While German industry is facing the most severe economic crisis since World War II – with some sectors seeing input drop by as much as 20% – the German food industry remains “largely unaffected”, new research suggested.
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According to a note from Deutsche Bank Research, the German food industry has been a “pillar of strength” that has hitherto been impervious to the negative impact of the recession.
The German food sector may even post a modest increase in output for the fiscal, Deutsche Bank analyst Eric Heymann wrote.
“For the food industry it is naturally an advantage that its products are virtually non-substitutable, because people will always need to eat. That is why rising unemployment, declining disposable income and a higher savings ratio in Germany are taking less of a toll on the food industry than on the makers of consumer durables for example,” Heymann said.
Additionally, cost pressures are likely to ease going forward, as commodity and energy prices drop, Heymann predicted.
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By GlobalDataHowever, Heymann cautioned, food businesses have not been left totally unscathed. German consumers are increasingly trading down to cheaper products – a trend that is weighing on qualitative growth – while already high price pressure is likely to intensify in the market.
“For years already margins in the SME-dominated industry have been squeezed as a result of the market power wielded by food retailers. Competition has been intensified considerably by the success enjoyed by price-aggressive discounters… This trend is likely to continue on account of the economic crisis in Germany,” Heymann said.
“This will further stoke the consolidation process in the sector,” he concluded.
