Sector Trend Analysis – Health and wellness trends in Germany

Trade

Germany is the world's third largest agri-food and seafood importer, with imports totaling US$97.2 billion in 2017, an increase of 6.7% since 2015. The EU is Germany's largest import source at 69.5%, followed by Asia (9.2%), South America (6.9%), and North America (3.7%). Brazil was Germany's largest non-EU import source at US$3.2 billion. Imports from Canada amounted to US$293.4 million, ranking 42^nd among non-EU suppliers.

In 2017, Germany imported US$60 billion in consumer-oriented agricultural products from US$56 billion in 2015, a 7.7% growth over this period. 21% of imported products came from the Netherlands, followed by Italy (10%), Spain (8%) and France (7%). Canada supplied a mere 0.1% or US$62 million of consumer-oriented products in 2017.

Key demographic indicators

Germany has a population of 82.8 million people and a GDP of US$3.7 trillion, making Germany the largest country and economy in the EU. Germany is the fourth largest economy in the world and accounts for over a fifth (21.3%) of EU GDP.

Germany's population is largely urban with 73.7% of the population living in urban areas. Germany's rural population is in decline after reaching a peak of 21.9 million in 2005. Between 2017 and 2030, it will decline by 23%. In contrast, the urban population will continue to expand to reach 61.7 million by 2030.

The German population is one of the oldest in the world with a median age of 46 in 2017, increasing to 48.1 by 2030. Germany is also aging at a faster rate than the EU average, where the median age was 40.0 years in 2017 and is expected to climb to 43.7 by 2030.

The number of citizens in the 15-64 range is expected to fall as a share of total population from 65.7% in 2017 to 60.4% in 2030. Between 2017 and 2030, the population aged 65+ is expected to grow by 3.9 million or 21.6% of total population to reach 21.5 million.

Consumers

Consumers in Germany are health conscious, sensitive to environmental issues, and willing to pay higher prices for more natural, less processed, and environmentally friendly products, such as organic foods, over conventional agri-food products.

German consumers also have an appetite for locally produced food and beverages. "Buy local" in Germany refers to regional products that are attached to a smaller territory. According to Mintel, 75% of German consumers prefer "regional products" if they have the choice. Most already buy such products on a regular basis, and 70% claim that they are even prepared to pay a premium for them.

Pricing plays an important role in food purchasing decisions. However, German consumers continue to opt for new health and wellness products and premium products in the market and have not demonstrated a huge shift in spending habits on food and beverages. Given that health and wellness related products usually have a higher price point, German consumers scrutinize and pay more attention to their claims. Companies clearly label their products and communicate messages that highlight product performance, benefits in order to outweigh price considerations and position their products in the functional categories.

Market data

Naturally Healthy

Naturally healthy beverages

In Germany, naturally healthy (NH) beverage products range from premium through standard to economy. NH tea and NH bottled water achieved the strongest retail value growth of 2.0% and 2.9% respectively among the main categories in 2017. Off-trade value sales of naturally healthy beverages grew by a CAGR of 1.1% from 2013 to 2017 to reach US$7.2 billion in 2017.

NH hot and soft drinks and RTD green tea are expected to perform well for the forecasted period of 2018 to 2022, with a CAGR of greater than 2.6% in each category. In 2022, sales are expected to be more than US$8.3 billion. Despite general price sensitivity, especially in fresh food, packaged food, and beverages, German consumers seem to be increasingly prepared to accept a certain price premium in the health and wellness beverages category.

From January 2013 to December 2017, there were 3,281 beverage products launched in Germany with an NH claim. Of total launches, 39.8% were new products, 38.2% were new variety/range extensions, while 17.8% were new packaging, 3.3% relaunches and 0.9% new formulations.

In the review period, 100 companies across Germany launched naturally healthy beverage products. The companies to launch the most products were Voelkel, DM Drogerie Markt and Alnatura. Voelkel launched 119 naturally healthy beverage products between 2013 and 2017.

Packaged food naturally healthy

The rise in health concerns and diet-related conditions in Germany has led more consumers to improve their dietary habits and to seek better quality food. The naturally healthy category benefits greatly from the "clean labelling" trend (withdrawal of preservatives, colourants and other additives) which began in British and French modern grocery retailers.

German consumers' attraction to health and wellness products is partly due to government education programs, media advertisements featuring healthy lifestyles and a growing body consciousness. This rise in health awareness has stimulated consumer interest in healthy foods and related products, leading food processors to look at marketing food and drinks on a health platform as a means of differentiation.

The health and wellness trend in Germany is not only expected to last over the longer term, but also to grow; new product launches with enhanced health features are likely to lead to future growth in all categories.

Naturally healthy is the largest health and wellness category in Germany, claiming 39% of total per capita expenditure value sales in 2017 while showing relatively slow growth. The reason for this slow growth is not a lack of consumer interest in the category, but rather its relative maturity compared to other health and wellness categories. Germany enjoys the highest annual per capita spending on NH food and beverages in the EU.

Better for you

From 2013 to 2017, 8,172 food and beverage products were launched in Germany with better for you (BFY) claims. Of the total launches, 39.0% were new products, 35.3% were new variety/range extensions, and 17.0% were new packaging.

Retail sales of BFY packaged food and beverages in Germany were steady at a CAGR of 2.6% from 2013 to 2017. Despite the competition from other health and wellness categories, especially from organic and naturally healthy products, the BFY packaged food and beverage category remained very attractive to many German consumers.

Because of the large size of the category and the high number of sub-categories, the competitive environment in BFY packaged food remained very fragmented. The largest companies were Lidl, DM Drogerie Markt and Netto Marken discount, which all enjoyed high awareness and a positive reputation among German consumers in the categories where they were active. It is worth noting that top companies for these types of products are supermarkets and the launched products are mainly private label brands.

German retailers have been some of the fastest adopters of private labels in Western Europe over the last two decades. Private label manufacturers in Germany have been very efficient in tracking and responding to new trends initiated by national brands, thus narrowing the gap between innovative private labels. German consumers have recognized the advantages of private labels providing a similar level of quality to that of branded products at competitive prices.

Better for you Beverages

BFY beverages recorded 2.6% CAGR from 2013 to 2017; reduced sugar beverages remained the largest category in BFY beverages in sales. With increased awareness about healthier living, more consumers are beginning to look for healthy variants of beverages, particularly within soft drinks, which are traditionally associated with high sugar content. Rising rates of obesity, diabetes, and cholesterol levels, especially among children and adults, are driving consumers to eagerly look for healthy beverages.

BFY reduced caffeine beverages declined by a CAGR of 2.9% to register sales of US$269.2 million in 2017. Reduced caffeine beverages almost exclusively consist of reduced caffeine coffee in Germany, which have declined in sales year over year since 2013.

BFY beverages are expected to record a CAGR of 4.1% from 2018 to 2022, to reach sales of US$2.4 billion by 2022. According to Euromonitor International, growth opportunities in this very mature category will remain limited, and only be able to improve sales in certain niche categories.

Better for you packaged food

BFY reduced fat packaged food is the most significant product area in the category, accounting for sales of US$4.0 billion in 2017. The meagre 0.5% CAGR from 2013 to 2017 had a marked impact on the overall performance of BFY packaged food. This slight increase was partly due to stronger competition from organic and FF reduced fat packaged food.

BFY packaged food saw a slight growth from 2013 to 2017, however a CAGR OF 1.5% to reach sales of US$5.2 billion is forecast in 2022. EU food labelling legislation^{Footnote 1} is forcing food manufacturers to indicate the amount of trans-fat and added sugars in their products. Consumers view BFY products as being highly processed and are more likely to purchase organic products with natural ingredients in line with a more health-orientated lifestyle.

Fortified / Functional

The overall category achieved 1.5% CAGR from 2013 to 2017 to reach sales of US$4.7 billion. Despite fortified/functional beverages encompassing a wide range of health related claims, energy drink players remained the growth leaders in the Fortified/Functional (FF) beverages category.

FF packaged food is expected to see very stable development. While the category is expected to see growth in niche positioning, the major obstacles are the competition from naturally healthy products and organic products, which are expected to increase. Furthermore. While these offer completely different benefits, they are likely to cannibalise products from other higher-priced categories.

Fortified / Functional beverages

The proportion of sales taken by FF beverages continued to grow in Germany. While in 2013, sales of FF drinks was worth US$1.7 billion, in 2017, this figure grew considerably to US$2.0 billion in 2017 at a CAGR of 3.8%.

FF beverages are expected to see a CAGR of 3.5% from 2018 to 2022 to reach sales of US$5.5 billion in 2022. The health and wellness trend is expected to continue in the German market with FF soft drinks and FF energy drinks expected to remain the main drivers of growth.

From January 2013 to December 2017, 1,389 beverage products were launched in Germany with a FF claim. Of total launches, 47.9% were new products, 32.8% were new variety/range extensions, 13.7% were new packaging, 4.5% were relaunches and 1.2% were new formulations.

Fortified / Functional packaged food

Organic

The German organic food market is the largest market in the EU and the second largest in the world. Organic food and beverage sales in Germany have increased over the last couple of years and peaked in 2017 with organic food and beverage sales reaching over US$4.2 billion.

Numerous products were imported into an ever greater extent, which can potentially be produced domestically as domestic production has failed to keep pace and the increasing demand was mostly covered by higher imports.

The German organic food market is projected to grow at a CAGR of over 5.3% during 2018-2022. Changing food consumption patterns, socio-economic changes, changes in conventional food taste and surging retail presence of specialist organic retailers across the country are anticipated to boost the organic food market in Germany over the next five years. Hypermarkets remain the No. 1 distribution channel for organic products (40.6% of the total organic turnover), followed by discounters (31.6%), drugstores, and supermarkets.

Please see the Canada - European Union Organic Equivalency Arrangement for information on Canadian certified organic products considered organic in the EU.

Organic Beverages

According to a recent Mintel study, 58% of Germans who buy organic food and drink claim to do so because these products are GMO-Free. For over half of consumers (54%), the fact that organic food and drink products do not contain pesticides and chemicals is an important factor. The same proportion of consumers (54%) single out the absence of artificial additives and preservatives in organic food and drink products as another significant factor influencing their purchase decision.

The organic trend in Germany is directly linked to strong consumer demand for naturally healthy food. Growing consumer concerns for food safety, the natural environment and their overall health are fuelling demand for organic products, leading to increased use of organic certification labels in German food and drink launches.

Organic packaged food

Growth occurred across all organic packaged food sectors from 2013 to 2017, and is forecasted through 2022. Confectionery, snack bars, and edible oils all outpaced the growth of the overall market and are forecasted to continue to do so. Larger subsectors such as organic spreads and baby food will experience slower growth relative to the entire sector.

The German market for organic packaged food is very mature, but it is large and diverse. Organic goods enjoy mainstream appeal and widespread trust in Germany, thanks in part to the efforts of discounters to offer value-for-money packaged organics. German consumers have a variety of concerns, but choose to consume organic goods because of ethical, environmental and health reasons.

Different organic subsectors have different market structures: baby food is extremely concentrated, whereas baked goods are primarily produced for private labels or artisanal bakers. Subsector analysis allows us to understand these market structures and trends, and to see which subsectors are forecasted to experience the most growth within sectors.

According to Mintel, from January 2013 to December 2017, there were 12,796 food products launched in Germany with an organic claim. Of the total launches, 41.9% were new variety/range extension, 36.9% were new products, 14.1% were new packaging, 5.7% were relaunches, and 1.5% were new formulation.

Alnatura is the leader in the organic packaged food category, according to Euromonitor. The continued success of the company is due to its clear strategic direction with a focus on sustainable value creation.

It is predicted that the average unit prices of organic packaged food products will remain stable in the years ahead. Competition via discounters, economy, and private label products and brands will attract consumers seeking affordable organic products.

Free from

Retail sales of free from products (including packaged food products that are either free from gluten, free from lactose, free from dairy, or free from meat) continued to see significant growth in 2017. In free from packaged food, the majority of products tended to be premium in terms of positioning and retail price, which consumers did not mind. Some German consumers are following the trend by avoiding dairy, gluten, or lactose without the health-related need to do so. The exception was meat, with more Germans following either vegetarian or vegan lifestyles.

Growth of type two diabetes, gluten intolerance, and lactose intolerance among the German population is expected to continue in the coming years. This is certainly due to the demographic trend of an aging society and the higher number of people diagnosed with food intolerance-related problems, therefore boosting the growth prospects of this category.

From January 2013 to December 2017, there were 681 beverage products launched in Germany with a free from claim. Of the total products launched, 39.8% were new products, 38.2% were new variety/range extensions, 17.8% were new packaging, 3.3% were relaunches, and 0.9% were new formulations.

For more information

International Trade Commissioners can provide Canadian industry with on-the-ground expertise regarding market potential, current conditions and local business contacts, and are an excellent point of contact for export advice.

• Overview of the Trade Commissioner Service in Germany
• Find a Trade Commissioner

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Sector Trend Analysis – Health and wellness trends in Germany
Global Analysis Report

Prepared by: Kris Clipsham, Market Analyst

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