German retailer REWE steels for Amazon move into food

COLOGNE, Germany (Reuters) - Germany’s second-biggest supermarket group REWE is investing heavily in grocery ecommerce even though it does not expect to turn a profit soon, as it braces for Amazon to expand its food delivery service.

“We know that we will still not work profitably for several years, but it is not blowing money,” REWE Chief Executive Alain Caparros told Reuters in an interview.

“The customer is changing. They want to have it easy and we have to prepare ourselves for that. The online customer is our opportunity to become the number one in Germany. The train is leaving the station and I want to be on it.”

REWE, a cooperative that runs 15,000 stores in 12 countries in Europe, is Germany’s second-biggest supermarket group behind privately-owned Edeka and ahead of Metro and the Schwarz Group that owns the Lidl discount chain.

While online sales of books, electronics and clothes are booming in Germany, grocery ecommerce has been slow to take off as the country has a high density of food stores and the dominant discounters Aldi and Lidl have little incentive to push loss-making deliveries given their already thin margins.

However, big players such as REWE and Metro are now expanding delivery services, and start-ups funded by the likes of ecommerce group Rocket Internet are also proliferating.

A survey by management consulting firm A.T. Kearney showed that 38 percent of Germans had tried online food retailing in 2014, up from 27 percent in 2013 and just 18 percent in 2011.

A.T. Kearney expects ecommerce will account for 3 percent of Germany’s grocery market by 2020 -- or some 5 billion euros ($5.3 billion) -- up from just 1 percent now. Online already accounts for 5 percent of the grocery market in Britain, which has been a global trailblazer in food ecommerce.

A.T. Kearney partner Mirko Warschun expects established retailers to capture much of this growth even if they have been slow to innovate in Germany in recent years.

“In food retail, the question of volume and scale advantage and negotiating power in category management and buying are decisive,” he said. “It will tend to be the traditional players who will want to tap the market for themselves.”

REWE’s Caparros said Amazon -- which already delivers groceries in a handful of U.S. cities -- had already secured logistics sites in Germany to expand its “Fresh” service to its second-biggest market after the United States.

“When they come, they will come with a big bang,” he said.

Amazon has said it plans to keep expanding in Germany, including eventually delivering fresh groceries, without giving a timetable.

Caparros said REWE now delivered groceries in 56 German cities and towns and was continuing to expand.

REWE, which also runs the Penny discount chain and Toom DIY stores, saw sales grow 2.9 percent to 51 billion euros in 2013. It reports 2014 results on March 31.

($1 = 0.9414 euros)

Additional reporting and writing by Emma Thomasson in Berlin; Editing by Mark Potter