GERMAN MARKET ANALYSIS: Drink in Deutschland

The young German consumer, like his US counterparts as well as those elsewhere in Europe, displays a predilection for a sweeter, fruitier-tasting beverage – a requirement that flavoured vodkas and vodka-based cocktails are meeting perfectly. Vodka and beer premixes have become the new pretenders as German consumers spurn drinks favoured by their parents. Vodka in particular has seen a meteoric rise in sales, adding over ten million litres within the space of five years to 2006 and is poised to eclipse sales of korn (not including Doppelkorn).

Demand for vodka has also been strengthened by the demise of spirits-based ready-to-drink beverages (RTDs), because of their prohibitive price, with Germans now buying vodka and mixing it themselves, often with energy drinks. While affordable brands are popular among consumers, premium vodkas such as Absolut are also enjoying rising demand. Euromonitor International expects this trend to pave the way for further demand for premium or ultra premium brands, a trajectory already taking place in the US. (In fact, key consumer trends show that the German alcoholic drinks market bears a striking similarity to the US, where demand for beer is also stalling).

Mix and match
In direct contrast to these sweeter drinks, bitter liqueur, which is a traditional drink, has enjoyed a huge surge in popularity, in part a testament to the power of marketing. Effective campaigns have transformed the image of brands like Jägermeister and Ramazzotti, with the latter seen as part of the Italian lifestyle influence and a trendy drink. Jägermeister, meanwhile, has seen success across a raft of countries including the United States, South Africa and Russia. Key to its popularity, alongside heavy marketing, has been its consumption as a single shot or mixed with an energy or cola drink by young consumers, particularly in the on-trade as well as at parties.

Beer premixes, or Radler as it is more popularly known in Germany, have also replicated the success of vodka. Having recovered from the impact of the deposit tax, sales have been boosted, in no short measure, by the launch of Beck’s Green Lemon, comprising 50% beer and 50% lemonade. More than 20 million litres of the brand were sold in 2005, according to InBev. Radler initially had a poor image among consumers but the launch of the first premium variety by Krombacher helped change its perception and resulted in most manufacturers of premium lager – and also many regional breweries – offering Radler beer. With a relatively low alcohol content of 2.5% ABV, these drinks are more affordable for younger consumers and do not carry the punitive tax, which has been imposed on spirits-based RTDs. This compares with the United States where “malternatives”, as they are commonly referred to, also carry a lower tax. This has spurred demand for these drinks to the detriment of wine and spirits-based premixes. Indeed, in the US, brands have been reformulated, thus despite having names such as Seagram’s Cooler Escapes, which would normally be wine-based, these now have a malt base instead to stem the shift in demand.

All well and good

In an effort to shore up demand for beer, there have been launches aimed at special target groups such as women, beers for special occasions or seasons like “Weihnachtsbier” (“Christmas beer”) as well as beers with higher alcohol content. It is this segmenting of consumers that has brought about the launch of new brand Karla. This is a low alcohol beverage (1% abv) with a tonic-like mix of beer and ingredients such as plant extracts and folic acid. Uniquely, this brand is being retailed only in pharmacies and its target consumer is females over 40. This product joins Xan, another wellness-positioned brand with 0% abv, owned by Bavarian brewery Weihanstephan and also sold through pharmacies.

A look at the country’s demographics quickly flags up the key impetus behind these launches. It is a well documented fact that the population is ageing. Indeed, according to Euromonitor International’s research, 40 to 59 year-old baby boomers  account for around 28% of the total population and are set to have a greater proportion of the total in the future. The number of younger potential consumers is also set to decline due to slowing birthrates. Brewers are now looking to tap into the key middle-aged consumer group, not just because of its growing size, but also because this section of the German population typically has the highest level of disposable income. This in itself is a challenge since this is a cautious group in terms of spending – the consumer really needs to see that there is a value-added benefit to the product when making a purchasing decision.

Brewers have also established that German females consume comparatively less beer than their counterparts in the UK, for example, and this thus represents an area of opportunity, already manifested through demand for Radler, which, with a lighter, sweeter taste, appeals to females. Segmenting consumers and targeting “mass” niche groups is a trend that Euromonitor International expects to see develop in the future. Casting an eye to the US, the launch of sorghum beer by Anheuser-Busch, aimed at those who cannot tolerate gluten, is a nod to the importance of the emerging health and wellness trend as well as a signal of intent to cater to all key consumer bases.

Economy holding sway
While brewers are all looking to maximise sales within these new product segments, one of the most notable trends against a backdrop of fragile consumer confidence is the growing popularity of economy beer in the off-trade channel. The “Geiz ist geil” (“it’s cool to be stingy”) slogan, part of promotional campaigns, seems to have hit the mark with the cash-strapped German.

With all beer having to conform to the Reinheitsgebot (purity law), economy beer is perceived by consumers to be of good quality and acceptable as a take-home purchase. This trend toward economy beer is unlikely to fade in the short-to medium term.

One notable trend across a number of mature beer markets – including the UK, Netherlands, Ireland and the US – is the strong demand for imported beers which are positioned as premium. Although domestic beer is highly regarded among German consumers, within an increasingly mobile consumer base, there is a fascination for the new and the exotic. The young German consumer is no different from other Western counterparts – a key constraining factor is the economic climate that has influenced consumer spending patterns.

Imported beer constitutes just a fraction of overall sales in Germany, with the largest imports coming from Denmark, Belgium and the Czech Republic. As disposable income increases, imported beer is expected to make further inroads into the German market.

Indeed, it can be argued that a number of beers in other countries are weaker in taste and would suit the changing consumer palate perfectly. Domestic brewers are already launching new milder tasting beers but a combination of being foreign together with a taste that suits the younger consumer could well see imports become more widespread in Germany once the economy improves.

On the export side, German brands have not made much headway in the US market, where imported premium beer is booming. Beck’s and Warsteiner lead the list of German brands but are still at a distance behind beers from Mexico, the Netherlands and Canada. Getting good distribution in the US is key as InBev has recognised with its recent tie-up with leading US brewer Anheuser-Busch. 

Wine importers’ challenge

Wine, meanwhile, has seen its own set of challenges. With per capita consumption stable at around 25 litres and much of this demand being traditionally met through domestic wine as well as from stalwarts France, Italy and Spain, Germany has long been viewed as a country of potential by winemakers from other parts of the world.

After all, if Australian wine made serious inroads into the UK market and is now gunning for the US market at the expense of French wine, in particular, why not Germany too?

Considerable efforts have been made to repeat the success New World wines have enjoyed in other countries, but it is a tough challenge. Wine companies are finding market conditions tough in Germany as price pressure is very strong from private label, which accounts for over 30% of sales.

Despite activities undertaken by producers of branded products to generate demand and strengthen consumer loyalty, private label and discounter offerings are still gaining share.

With less than 3% of the off-trade wine market or 2.3m cases in the €5 plus price segment – where many New World producers look to compete – competition is rife, and enormous investment is required for brands to make strong headway. One of the more successful New World companies in the €5 plus segment is US winemaker  E&J Gallo, with its Sierra Valley range.

Looking at the second tier of key wine exporting countries to Germany, these are led by Chile and closely followed by South Africa. Imports directly from these countries, combined with those from the United States and Australia, accounted for 10% of all wine imported by Germany in 2005 (excluding wine which may be re-routed through other countries).

Although this still represents a relatively small share, it is a significant improvement on a share of around 3% some five years previously.

Trading up is key
While the economic outlook is set to improve, alcoholic drinks consumption is at a high level of maturity and products are jostling for sales in an ever-decreasing market.

Euromonitor International forecasts that the key will be to encourage consumers to trade up, with new launches and marketing playing a central role in making this happen. 

© db March 2007