According to a research study published today by Standard & Poor's Rating Services, the credit quality of mainstream German food retailers is coming under pressure.
"Reeling from intense market competition and an unfavourable regulatory regime, industry participants are having to grapple with plunging consumer demand and the relentless, aggressive price-cutting of the hard discounters," said Hugues de La Presle, a director of Standard & Poor's Corporate Ratings Europe. "As a result, profitability among German food retailers, which was at best modest, is being further squeezed in 2002."
As the study points out, the market share of hard discounters in Germany is growing at the expense of mainstream supermarkets. It is at present close to 35 per cent, up from 33 per cent in 2000 and 22 per cent in 1990. This reflects that the hard discounters' business model is particularly well suited to Germany where food is considered a commodity, and where the cost of unskilled labour is high, making these players' low labour costs a key competitive advantage.
Despite the relentless growth of the hard discounters and weak demand, a major shake-up of the German food retail market remains unlikely in the near term. This is because most players are not listed on the stock market and the structure of leaseholds in Germany remains inflexible.
The research study, entitled 'Plunging Demand and Aggressive Discounting Squeeze Germany's Food Retailers,' is available on RatingsDirect, Standard & Poor's Web-based credit analysis system. For a copy of the full report, contact the Standard & Poor's Ratings Desk in London on (44) 20-7847-7400.