The Netherlands: An overview of food retailing

The Dutch grocery market has gone through some major restructuring in the past few years. This is expected to continue as organic expansion remains limited, leaving acquisitions and disposals as the key means by which transition can occur. However, for a variety of reasons the Dutch market has and will continue to be the focus of small grocery outlets. Future growth will come from convenience stores and small specialty concepts like Drugstores. Supermarkets will themselves become specialists again in meal solutions for the home.

Socio-economic background
The Netherlands has a population of over 16 million people living in just 7.2 million households. By population, the country is the eighth largest in the European Union (27). However, with 480 inhabitants per km2, the Netherlands is the most densely populated country in Europe. The population density is four times the average of 113/km2 for the EU27.

As a result, Dutch consumers and business have some of the highest costs per square metre of living and selling space in Europe. These are critical factors shaping the shopping patterns and retail space in the market.

Dutch population growth remains heavily dependent upon immigration. Like many countries in Europe, the average age in the Netherlands is rising as the baby boom from 1946 to 1970 still represents the largest segment of the population. Therefore, the growth of smaller shopping trips targeting smaller households remains a critical component of Dutch retail strategy. At the same time, smaller households with growing per capita incomes have more disposable income than in the past. Retailers are also looking at more ways to capture this income.

Looking at total population growth, the Dutch birth rate continues to exceed the death rate. In addition, immigration into the country remains strong. In absolute terms, the number of immigrations per month during 2006 and 2007 was about 75% of the number of births. So population growth in the Netherlands remains well balanced compared to other markets in Europe. That said, the number of births and immigration declined during 2007 when compared to 2006. As a result, during 2008 population growth in the Netherlands will decline to an estimated 0.2% per annum from 0.3%

GDP
The consensus forecast for GDP growth in the Netherlands during 2008 is currently 2.5%. This would be consistent with the 2007 figure. Dutch GDP growth is projected to be equally divided between domestic consumption and exports.

The Dutch export economy is somewhat insulated from the string Euro given that 77% of exports go within the European Union. The German and Belgian markets remain the most important export destination for Dutch products.

  

 

2004

2005

2006

2007

2008E
GDP
(in € billions)

491

509

534

559

572

Y-O-Y change

-

3.6%

5.0%

4.6%

2.3%

GDP per capita

30,171

31,206

32,701

33,650

34,847

Y-O-Y change

-

3.4%

4.8%

2.9%

3.6%

Inflation

1.2%

1.7%

1.1%

1.6%

2.0%

Unemployment

6.5%

6.5%

5.5%

4.1%

4.1%
GDP of the Netherlands

 

 

 

 

 (Source: Statistics Netherlands and MVI)

However, the projection for the growth in domestic consumption is predicted on a forecast of wage inflation which exceeds consumer price inflation-household spending power increased. But, stubbornly high oil prices, increasing food prices and an increase in healthcare costs for the majority of Dutch households are putting pressure on consumption. The employment environment is expected to remain strong but not grow at the rate of the past few years.

A GDP growth rate of 2% to 2.25% in 2008 would still be an impressive result given the global economic slowdown now underway. However, the retail market is not expected to fair as well given that the slower growing part of the economy is expected to be domestic consumption.

Inflation
The Netherlands have one of the lowest inflation rates in the Euro zone. Between 2003 and 2006, the inflation slowdown was due in large part to the price war between supermarkets. In 2006, the Dutch inflation rate reached 1.1%, its lowest rate since 1989.
In March 2007, Dutch inflation met the average rate of the Euro zone for the first time since September 2003. However, inflation for the whole of 2007 (1.6%) is still 1.5% below the average Euro zone rate.

Looking to 2008 consensus forecast is for consumer price inflation to rise to 2% growth over 2007. While this will remain low by comparison with other European markets, Dutch consumers will feel the effects if rising prices. As previously discussed in the GDP comments, this will place additional constraints on retail market growth-much of which in recent years has occurred in a benign inflationary environment.

Retail trade
The Dutch retail market has had a dramatic turn of fortune over the past few years. During 2004 and 2005 the market contracted as a combination of factors conspired to strangle consumption in value terms:

  • The grocery market became embroiled in a price beginning in late 2003 as Albert Heijn reduced its prices in an effort to rebuild its brand image. The move by Albert Heijn partially in response to a series of corporate challenges (explained later) and also an answer to Dutch consumer anxiety of price rises largely related to the introduction of the Euro during 2002. The rest of the grocery trade reacted strongly to Albert Heijn’s action and the end result was significant value deflation across categoried which led to a decrease in the value of the overall sector.
  • The problems in the grocery market were foreshadowed by issues in the non-grocery market. Immediately following Euro led price increased which peaked in 2003, Dutch consumers pulled back spending on non-food items. Although there was no equivalent price war in these categories, Dutch consumers eventually returned.

 

RETAIL SALES

2004

2005

2006

2007E

per capita (formal)

4,811

4,783

5,032

5,150
per capita growth
over prior year

-2.40%

-0.60%

5.20%

2.30%
per capita rank
(of 191 countries)

25

25

25

25

as % of GDP

15.90%

15.30%

15.40%

15.30%

(Source: MVI)

Grocery retail market snapshot