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Increased food prices – who actually profits from it?
Since 2020, food in Germany has become about a third more expensive. Shopping for everyday products in supermarkets has become significantly more costly. This is evidenced by an analysis of the Handelsblatt Research Institute, which evaluated the balance sheets of 70 medium-sized and large brand manufacturers as well as the leading retail corporations in Europe. It also became clear who benefits from higher prices – and who loses.
The Handelsblatt thoroughly examined the consequences of inflation on September 16, 2024. In 2023 alone, the prices for food and non-alcoholic beverages increased by 12.4 percent according to the Federal Statistical Office – significantly stronger than general inflation. The newspaper stated on the basis of its own analysis that not only the manufacturers, but also the retailers make profits. “Manufacturers and retailers have been accusing each other for years of driving up prices to increase their profits”, the newspaper writes. In fact, both benefited equally.
Increased food prices: The winners are primarily the large producers and retail chains
This applies primarily to corporations in terms of producers – globally active brand manufacturers such as Nestlé (Kitkat), Unilever (Dove) or AB Inbev (Beck’s) and Coca Cola. The large European retail chains, including Rewe and Metro from Germany, Tesco from the UK and Carrefour from France, made profits to a similar extent, according to the report.
The losers in this price increase, which set in around the start of the Corona pandemic, are the consumers who have to dig deeper into their pockets. Prof. Dr. Hans-Christian Riekhof evaluates the development from the perspective of the pricing expert: “It is remarkable that both the manufacturers and the retailers were able to use the phase of stronger inflation equally to increase their profits. This can be seen as an indication that both sides master the process of pricing quite well – but at the expense of the consumer.”
Pricing expert Riekhof: Both sides have understood the process of pricing – at the expense of consumers
In addition to consumers, however, another major loser comes into focus: medium-sized companies, producers with less than one billion euros in sales, for example Frosta and Weleda. This is also noticeable in the increasing number of insolvencies of consumer goods companies. According to the Handelsblatt report, they cannot afford to fight tough price wars with the large retail chains, especially not over a longer period of time. Many medium-sized consumer goods manufacturers would have a weaker position in negotiations with domestic trade because they often generate a large part of their revenues in Germany and are therefore more dependent on the four large supermarket chains Aldi, Lidl, Edeka and Rewe.
Increased food prices: Medium-sized companies place less emphasis on the professionalization of pricing
“The study by the Handelsblatt Research Institute makes it clear that medium-sized manufacturers lack market power on the one hand”, says Riekhof. “On the other hand, they probably also lack pricing competence. At least that’s what our own empirical studies show: medium-sized companies place less emphasis on the professionalization of pricing.”
If the market continues to consolidate, and that’s where it’s heading, corporations will become more powerful, a consumer goods manufacturer is quoted. And that’s not good news for retailers either. If the middle class bleeds out in the long run, the trade loses the versatility of its range.
Retail Group Carrefour Practices Pricing Fairness and Takes a Stand Against Shrinkflation
The French retail group Carrefour presents itself as a fighter against hidden and unjustified price increases from a trade perspective. As reported by the food newspaper, products are currently being marked in its markets that cost the same with less content – this is then referred to as shrinkflation.
The retailer is therefore labeling a number of relevant foods with stickers that warn consumers of the hidden price increases. This once again shows that the trade is ready to confront the manufacturers and at the same time strives to present itself as an advocate of consumers.
“A similar direction was recently taken by the Penny campaign with the headline ‘The true costs’, in which a few products were given significantly higher prices for a limited time to express the hidden and indirect environmental costs. A remarkable approach to achieve media attention”, says Professor Hans-Christian Riekhof.
Links:
Read the full article in the food newspaper here (subscription):
https://www.lebensmittelzeitung.net/handel/nachrichten/preisstreit-carrefour-warnt-vor-versteckten-preiserhoehungen-173339
Cult Brand Jägermeister: “People drink less but better”
Until the end of the nineties, the well-known herbal liqueur was consumed exclusively as a lean bitter by a target group of 55plus. Falling sales figures forced Jägermeister to take action. Since the spectacular relaunch of the brand, which also opened up new young target groups into the party and club scene, things have been going steeply uphill with the deer that adorns the logo.
In late November 2019, Professor Hans-Christian Riekhof invited Gunar Splanemann, Head of Global Innovation and Design at Jägermeister, to a workshop for marketing students at PFH Göttingen. Under the title “People drink less but better”, Splanemann, Riekhof and the students discussed the question of whether there will be a re-evaluation of alcohol consumption against the background of current societal trends. How do you deal with people drinking less, but differently and often simply better? The following interview was a direct result of the exciting discussions.
Prof. Riekhof: Jägermeister is active globally. There, consumer behavior differs considerably. How does a medium-sized company deal with this challenge?
Gunar Splanemann: Ultimately, there is no way around localizing and adapting innovation strategies for certain regions of the world. Generally speaking, Jägermeister stands for ice-cold shots and hedonistic nights in large or smaller groups. However, the rituals, contexts and taste preferences in the regions of this world are different. The maturity of a market also plays a decisive role. From our point of view, it makes no sense to introduce new Jägermeister products into a market if the core brand is not yet established. We have therefore only introduced our latest innovations Cold Brew Coffee and Scharf in relevant markets. For example, Cold Brew in the USA and UK, because the topic is established there.
Increased health awareness affects the market segments of the cult brand Jägermeister
Prof. Riekhof: You call it the “Killer Bet”: the bet on future consumer behavior. What do you expect in terms of your target group’s handling of alcohol, partying, exuberance?
Gunar Splanemann: We assume that the general changes in consumer behavior, namely a stronger differentiation of target groups, a stronger health consciousness, a pronounced ecological sensitivity and a generally more demanding consumer behavior will also have a lasting impact in our market segments.
Responsible handling of alcohol can be very well combined with the desire for moderation, exuberance, cheerfulness, living in the here and now, enjoying the moment, joie de vivre, but also with responsibility. This must and will be expressed in the Jägermeister brand.
Prof. Riekhof: You cooperate with trendy clubs in Berlin. What is the idea behind this? Is there a long-term agenda, or is it more of a trial and experimentation?
Gunar Splanemann: We have always been closely connected with nightlife and its protagonists. We get a feel for relevant currents, ideas and inspirations from this network. We have to be where our customers are. We need to know how the core target group ticks and how they party.
Together with insiders and designers, we develop concepts for the nightlife of tomorrow. The range extends from new drink recipes, ideas for new products to new service ideas around the night.
How the cult brand Jägermeister reaches new target groups
Prof. Riekhof: The Jägermeister motto is “For the best nights of your life.” What specific associations do you want to evoke with this statement, and how do you visualize this motto, what kind of imagery is called for?
Gunar Splanemann: Our brand is an integral part of nightlife. We believe that nightlife is and should remain an essential, creative free space. Our brand is a commitment to this lifestyle, in addition to the iconic and high-quality product. A lifestyle that is urban, open, tolerant and just for the special nights.
Prof. Riekhof: The classic Jägermeister product has not really changed in recent decades, but there are now a number of very remarkable line extensions. What do Jägermeister Manifest and Jägermeister Cold Brew, two of the most important new products, stand for?
Gunar Splanemann: Jägermeister Manifest clearly has a premium claim and therefore clearly distinguishes itself from the classic Jägermeister in terms of design and positioning. This allows us to reach new target groups, but we also have the chance to grow with the existing target groups, to continue to accompany them and thus to take into account a gradually changing lifestyle.
Cold Brew Coffee, on the other hand, offers the classic herbal character of Jägermeister and rounds it off with a very well harmonizing coffee and cocoa note. This creates a whole new world of experience, which is particularly relevant for the US and UK markets, as the cold-brew principle is very well established there.
Developing Jägermeister as a premium brand and thinking differently
Prof. Riekhof: One of the customer insights that could influence the future orientation of Jägermeister is the realization “Consumers drink less but better”. This results in the task of further developing Jägermeister towards a premium brand. Where do you see the most important levers to achieve this in the medium term?
Gunar Splanemann: The levers are the same ones we generally apply in marketing for positioning. Fortunately, we have a very high-quality product, a huge fan base, and an icon as a brand. This allows us to work very well and create authentic communication to meet the ongoing trend of premiumization in a relevant way.
This is helped by our product know-how, our herbal expertise, and not least the Jägermeister attitude of doing things differently than others. The additional value and the added value for our fans thus comes from a very solid basis and a unique approach. As a result, the brand grows, gains new target groups and remains – and this is particularly important to us – true to its core.
Prof. Riekhof: Many cult brands are moving towards creating something like a Mecca of the brand, a kind of pilgrimage site where people meet to experience the brand, to experience it, to deal with it. Are there similar considerations at Jägermeister?
Gunar Splanemann: Yes, there are considerations. But it would be too early to reveal more about this at this point. Just this much: it will be a great experience!
Prof. Riekhof: Thank you very much for the interview!
Photo and photo detail: Mast-Jägermeister SE
More information about Jägermeister:
www.jagermeister.com/de-DE
