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Poor Returns

Linda Vierecke (jg)February 23, 2008

Germany's organic food industry enjoyed a boom year in 2007. Turnover rose 15 percent, an increase of 5 billion euros ($7.4 billion). But that's not good news for everyone in the business.

Organic pretzels
Organic is everywhere -- even pretzels have to be healthy nowadaysImage: Stephanie Raison

Organic food store owner Ralf Murmann has been running his business in Bonn for 33 years. Profit was never his sole motive. But in the past, he was able to make a living from the shop. Now, with the trend towards organic food booming in Germany, his store is on the brink of closure.

"We are not profiting from this boom. Shops of this size are the losers in this development," said Murmann.

He stocks the same kind of yoghurts as the same organic supermarket two kilometres away. His store also has a big cheese counter, freshly baked bread, fruit and vegetables from local farmers. But Murmann's customers have been dwindling since ever more conventional supermarkets started to stock organic products.

"Organic is not just about labels," Murmann said. "When we started out, we wanted to change farming and to change business practices. We didn't want supermarkets built on greenfield sites."

Trend towards one stop shops

Jars of organic yoghurt
Organic yoghurt, bread, tea ... You name it, most German supermarkets have it.Image: picture-alliance/dpa

"The customer wants to get everything from one store," said Andreas Gerber from the Federation of Ecological Food Industry.

"First and foremost, it's the chain storeowners with the ability to set up big, new branches who are profiting from the organic food boom. Or the stores who can expand their sales area," Gerber said. " But this is not an option for most small organic shops that are located in built-up residential areas."

In the past, customers had to go out of their way to obtain organic products, but now they are stocked in most supermarkets. That's fatal for small stores.

"A whole series of small organic shops have had to close," said Gerber.

By contrast, 80 organic supermarkets opened their doors last year in Germany. The Rewe group, one of Europe's biggest food retailers, has also gone with the flow, selling organic products from its supermarkets. It even opened up its own chain dedicated to selling ecologically grown products, called "Vier Linden." Company spokesman Andreas Krämer said the group was planning to open two or three branches a year.

"We want to continue expanding "Vierlinden" because the brand is definitely worthwhile -- both from the point of view of our experiences with customers and from the point of view of image," said Krämer.

A strategy to win customer loyalty

Organic supermarket
Small stores cannot compete with organic supermarkets like this oneImage: picture-alliance/ dpa

For many food retailers, the image associated with organic food is more important than the profits that they earn.

"It is a form of advertising that encourages customer loyalty. I think that some of the products, particularly in the discount supermarkets, are cross-subsidized by conventional products," said Gerber.

That's the kind of thing that only large retailers can afford. And small business owner Ralf Murmann conceded that supermarket products, per se, aren't any worse.

"Some of our suppliers also sell to Lidl, Aldi or dm under a different brand name. So you can't say that the quality is any different."

But Murmann nevertheless finds it paradoxical that pioneers like him are losing out now that organic food has become truly popular.

"The people profiting from organic food are those people who ruined food products in the first place -- the budget supermarket chains. They're the reason why we set up organic food stores in the first place," he said.

Over the next few weeks, it will become clear if the storeowner will be forced to give up his business. Murmann isn't optimistic. In Berlin, Germany's first-ever organic food shop has just closed its doors.