German Food Retail is Tasty Opportunity for Investors
The German food retail sector is so stable that e-commerce has failed to take a bite out of it and Walmart gave up. So what makes Germany’s mature bricks-and-mortar model so robust?
The German market is well established and very concentrated. 5 grocers hold 74% of the market, 2 of which are leading food discounters. The dominance of the discounter has resulted in very low operating margins across the sector with Edeka, Germany’s leading full food retailer, estimating it’s margin to be 1.5%. These factors have reduced the pressure to innovate and ensured that the e-commerce sector remains small.
Other factors which have limited the rise of online retail vary from strict regulations on the delivery of perishable goods which makes deliveries more expensive than textiles to the high per capita concentration of food stores in the country meaning you’re never more than a short walk, drive or cycle away from your local store, lessening the consumer demand for e-commerce. That AmazonFresh only offers its service in 3 German cities shows the difficulty it’s facing breaking into a very mature market.
The German food retail property market is a stable and predictable asset class, consistently accounting for 30% of the country’s total retail property transaction volume. With a 6-7% increase in rents consecutively over the last 2 years, investors can look to German food based retail properties for attractive and solid income returns in one of the most stable retail sectors, in the world’s fourth largest economy.
Read the full article in PropertyEU’s Retail Watch.