Organic Supermarket Chains: a Great Surge in Expansion

“We would never have believed that we would set such an avalanche rolling,” George Schweisfurth says in amazement today. We can quite rightly regard him as the initiator of the wave of organic supermarkets that has swept over Germany. That was nearly eight years ago. Even though large-scale stores already existed, the first Basic-Store that was opened in September 1998 in Munich, proved that there was a huge demand on the part of consumers for a modern, contemporary marketing concept.

Picture (can be enlargened by click): Denn's Bio

Founding Basic created a dynamic in Germany that has no parallel. In the meantime Germany has about 300 organic supermarkets, with floor space of 200 to 1,700 m², that result in a network within most major towns. Last year 60 new organic supermarkets were added to the total - never has there been such an increase before! In recent years, the number of new organic supermarkets each year has ranged from 25 to 43 (Chart).

This development has been driven mainly by the organic supermarket chains: 36 of the new stores (60 %) were outlets belonging to an organic chain. By the end of December 2005, 28,000 m² of new floor space (Chart) were created, with the chains accounting for roughly 71%.

At the moment, 15 companies in Germany, with a total of 137 stores (see table), are in the process of expanding. With these developments, over a third of all organic supermarkets belong to some kind of chain. The chain stores do not always have more than 200 m² at their disposal, as in the case of EBL in Nuremberg, the discounter BioB., Vollcorner in Munich, Naturgut and the organic health food chain BioFamily. In contrast to Italy, for example, franchising still does not occur in the organic sector in Germany.

In respect of the new stores belonging to the chains, which form the basis of our evaluation for 2005, the average floor space is around 470 m². Basic and Erdkorn are the only companies with an average floor space of over 700 m². In the case of the other players 200 to 520 m² of sales area is typical, although there are also individual cases of really large-scale stores. So SuperBioMarkt in Dortmund ventured to create 1,100 m² and the Alnatura branch in Hamburg-Wandsbek with its 780 m2 is the biggest and most northerly store of the Bickenbach enterprise.

Hitherto, chain store companies have only expanded by one, two or three new locations each year. Now competition is clearly intensifying. Alnatura and Basic have grown, both logistically and regarding their available capital, beyond their earlier limits.

When Alnatura and Basic each opened five new stores, they were in a head-to-head race. At present, Alnatura has taken over the lead with its 21 stores and there is the possibility of adding another one by the end of the year. Basic has reached a total of 14 stores but with its average 728 m² it has more floor space than its competitor (520 m²). Its total shopping area is therefore more or less the same: Basic’s 10,190 m² is comparable to Alnatura’s 10,919 m². In terms of turnover (each with just under 40 million Euros), there was little difference between the two companies in 2004, and they are both anticipating increases of more than 25 % in 2005.

In the meantime, Denn’s Bio is similarly operating with 16 stores, although its total floor space of approximately 5,900 m² is considerably less than that of the two big players. The organic discounter Erdkorn (picture) opened four new stores, and the south German Bio-B discounter and the Berlin Viv-BioFrischeMärkte each opened three new stores.

These are followed by Bio Company (also in Berlin), Denn’s Bio, EBL in Nuremberg, SuperBioMarkt AG in North Rhein Westphalia and Voll Corner in Munich with two outlets each. Bio Familiy e. o. (eat organic), Füllhorn and Naturgut have each opened one new organic supermarket in 2005. On account of financial difficulties, SuperNatural AG did not open any new stores.

The Füllhorn chain, under the management of Wolfgang Mayer, occupies a special position: the most recent outlet in Pforzheim was created in close collaboration with the main supplier Dennree and trades under the name Denn’s Bio. “Füllhorn GmbH & Co KG is the operator,” explains Mr. Mayer, who is very happy with the overall business situation. “Opening two new stores in 2005 was an enormous achievement for us, since in the process we had to extend and restructure the background organisation.” He says that, compared with the store in Pforzheim that had made a very good start on account of its excellent location, the supermarket in Speyer (picture) has made only a slow start. He is nevertheless confident he can get both stores on the road to success. There are two strands to his future expansion strategy: finding inner city sites for Füllhorn and out-of-town sites accessible by car for Denn’s Bio. These stores should be 600-1,000 m² in size and should be located within 80 km of Sulzfeld. Mr. Mayer, who would like to open two new stores in 2006, emphasises that he wants to stay in the region. As a final comment he adds, “The competition is getting increasingly intense but the Füllhorn concept, with its emphasis on quality and customer care, has proved its worth. Turnover as a whole is in keeping with our expectations.”

When we consider the average floor space of retail chains and independent operators, we see once more that it is easier as a rule for the wealthy chains to rent or acquire bigger sales areas. Sometimes they are supported by powerful financial backers, for example ASI-Nature. New floor space created by the chains in 2005 measures on average around 582 m² - about 300 m² more than that of the other operators. The Rewe subsidiary Vierlinden was not included in the calculation, since with its two stores it cannot yet be counted as a chain. To be regarded as a retail chain, companies must have at least five stores.

Regional distribution again varies a great deal. In 2005, the most attractive Federal State for organic chains was Baden-Wurttemberg, where nine new stores were launched. Then came North Rhein-Westphalia and Berlin with six each, Bavaria with four, Hamburg with two, and Hesse and Lower Saxony with one new store each.

Alnatura - in The Lead with 21 Stores

“Three to five new SuperNatur stores each year”: that is what the boss of Alnatura, Götz Rehn, expects to achieve. He emphasises that they are guided by what the customers want and not by what their competitors are doing. The company is looking for premises of around 500 m² - its proven sales area - throughout Germany. In the last financial year, Alnatura GmbH grew by 26 %, which is a good 15 percentage points above the average for the industry. Between September 2003 and September 2004, the turnover of this production and trading company rose from 93 million to 117 million Euros. At the end of 2005, turnover had already reached about 145 million Euros, including the selling of Alnatura products to the conventional retail trade. Organic supermarkets accounted for 53 million Euros.

Basic Offers the Biggest Sales Areas

“We expect the chains to grow more than ever before, and the next few years will see a significant expansion, with the result that in future there will be many more organic supermarkets than today.” This how Basic’s spokesperson Sylvia Raabe assesses the situation. She explains that this is happening against a background where demand has risen appreciably and will continue to rise. Moreover, it is important to occupy the most interesting stores now and in the near future. “Basic AG is naturally a key player in this expansion trend and, with its rate of expansion clearly accelerating this year, it will become an industry leader. By the end of this year, we will have opened five new stores (two in Frankfurt in October, two in Cologne in November and one in Dortmund in December) and it is planned to open a number of new stores next year. Our Board has set a target for 2006 of five to eight new supermarkets, depending on how the search for locations (usually a really difficult task) turns out.” Basic’s turnover for 2005 amounted to approximately 54 million Euros compared with 39 million Euros in 2004.

SuperBioMarkt’s New Departure with its Health Food Concept

With its nine stores and 150 employees, SuperBioMarkt AG, that was founded by Michael Radau twelve years ago in Münster, is now firmly established in North Rhein-Westphalia. These full-range supermarkets have an average floor space of 474 m² (4,270 m2 in total). In 2004, turnover amounted to 9.3 million Euros (+ 17 %). Turnover is expected to be in the region of 11 million Euros in 2005.

In 2005, Mr. Radau broke new ground: in March he converted one of his stores in Osnabrück and opened a health food department in the organic supermarket. In May, his fifth store with 560 m² followed in Munster. At the end of June the company gave the go-ahead for the biggest organic supermarket in the whole of Germany in 2005: a store with 1,100 m² in the centre of Dortmund-Hombruch which is the second SuperBioMarkt store with an integral full-range health food department. Around 2,000 health food articles are available in a sales area measuring 200 m².

Radau regards the new concept as a building block in his policy of further expansion. A clear objective in 2006 is creating new sales areas. “We are planning three to five new supermarkets in locations with a future, with the emphasis on North Rhein-Westphalia,” states the Board of SuperBioMarkt AG. Expansion is planned in NRW and Lower Saxony; Mr. Radau does not exclude Rheinland-Pfalz (Rhineland Palatinate) and Hesse. At the moment, he is neither planning to penetrate the new Federal States (East Germany) nor to go further north or to the south of Germany. In future, there may be both the usual SuperBioMarkt stores - a decision is just being made on one location - and stores with an integral health food shop.

How Much Potential Does Berlin Offer?

The website of Bio Company includes the following sentence: “Finding good locations for an organic supermarket calls for patience and sensitivity.” After opening two new stores and converting another, the Berlin whole food chain now has seven supermarkets. The two stores in Spandau (picture) and Friedenau exceed 600 m² and the 700 m² store in Zehlendorf, that opened its doors in November 2005, is the company’s flagship. The company’s new slogan runs: “Aus vollem Herzen“ (whole-heartedly). A multi-storey carpark to the rear of the supermarket is linked to the shop via a gallery. In the gallery itself, the company’s suppliers and producers are displayed. Information material on each manufacturer is available in racks on the wall. Meanwhile, the expansion is to continue. The smallest floor space should be about 400 m² but might well be in the region of 600 m². Robert Erler from Bio Company is certain that Berlin has further potential.

Mario Schulz from e.o.komma AG, on the other hand, views the 30 organic supermarkets in Berlin with a critical eye. “Berlin is a region with relatively low incomes and 18 % unemployment, and the number of customers buying organic is not increasing at the same rate as new shopping space is being created. Each store needs several hundred customers a day - this city cannot take 40 large-scale supermarkets.” He is afraid there will be a repetition of the mistakes of the conventional retail trade. “In Zehlendorf there will soon be four different organic supermarkets - where’s the sense in that?” he asks himself. The Berlin chain, e. o., currently runs six stores in the capital but is moderate when it comes to expansion policy. “I’m not going to open shops at any price but only if a good location comes up,” is Schulz’s approach. He is happy with his latest new store in Reichsstrasse in the Charlottenburg district of Berlin (picture). “The nearest organic supermarket is five kilometres away, and the customers have been waiting for this one,” he explains. Schulz forecasts a general consolidation in the organic market in Berlin, but he also thinks some stores will probably close down. “The individual chains have to create their own identity, because customers are often not aware of the differences.” He says that the aim of e.o.is to go on improving the range of services to the customer. His conclusion: “Basically, not just chains but also single retailers still have opportunities in the market - even in competition with organic discounters.”

Vierlinden - Rewe Enters the Market

For the first time a large company in the conventional retail trade announced its intention to build up a chain of organic supermarkets, just as Colruyt did with Bioplanet a few years ago in Belgium. Whilst Vierlinden caused a stir in the classic organic industry when it opened its first organic supermarket in April, calm prevailed when its second store opened its doors to shoppers in September. By stressing the quality of its product range and by not aggressively lowering prices, the Rewe subsidiary succeeded in being regarded as a normal competitor in the market. The outlets in Düsseldorf and Cologne (picture) each have somewhat more than 700 m² of floor space. The company is looking for more locations in the 700 to 1,000 m² range - the intention is three in 2006, of which at least one will be in NRW. An advantage for Vierlinden when choosing locations is the fact that, if stores belonging to the Rewe concern close down, they can count on taking them over and converting them.

Organic-Market.Info’s overview of the industry has ignored the twelve Karstadt department stores that now have organic departments (picture) which are the size of organic supermarkets. These departments are not independent organic supermarkets in the sense in which the concept “organic supermarket” has been used.

The representatives of most of the chains are united in asserting that organic supermarkets still have a great future in Germany. It is not possible to estimate with any degree of certainty now just how big a slice the big companies will take for themselves. What is clear, however, is the fact that, as profits continue to fall in the conventional food retail trade, they are increasingly anxious to find alternatives. It is doubtful whether they will be satisfied with the still small niche that organics represent. The hope is that the independent retailers continue to spot opportunities to found new specialist organic stores and put their faith in expanding the overall organic market notwithstanding the success of organic chains and the widespread entry of the conventional food retail trade into the market.