In the nineties and early 2000s, Germany was a cemetery for British retailers trying to enter the market. Of course, the opposite has held true for the likes of Aldi and Lidl making considerable in-roads into the UK market.
In the last few years, however, the tide has turned – and a number of our top retailers and leisure companies are now making bold and successful entrances into the German market. But why now, and why will they be more successful this time round?
Among the early pioneers into Germany was Marks & Spencer, who opened their first store there in 1996. Although well received amongst Germany’s British ex-pat populations in larger cities, such as Frankfurt, the retailer’s notably English sense of style within its fashion selection did not resonate with the average German in its other locations – including smaller cities Wuppertal, Dortmund and Essen. Furthermore, without a fully-developed fresh supply chain in place, M&S wasn’t able to offer the full chilled food range for which it was so well-known in England. Although the company reached a high point of 38 stores in the country, operations were pulled in 2001, M&S having failed to capture the hearts and wallets of Germany’s value–oriented customers.
In the last few years, however, Germany has become one of the main targets for a second wave of British retailers looking to expand overseas and into continental Europe. With its GDP fluctuating between US$3.35tr and US$3.86tr over the past five years, a population of over 80 million and an internet penetration rate of over 88%, present–day Germany is proving itself as the newest frontier for these British companies, including Whitbread, Kingfisher, New Look and ASOS – which are all setting down firm roots.
In June this year, new Whitbread chief executive Alison Brittain announced one of her first significant changes: the company would withdraw operations of its Premier Inn hotel brand from Southeast Asian and Indian markets in order to focus on its more successful business in Germany, following its recent launch in Frankfurt. The move reflects the fact that Germany is likely to be extremely receptive to Premier Inn’s value-led, digitally-delivered proposition. Indeed, Whitbread is planning to commit £60-100m per annum to expansion in Germany over the next three years.
Germany is a particularly attractive territory in the hotel space. Overnight stays in the country stood at a record high in 2015 for the sixth time in a row, and hotels saw a 3% year-on-year increase driven largely by domestic demand. German travellers accounted for 80% of stays in the country, although stays by international visitors also grew 5% when compared to the previous year. Over 5 million of those were from the UK, making the country ideal for British hotel brands catering to familiar market characteristics and preferences.
Over the coming years, as Premier Inn grows its penetration in Germany, it will undoubtedly take advantage of the fragmented and independently dominated competitor set within hospitality. Discussing their new focus on Germany, chief executive Alison Brittain explains: ” We must focus on those markets where we can grow scale and where our brand proposition is most compelling for our customers”.
Leisure is not the only sector where British entrants are having success, with several retailers now making tentative steps into the market. Unlike M&S in the 1990s, which was aimed at a distinctly ‘Middle-German’ market, British entrants are now playing in the value-led sector that is so beloved in Germany (and made famous globally by players such as a Lidl, Metro and Aldi).
Another new entrant into the market has been Kingfisher’s Screwfix, which has continued to expand its operations in Germany after initially trialing four stores in 2014. As a warehouse retailer selling to trade and DIYers, the no-frills outlets focus on ‘right product, best price’. Kingfisher has announced plans to double its German footprint this year to nearly twenty sites – and could become a viable competitor to the likes of home-grown DIY retailer Hornbach (in 2014 Kingfisher sold a 21% stake, in Hornbach, clearing the way for them to enter the German market).
High street fashion retailer New Look is also planning to increase its presence in Germany. Chief Executive Anders Kristiansen has announced plans to open the first branded store in autumn, moving away from their existing concession model. Since being acquired by South African investment group Brait last year, Germany is high on New Looks list of international priorities, alongside France and China.
There is no one reason why Germany is becoming an attractive market for British companies – however, it would be hard to ignore the role that ecommerce has played. With one of the highest internet penetration rates in the EU, Germany is particularly attractive to companies that are digitally enabled.
Premier Inn has amongst the highest rates of direct online booking in the hospitality industry, and Screwfix has had a next-day delivery service in Germany since it launched in 2014 (which has since evolved into a five minute Click-and–Collect service). Similarly, pureplay companies with an emphasis on value have found success in the country – for example, ASOS. Nick Beighton, who became CEO last September, committed to continuing the company’s investment in the region, with plans to open a new warehouse. He says that the brand’s ecommerce penetration is accelerating at a quicker rate in Germany and France than it is in the UK.
So far, Kingfisher, Whitbread and Asos are succeeding where M&S didn’t by customising their business to the local market. We look forward to following the efforts of those British companies expanding in Germany, and those who have plans to enter in the near future – particularly given the results of the June 23rd referendum.