We have been fortunate to have Stephan Weist of Rewe in Germany participate here on the Pundit and in many of our events:
We were, of course, pleased when Stephan explained he wanted to join The Global Grape Summit in Bakersfield, California, as a way of doing a deep dive into the grape category.
In thinking about how best to make him part of the event, we asked if he, as senior produce executive at one of the most important chains in the world, could not so much focus on the details of grapes –after all, we have hundreds of people attending and dozens of speakers focused exactly on that. Instead, we asked if he could provide a broader perspective within which the grape industry operates and must find a way to thrive.
We asked Pundit Investigator and Special Projects Editor Mira Slott to find out more:
Q: I’m excited to reconnect for a pre-Summit Q&A piece to highlight your presentation and invaluable insights to inspire attendees.
A: I’m still working with Jim on the full agenda and final preparations, but the direction is already set.
Q: Great. I understand you’re taking on a range of important issues: big picture shifts in consumer behavior first during the pandemic and now, since the Russia/Ukraine war started; the impact of inflation and possible recession looking into the future. And changes in retail — online growth, penetration of discounters, and the competitive landscape.
Although you’ll be discussing big-picture issues, attendees also will be interested to hear your strategic thoughts on the explosion of varieties in produce — new apple varieties, and a hundred proprietary grape varieties, and why coming to interact with growers is such a priority for Rewe.
Let’s dive right in.
A: We’re seeing a crazy environment for three years. Firstly, the COVID crisis, with all the disturbances we’ve seen in the supply chain, with people, with travel, with the free moving of goods. On the other hand, as a sector, and definitely we as supermarkets, particularly in Germany — I’m not sure about other countries, but we have been on the winning side concerning the sales. Sales really went up in directions, which brought us to our limits with logistics and everything. Sales were 10% to 20% more, nothing of what you are prepared for.
Then after two COVID years, and COVID is still here, the rules are not as strict anymore. Now we obviously see the redistribution of the consumers’ purse. Before, they couldn’t go to restaurants. Plus, they couldn’t travel so they indulged themselves. They bought more expensive food, maybe more branded food, maybe more organic food, maybe more sustainable solutions. Once you start to redistribute your money, then obviously you redirect the mix of your spending.
And then since the Russian invasion of Ukraine, I don’t think you find as much of an impact in the U.S, but we have a war in our neighborhood, which brings a lot of changes to people’s lives because of refugees, because of the extreme increasing costs for certain products, for energy, for gasoline, with the risk of gas shortages for the first time in 70 years, this winter with the risk for glass houses, because they’re not ‘system relevant’ for the food industry. If we look at our glass houses for flowers, for example, they might be cut in the winter. So, we see extreme winters.
We’re thinking in revolutions, not evolutions right now, so the usual business planning doesn’t work.
Q: That’s a powerful statement…
A: We see products like asparagus, which in Germany is a very big product — everybody buys it — and there’s a German word that a newspaper aptly labeled asparagus as ‘dispensable’. It’s dispensable categories like asparagus, where a consumer sees that is 5.90 Euros (which is the same in dollars right now), and they really reflect on whether they can, or they want to buy it. The same is true for brands and for anything which is luxury or considered luxury in the food category.
That’s the environment we’re in. So, we see massive moves. One year, we have 15% growth, now we have 10% decline. This is very unusual for big operations like us. So, we’re sweating.
Q: How is the fresh produce category affected compared to other food categories?
A: It’s similar for all product groups, but you have certain differences. Firstly, fruit and vegetables or produce as you call it, has a short shelf life, so nobody can really play poker with it; you have to sell it. So, we had higher costs, but there’s more fruit coming in because it doesn’t go to Russia and it doesn’t go to Ukraine, so it goes somewhere else and that’s Western Europe.
For certain products, we had surpluses. If these products are there, obviously there’s higher pressure on the prices. Everything is more expensive. For parts of the season, we even had deflation not inflation.
Q: That’s tough with produce being such a low-margin category to begin with…
A: So, we invested a three-digit Euro number of margin this year overall for all food categories, but the fruit and vegetable category is the one that suffers the most because in many others we have seen an inflation, in meat an inflation of almost 30% by now. I have some more catchy numbers for you. If we take June 2022, for example, in fruit and vegetables, in fruit we are at minus 1.6%, so a deflation; in vegetables we are at 3% plus, both are not levels that cover the additional costs in the system.
In fresh produce, we don’t have higher prices, and we have lower volume right now, so it’s a very challenging thing. On fruit, we’re even cheaper than last year, and on vegetables we’re just marginally more expensive. That’s a disaster, of course. And we don’t have that in other categories.
While fruit and vegetables were one of the biggest winners during the corona crisis, now we have a double effect. The normal redistribution of the purse of the consumer, they have more choices of where they can spend their money, where they can consume, and they lose a little back to gastronome and travel and out-of-home consumption. The other is what I described as the war effect of Russian aggression.
Q: You’re experiencing a tumultuous retail environment. Could you provide some context of these impacts within the competitive retail landscape in Germany, online growth and influence of discounters. How is Rewe positioned and what are your strategies going forward?
[Editor’s note: with over 3,700 stores across the country, Rewe is one of Germany’s leading food retail companies. Rewe stores are run as subsidiaries or by independent Rewe retailers. Different formats, 500 to 5,000 square meters, include local convenience stores, Rewe full-range supermarkets, Rewe Center superstores, and innovative Rewe To Go convenience stores. Also, under the Rewe Group is Penny, the discounter’s 2,200 branches nationwide, billed as synonymous with freshness and quality at low discount prices.]
A: I’m looking at the last three years. It’s a fairly similar landslide burst toward bigger foodservice companies, full-service supermarkets, Rewe and Edeka — the two important ones you have in Germany — and the discounters were losing during the corona times. Aldi and Lidl lost market share a lot to us. Why? Because the consumer was looking for one-stop shopping.
The consumer was afraid of getting sick, didn’t want to wear a mask, shopping was not fun, you had to do it. Typically, the German consumer goes to two or three different stores, and isn’t loyal to one shop, but compares prices and qualities. Then over Corona, the foodservice companies with the bigger surfaces… they were the winners because you only had the big ones. Digital online services were winners too but on a small scale. At the stationary stores, the one stop shopping was fully beneficial for Rewe and Edeka. They were the winners.
Now since this year, with A) no more masks that you have to wear in shops, and B) added by fear of inflation because of the War, the consumer shifts this back. So right now, the winners are the discounters. The consumer is very price-conscious, which means they’re going shopping at the hard discounters. So, it’s a return to the discounters.
We at Rewe and Edeka see that, and obviously we want to show consumers we can have the cheap prices.
The last three years, we were very much focusing on showing the better quality, indulge-yourself categories, etc. Now we still have those on display, and we promote them as well. But let’s say the marketing focus right now is a mix between showing that we can also offer cheap prices, and some things to persuade consumers they don’t have to go to a hard discounter. And at the same time, show all the sustainable solutions we have to offer.
We try to convey, ‘here you can do some better things for the world, and at the same time you can still save money. You just have to pick the right products because we have 2,500 products for the same price as the hard discounters.’
So, you try to reshuffle your product mix and the communication of your product mix. That’s what we’re all doing right now to convince the consumer to continue one-stop shopping in our stores.
Q: As the director of category management, how do you handle the explosion of produce varieties? How do you determine how many SKUs to stock, and which ones? What kinds of traits and attributes are you looking for? How are you working with producers in these efforts?
I wanted to ask, particularly because this is a pivotal topic for the Global Grape Summit. Many in the audience are wrestling with an over-production of grapes, amid changing global competition, which is infringing on seasonal exclusivity and profitable shoulder seasons.
In addition, numerous new varieties are not delivering on promise of better taste, but still costing royalties and licensing fees. Further, consolidation on the buying end of the business allows pricing pressure on producers.
A: We’re trying to first understand the varieties, and then pick the right varieties with the aim of doing that with the eyes and tastebuds of the consumer. So, the same is true for grapes, but we’re still at the beginning of our journey.
For Germany, more mature categories like tomatoes, or apples or blueberries, or strawberries or peaches… we are looking at the product, and where is the consumer relevance difference between the qualities. Because if I think back 20 years, the choice of the variety was made by growers. And how would they make the choice, typically, not always, but mostly on the view of the yield, how much do I get out per hectare or square meter, or how much fertilizers do I need, how resistant to my local weather conditions is the variety?
Those were the drivers I think, in the 90’s into the 2000’s. Over the past 15 years, maybe 20, a lot of movement has been done in many categories.
A developer of varieties once told me, out of a bad variety, a good grower cannot do good fruit, but out of a good variety, a bad grower will also not have good fruit.
We as the retailers have a responsibility to filter that into an offering, which allows us to sell consumers something cheap for the ones that can’t afford a better product and add consumer relevant differentiated products on top of it. So, with blind eyes, ideally, you’d be able to taste this is definitely a better grape or berry or whatever the category.
I think this filtering is a very, very important thing, because particularly in fruit and vegetables, where there are certain weather conditions that change and other factors…
A developer of varieties once told me, out of a bad variety, a good grower cannot do good fruit, but out of a good variety, a bad grower will also not have good fruit.
It’s really about us understanding better and having the transparency of which variety and which grower brings to the category something that we can sell to the consumers and give them the feeling that yes, this is more expensive but it’s really better. Because only then will they return.
So, with all these varieties coming, we’re trying to understand. This is why we’re talking more and more to our growers, but we’re also talking more to the developers of varieties. We started that in Europe, of course, and now more global and we go category by category because you cannot change everything at the same time. I think that’s the relevant thing for us to do.
Q: What have you learned so far?
A: Apples, for instance, are a mature category. Indeed, per capita consumption of apples is not growing for many years, but we get one new variety after another. So, the question is, for what? There is no real need. The consumer doesn’t really miss anything on an apple. What would the consumer today miss? There’s not a lot. You either already have your favorite variety, or maybe even your favorite brand, although there aren’t that many brands, let’s say Pink Lady, which is a brand in Europe.
So, you eat the apple, you like it, you repurchase it, and then it’s our responsibility as a retailer to make sure it tastes very similar to the last time. But in apples there’s not a lot of excitement. What else can you do with the apple category? There is nothing you can really add here.
I think on grapes this is still a little bit different. Because there, we still sell cheap grapes by the majority. The reason for it is we don’t put enough in the more expensive space. This is something we’re looking at.
We have been looking at that in blueberries. We started in strawberries, and we do that category by category. It’s simply listening to the consumers, offering them solutions they can trust, because once they’re happy with it, they’ll repurchase it.
We used to say, you can sell anything, you just have to lower the price. The point is, how does the consumer come back and want the exact same thing? That’s what we want.
Q: Is one solution offering exclusive varieties that consumers can only get at Rewe?
In terms of grapes, have you found any unique or innovative varieties that interest you?
I think of Cotton Candy grapes, for instance, which is designed to demand a premium or spark consumer interest. Or is this too rich for what you’re describing to generate return customers? Is your strategy more about broader customer-centric choices that consistently meet quality and taste expectations?
A: Cotton Candy, which we’ve sold for several years, that’s fun. For me that’s more like a gag. It’s exciting and some people might like it so much that they repurchase it. We’re selling that fine. That’s something, but for me, if you take a three-layer approach, where you say you need something where you’re really price-wise competitive, then you need something that’s really at its peak, that either looks good, has a story to tell, or tastes good or ideally is a combination of these three attributes. But what we’re really looking at is that big part in the middle. That’s where we need to improve in my opinion.
I understand that everybody that’s developing something is looking for the top tier, because he can earn the most, but if you look where the big volumes are moved, that’s not the top in Germany, it’s the middle class and upper middle-class products. That’s where we need to find innovations. And these need to be consumer-relevant and better than you find in the price entry level. That’s where we’re still lacking solutions now and then.
By now, it’s very easy to find something for the super top, but that’s maybe one percent or two percent of your sales. That’s what attracts consumers who are foodies, but you don’t pay your rent with that.
We have some things that are exclusive or at least for a year or two. We had a tearless onion, which you can cut, and you don’t cry. Then we had a honey tomato, which is almost sweet, we called it a vegan confectionary.
Q: That’s a catchy phrase.
A: We put that into our leaflet and then some vegans wrote us bad notes because they thought we were making fun of them.
Q: Your main point, though, is that these top-tier specialties have a place but are a small percentage of sales. And focusing on developing the bigger volume movers in the middle is where you can gain the most benefit. Is that correct?
A: If your price differential on these premium products shrinks a bit that could help us. It’s not linked to a certain product, if you have a price-entry level on a product of 1.99 Euros per kilo in the market, and then you have something much better, but you have to pay 4.99 Euros per kilo, you limit the number of consumers. If you’re 1.99 Euros for the entry level, and you have something that is relatively differentiated and costs 2.99 Euros, instead of 4.99 Euros, then you have a fair chance of selling that.
But many of these premium products come at a crazy premium. We just had a really great tomato, called Amela, that uses a technique from Japan and is grown in Spain and is very special. But if a 200-gram package, which is less than half a pound, has a purchasing price of about 6 Euros, how are you going to sell that. That’s a lot of money. You would be at 25 dollars per pound. That’s a limited number of people who can afford these things, even if the product is great.
Q: What’s happening with your transitional organic products solution, and reimagined wonky fruit trend concept you developed with growers? You first shared this innovative venture with New York Produce Show attendees in a captivating presentation with Patricia Brunn, Category Director of Fruit, Vegetable, Flowers & Plants at Penny in 2018.
Patricia described the concepts: Naturgut Bio-Helden (organic heroes) is a solution in times when nature has not helped production to perform to their standards, producing fruit or vegetables that were traditionally not marketable. She called it ‘pragmatic wonkiness’ instead of just wonkiness.
The idea is to allow the marketing of products in their transformation period to organic, when farmers usually have much lower yields and therefore higher cost but are by EU food regulations not allowed to be marketed as organic.
A: It continues to be a niche thing because of the legal requirements we have. But we made one big progress step. Because we have lobbied a lot, including in Brussels and Berlin, just for the shear ability to be allowed to sell organic products in transition as organic products in transition.
Up until now, you could only sell products as organic; you always needed to wait, so after a transition period of two or three years, depending on the product, whether it’s a tree or a bush, or whether it’s on new soil or old soil, you always needed to wait. You started to grow organic, but you couldn’t sell it organic, which meant you have all the costs in the system, but you don’t get the money back.
This is a hinderance to many producers to change production method and do something for a more sustainable solution. They don’t do it if for two to three years, they will lose money.
And we can only do a certain amount of greenhouse projects. We can’t do it for everybody because also we need to make money at the end of it. So, it continues to move slowly but the good news is that both Brussels and Berlin have put in their new draft for the ecological legislation, they have included solutions for the transition period, including the OK that you can sell it in transition, which will help us and will help growers that want to transform into organic growers for the future.
Q: This triggers another problem that occurs with some organic growers, at least in the U.S. market. Some organic produce companies have lamented that when they can’t find a market for their organic products, they end up selling it as conventional, which brings with it a lower price point.
A: That’s a different story, like with Fair Trade products, when you can’t find enough buyers that want to sell Fair Trade, so they end up at the lower end of the market. That’s related to imported volumes and sold volumes.
What we’re talking about is a structural issue during the transitional period when you don’t have a legally organic product. You have organic product, but there may be residual pesticides or fertilizers from last year in the soil. People want to play it careful, which I understand. That’s OK.
What can we do with this product already produced like organic that comes with only a small risk of finding residue? We can be transparent and tell the consumer it’s grown like organic but comes from a soil that’s not yet organic. Then maybe we can take a small premium for it, and that we can return to the grower as an incentive tool.
Why does the European government want this? Both Brussels and Germany have the goal within their CO2 reduction and the Green Farm Deal to move the surface of organic production. It depends on which government you talk to, but a good average number is 20% of all agriculture is supposed to be turned into organic production in the next 10 years, and you need solutions for that transition period. They are looking now for the support to transform, so they are following what we wanted.
Q: You were progressive in that regard.
A: It was something driven by Penny. They really wanted to do that. We were a little more hesitant because we say we first need the legal OK to do it, and we know how slow legal can be in Europe. Changing laws is a very long project.
Q: Did you do testing, and were these products in store? What was the consumer response? Did they buy them?
A: Of course, they did.
Q: Well, I didn’t know if it would be so failsafe. Retailers in the U.S. have had mixed results with misfit-type programs in terms of consumers purchasing the products, and it being a profitable endeavor.
A: We don’t sell the concept of misfits or misshapen fruit like the others do, where they show this is a heart-shaped potato, or a carrot that looks like the body of a person. We say we will push limits of what is legally allowed to be sold because of misshapes and we will put that into our bags and sell that. And we’ve openly communicated that.
Most retailers in Europe tried that misshapen marketing idea. When you have a good farmer, there’s not that much misshapen product to really make a program out of it. Maybe when you have bad weather, but we never believed in marketing produce this way.
We always believed in the program with organic products, if it doesn’t reach size, or has more scars or insect bites or whatever, for these little defects that do not harm the consumer or don’t affect the consumer biting into the fruit. If it’s a plum full of insect bites, no one will bite into that, but if it’s a clementine or orange, who cares, you peel it, and the defect is gone. So that’s something we continue to work on because it’s fighting food waste.
Q: What about the packaging side with sustainability? We covered the news of the French ban on plastic packaging and other European restrictions… Rewe has been proactive on sustainability measures. Could you talk about packaging initiatives in produce and related issues, how that effects product quality and merchandising, etc.?
A: Yes. The German consumer is very, very, critical on sustainability challenges, and plastics has always been at the forefront of NGO initiatives over the past few years. So, we had to find solutions for that. Also, we want to find solutions because sustainability is one of our strategic differentiators. So, some years ago, we started an initiative where we have our organic private label range, and we sell a lot of organic. Our market share in organic fruit and vegetable is 13 or 14%. That’s relatively massive as an international benchmark.
We said, we want to try to unpack as much as we can because it’s a similar consumer if you have organic or unpacked products; it’s the lifestyle of health and sustainability consumers. So, we thought it would be a good idea to try it on this assortment.
We started to unpack everything even in products where we thought it would be problematic. Because we wanted to A) talk about it, and B) challenge our own thoughts, where we assumed this will not work, but maybe it would work so let’s just do it.
As a test, for the first 10 weeks we unpacked everything in that segment except berries because how would you transport them, and small leaf lettuce, because we knew it would be a disaster.
Then after 10 weeks, we decided what we would leave unpacked and repack, and there were some positive surprises and some negative surprises. We wouldn’t have thought carrots would be a problem, but they were the biggest disaster. Consumers wouldn’t buy organic carrots anymore, but they would buy the unpacked conventional carrots, and we don’t understand why. But we didn’t sell the organic carrots, and we had to throw a lot away.
German consumers are crazy about us packing cucumbers in plastic, which was the symbol of too much plastic in Germany, and I don’t understand why because there is so much other packaging, but I always call it the antichrist of packaging.
Others moved well. For example, with bell peppers, we sold more than we did with packaging. Before that initiative, we had already unpacked the antichrist of packed product, which is the cucumber.
Q: I didn’t know the packaged cucumber was the epitome of evil?
A: German consumers are crazy about us packing cucumbers in plastic, which was the symbol of too much plastic in Germany, and I don’t understand why because there is so much other packaging, but I always call it the antichrist of packaging.
And so, we had a learning curve. Today we pack things again, but by far, not as many as we did before that initiative, and we have a very good data base now. Every now and then, we share a little bit of it, but we don’t want to share it all because it was an expensive learning curve. So, we want others to make it themselves.
Q: Right. You don’t want to give away all your secrets. But just to clarify, was your learning curve confined to organic products or were you able to translate the initiative to other categories?
The initiative was for organic products, but the learning curve was also used for other products. Let’s take apples, for example. When apples were packed in Germany, they were typically packed 10 years ago on a plastic tray with a plastic film over it. And then five years ago, it was a cardboard tray with a plastic film over it, and now it’s a cardboard tray with a cardboard lid on top of it. So, no plastic anymore.
Q: With COVID, particularly at the start of the pandemic when there was less information about how it spread, and more concern of contaminated surfaces, did you find people wanted things more packaged for safety reasons, or that wasn’t really an issue?
A: That was one of the biggest fears in the beginning. We had some sea level colleagues here saying we have to package everything again, and we don’t want the package from China. But that didn’t happen. We monitored every week the percentage of packed versus unpacked product very closely, and our numbers did not support that fear. Nothing happened, not at all. I heard from colleagues and media that had different experiences, but I cannot confirm any massive hesitation from consumer. I’m sure there were some consumers who would rather buy packed product than loose product, and I understand why, but this was not really measurable.
Q: Do you have time to discuss developments with online and hybrid shopping? How did the pandemic impact omnichannel growth and consumer shopping behaviors short term and long term?
A: We are a market leader in Germany also with online sales. We saw two things. Firstly, we were very quickly sold out, because you simply didn’t find additional logistics. Then, we had very big growth percentage wise in our online business. We could not really offer additional slots for delivery because you wouldn’t find people to work, you wouldn’t find the trucks, you wouldn’t find the warehouse capacity. We grew, we doubled, but we would have tripled. So, it was crazy numbers.
We developed a hybrid shopping experience, which some years ago failed a bit, but now works very well, and continues to work. So, you order online, they pick the product in the store for you, and you just pick it up. It’s ready-packed. I feel that’s a little like a hybrid model. You go to the shop you know and pick it up yourself, because our problem was the availability of distribution. Therefore, yes, we grew, and it continue to stay good.
Many people are seeing Rewe is doing a very good job in their online business and their digital delivery services, and many other people say it’s a great savings of time if they get their things preselected. Some people buy all their groceries online, and just go into the store to buy meat because they want to select it themselves. But they don’t want to have all the hassle of searching for the special cocktail sauce for the daughter and the special sausage for the son. That’s a good business model.
Q: We’ve reported on challenges with selling fresh produce online, where consumers can lose perspective on the website of product attributes, comparative sizing, and qualities, as well as losing the tactile, sensory experience, and the spontaneous buys at point of purchase. Then if using digital delivery service, you face issues with packaging to protect the quality. Are you finding any of these problems?
A: For produce, it’s still a bit early to fully analyze because there’s been lots of swings in the past few years. I know you have the typical families that buy a little less online, and their share of fruit and vegetable purchases online are lower than the normal purchase in store. But on average, there’s a lot of online business from kindergartens and offices, people at work that give employees fruit baskets, etc. They partly compensate for that, so the bottom line, the average of all online purchases, is more or less the same for market share of fruit and vegetables. It’s more due to the consumer mix; it’s often offices or kindergartens that order from us. And there you have lower meat sales, and they don’t buy dog food, but you have more fruit and vegetables.
Q: Looking toward the future, are you building on certain areas or redirecting resources in any way to account for the problems you delineated earlier in our interview, including consumers’ redistribution of their income and return to hard discounters, the impacts of the War…? Is there more of an impetus to differentiate your offering to gain competitive advantage?
A: I think we shouldn’t get too nervous on the current situation. It will pass. Let’s hope it will pass quickly. I don’t think it will, but either way we have to continue what we’ve been working on. We have a lot of complexities in the system now. You have the consumer who wants to pay less, but wants to have a more sustainable product, and wants organic, but it has to be cheaper. We’re working in a more complex environment than in the past. So, we need to make the right choices.
I come back to what I said in the beginning: We need to find meaningful differentiators. That’s true for product and its qualities. That’s true for grand architecture, and I’m talking about private label, our own private label, but it’s also true on the mix of your sustainable product. Do you do local, do you do regional, do you do organic and what kind, transitional organic, normal organic? What do you do on your packaging; do you have a CO2 strategy?
I think business has changed a lot from just buying and selling it, and at the end of the year counting how much money is left. It’s important that we understand the consumer. We try to understand competition and we try to establish what happens in the world, and then we design the shelves, and then we ask our purchasers to buy that design.
In the past, we’ve waited for what came in the origin, and we adjusted our shelves. We’ve seen a complete flip siding of the supply chain in the past 30 years. And it will be even more complicated in the future because first, we already talked about product, then we talked a lot about residues and sustainability, materials for packaging, CO2, now we’re talking about a living wage… so, there are many, many things, which you must consider before you make your final decisions. As an industry, that will give us very big headaches. There are also very many opportunities.
Q: What do you hope to gain by coming to the Global Grape Summit? Based on the feedback from attendees, your value in participating in our events is priceless. How can we help you relieve some of those headaches?
A: My goal is to meet interesting people in the category where I’m not current with developments right now. So, I’m there to meet them, and to listen to them, to understand where I have to send my people. I already have contacts now because we started with a really good fit. We were in Berlin, and we talked to Sun World, and we talked to another grape company, and now as I speak, I have two of my colleagues visiting Spain, and I’m going to California to learn and get a snippet of an industry that we haven’t been near to in the past few years. So, for me, it’s a refresher.
Q: This has been great. Is there anything else you’d like to say for this preview, or that I’ve been remiss in asking you?
A: Maybe a quick comment from our discussion in the beginning on why in this environment we have higher costs than some other industries. There are two elements for it. One is we are more perishable. If you’re Coca Cola, you can store your soda for a while, no one cares.
But the other is what I would call almost ruthless price increases by some multinational fast moving consumer goods. You have five companies of chocolate, and one says I have these extra costs, so they charge 7% more, and then a second company says I need 15% more and a third company says I need 30% more. I’d call that unfair industry practices. And very often, some brands you simply can’t go without them. So, there have been some very, very high negotiations in these industries.
We as an industry, once again over the past three years, show that we understand each other better than most of our competitive industries. But right now, the perishability factor has really made a lose/lose situation for the past three months at least after two win/win years.
As a company, we invested already in three-digit number of Euros in margin this year, our margin is much lower than last year. We simply can’t pass that on to consumers.
We’re trying to be very, very slow in passing costs on to consumers. I read that the statistical numbers of our government in June showed consumption was 9% lower than last year. We had the lowest negative change from one year in June since they’ve been measuring in absolute numbers, because we had inflation. It went down 1%, but in real numbers it went down 9%. It’s crazy to spend 9% less than last year.
Q: That puts a lot of pressure on you as a retailer…
A: On the whole industry, I don’t want to cry more than others. It’s bad for us. It’s bad for farmers. It’s bad for everyone.
Q: I know you juggle a lot of responsibilities. Could you provide a description of your role at Rewe?
A: Together with my team, I’m responsible for designing the assortment, which products go on shelves, what goes into our private label, what goes into promotion, for what price do we sell it, how often do we promote it. So, the classical definition of category management. That’s what I do for fruit, vegetables, flowers and plants.
I’m also responsible as a brand manager for Rewe Regional, which is our regional private label sourced and produced products, only regionally grown fruit, meat, honey, all these things. It’s a private label we started 10 years ago, which is doing fairly well also. That’s not my day job but making sure the strategy works.
We’re also managing a set of rules for local farmers, which deliver directly to our supermarket. We had to develop food safety rules for that as well and to help them and support them. So, we accept several thousand local farmers, which produce but don’t bring it to our warehouses, but bring it directly to the shop. That’s what we call local fruit. It could be fruit, but it could be a local small guy who smokes fish or does eggs. That’s also my responsibility.
In the end, modern retailers must operate in a world of contradictions. Consumers who want things sustainable and delicious and intriguing… but, oh, and very cheap as well!
Particularly relevant, though, is the battle to serve the mass consumer. How to produce and market products that are not just aimed at the very top income groups but are both distinctively better — so consumers want them, and want to eat more of them, thus increasing per capita consumption — but are also priced in a way to make these ambitions feasible, while also allowing growers, breeders and the whole supply chain to make the kind of return on investment that encourages further investment to buttress the future of the industry.
In any case, we thank Stephan, and we thank Rewe for allowing him to travel so far to be part of this event.
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