RSi COVID-19 Insights from Around the Globe – DACH Region
Carl Kaellstrand, Retailer Manager DACH, German Retail Update – May 19th
“Vertrauen ist gut, Kontrolle ist besser“(Trust is good, control is better) is allegedly a saying originating from Lenin, which was later frequently quoted by Ronald Reagan (“Trust, but verify”) in negotiations with the former Soviet Union. In modern days it’s often used with a touch of humour and sarcasm to describe the German way of working. Hence, a question I have asked myself as a Swede based in Germany for the past 15 years: is the German strategy of facing the pandemic actually more similar to the Swedish strategy than it appears? The short answer is yes. However, where the Swedes put their focus on trust, the Germans emphasize control. Yet, as with everything these days, it’s a bit more ambiguous than that. As a majority of the industry and society is now taking the final step from the recovery- to the repair phase, I wanted to share a general overview as well as some specific observations and trends to better understand where the journey could go in this region.
The Start of COVID-19 in the DACH Region
Due to its geographical closeness to Italy and the mobility of its people, the outbreak happened around the same time in all three countries that make up the DACH region – Germany, Switzerland, and Austria. The first peak in number of infections was traced back to fun events such as après-ski parties in Austria and carnival in Germany. Those peaks made it impossible to trace every single infection and isolate infected where needed as the authorities had been able to do with the first handful of known cases in the region. In other words, after this, the virus quickly achieved pandemic status.
The initial purpose of the plan to battle the pandemic has been similar in all three countries: flatten the curve to avoid jeopardizing the healthcare system’s capacity. The Germans started off by issuing strong recommendations to reduce social interactions, but quickly altered the “trust” aspect of their strategy, imposing a light version of the lockdowns we have seen globally. This light version meant that citizens were still allowed to go out for a walk or go to work, supermarkets, drugstores and pharmacies were open, but everything else was closed. Whereas Switzerland’s reactions have been more similar to the German strategy, Austria imposed more strict regulations and even complete lockdowns in some regions at an earlier stage. Although the impact of region-wide lockdowns for fighting the virus is debatable, especially mid-/ long term, the fact that the curves in the DACH region look more positive than in many other countries of the world has given the governments an indication that their strategies are working.
Despite the positive trending curve, governments have been criticized because of the costs associated with these lockdowns. In the early stages, the Robert-Koch-Institute (RKI), a German federal government agency and research institute responsible for disease control and prevention, was criticized for predicting that COVID-19 wouldn’t pose as a threat to Germany. And in the current phase, the shift from the original plan to not overload the health system to focus on the so called R-rate, has caused confusion. Nevertheless, the people in Germany seem to have a high trust in their leadership and are willing to pay the price for lockdowns if this is what it takes to beat the virus.
But still, nearly 500,000 people have lost or are predicted to lose their jobs in Germany alone, and 10 million furlough applications were filed during the first four months of the year. Those hard facts combined with mounting data on the impact of the virus has led to an open-up strategy in some of the German states, like North-Rhine-Westphalia, whilst other states, like Bavaria, remain restrictive in their strategy. There are numerous question marks remaining, but all states now have some kind of rough roadmap beyond the initial phases of the crisis.
The Austrian strategy, with harder lockdowns at an earlier stage, has also been well received by the people. But by sticking to the “flatten the curve”-strategy rather than changing the set goals, people’s support has lasted longer than in Germany.
The fact that Switzerland is composed of 26 cantons, Austria of 9 states, and Germany of 16 states, all with different laws and regulations, makes it obvious that there is no “one-size-fits-all” solution to tackle the pandemic in the DACH region. For example, Bavaria, located in the southern part of Germany, has recorded 45,000 confirmed infections and 2,300 deaths. For Mecklenburg-Vorpommern in the northeast, the corresponding figures are 700 infected and 20 deaths.
COVID-19 & DACH Retail
Pictures of couples living on different sides of the Swiss-German border, being separated by lockdown, are sad on an emotional level, but the re-invented borders are causing challenges for business as well. Supermarkets and drugstores on the German side of the border lost 30% of their customer base, whilst the stores on the Swiss side “won back” the customers normally travelling across the border for groceries. Combined with the general peak in demand, the Swiss side was struggling with out-of-stock issues whilst the general peak in demand only helped the German side to barely reach their normal level of sales.
That’s why the retail and FMCG industries also need diversified strategies to meet the needs of the different regions.
Apart from the results of bulk buying of specific groceries and household articles, which led to historical peaks in demand at basically all supermarkets and grocery chains across Europe, the DACH market also saw an increase in online sales. But as obvious as an online boom sounds in times when people are told to stay at home, scratching the surface shows that the it is important to dig a bit deeper into the figures; In fact, the total uplift in online sales was only 1.5% in March. Except groceries (+56%), pharmaceutical products (+88%) and DIY, German e-commerce was bleeding due to massive drops in computer, home electronics and fashion sales.
In the middle of May, Germany’s most renowned department store chain, Karstadt Galeria Kaufhof, announced that up to 80 out of 170 stores are at risk of closing following a predicted revenue loss of up to €1bn due to COVID-19. Also, Handelsverband Deutschland (HDE), the German Trade Association, has predicted that up to 50,000 independent shops and non-food retailers will have to file for bankruptcy unless massive subsidiaries are provided by the government and/or landlords.
DACH Retail: Looking Up
As dark some of the COVID-19 clouds may seem, there are a lot of positives to report. For example, REWE, the second largest supermarket chain in Germany, is utilizing these turbulent times to look into potential takeovers financed by what seems to be a profitable 2020, according to CEO Lionel Souque. Also, Marcel Haraszti, CEO of the Austrian REWE subsidiary, has announced that the expansion of physical stores will proceed and the number of pick-and-collect stations will be increased by 300%.
The drugstore chain Rossmann is also looking with confidence into the near future following their most successful year to date, which saw a €10bn revenue in 2019. A portion of this revenue will be re-invested in the company’s international expansion with Spain as a new market. Despite busy times, Rossmann even took their time to tackle the challenge of entrance control in stores with a mix of humor and charity. They placed the famous German rapper Massiv as a bouncer in front of one of their stores and raised money for the Berlin club and music scene.
All in all, despite uncertainty and an ambiguous playing field, retailers and FMCGs in the DACH region are facing the new situation as an opportunity. The winners will be the ones with the best prerequisites to act on a market, which in reality consists of 51 different markets. Especially in light of the weak points of replenishment systems in times of very high volatility, it will be essential to have prompt access to direct demand signals from the market, combined with sales & inventory data at a granular level. Making the most out of this and turning data into ACTION on an extremely diversified market will define who walks out of this crisis as a winner.