Rents 19

4.2 Yields 20


© bulwiengesa AG 2017 – P1705-3663

COPYRIGHT NOTICE

The findings and calculations presented in this study, and the research

we have undertaken, have all been done according to the best of our

knowledge and with the necessary care, based on existing sources and

other sources accessible during the period in which the study was

executed. We can only guarantee the factual accuracy of information

and data we have ascertained and produced ourselves, within the

scope of normal due diligence. We cannot guarantee the factual

accuracy of data and facts obtained from other sources.

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permission must be obtained from bulwiengesa AG, but nothing more.

Munich, 21 June 2017


© bulwiengesa AG 2017 – P1705-3663 Page 1

1 MANAGEMENT SUMMARY

Initial situation

Selling space in Germany’s retail industry currently amounts to around

123.7 million sqm (2015); at 1.5 sqm of selling space per capita,

Germany is fourth among European countries. Of that selling space,

around 35.6 million sqm is used for food retail. Selling space has

remained relatively constant in recent years (+1.8% since 2010),

whereas retail sales have risen by around 13.1% to 483 billion euros

between 2010 and 2016 (proportion of online retail: 10.9%); the

increase has been as much as 16.6% in food retail. The online share of

food retail has so far only reached 1.5%. Private households in Germany spent 13.7% of their total consumer outgoings on food, drinks and tobacco products. Since 2005, spending on these goods has risen by 19.6%, from 180.0 billion euros to 215.2 billion euros. Their share in total consumer spending, however, dropped from 14.3% to 13.7%.1

Demographic parameters

An aging society has forced retailers to think again about how to meet

the needs of this growing age group. Over 65s constitute 21.4% of the

population today, but will make up 33.7% by 2060. Urban areas can

expect stable population figures, but many rural regions, and eastern

Germany in general, can expect a decline in population by 2060, which

will result in lower demand.

1 Source: Federal Statistical Office, HDE, EHI

Development of food retail

Every type of food retail business is participating in the rising sales of

that industry. Small food shops are the only group that is becoming

steadily less important. The big winners of recent years have been the

supermarkets / large supermarkets and organic grocery shops. This

development reflects a society willing to spend more on higher-quality

food. The discounter business model has overcome a brief period of

weakness and increased its sales once again. The restructuring

process triggered by Germany’s hypermarket operators continues.

Rents and investment

Rental levels in food retail properties have risen by over 20% since the

year 2000; selling prices have risen disproportionally across the board,

meaning that yields have declined considerably since 2008 (over 100

basis points). Increased interest among investors is because of the high

stability and long-term security offered by food retail (restrictive

planning policies, good credit ratings among food retailers, long-term

tenancy agreements).

Outlook

The concentration process in food retail will continue over the coming

years, and competition offered by online retail will intensify. More

restructuring will happen at some networks of stores, because their

operators are having to develop new sales and operating concepts in

response to changing market conditions.



2 FOOD RETAIL PARAMETERS IN GERMANY

2.1 Demographic parameters

An aging society is forcing retailers to consider how to respond to the

numerous changes facing them. The growing proportion of over-65s

coupled with greater spending power is making the older section of the

populace more important to retailers.

Basically, retailers are having to respond to a change in population

structure and the resulting changes in people’s needs by amending and

improving the products and services they offer, and/or the shopping

environment.

In the long-run – leading up to 2060 – according to the Federal

Statistical Office’s ‘13th Coordinated Population Projection’ in what is

from the surveyor’s point of view its most probable version, 1-W1

(“medium” population, lower limit),2 we can expect a decline in

population to around 70 million people coupled with a significant rise in

over-65s, so that they make up around a third of the population. And

the proportion of over-75s to the total population will almost double, to

20% (2017: approx. 11.3%).

The number of people of working age, however, will continue to decline.

People born during the 1960s (Baby-Boomers) will be reaching

pensionable age from 2030 onwards, changing the population structure

considerably.

The specific needs of the “65+” customer group

Projected population structure*

2017 2025 2040 2060

< 15 years old 13.2% 13.4% 12.4% 12.1%

15 to 25 10.5% 9.6% 9.4% 9.0%

25 to 50 32.2% 31.3% 28.2% 26.4%

50 to 65 22.7% 21.8% 19.8% 18.8%

65 to 75 10.1% 12.1% 12.8% 13.7%

75 and over 11.3% 11.8% 17.3% 20.0%

Source: Federal Statistical Office, bulwiengesa Rounding differences may occur. * Forecast based on the 13th Coordinated Population Projection, version 1-W1 (lower limit)

Source: Federal Statistical Office, bulwiengesa * Forecast based on the 13th Coordinated Population Projection, version 1-W1

(lower limit)

2 Assumptions: birth rate approximately constant at 1.4; basic life expectancy assumption; migration balance of 100,000 from 2014

Population development/forecast 2015 2060*

84

82

80

78

76

74

72

70

2015 2020 2025 2030 2035 2040 2045 2055 2060

Po

pu

lation

in

mill

ion



Many of the things which older people used to criticise have now been

resolved in store design and construction. These include wider aisles,

lower shelves, bigger product labelling, adequate seating and service-

oriented staff. Some providers have even responded to

sociodemographic change by launching what is known as

‘Generationenmärkte’ – generation stores. Older consumers differ from

younger ones because they are more aware of quality, more loyal to

brands and more willing to purchase luxury items, and they shop more

frequently and are more critical in what they require, which means more

customer orientation is needed.

Population changes vary greatly across Germany. The total population

in Germany will decline by 2030, but large cities and their immediate

surroundings are likely to become more populous. Growing population

is forecast especially for southern Germany and the Top Seven Cities.

Rural regions, on the other hand, are being hit much harder by declining

population. For instance, bulwiengesa predicts that large parts of

eastern Germany and rural regions in general will see a population

shrinkage of up to 20% by 2030, whereas big cities – including those in

eastern Germany – will either maintain a steady population, or grow.

bulwiengesa 2016

Demographic forecast 2030 Change 2015-2030 in %



2.2 Spending power data

Spending power consists of total net income and capital income as well

as state subsidies such as unemployment benefits and pensions. Living

expenses are not taken into account, which is why regional differences

often do not appear as pronounced as we might expect. Spending

power also gives no indication of income distribution within an

administrative district, or the spending power of individuals, although

there is no denying the importance of those factors.

The average calculated per capita spending power for 2017 will be

22,239 euros, representing a nominal increase of 2.9% over the

previous year. Regional differences remain pronounced. As in recent

years, the administrative districts of Starnberg, Hochtaunuskreis and

Munich top the list. The spending power in the Starnberg administrative

district is 32,194 euros, which is 44.8% higher than the German

average. Six of the ten administrative districts with the greatest

spending power are in the vicinity of Munich. Of the ten most populous

administrative districts, Munich, Dusseldorf, Frankfurt and Stuttgart all

possess above-average spending power. The most populous district,

Berlin, is right down in 286th place among German districts, making it

the only European capital to be below its country’s average level.

Eastern German districts have grown more rapidly than the German

average since the previous year. Saxony, Mecklenburg-Western

Pomerania and Thuringia top the growth rate list. Spending power is

rising especially quickly in the areas surrounding Leipzig and Dresden.

Administrative districts and cities that constitute their own

administrations, and which had high spending power before, have

grown less by comparison.

bulwiengesa 2016

Development in spending power 2013-2016 Change in %



3 FOOD RETAIL 3.1 General structural data

The Edeka Group is by far the biggest food retailer in Germany,

followed by the Schwarz, Rewe, Aldi and Metro Groups. These five

companies have a far greater turnover than other food retailers and

together account for the bulk of food retail in Germany.

Who belongs to whom?

Company Sales line – food (retail)

Edeka Group Marktkauf, Ratio, E-Center, Aktiv Discount, E-Neukauf, E Reichelt, Edeka, E-Aktiv Markt, Kupsch, Netto, Netto City, NP, Diska, Treff 3000, Prof Top Getränke, Trinkgut, Netto Getränkemarkt, K&U, Wünsche, Büsch, Thürmann, Schäfer's Schwarzwaldhof, Kaiser's Tengelmann (stores reflagged in 2017)

Rewe Group toom, Rewe Center, Akzenta, Rewe, Rewe City, Kaufpark, Standa, Perfetto, Penny, Nahkauf, Temma, Rewe to go, toom Getränkemarkt, Kölner Weinkeller, Glocken Bäckerei, Rothermel, Kaiser's Tengelmann (store reflagging in 2017), Coop (store reflagging planned)

Schwarz Group Lidl, Kaufland, Kaufmarkt, Handelshof

Metro Group real,-

Aldi Group Aldi Süd, Aldi Nord

The Edeka Group once again increased its lead in 2016 with a 2.5%

rise in sales. This does not include the successful takeover of

Tengelmann outlets which took place at the end of 2016 following

lengthy negotiations and a compromise with Rewe. They agreed that

Edeka would not take over all the Tengelmann stores,

and would hand over a number of stores to Rewe, especially in the

Berlin region.

The second biggest food retailer remains the Schwarz Group which

increased its sales by a similar amount to Edeka last year. The Rewe

Group, number three on the German market, posted a significant

growth of 4.2% last year, allowing it to gain some ground on the two

leaders.

The biggest loser in the rankings was the Metro Group, which had to

absorb an 11% drop in sales in 2016. It remains to be seen whether the

planned modernisation of its real,- hypermarkets will actually go ahead

and lead to lasting sales improvements.

Top ten German retailers (2016)

Sales 20161

(billion €) Sales 20151

(billion €)

Change 2015-16

Edeka Group, Hamburg 53.8 52.5 2.5%

Schwarz Group, Neckarsulm 37.8 36.9 2.2%

Rewe Group, Cologne 2 35.8 34.3 4.2%

Aldi Group, Essen, Mühlheim 28.3 27.9 1.5%

Metro Group, Düsseldorf 26.3 29.5 -11.0%

Lekkerland, Frechen 9.3 9.1 2.3%

Tengelmann, Mülheim 7.6 7.6 0.3%

dm-Drogeriemarkt, Karlsruhe 7.5 7.0 6.7%

Rossmann, Burgwedel 6.1 5.8 5.4%

Globus, St. Wendel 4.9 4.9 1.0%

Source: Lebensmittelzeitung, TradeDimensions, own calculations - March 2017 Rounding differences may occur. 1 Gross turnover in relation to the accounting year concerned; includes all forms of sales incl.

C&C stores and food deliveries, including pharmacy product turnover. 2 Not including tourism, nor the takeover of coop stores



The pharmacy chains dm-Drogeriemarkt and Rossmann posted good

growth rates and have been expanding fast since Schlecker’s

bankruptcy, and this has been reflected in considerable sales

increases.

The concentration process continuous in food retail with the takeover of

the Tengelmann outlets, and Rewe’s takeover of more than 160 stores

belonging to Schleswig-Holstein’s coop eG (the Federal Cartel Office

issued its approval in October 2016), which are now being gradually

integrated.

Source: EHI Retail Institute Cologne, bulwiengesa’s own calculations Rounding differences may occur. * Not including specialised stores and non-organised food retail; incl. non-food

selling space

The number of outlets continued to decline in 2015 and 2016, while

selling space remained largely the same. Sales, however, developed

very positively, which reflects the rising sales per unit area in food retail.

Market shares held by the various business types illustrate the way this

industry is developing:

– Discounters lost some of their market share in 2015 and 2016, but

with a total portion of 45.4%, they remain the foremost supplier

group in food retail.

The big discounter chains Aldi and Lidl are currently improving their

existing networks. Smaller stores are being closed and replaced

by bigger ones, and existing stores are being expanded

considerably. Lidl and Aldi favour buildings with selling areas of up

to approx. 1,500 sqm. Companies like Lidl are now offering

additional services such as customer bathrooms and coffee

vending machines, as well as offering a more spacious

presentation of goods with lower shelves, wider aisles (for

customers to pass along), especially in the zone leading up to the

tills, and by making the retail space more attractive (trading up).

Netto and Penny are also investing in upgrading their store image,

partly so they can compete favourably against the supermarkets.

Penny is trying to profile itself as a convenience store.

Germany* Shown in inde o 2006 = 100

125

120

115

110

105

100

95

90

85

80

'06 '07 '08 '09 '10 '11 '12 '13 '14 '15 '16

Sales

Number of outlets



Market shares n

100%

80% 8.6 8.7 8.8 9.0 9.3 9.4

3.1

12.3

9.5 9.6 9.8 9.9

60% 27.3 26.8 26.6 26.9 27.4 27.7 28.0 28.3 28.8 29.2

40%

20% 44.9 45.7 46.2 46.1 45.6 45.8 45.8 45.8 45.6 45.4

0%

'07 '08 '09 '10 '11 '12 '13 '14 '15 '16

Discounters

Supermarkets

*

Other food retailers

Source: EHI Retail Institute, Cologne * Total values incl. non-food

– Hypermarkets continue to decline, holding a marginal market share

of just 12.3%. The number of hypermarkets fell considerably from

875 in 2014 to 851 in 2016. Selling space, however, has remained

largely constant.

– Other, smaller food retailers have also lost market share. The

number of them has almost halved since 2007.

Source: EHI Retail Institute, Cologne, TradeDimensions, bulwiengesa calculations Rounding differences may occur.

– The winners are the supermarkets and large supermarkets, who

have been able to expand their market share. The number of

stores and their selling space have risen steadily since 2007. The

number of large supermarkets has risen by around 24.8% since

2007, and supermarkets have also grown rapidly by 13.7%. These

developments have been bolstered by the leading chain store

owners, who have done much to strengthen the provision of

services near to residential areas, and who have experimented

with new supermarket formats.

Development of number of food retailers by business type 2007 - 2016

Year Discounter Supermarket Large

supermarket

Hypermarket Small food

retailer

2007 15,600 9,590 903 877 14,900

2008 15,970 9,660 931 887 13,900

2009 16,020 9,700 955 885 12,800

2010 16,240 9,980 985 890 11,193

2011 16,462 10,148 1,002 893 10,650

2012 16,393 10,505 1,010 894 10,064

2013 16,222 10,655 1,054 888 9,781

2014 16,195 10,785 1,070 875 9,600

2015 16,211 10,870 1,098 864 8,900

2016 16,054 10,900 1,127 851 8,750

'07-'16 2.9% 13.7% 24.8% -3.0% -41.3%



For example, Rewe is busy developing a new supermarket concept

with pilot stores in cities such as Berlin, Munich and Kronberg im

Taunus, so as to make their outlets sustainable for the future.

These stores aim to focus more on fresh produce, convenience

products and catering, giving them more premium components and

an improved ambience. By doing this they aim to position

themselves more successfully in their rivalry with Edeka, and to set

themselves apart positively from discounters, more and more of

whom are incorporating typical supermarket elements.

Development of selling space at food retailers by business

type, 2007 - 2016 in million sqm

Year Discounter Supermarket Large supermarkets

Hypermarket Small food retailer

2007 11.1 8.3 3.0 6.1 4.6

2008 11.4 8.5 3.1 6.1 4.6

2009 11.5 9.0 3.2 6.1 3.5

2010 11.7 9.6 3.4 6.3 3.1

2011 11.9 9.7 3.5 6.3 2.8

2012 12.1 10.0 3.5 6.3 2.8

2013 12.1 10.2 3.6 6.3 2.8

2014 12.2 10.4 3.7 6.1 2.8

2015 12.5 10.6 3.7 6.1 2.7

2016 12.5 10.7 3.9 6.0 2.7

'07-'16 12.4% 28.7% 27.1% -2.1% -42.6%

Source: EHI Retail Institute, Cologne, TradeDimensions, bulwiengesa calculations Rounding differences may occur.

Regional distribution – discounters dominate eastern Germany

Business types in food retail are more or less pronounced, depending

on region:

– Discounters3 are the dominant business type in every region, but

there remains a significant difference between the new and old

Federal states. The share of selling space they hold in the South-

West4 Region is just under 35%, and marginally higher at around

36% in the North-West5, whereas discounters achieve a share of

almost 46% in the eastern Federal states (incl. Berlin) (see

diagram below). This means that the discounter segment is far

more important in eastern Germany, which is partly because of the

lower spending power there.

– Selling areas belonging to large-format supermarket / large

supermarket and hypermarket business types are spread almost

evenly across Germany, but there are significant differences in

facilities in supermarkets / small supermarkets when comparing

eastern and western Germany. In eastern Germany they

collectively constitute a selling space share of 26%, in the North-

West 36% and in the South-West almost 37%. They represent a

major factor in the local provision of groceries in the North-West

and South-West.

3 Source: Evaluation of TradeDimensions data

4 Federal states: Hessen, Rheinland-Pfalz, Baden-Württemberg, Bavaria, Saarland

5 Federal states: Schleswig-Holstein, Hamburg, Lower Saxony, Bremen, North Rhine-Westphalia



Sales per unit area continue to rise in food retail

Selling space in food retail has developed in a mainly stable fashion

over recent years (approx. 4.1% since 2010), and, while expenditure

and populations have risen, this has led to a consistently positive

development of sales per unit area.

Source: EHI Retail Institute, Cologne

According to data published by the EHI Retail Institute, sales per unit

area in food retail steadily rose from 2011 to 2016, leading to a total

growth of almost 10%. This illustrates the way in which the food retail

industry has developed positively overall.

4.315 4.228

4.123 4.165

4.023

3.870 3.893 3.907 3.885 3.930

(sales in net sales)

4,500

4,250

4,000

3,750

3,500

2007 2008 2009 2010 2011 2012 2013 2014 2015 2016

sqm

sqm

sqm

%


© bulwiengesa AG 2017 – P1705-3663bi Page 10

3.2 Development of business types

Discounters

Discounters have increased their profitability considerably in recent

years. The number of discounters has been declining since 2012,

although turnover and sales per unit area have risen significantly. The

number of grocery discounters dropped to 16,054 in 2016, which is

back down to the level of 2009. Selling space, however, rose to around

12.50 million sqm.

Development of discounters 2008 to 2016

Discounters also continue to optimise their existing networks. Smaller

stores are being closed and replaced by larger, more modern buildings.

At the same time, existing stores with selling areas of 900 or 1,000 sqm

are being expanded to ‘supermarket size’, which means up to 1,500

sqm of selling space, especially by market leaders Aldi and Lidl.

As part of this restructuring, the average size of discounters has risen

by approximately 11%, from 710 sqm of selling space in 2008 to around

780 sqm in 2016.

80 17.6

76 17.2

72 16.8

125

120

115

110

105 68 16.4

100

64 16.0

60 15.6 '08 '10 '12 '14 '16

Sales (gross)

No. of stores

95

90 '08 '09 '10 '11 '12 '13 '14 '15 '16

Sales (gross)

Selling space

Sales per unit area

Source: TradeDimensions, Lebensmittelzeitung, bulwiengesa calculations * Some of these figures are TradeDimensions estimates Rounding differences may occur.

An analysis of the various discounters reveals the following:

– Aldi Süd achieves around 10,270 €/sqm of selling space, which is by far the highest average sales per unit area, followed by Lidl with a sales per unit area of approx. 7.410 €/sqm of selling space. This means Lidl has achieved a considerable increase in turnover of 2.6% over last year, a success which has arisen from its considerable ongoing modernisation programme.

Source: TradeDimensions, EHI Retail Institute, Cologne, bulwiengesa calculations *Some of these figures are TradeDimensions estimates

Sale

s in b

illio

n e

uro

s

No.

of sto

res in ts

d.

Inde

x: 2008 =

100

Primary discounters: an overview of their KPIs*

Name No. of

stores

2016

Sales

develop-

ment 2015-2016

Selling space

develop-

ment 2015-

2016

Average selling space 2016

in sqm

Sales per

sqm of selling

space 2016

Develop-

ment of

sales per

unit area

2015-2016

Aldi Nord 2,315 1.3% -0.0% 858 6,255 euros 1.4%

Aldi Süd 1,871 2.7% 1.4% 833 10,266 euros 1.4%

Lidl 3,184 2.8% 0.3% 857 7,407 euros 2.6%

Netto (Edeka) 4,144 1.8% 1.1% 777 4,246 euros 0.7%

Netto Nord 348 -0.3% -0.6% 737 4,720 euros 0.3%

Norma 1,301 3.1% 2.0% 711 3,548 euros 1.2%



This programme involves renovating or rebuilding almost all of their

stores over the coming years. The main elements of this concept

include a more attractive, classy look with large glass fronts, as

well as lots of space and additional services such as customer

bathrooms with baby changing rooms, coffee vending machines

and spacious social rooms for the workforce. This conversion work

will be accompanied by a far-reaching image campaign whose aim

is to convey the image of a quality-oriented, high-end grocery

retailer.

– Aldi Nord has also progressed very well; its average sales per unit

area of around 6,260 €/sqm of selling space do not match those of

Aldi Süd and Lidl, but its profitability has been boosted

considerably by comprehensively improving its stocks and closing

non-profitable buildings. The average selling space in stores has

been increased to around 860 sqm per building as a result of this

work.

– Sales at Aldi Nord and Aldi Süd have been affected positively by

the inclusion of brand items in the product range since 2015; some

of these are permanent parts of the range, others are included as

promotional goods.

– Netto (Edeka) has the biggest network of stores with more than

4,100, but its sales per unit area of around 4,250 €/sqm of selling

space is well below that of market leaders Aldi and Lidl. The

average selling space in their stores is also less than Aldi and Lidl.

Retailer Netto also plans to modernise its network of stores over

the next five years, but this work will not be so far-reaching.

The conversion scheme involves improving the existing network,

closing some stores, extending others and opening replacement

sites. The aim for new stores is a selling area of 1,000 sqm. Most

of the Tengelmann outlets taken over in the Ruhrgebiet are being

transferred to the Netto sales line, since a lot of them do not meet

the requirements of an Edeka supermarket. Most of the smaller

Tengelmann outlets in Berlin are also being reflagged as Netto.

– Penny - the fourth biggest discounter after Aldi, Lidl and Netto - has

developed very positively in recent years and has completed a

turnaround. Sales per unit area have increased by almost 2% over

the previous year to around 5,040 €/sqm of selling space, which is

higher than Netto (Edeka). Penny has also improved its store

image in an attempt to set itself clearly apart from the two top

discounters. The basic concept is that of a streamlined

supermarket with discounter prices, a strong focus on fresh

produce and an image as a local amenity.

– Norma is bottom of the list in terms of sales per unit area, but for

some years its sales have grown steadily while selling space has

remained almost constant, and last year it achieved its highest ever

sales growth. Unlike its rivals, Norma does not intend to upgrade

its store layout. But the store network has been improved by

closing outlets that are no longer up to date and replacing them

with new ones. Logistical processes have also been improved.



– Netto Nord is the smallest grocery discounter with around 350

branches, and limits itself to the market in the north of Germany. It

is also the only discounter to have suffered a slight loss of sales

last year.

Grocery shops

The number of small grocers continues to drop. This type of business

has also lost a lot of sales. Sales per unit area have risen but at around

1,850 €/sqm of selling space (net), they remain at a very low level.

Source: TradeDimensions, Lebensmittelzeitung, bulwiengesa calculations * Some of these figures are TradeDimensions estimates

Overall we can say that almost all of the discounters are improving their

networks of stores and trading up, with concepts borrowed from the

supermarkets. The number of outlets is likely to keep declining coupled

with a trend towards larger selling areas in the stores.

Source: EHI Retail Institute, each 31.12.

There is no sign of any reversal in this trend, especially given the

background of sustained negative parameters such as problems of

demand and competition.

Comparison of d sc ters’ s (2016) a

12,000

10,000

8,000

6,000

4,000

2,000

0

10,266

7,407 6,255

5,040 4,246 4,720

3,548

Aldi Aldi Lidl Netto Nord Süd (Edeka)

Netto Nord

Norma Penny

type (<400 sqm selling space) 2008 2016

6.5 16 150

6.0 14 125

5.5

12 100

5.0

4.5 10 75

4,0

'08 '10 '12 '14 '16

8 50

'08 '09 '10 '11 '12 '13 '14 '15 '16

Sales (net)

No. of stores

Sales (net)

Sale

s in

bill

ion e

uro

s

No.

of sto

res in ts

d.

Inde

x: 2007 =

100



Supermarkets (400 to below 2,500 sqm selling space)

The supermarket business type has steadily and significantly increased

its sales since 2011, while increasing the number of outlets. The

average selling space per store is around 1,100 sqm.

The performance of supermarkets has also improved considerably.

Sales per unit area are currently at around 4,200 €/sqm of selling space

(gross), having risen significantly by around 15% since 2008.

KPIs for supermarkets (400 up to below 2,500 sqm) – an overview*

Name

No. of

stores

2016

Sales

develop-

ment 2015-2016

Selling space

develop-

ment

2015-2016


in sqm

Sales per

sqm of

selling space

2016

Develop-

ment of

sales per

unit area

2015-2016

Edeka Group 3,927 10.8% 9.5% 1,096 4,447 euros 1.2%

K+K Markt 209 -0.5% -0.8% 1,084 2,689 euros 0.3%

Rewe Group 3.311 2.2% 2.3% 1,298 3,879 euros -0.2%

tegut 239 3.9% 1.6% 1,129 3,736 euros 2.3%

Source: TradeDimensions, bulwiengesa calculations, Rounding differences may occur. * Some of these figures are TradeDimensions estimates

The Edeka Group runs the largest number of supermarkets, and

achieves the highest sales per unit area at almost 4,450 €/sqm of selling

space (gross). Edeka has succeeded in increasing both its overall sales

(approximately 11% growth) and sales per unit area in its stores. Edeka

also benefits from the fact that many of its supermarkets are owner-

managed, and these generally achieve better sales than Edeka Group

branches.

Source: TradeDimensions, EHI Retail Institute, Cologne, bulwiengesa calculations * Some of these figures are TradeDimensions estimates

The Rewe Group, which is the second largest German supermarket

operator with around 3,300 stores, did not manage to achieve the same

success as the Edeka Group last year. Sales did rise by 2.2%, but the

average sales per unit area decreased slightly by 0.2%.

type (400 – 2 499 sqm selling space) 2008 to

2016

51.0 11 125

48.0 11 0 120 115

45.0 10.5

110

42.0 10,0 105

39.0 9.5 100

36,0

9,0 95

'08 '10 '12 '14 '16

Sales (gross)

No. of stores

Sales (gross)

in million sqm

Sale

s in

bill

ion e

uro

s

No.

of sto

res in ts

d.

Inde

x: 2008 =

100



Development of large supermarket business type (2,500 - 4,999 sqm selling space) 2008 to 2016

19.5 1,00

18.0 0.90

16.5

'08 '10 '12 '14 '16

0.80

110

105

100

95

'08 '10 '12 '14 '16

Sales (gross)

No. of stores

Sales (gross)

No.

of sto

res in ts

d.

Inde

x: 2008 =

100

There are now only a few regional supermarket operators left on the

market following the takeover of Tengelmann outlets by Edeka and

Rewe and of coop by Rewe in 2016. Even tegut is no longer a regionally

active medium sized retailer. It was taken over by Switzerland’s migros

in 2013 and is now run as an independent subsidiary. tegut focuses its

activities on Hessen and North Hessen, but has expanded in the

affluent urban regions of the south (including Rhein-Main, Stuttgart,

Nürnberg/Erlangen). There has been a comprehensive modernisation

of its store network ongoing since 2013, with existing stores renovated

and unprofitable branches closed.

At the same time they have been optimising their range (including

streamlining, incorporating more local products and own brands) and

their pricing strategy. The company hopes that this reorientation will

make it a stronger rival to Edeka, Rewe and the discounters. Its

restructuring activities also appear to be paying off. In 2016, tegut

posted an almost 4% increase in its sales over the previous year, and

its sales per unit area also rose considerably. Amazon (Amazon

marketplace) also began to sell tegut products recently, with a focus on

tegut’s own brands.

Bottom of the list is K + K Markt (Klass + Kock) which is regionally active

in North Rhine-Westphalia and Lower Saxony, and which saw a decline

in its sales in 2016 coupled with very weak sales per unit area,

averaging just under 2,700 €/sqm of selling space (gross).

The Rewe and Edeka Group look set to position themselves even more

successfully, having taken over other supermarkets. Time will tell to

what extent tegut can continue positively as it is now, with the Swiss

company migros in the background.

Large supermarkets and hypermarkets

The number of large supermarkets and the sales they have generated

have risen steadily since 2011. Yet things are not all the same among

the four top operators. Market-leader Kaufland has almost 450

properties and continues to achieve the highest sales per unit area of

around 5,100 €/sqm of selling space (gross), although it did not achieve

the growth levels of Edeka and Rewe last year.

24.0 1.30 130

22.5

1.20

125

120

21.0 1.10 115


The Edeka Group achieved the best sales growth last year, with a

growth of 3.1%. Sales per unit area also rose by 0.7%.

Sale

s in

bill

ion e

uro

s



The Rewe Group has also progressed well with 2.3% growth in sales.

Edeka and Rewe’s push towards upgrading existing stores and

expanding fresh produce areas, integrating additional services and

catering elements, seems to be paying off.

KPIs for large supermarkets (2,500 - 4,999 sqm) – an overview*

Name

No. of

stores

2016

Sales

develop-

ment 2015-2016

Selling space

develop-

ment 2015-

2016


in sqm

Sales per

sqm of

selling

space

2016

Develop-

ment of

sales per

unit area

2015-2016

Edeka Group 358 3.1% 2.3% 3,243 4,436 0.7%

Kaufland 446 1.4% 0.9% 3,701 5,093 0.5%

real,- 46 -2.5% -2.4% 4,274 4,655 -0.2%

Rewe Group 167 2.3% 2.0% 3,080 4,094 0.3%

Source: TradeDimensions, bulwiengesa calculations Rounding differences may occur. * Some of these figures are TradeDimensions estimates

real,- is the biggest loser by comparison. Its sales declined

considerably, both in its large supermarkets and its hypermarkets.

Furthermore, it closed nine outlets last year, and many real,- stores are

suffering from investment bottlenecks.

The rollout of its planned investment programme, in which stores were

to be renovated on the basis of a pilot outlet in Krefeld, has been

postponed, probably because of the imminent division of Metro into two

independent stock companies, after which real,- and the Metro C&C

stores will begin to trade under the Metro Group name.


The hypermarket business type has seen a reduction in the number of

stores and in sales since 2012. Sales per unit area developed steadily

at first, but then declined in 2016. All of the hypermarkets lost sales last

year, except from those run by Rewe and Edeka. The Rewe Group took

over outlets previously run by real,- last year, and put in place some

very high-end concepts there including extensive fresh produce

counters, catering elements, onsite production, humidors and so on.

Rewe and Edeka, however, are far behind the other hypermarket

operators in terms of sales per unit area.

hypermarket type (selling space ≥ 5 sqm)

2008 to 2016

24.0 1,00 115

110 23.0 0.95

105

22.0 0.90

100

21.0 0.85 95

20.0 0.80 90

Sales (gross)

No. of stores

Sale

s in

bill

ion e

uro

s

No.

of sto

res in ts

d.

Inde

x: 2008

= 1

00

Sales (gross)

Selling space

Sales per unit area



Sales dropped especially steeply at real,-, which lost 3.4%. For reasons

of cost, real,- also changed its online concept and now operates a

Click&Collect scheme with collection stations at the stores. Their

delivery service has been suspended until further notice.

Globus, which operates the biggest hypermarkets with a diverse non-

food range and average selling space of around 11,700 sqm, had to

absorb a slight loss of sales of -1.2% last year. Sales per unit area

declined even more at -5.5%, but that was a result of the newly opened

47th Globus hypermarket in Rüsselsheim, which was not opened until

September 2016. At the same time, Globus is the hypermarket operator

with the highest sales per unit area, averaging 6,000 €/sqm of selling

space.

Nor did Kaufland escape unscathed last year. To revive its German

business and rectify the investment bottleneck that has formed at its

stores, Kaufland plans to invest up to one billion euros each year in

modernising and realigning its network of outlets. It intends to convert

its stores on the basis of a pilot shop in Ilsfeld. They are also considering

purchasing their properties from their landlords so as to secure the

stores long-term, and with them their investments.

All in all, it is clear that the two big hypermarket operators real,- and

Kaufland lost sales last year, despite good parameters in food retail

overall, and that they will have to realign and modernise their networks

of stores if they are to assert themselves over other business types in

the market. Kaufland is taking steps to counter this development; at

real,-, no trend reversal is evident.

Rewe and Edeka, on the other hand – because they have already

modernised their existing stores, established a higher quality set-up and

expanded their fresh produce areas, convenience services and catering

elements – are now setting the trend and growing their sales.

Source: TradeDimensions, bulwiengesa calculations Rounding differences may occur. * Some of these figures are TradeDimensions estimates

KPIs for major hypermarkets (≥ 5,000 sqm selling space) – an overview*

Name

No. of

stores

2016

Sales

develop-

ment 2015-2016

Selling space

develop-

ment 2015-

2016


in sqm

Sales per

sqm of

selling space

2016

Develop-

ment of

sales per

unit area

2015-2016

Edeka Group 107 2.4% 2.3% 6,753 3,869 euros 0.1%

Globus 47 -1.2% 4.6% 11,675 6,052 euros -5.5%

Kaufland 183 -1.2% -0.6% 6,204 4,671 euros -0.6%

real,- 239 -3.4% -2.5% 7,503 4,208 euros -0.9%

Rewe Group 38 2.6% -0.3% 6,371 3,946 euros 2.9%



Organic grocery shops

The organic grocery segment has enjoyed exceedingly dynamic

growth. Sales of organic grocery between 2012 and 2016 rose by

around 35% – an enormous leap. A total of around 9.5 billion euros was

generated by selling organic grocery in Germany in 2016. Food retailers

(including pharmacies) have benefited from this growth more than

anybody; they succeeded in boosting their sales by around 44% during

the period under review.

Development of organic grocery sales by sales channel, 2012-2016

The main generator of sales in organic grocery is food retail (including

pharmacies). Around 58% of sales in organic grocery were generated

there. Food retailers were able to increase their share of this by around

4% over time. Wholefood shops also increased their sales, but not as

much as food retailers.

Of all the organic supermarket chains, denn's Biomarkt (Denree) has

the most branches. denn's Biomarkt is now present across Germany

and almost doubled its network of outlets between 2012 and 2016, as

well as increasing its sales by almost 78%.

Source: TradeDimensions, Some of these figures are TradeDimensions estimates,

Rounding may occur.

* Exclusively sales from Denn's Bio stores, excluding sales generated by independent retailers

belonging to Verbundgruppe Biomarkt

Alnatura generated the highest sales; it occupies the lowest price range in the organic grocery segment. As well as dedicated

* Including pharmacies

Alnatura stores, which generated only around half of total sales, retail

partners are major turnover contributors. dm Drogeriemarkt, a long-

standing ally, began to discontinue Alnatura products in 2015 ** incl. farm shops which buy goods worth 50,000 euros net p. a. *** Bakeries/butchers, fruit and vegetable retailers, weekly markets, food boxes, mail order companies,

petrol stations

Source: BÖLW Bund ökologische Lebensmittelwirtschaft e.V.; sales by sales channel in 2012/2013 cannot be compared with the previous year because of a change of method

and build up its own organic grocery line. New business partners then had to be found. These have included coop, Müller Drogerie, Rossmann und Edeka; the alliance with Edeka has fulfilled Alnatura’s expectations.

Biggest four organic grocery shop chains in Germany

Sales 2015 million euros

Change from

2012

Branches 2012

Branches 2016

denn's bio (Denree)* 247 77.7% 113 215

Alnatura** 418 40.7% 74 107

Basic 130 16.1% 25 32

BioCompany 134 66.5% 30 51

Total

Food retail*

Wholefood shops**

Others***

Sale

s in b

illio

n e

uro

s



As a result of all this, Alnatura managed to maintain its sales at a stable

level. Rossmann now offers all of Alnatura’s products at its online shop

and is trying out the Alnatura range in some of its pharmacies. Alnatura

is also pushing ahead with the expansion of its own network of stores.

Basic and Bio Company have much smaller networks of stores by

comparison; Bio Company is the market leader in the Berlin region and

has grown rapidly over recent years. Bio Company has benefited from

the organic grocery manufacturer Havelland, which it took over in 2013

and which offers a lot of local products as well as an attractive shop

concept.

Basic is working to expand its alliance with online retailer Amazon.

Pharmacy chains Rossmann and dm also intend to reinforce and build

upon their expanding organic grocery ranges.

Overall it can be said that organic grocery retail will continue to grow

rapidly. The number of organic grocery shops will continue to rise, and

pharmacies and grocery suppliers will want to benefit from this positive

development and will continue to build up their own organic grocery

ranges.

Summary

The concentration process in food retail continues and the five big

companies are consolidating their power in the market.

Small food retailers are posting declining sales figures which are the

result of a huge loss of stores and selling space. This trend is set to

continue; we cannot expect a turnaround in the fortunes of this business

type, given the problems of demand and competition.

Discounters have been losing a little of their market share for years, but

in absolute terms they managed to overcome a period of weakness in

2011 and 2012, and sales figures began to rise in 2013. In the long

term, the big discounter chains will continue to focus mainly on

improving their store networks, with larger selling areas and slight

expansion.

The biggest winners of recent years are the supermarket and large

supermarket business types; their sales have grown rapidly since 2012.

Like the development of organic grocery sales, this reflects the greater

spending seen among consumers.

Hypermarkets have not been able to escape the negative trend which

they have been suffering for several years. This business type has lost

sales as well as selling space and the number of stores. Hypermarket

operator real,- will inevitably have to execute the modernisation of its

store network as announced, but this has not yet started to happen.



4 RENTALS AND YIELDS 4.1 Rentals

Rentals in food retail have developed positively since the year 2000. In

previous periods from 2000 to 2014, rental growth in western Germany

was always stronger than in eastern Germany over the same periods.

Rentals remained stable in western Germany in the most recent period

(2015 - 2017), while in eastern Germany they rose by 10.8% from 10.60

€/sqm to 11.70 €/sqm compared with the previous period. Despite this

‘catch-up’ effect, the absolute rental level in western Germany is still

9.4% higher than in eastern Germany.

At 25.5% in western Germany and 24.9% in eastern Germany, both

areas demonstrate similar rental increase rates since the year 2000 in

food retail.

Compared with rentals at 1A locations in 127 RIWIS cities, rentals for

food retail in Germany have since the year 2000 risen faster than top

rentals in top locations in B, C and D cities. Only rental growth in A cities

was higher, at 69.1%.

Development of average rents for selected

food retail business types, 2000 - 2017*

Regional unit 2000-2004 2005-2009 2010-2014 2015-2017

New Federal states 9.40 €/sqm 9.80 €/sqm 10.60 €/sqm 11.70 €/sqm

Old Federal states 10.20 €/sqm 11.40 €/sqm 12.90 €/sqm 12.80 €/sqm

* The data sample for this calculation relates to rental information from the internal bulwiengesa database for the period 2000-2017. In order to achieve a statistically relevant number of cases, averages were measured for 5/3-year intervals. Information was located using the municipality codes belonging to addresses in eastern/western Germany. It should be noted that the real sample cannot reproduce an even distribution across the full geographic market area.

Source: bulwiengesa AG, rents rounded off Rounding differences may occur.

Source: bulwiengesa AG, rents rounded off Rounding differences may occur. * Each period-average was used to calculate growth rates in food retail.

Rental growth in German retail 2000 - 2016

Regional unit 2000 2016 Change –

2016 to 2000

Top rent, A cities 175.90 €/sqm 297.40 €/sqm 69.1%

Top rent, B cities 115.70 €/sqm 136.50 €/sqm 18.0%

Top rent, C cities 79.10 €/sqm 93.80 €/sqm 18.6%

Top rent, D cities 52.30 €/sqm 55.20 €/sqm 5.5%

Food retail eastern Germany

9.40 €/sqm 11.70 €/sqm 24.9%

Food retail western Germany

10.20 €/sqm 12.80 €/sqm 25.5%



4.2 Yields

The development of yields over recent years reflects intense investor

interest in retail properties at non-central locations. An increasing

number of investors are turning to retail property in non-central

locations (specialist retailers, supermarkets, discounters) because of

higher purchase prices and less availability in the premium segments

business premises and shopping centres.

Yields for every RIWIS category of city have steadily declined since

2008. Yields in western German A/B cities have dropped by 161 basis

points and in Berlin by 127 basis points since 2008. Yields in city-centre

locations in A cities are approaching the 3% mark, but they are still

above the 5% mark in non-central locations in western German A/B

cities and Berlin. There has been a 138 basis point decline in yields in

C/D cities in western Germany since 2008.

Yields in eastern Germany are higher in similar categories of city, but

investor interest is intensifying there and yields have dropped sharply.

The downturn in A/B cities and C/D cities has been similarly severe at

116 and 117 basis points, but was still somewhat less than figures in

western German cities.

* In its annual RIWIS survey, bulwiengesa determines the property industry indicator net initial yields for non-central locations in a 127 cities. Because there is no statistically sound way of ascertaining regional yields for the local amenities segment and specialist store locations, this indicator is used as the best approximation of such a figure. RIWIS city categories have been allocated to EASTERN/WESTERN GERMANY and divided up into A/B and C/D cities; average yields for each year have been calculated for those groups. Source: bulwiengesa AG

– Net initial yields 2008 - 2016 retail –

% (127 R S cities)

8.0%

7.5%

7.0%

6.5%

6.0%

5.5%

5.0%

C D

C D

BERL N

'08 '09 '10 '11 '12 '13 '14 '15 '16



Local amenity investments offer high stability and long-term security.

Local amenity property represents an attractive investment category for

three reasons. Firstly, Germany’s restrictive construction laws protect

existing retail areas comprehensively against competitors, especially in

central supply areas; secondly, tenancy agreements are generally very

long and are partially indexed, which provides security. Thirdly, food

retail mainly involves anchor tenants with good credit ratings.

Tenancy agreements that last for 15 years and are therefore very long-

term are common practice at Germany’s food retail chain stores. The

reason for this is that companies wish to obtain long-term security over

their locations, to which they are closely tied. Options are also available

that generally run for 2 x 5 years. The tenancy agreements usually

include three raise-free years followed by indexing which adjusts them

in line with the cost of living index, providing security even if inflation

rises. Tenancy agreements for supplementary suppliers usually vary

between approximately ten years for pharmacies and approximately

five to ten years for non-food discounters and home interiors stores.

The flexibility this provides allows for a response to changes in the

market and for the industry/tenant mix to be adapted.

All things considered, local amenity locations offer secure, long-term

rental income and represent a stable, long-term investment.

Summary

The rental level in the local amenities segment has risen considerably

since the year 2000 for good properties in both western and eastern

Germany. Yields are also attractive, especially in C and D cities.

Investments in modern local amenity properties offer high stability and

long-term security. This is because tenancy agreements in this asset

category are usually long-running and normally include index

arrangements.

MARKET STUDY - TLG IMMOBILIEN AG · Market study – Food retail in Germany - market structure data...

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