The future German consumers will be more diverse, ethnically, and geographically. COVID-19 pandemic changes their needs and habits. “Cash is king” mindset in Germany is also gradually decreasing.
According to global market research company Euromonitor International's white paper “The German Consumer: Rapid Evolution Amidst the Crisis”, the total card payment transaction value in Germany is projected to surge by 28%, while cash transactions will drop by 34% in 2019-2025.
Germany has the biggest population in Western Europe and is the world’s fifth-largest economy by gross domestic product (GDP).
The German consumer landscape is changing, driven by economic, social, and demographic shifts. Population aging, diversity, and evolving lifestyles are creating new consumer needs, while an expected growth in consumer income will offer great business opportunities. However, regional disparity and a rise in diversity will make it challenging for a business to reap the full benefit of Germany’s large consumer base. Also, COVID-19’s impact and its resulting economic recession in 2020 are creating new challenges for consumers and businesses.
There is an imbalance in spending power between regions. Household expenditure in the southern states, such as Bavaria and Hesse, is significantly higher than in Saxony and Berlin in the eastern part. The disparity is expected to stay, as eastern state economies continue to lag behind their western counterparts.
Meanwhile, immigration will contribute to diversity, resulting in new consumption needs and habits. Germany is forecast to have the fifth-highest net migration by 2040 after the USA, Canada, Australia and the United Kingdom. By 2040, 16.7% of Germany’s population is expected to have foreign citizenship, up from 12.6% in 2019. Given the diversity in consumer spending power and needs, companies need to develop a granular strategy when targeting German consumers in order to achieve long term success.
While healthy lifestyle habits are becoming a normal way of life for many Germans, it is now common to see a holistic approach to wellness, bringing together spiritual and mental wellbeing, alongside physical health. Holistic health is a top priority for German consumers, reinforced by the outbreak of COVID-19.
The pandemic triggered a demand for dietary supplements, according to Euromonitor’s Via price tracker. Although dietary supplements with general positioning account for the largest revenues among all supplements, beauty supplements witnessed strong growth, driven by the growing popularity of new products, such as beauty drinks. Health supplements with beauty, energy, and digestive positioning are expected to thrive in the long term, despite the inevitable temporary setback due to the COVID-19 pandemic.
German consumers are already world-renown for their strong eco-credentials. Recycling is a way of life and consumers make it their daily mission to recycle plastic bottles as well as separate plastic and paper waste. Germany has taken a lead role in European and international politics to overcome climate change.
“Geiz ist geil”, which translates to “stinginess is cool”, is an advertising slogan coined in Germany in the early 2000s. It reflected a bargain-hunting culture, summing up that period’s mood amid the economic downturn, and epitomized the German consumer mindset for years to come. The phrase is meant to convey German consumers’ thrifty spending behavior, where consumers do a lot of research and compare prices before making purchases. As a result of the financial crisis of 2008/9 and the Euro debt crisis that followed, the German consumer’s tendency to think long-term and save money as a precautionary measure became further entrenched.
In addition, after a decade of economic growth and low unemployment, thrifty behavior is weakening and consumers are rethinking their priorities when making purchases. Saving money is less attractive, particularly because interest rates are historically low. More interest in spending is leading to higher expectations in terms of the shopping experience and to a greater focus on convenience and upmarket products. While a price premium is increasingly accepted, the German consumer is still price-aware across all channels.
Amidst the expected long-term shift towards more openness to spending versus saving, 2020 disrupted the German economy. The COVID-19 pandemic brought a swift end to Germany’s long period of economic growth, replacing high consumer confidence with a new uncertainty. Thriftiness and saving will inevitably become more widespread again in the short term. Nevertheless, a lesson learned from the pandemic is the value of experiences and premium indulgence. Money saved on overseas holidays can be channeled into buying products that add to the quality of the experience around the home. The pandemic is not expected to have a long-term impact on the overall shift of consumer behavior. When the German economy recovers the emerging emphasis on experiences and value for money is likely to resume.
Germany is one of the few developed European nations resisting the shift to card payments, continuing to show a rigid preference for cash payments. Attempts at modernizing such as via “cashless outlets” have previously failed but today it is changing. The New Gen consumers are leading this change.
While the proportion of cash payments remain high, there has been a steady decline in cash transactions relative to card transactions in 2020. And the “cash is king” mindset in Germany is gradually waning.
Germany also lags other countries in terms of contactless and mobile payments, as concerns over privacy continue to overshadow the convenience of these forms of payment. The situation is now shifting, with the emergence and rapid expansion of contactless payment infrastructure. This is facilitating an unprecedented shift towards card payments and enabling the emergence of mobile payments. Card operators have made extra efforts to communicate additional measures to ensure security, such as protection against fraud when using contactless payment.
Meanwhile, on the consumer side, there is a growing willingness to use cards for payment even with the privacy concerns, as the convenience factor becomes more important. Typically, the New Gen German consumers are less wary about the loss of privacy. They are more willing to trade their privacy in exchange for convenience.
There is a greater appreciation of improved convenience of payments without a PIN entry or signature and growing trust in security measures and assurances from issuers and merchants. Consequently, by 2040, consumers are poised to be heavy payment card users, with relatively frequent use of the mobile devices for payments too.
“As a response to the COVID-19 pandemic, German consumers showed an abrupt shift in payment behaviors, increasingly using card payments over physical cash for hygiene reasons. A growing number of them also started to use the contactless card function and smartphones for mobile payments for the first time,” analyses Ratna Sita, head of DACH research at Euromonitor International.
“COVID-19 accelerated change in consumers’ behavior towards payments. In the future, the average German consumer will be older, technologically savvy and more open to new experiences, a shift from a more conservative behavior in the past,” Sita concludes.
Employees expect 40-hour work weeks and flexible working arrangements, which is respected by companies operating in Germany. German consumers generally have time to buy groceries, sit down in restaurants, and plan weekend trips. Because time is less scarce, there is less demand for more expensive, convenience-oriented services. Restaurant delivery is less common because it is less needed.
Even though Germany is a well-known producer of cars, the country benefits from an extensive local and regional train network, trams, buses and public bike lanes. Much of the investment is driven by local governments. The Berliner Verkehrsbetriebe (BVG), Berlin’s local transportation company launched an all-in-one mobility solution through Jelbi, an app that combines bike and scooter sharing, van or car transport and public transportation. Other cities like Hamburg and Hannover experimented with similar offerings.
Changes in German Travel Market
German consumers with high levels of week-to-week certainty also have predictable vacation opportunities. The average German consumer typically enjoys 30 days in paid vacation, and much of those vacation days are reserved for one, multi-week vacation that is well-planned, well-communicated
to employers and often organized by trusted travel agents.
Many of the largest retailers in Germany have a stake in the traditional travel market given how large and predictable these revenue streams are. The
best-known German travel operator is TUI, which is as much of a household name in travel as Rewe, Edeka and Aldi are in grocery retail or Volkswagen and BMW are in automobiles.
TUI operates brick-and-mortar travel agencies, with consumers typically visiting a travel agent in person to plan their annual vacation. Vacations often consist of a packaged holiday in an international location where TUI owns holiday accommodation, in resort destinations along the Mediterranean and Aegean Seas and North Africa and the surrounding islands. Since much of the inventory is owned by TUI, packaged holidays tend to be affordable. TUI is the largest of many operators that successfully leverage this traditional model which dominates in Germany, but would likely struggle to compete with the digital booking options preferred by consumers in most other countries.
As a destination, Germany has been attracting more international tourists, particularly to Berlin which has benefitted as a regional low-cost carrier hub. Most inbound arrivals originate from Europe, the US and Asia. Chinese tourists spend the most per visit, fuelling sales in higher-end and luxury retail shops, who now rely less on domestic transactions.
COVID-19 will Accelerate the Change
Before COVID-19, consumer leisure habits were engrained but the economic shock could generate the kind of change already underway elsewhere. Restaurant transactions slowed and travel fell to nearly zero as lockdown measures to contain the virus were implemented. Independent operators will struggle in the short- to medium-term due to their financial challenges and the broader crunch in consumer spending as the German economy slowly recovers. The largest operators, such as TUI and Lufthansa, will benefit from government assistance but will be expected to modernize and adopt greener practices.
Post COVID-19, companies will need to convince consumers to take trips and the way to do this is to convey the value of their brands. German consumers quickly adapted to digitization during the pandemic because it was their only option. More consumers shopped online, ordering goods for delivery. They downloaded apps, set up digital profiles and ordered food from the few restaurants offering delivery services.
German consumers will be more aware of their digital options, leveraging digital tools to seek the best value. Most importantly, they will be eager for leisure options after months of lockdown.
