5 Analysis of the German Market
5.1 PESTEL Analysis
5.2.3 Threat of Substitutes
Considering the fact that muesli and other grain-based products are ordinarily consumed for breakfast and that they can be easily substituted with either sweet breakfast alternatives, such as smoothies, yoghurts, cakes and pancakes, or salt breakfast alternatives, such as eggs, bacon and open sandwiches, the number of potential substitutes available on the market is substantial. Likewise, the prices of muesli, the prices of substitute products are, according to Eurostat, continuously rising at a moderate rate.
(Eurostat, 2021) Moreover, the development of the substitutes is expected to continue in order to develop their modifications fitting the newly emerging diets, yet the launch of new substitutes to the market is rather improbable.
Table 10 Threat of Substitutes
Threat of substitutes
(1 point = the lowest / 9 points = the highest)
Evaluation 2020 2025
1 Number of substitute products 8 9
2 Threat of new substitute products 1 2
3 Development of prices of substitute products 4 3
4 Development of substitute products 4 7
Total (out of 36): 17 19
Average score (Total/4): 4.25 4.75
Source: Own processing based on Keřkovský and Vykypěl - Strategické řízení: teorie pro praxi, 2006
The distribution of the evaluation points in Table 10 implies that the current level of the threat of substitutes is imposed not only by their number but also by their development which will be further encouraged by the consumption trends and related consumers preferences within the evaluation period.
52 5.2.4 Threat of New Entrants
The presence of giant multinational corporations in the industry implies that their ability to achieve economies of scale and reduce the prices of the final products to outperform competitors in the price war is significantly greater compared to the entrants.
Furthermore, the operation of a business in the target industry is moderately technologically intensive, as the extrusion technology requiring a certain level of initial investment is frequently used in the packaging process. Moreover, increasing demand for ecologic and sustainable production intensifies the need for the implementation of innovative technology in the production. Apart from the technological intensity, it is highly recommended to obtain the HACCP certification on food safety before entering the German market, even though it is not legally required, yet the consumers respond adversely to its absence. (Gateway & Partners, 2018; Leusner, 2020) Conversely, exiting the target market does not imply any significantly high costs and therefore can be considered facile. (The World Bank, 2021c)
In addition, the integration of the German market in the single European market facilitates cross-border trade and material as well as labour force sourcing. Moreover, with the trade-facilitating agreements being made, the availability of the mentioned resources is expected to improve slightly within the evaluation period. Besides the trade facilitation agreements, the German government implements reforms in order to improve Germany's business conditions, following the regulations and directives adopted by the European Union. (Gateway & Partners, 2018; The World Bank, 2021c) Furthermore, along with the condensed network of supermarkets being the most commonly employed distribution channel for muesli and other grain-based products, according to Euromonitor, small-format convenience stores present a relatively underdeveloped distribution channel having utilizable potential developed from the increasing consumer interest in the high-quality and specialised food products. (Food Export Association of the Midwest USA, 2021) Moreover, the restrictive measures during the COVID-19 pandemic got German consumers to the habit of ordering food supplies online and in advance; therefore, the popularity of the food delivery services have increased significantly, and according to the survey conducted by BMEL ca. 94 % of respondents throughout the whole age spectrum declared that they would order muesli via this online channel. (Bundesministerium für Ernährung und Landwirtschaft, 2020) Consequently, the current dietary trends and their
53 implications on purchasing behaviour are expected to intensify consumers' loyalty to the particular brand based on its product differentiation.
Table 11 Threat of New Entrants
Threat of new entrants
(1 point = the lowest / 9 points = the highest)
Evaluation 2020 2025
1 Economies of scale 4 5
2 Capital intensity of the entry to the industry 6 4
3 Accessibility of the distribution channels 5 7
4 Necessity of specialised technologies, know-how, patents and
licences when entering the industry 3 5
5 Availability of material, power supply and labour force 7 8 6 Ability of already operating rivals to decrease costs and improve
services after the new rivals' entry 3 4
7 Buyers' loyalty based on product differentiation 7 4
8 Government policy 5 6
9 Development after the entry to the industry 7 7
Total (out of 81): 47 50
Average score (Total/9): 5.22 5.56
Source: Own processing based on Keřkovský and Vykypěl - Strategické řízení: teorie pro praxi, 2006
It can be concluded from the results depicted in Table 11 that the considerably easy availability of the resources complemented by the favourable business conditions within the target industry poses a significant threat of new entrants. The threat is even expected to increase within the evaluation period due to the further development and utilisation of innovative distribution channels and expansionary government policies supporting businesses after the COVID-19 pandemic.
5.2.5 Competitive Rivalry among Existing Competitors
The industry of muesli and other grain-based products in Germany can be considered mature as its sales revenues for 2020 account for 1.066 Mio. EUR, its structure is well established, and the growth rates in the past ten years have been moderate, rarely exceeding 1 %. However, the COVID-19 pandemic and its influence on the consumption
54 patterns imply the increase in the number of people who breakfast and became more health-conscious and thus stimulated the volume growth to reach 9.6 % in 2020. Therefore, the breakfast muesli and other grain-based products present the fastest growing food segment in the German market. However, according to the forecasts, this sharp increase will not sustain and will likely return to the pre-pandemic levels. (Euromonitor International, 2020; Germany Trade and Invest, 2018; Statista, n.d.) Yet, considering the volume sold, the German market ranks according to Euromonitor International as the 6th largest market for muesli and other grain-based products worldwide. (Euromonitor International, 2021a)
Moreover, the percentage of the continuously increasing disposable income of the consumers which they spend on food is expected to gradually increase over the focus period implying the potential for the increase of prices also in the industry of muesli and other grain-based products promoting the competition within the industry as the profitability potential will increase. The estimated retail value of the retail sale price of the industry will at the end of the five-year evaluation period amount to 796.1 Mio. EUR, compared to the current 754.8 Mio. EUR. (Euromonitor International, 2021b; Statista, n.d.;
Wilke, 2021) Moreover, the costs of the main muesli ingredients on the European single market had a decreasing tendency over the past five years, and despite the COVID-19 pandemic, remain on the moderate levels. (European Commission, 2020b)
Despite the fact that the target market is significantly saturated with a significant number of brands, the Global Consumer Survey conducted in Germany identified distinct preference of customers towards five brands, namely Vitalis from Dr. Oetker and Kellogg’s, both appointed by 25 % of respondents, closely followed by Kölln, preferred by 20 %, and Netlé and Seitenbacher, both chosen by 10 %. This finding, along with the generally increasing retail sales prices of these products of the named companies, implies the prominent position of these brands in the German market, with Kellogg’s maintaining the position of the market leader during the past ten years. Increasing preferences towards mymuesli brand and its leading position among the brands serving niche market segments are worth mentioning taking into consideration the similarities in the mymuesli and Mixit business concept. (Euromonitor International, 2021c; Statista, n.d.)
Furthermore, no significant exit barriers are to be found within the muesli and other grain-based products. However, owing to the strategic geographic location of the German market, the rent costs for warehouses in Germany belong to the highest in Europe.
55 Moreover, despite the short-term stagnation of prices, especially in Berlin, the rental prices on the rest of the German market have been continuously increasing in general. (BNP Paribas Real Estate, 2020; Statista Research Department, 2021, 2020) Therefore, also the fixed costs incurred by business operation are expected to increase in the set evaluation period.
Table 12 Competitive Rivalry among Existing Competitors Competitive rivalry among existing competitors
(1 point = the lowest / 9 points = the highest)
Evaluation 2020 2025
1 Number of competitors and their competitiveness 4 7
2 Industry growth 2 6
3 Net assets/sales share – high fixed costs 3 4
4 Costs of material 3 2
5 Product differentiation 7 4
6 Competitor differentiation 3 5
7 Costs of leaving the industry 2 2
8 Competition range 3 6
9 Storage costs 6 8
Total (out of 81): 33 44
Average score (Total/9): 3.67 4.89
Source: Own processing based on Keřkovský and Vykypěl - Strategické řízení: teorie pro praxi, 2006
Table 12 identifies that the most contributing factors currently increasing the competitiveness within the target muesli industry are the low level of product differentiation and considerably high storage costs, and these costs are expected to continue to increase. However, the increase in the product differentiation complemented by the increase in the number of competitors within the industry, which is forecasted to grow at a significantly slower rate, will intensify the competitive rivalry within the industry for muesli and other grain-based products.
5.2.6 Summary of the Findings of Porter's Model of Five Forces
The elaboration on the five competitive forces proposed by Porter’s model appointed that the threat of new entrants and substitutes are currently the most influential forces
56 adversely influencing the industry attractiveness, closely followed by the competitive rivalry among existing competitors. In particular, the relatively low capital and technological intensity of entering the industry, as well as ease of its exiting, complemented by the almost unlimited availability of the resources established by the participation on the single European market, attract new entrants to the German market for muesli and other grain-based products. Moreover, not only the substantial number of substitutes but also their continuous development and consumers’ sensitivity to quality threat muesli producers, who ought to adapt to new dietary and consumption trends and thereby adjust their products accordingly to establish the complex point of differentiation to be the basis for the sustainable marketing strategy. Apart from the threat of substitutes, the low product differentiation promotes the competitive rivalry among existing competitors, further triggered by the considerably high growth rate of the industry and the need to increase consumer loyalty as the consumer switching costs are insignificant, hence irrelevant in the consumer decision-making process.
Moreover, despite the bargaining power of suppliers being expected to decrease, the high density of the organization of labour force would sustain throughout the whole evaluation period and has to be considered in the strategy preparation. Overall, the total strength of the competitive forces is expected to increase during the evaluation period owing to the forecasted substantial increase in competitive rivalry within the target industry caused by the significant slowdown of the industry growth and the consequent need for the differentiation in order to be able to avoid participation in the prospective price war with the market leaders and thus preserve the reasonable profitability potential.
57 Table 13 Overview of Five Competitive Forces
Five competitive forces overview Evaluation 2020 2025 ∆
1 Bargaining power of suppliers 3.40 3.20 -0.20
2 Bargaining power of buyers 3.00 3.20 0.20
3 Threat of substitutes 4.25 4.75 0.50
4 Threat of new entrants 5.22 5.56 0.34
5 Competitive rivalry among existing competitors 3.67 4.89 1.22
Total (out of 45): 19.54 22.00 2.46
Average score (Total/5): 3.91 4.40 0.45
Source: Own processing of the obtained data
The aggregate attractiveness of the industry, evaluated in Table 13, is currently at a considerably high level as the total score of the five competitive forces equals 19.54 points out of 45 possible. Therefore, it can be concluded that the profitability potential is currently considerable enough to propose the market entry. However, according to the forecasts and the performed informed industry evaluation, the intensity of competition is going to slightly increase within the evaluation period to 22.00 points and thus decrease the attractiveness of the target industry. Notwithstanding this forecasted decrease in attractiveness and considering the maturity of the German market, it is advisable to enter to German muesli industry since the overall attractiveness will remain sufficient.
58
6 Primary Research
The following chapter comprises results of the primary research conducted by means of both qualitative and quantitative methods in order to complement the data obtained in the secondary research from various reports and studies and to fulfil the objective of the primary research to develop profound consumer insights about consumer behaviour and preferences in order to identify the most suitable market segment for targeting. The data collecting period was scheduled from February 12th to April 12th 2021.
6.1 Quantitative Research
The quantitative research was, due to the restrictive measures regarding the COVID-19 pandemic, organised in the form of an online questionnaire distributed via the Google Form platform and utilised a convenient sampling technique in order to reach as many respondents from the general German public as possible. The research objective of the questionnaire was to gather information about the dietary and breakfast habits of the potential consumers in the target German market, their interest in nutrition, their preferences for muesli products and factors influencing these preferences. The gathered data were used to formulate profound consumer insights, which were further utilised to create buyer personas for the proposed strategy.
The questionnaire comprised 27 questions in German in order to reach every potential respondent across the whole age spectrum, and its full version can be found in Appendix 2.
The vast majority of the questions were closed multiple-choice questions. Research questions were divided into three sections - General demographics, Eating habits and Product category related questions. Correspondingly, the answers to four questions in the first General demographics section provided descriptive data for segmentation.
Subsequently, answers to the following nine questions in the second section provided dietary insights and insights into factors influencing the eating habits of the potential consumers. The concluding third part consisted of 14 questions regarding the muesli and cereal product category; thus, the answers provided behavioural and psychographic data as well as insights about the factors influencing consumer purchasing behaviour and factors most prominently influencing their decision making. The questionnaire was filled up by 106 respondents during the collection period, with all the submitted responses being relevant. Moreover, in order to preserve the comprehensibility of the thesis, the figures summarizing the primary research findings have been rounded to whole numbers.
59 6.2 Findings and Implications of the Quantitative Research
Considering the first section of the questionnaire on the general demographics, the questionnaire results present a research sample resembling the actual structure of the German demography as 57 % of respondents were women and 43 % were men.
Furthermore, 40 respondents belonged to the age group 15-24, thus presenting the most prominent age group, closely followed by the age group 25-34 comprising 36 respondents and the other age groups, in particular the age group 35-44 with 13 respondents, 45-54 with nine respondents, 55-64 with five respondents and the oldest age group 65+ with three respondents. Moreover, the age group 15-24 comprises almost solely students whose yearly income rarely exceeded 19 000 €. Therefore, the four succeeding age groups present the full-time employees whose annual income ranged from 20 000 € to over 80 000 €, implying the average income to be considerably high, as indicated by the secondary research. The concluding age group of 65+ presents the pensioners with the annual pension primarily up to 19 999 €.
Moreover, despite the fact that almost a half of respondents do not follow any specific diet, 19 % of them are vegetarians, 9 % restrict the sugar intake, 7 %, on the contrary, increase the protein intake, 5 % increase their fibre intake, and likewise, 5 % follow a lactose-free diet. The more recent dietary trends, such as flexitarian, pescetarian or low carbohydrate diet, are followed by some respondents, yet their share is currently rather marginal.
Despite the moderately high score of Germany in the uncertainty avoidance dimension mentioned as one of the elements of the social factors in the PESTEL analysis, as much as 91 % of the respondents confirmed that they are either always or often prone to try new innovative food products. Hence this finding corresponds with the previously noted appreciation of Germans for the innovations. Likewise, the generally high environmental awareness translated into the fact that the eco-friendliness of the muesli and its production is of certain or even significant importance for 76 % of respondents.
Having have conducted this primary research more than a year after the outbreak of the COVID-19 pandemic, the provided results confirm that the pandemic reinforced the focus on a healthy diet. In particular, 90 % of respondents declared the importance or high importance of healthy nutrition for them, yet just 85 % of them consider their own dietary habits to be healthy. Indeed, 30 % of respondents confirmed that they improved their eating habits by cooking more, taking vitamins, eating more fruits and vegetables while
60 decreasing meat consumption and, most importantly for the strategy proposition, enjoying breakfast more often during the pandemic. Since just 44 % of them breakfast regularly before the pandemic outbreak, in the lockdown, respondents managed the lack of time which 29 % of them experienced before. Yet, the lack of appetite remains the most prominent issue for almost 50 % of respondents. Thus, the impact of healthy hedonism is reflected in taste being the priority while choosing breakfast for 64 % of respondents, followed closely by nutrients and vitamins preferred by 55 % and energy by 45 %.
Furthermore, for the development of the marketing communication, the finding that the ingredients were assigned as the most prominent deciding factor by 88 % of respondents’ confirms the impacts of the increased focus on healthy nutrition. Yet, prices are still considerably influential on the choice of 49 % of respondents, followed by the other attributes such as packaging and brand, as depicted in Figure 12 below.
Figure 12 Attributes Influencing Consumers’ Choice of Muesli
Source: Own processing of the data gathered in primary research
Although the brand is to a certain extent or significantly important for 46 % of the respondents in their general assessment of their buying behaviour, it is comparably important to only 22 % of them while purchasing muesli. Moreover, despite labels not being the most deciding product feature in consumers’ choice of muesli, its importance has been growing recently, especially the importance of labelling for functional benefits and nutritional value. Therefore, the German government recommends using the Nutri score, and Germans rely on it heavily. This fact, and thus significant influence of the labelling,
0% 20% 40% 60% 80% 100%
Attributes influencing the consumers' choice of muesli
61 has been confirmed by 73 % of respondents admitting that it has certain or significant influence over their final product choice. Therefore, it is advisable for the market entry strategy to implement eligible labels to the packaging design.
Moreover, the findings of who or what kind of information source is most likely to influence the potential consumers are inevitable for the further proposition of communication strategy. The most substantial influence was associated with the references from the friends and family members by 50 % of respondents, followed by the in-store promotion and product and brand reviews with the similarly strong influence as depicted in Figure 13 below.
Figure 13 Information Sources Influencing the Decision Making
Source: Own processing of the data gathered in primary research
Despite the considerably strong influence of brand reviews on the final muesli choice, only 16 % of respondents confirmed that they are loyal to a particular brand. Considering the brands, Alnatura was the most often named brand, followed by equally popular Kellogg’s and mymuesli. Moreover, the above-listed brands have been identified in the
Despite the considerably strong influence of brand reviews on the final muesli choice, only 16 % of respondents confirmed that they are loyal to a particular brand. Considering the brands, Alnatura was the most often named brand, followed by equally popular Kellogg’s and mymuesli. Moreover, the above-listed brands have been identified in the