Buyers for big supermarkets have a reputation as the toughest retail ‘gatekeepers’ in Germany. So how is more local produce finding its way on to their shelves? Regional is the new organic
Organically produced food has been a global business for a while, but now customers are increasingly craving carrots and eggs from the farm round the corner. According to a recent report published by Germany’s federal ministry of food and agriculture, 78% of customers look out for local produce.
Adverts for the supermarket giant Rewe present an idyllic, carefree world. Its website offers targeted traditional local recipes to try at home, region by region, under the slogan “Good for you – and for your region”. The growers and producers are introduced in person – the gardener from Brandenburg, whose tomatoes are “as tasty as those from Granny’s garden”, and the dairy farmer from Rhineland, posing with a calf.
The Lehnertz poultry farm is among those featured in Rewe’s advertising, appearing on the website of a branch in Aachen. Lambert Lehnertz, who runs the farm, has experienced several different phases in working with supermarket chains. In the 1970s, the family enterprise from Habscheid, south of Aachen in the Eifel hills, started supplying eggs to supermarkets, and for a while things went well. “But by the 1990s it was all pressure. The chains dictated the prices,” says Lehnertz. “They didn’t care in the slightest where the eggs came from. So we turned our back on that sector.” Until the 2000s, Lehnertz went around the countryside selling his eggs to private customers and small shops. Nowadays that business is more of a sideline. “Our old customers are dying off,” says Lehnertz.
So, in 2006 he risked a fresh attempt and started – with 8,000 hens at the time – selling to supermarkets again. Today, Lehnertz and his partner producers have 90,000 chickens, which lay some 30m eggs a year. About 90% of these go to 140 supermarkets, including big names such as Rewe and Edeka. Now, he says: “The supermarkets really want producers like me.”
Can that be so? Retail buyers for supermarket chains are generally regarded as tough “gatekeepers”. And the consolidation that has taken place in recent years means the retail giants have become more powerful: across Germany supermarket corporations have taken over or displaced smaller chains and individual grocers. A study by the Federation of German Food and Drink Industries (BVE) found that Aldi, Lidl, Kaufland, Rewe and Edeka had a combined market share of almost 70% of national food sales in 2017. Their buyers keep making life difficult for producers, through price pressure, listing fees, special payments for a good position on the shop shelf and extravagant demands for discounts.
Talking to regional suppliers, however, you come away with a very different impression. Stories like Lambert Lehnertz’s are repeated again and again. “We set up our brand in 2004 as a means of marketing in the retail business, and it’s going really well,” says Arndt Balter. He is the product manager for the regional brand Eifel, an association of about 100 producers from the area, which includes Lehnertz. The producers and growers deliver fruit, vegetables, honey, cheese or wine to the supermarkets, and even very small businesses can get involved. “Our collaboration is based on partnership,” says Balter, “and the produce is marketed fairly.” Nowadays, demand exceeds supply. “That strengthens our position.”
Customer pressure is forcing supermarket chains into new business relationships. “Regional producers are enjoying a kind of honeymoon,” says Thomas Roeb, professor of commercial studies at the Bonn-Rhine-Sieg University. “They are treated more gently than national suppliers.” Local producers have something supermarket chains need urgently: they stand for tradition, for authenticity, for food from trustworthy sources. And because that’s what customers want, the small farmers help the supermarkets show themselves in a good light. “It is not primarily about making money,” Roeb explains. So far, the percentage of overall sales generated by regional produce is mostly in single digits.
Details vary as to how successful this collaboration is proving. Discounters like Lidl and Aldi seem to be making less of an effort to work with small regional producers. In its latest sustainability report, Lidl refers to 110 products that bear the Regionalfenster (“regional window”) label. However, this only indicates the region from which the main ingredient is sourced and where the product was processed. It does not reveal where exactly the producer is based or within what radius the products are sold. The discounter sells 30 products under its own brand “A Good Piece of Bavaria” – but specifying an entire German state as a region suggests large suppliers are involved. Aldi Süd also refers to products with the regional label. Additionally, it sells “My Bavarian farm milk”, which has to have been produced within the state of Bavaria. Only 70 or so dairy farmers are taking part in the programme; the supplier is a large dairy company in Bissingen.
Aldi is currently facing criticism over its Neuland meat. The Neuland association presents itself on the website as a promoter of regional agriculture, saying only “small and medium-sized family-run farm operations” are allowed to participate in the programme and that even the fodder is exclusively sourced regionally. However, the animals are slaughtered by the large-scale meat producer Tönnies.
There is a sense that the discounters are in some cases more interested in adorning their products with the currently coveted “regional” label than in actually working with local businesses. “Small regional producers don’t stand a chance with Aldi and Lidl,” says Michael Gerling, managing director of the EHI Retail Institute in Cologne. “They don’t have the quantities or the organisation to supply large warehouses.” Within the discount supermarkets everything is centrally controlled. “The branch managers are not allowed to decide for themselves what they want to buy.”
Rewe and Edeka, on the other hand, are seen as pioneers. Both chains have their own regional brands and work with local producers in other ways, too. This small-scale structure makes it fundamentally easier to interact with local businesses.
At Rewe about 40% of the markets are run by independent enterprises; at Edeka there are 5,791 owner-managed businesses and 1,436 chain stores. The store owners are largely free to decide their own range and pricing, and any producer can approach them directly. But even for them the centrally listed goods are an important source of regional products; for the branch managers, they are the only source. Rewe and Edeka have both divided Germany into seven wholesale units. Each of these complex structures decides for itself which regional offers should be available within its sales territory.
Supermarkets set up slightly different supply structures for their regional brands. Rewe, for example, launched its “Rewe Regional” brand in 2012, dividing Germany into 23 areas. Across Germany, there are 120 suppliers for more than 600 items, mainly fresh food. But small suppliers do not have much of a chance here, according to Stephan Weist, brand manager for Rewe Regional; its partners are primarily established co-operatives and large businesses that Rewe has worked with before. “Because of course we do not want to have to coordinate 37 different tomato farmers in each region,” he says. “And many producers are simply too small to be able to supply sufficient quantities to the warehouses.”
However, in view of the larger variety available in the supermarkets – Weist speaks of “20 varieties of tomatoes instead of 10” – the chain is using more suppliers overall than in the old days, and many regional businesses have become main suppliers. “Five years ago we would have said, ‘You need to grow first. come back once you’re bigger’,” says Weist. “Today, we make a seasonal plan, set a limited delivery area and just give it a go.”
Urgently seeking radishes
Just like Rewe, Edeka is also encountering limitations at national level. This can be seen for example in the supply of regional fruit and vegetables in the Rhine-Ruhr region, which has been sold under the “My Land” label for the past eight years. Products like these have always been sourced from local suppliers for the sake of freshness, and here, too, for the most part, large marketing co-operatives serve as intermediaries. “A large part of the produce comes from the same sources as before,” says Thomas Kühnle, Edeka’s product-line manager for fruit and vegetables in Rhine-Ruhr. “However, whereas eight years ago, regional produce accounted for 2.5% of fruit and vegetable sales, today it makes up 10%.”
The “My Land” label has in the meantime grown to 150 suppliers providing some 250 products, and Kühnle is desperately looking for farmers who grow radishes or chicory. This is not to say that small farmers are doing particularly well out of “My Land” – often it is large businesses from the sales region that are displacing suppliers from the Netherlands, for example, with their tomatoes and sweet peppers. Ultimately, a minimum volume is necessary, too. “I’ll take anything I can get,” says Kühnle, “but if you want it to be really local, you run up against limits.”
“It’s easy enough to get in,” says the consultant Ludwig Karg, “but just as easy to find yourself out again.” He is the managing director of BAUM-Consult in Munich and has been studying marketing concepts for decades. He believes that while supermarket chains are more open to regional producers nowadays, they are also making big demands on them: “Certification, delivery capacity, marketing, advertising and a compatible ordering system – you have to take care of all these things. Supermarkets expect regional suppliers to offer them sound performance, too.”
Lehnertz, the egg producer from the Eifel, is investing a lot of effort into meeting these requirements. He says that you need to have “a broad product range and an overall concept”. He built barns to house 40,000 of his own chickens, and he collaborates with seven other egg producers to offer deep litter, free range and organic eggs. He employs drivers who put the eggs on the shelves, and a demonstrator to cook in supermarkets – “pancakes with salmon and rocket, for example”. Supermarket chains want that sort of stuff, says Lehnertz. “Not much effort and a farmer who bonds with customers, so that they stay and buy toilet paper.”
Another strategy used by producers to cooperate successfully with the supermarkets is to come up with joint concepts. For five years or so, there has been a rise in the formation of regional initiatives, says Karg. These improve the cooperation between the businesses and the supermarkets: “Both sides are able to grow,” says Karg, “especially when the producers have a significant input.” A good example of this kind of joint initiative is Landmarkt, an initiative developed by the local association of direct marketers in Hesse (VDH), in central Germany. Through the “rural market”, 160 local producers are supplying some 4,000 items to Rewe in Hesse and four adjoining districts. It started out in 2005 with three supermarkets; today it serves 240.
Landmarkt has worked its way up to become the exclusive regional partner for Rewe’s central region. The VHD ensures that only local producers are included, it looks after the certification and ensures the produce is delivered to the individual markets according to a fixed schedule. It also puts labels and codes on the packaging so the items are recognised at the checkouts. The producers take back any goods that are not sold, and a sales team takes care of presentation and the retailer’s concerns. If one farmer has to drop out at short notice, the VHD ensures that another steps in, so there are no gaps in supply.
At the same time, the brand protects the producers through controlled rates that leave little scope for haggling and price pressure. The VHD and Rewe agreed to set up Landmarkt “islands” in the supermarkets, which are paid for by Rewe. In return, the producers’ association provides advertising such as flyers and stickers. Separate agreements between Rewe and individual suppliers are prohibited. If Rewe wants to list a particular product, the VHD selects the suppliers, to ensure delivery distances are no more than 100km and safeguard even distribution among its members.
What is regional?
Even tiny producers have a chance when they can collaborate with others. So far, however, sophisticated initiatives such as Landmarkt are rare. That is why supermarket chains and their regional divisions often rely on existing suppliers. While this does lead to more local produce and suppliers who are satisfied with the terms of business, the regions themselves often end up being very large, making it rather doubtful just how local the produce really is. And classical direct sellers like those in Landmarkt, who previously sold their produce in farm shops or at farmers’ markets, are hardly able to gain a toehold.
The result is a divided picture when it comes to the large-scale programmes of head offices or regional divisions. Store brands such as Rewe Regional and My Land have been successfully established as marketing tools – and not simply “greenwashing” labels – because at least they are pushing back wholesalers’ operations on a national level, as well as foreign suppliers. Customers are also quite happy to accept a larger area as their “region”, as revealed in a survey by the consumer watchdog Stiftung Warentest, which found 65% of respondents considered “region” to mean an area such as northern Germany, a geographical region such as the Allgäu in Swabia, or even Germany as a whole. But customers are not actually getting what many of them associate with “regional” produce – small business units, and more hands-on, natural production.
Small, hyper-local producers have better chances in Edeka’s owner-managed supermarkets, which are allowed to use whatever local suppliers they want. No one interferes with these retailers. Fritz Zickuhr, for example, has been an Edeka retailer in Cologne for 27 years now, and currently sells about 100 items supplied by some 35 local producers; cheese, coffee, sausage and potatoes, all from within 20km. “That line of business has developed a life of its own in recent years,” he says.
Asked about his criteria, he seems rather at a loss for an answer. “There aren’t really any rules.” With the sausage, it was the flavour; with the coffee, the fact that the roasting house is just down the road. Strawberries were inevitable “because they are picked at 5 in the morning and in the shop by 8 o'clock; you simply can't get fresher than that.” Rewe has even appointed 12 local commissioners in Germany, who find smaller producers through farmers’ markets, for example.
Lehnertz is now planning to build a new barn. Right now, he says, he could sell 20% more eggs than he can supply. The business is taking off.