The German grocery market, long dominated by discounters such as Aldi ALDIEI.UL and Lidl, is undergoing a makeover as shoppers demand more upmarket products.
Run down after years trying to match discounters on price, mid-market supermarkets Edeka and Rewe, as well as their listed rival Metro (MEOG.DE), have changed strategy and are investing billions of Euro to bring their produce and stores up to a level taken for granted in countries like Britain and France.
And faced with Amazon (AMZN.O) aiming to expand into fresh produce in its second biggest market after the United States, German grocers are starting to move into e-commerce, which currently accounts for less than 1 percent of sales.
Discounters still have a huge 43.9 percent of the market - compared with 7 percent in Britain and 15 percent in France - but that is down from a 2008 peak of 44.5 percent as mid-market supermarkets have risen to 26 percent from 23.6 percent.
GfK market research group predicts German grocery sales will grow at least 2 percent in 2014 after a 2.7 percent rise in 2013 - the fastest rate in five years - boosted by price rises. But retailers have a way to go to improve the shopping experience, with 59 percent of customers dissatisfied with the service they receive, according to a Porsche Consulting study.
The shift, which GfK says led discounters to hike prices by 3.3 percent last year, has actually created opportunities at the super-budget end of the market. Metro's Real out-of-town hypermarkets are trying to exploit that with a "nameless" range of low price own-brand products like toilet paper and pasta.
Despite a recovery in consumer sentiment, Germany's underlying demographic trends - an ageing population and low birthrate - are not exactly attractive to retail investors. That also helps explain why discounters may have lost ground. Pensioners have less need to do big bulk buys at discounters than cash-strapped families with young children.
