3.1 Macroeconomic and sector-specific parameters

The following description must be considered explicitly in the context of the ongoing Covid-19 pandemic. The underlying data were collected up to the closing date of 30 September 2020.

Global economy

At the beginning of financial year 2019/20, economic development continued at the moderate growth level of the previous year. Starting in China and followed by other countries in Asia and Europe as well as North and South America, the rapid spread of Covid-19 led to comprehensive measures by the governments of the individual countries to contain the virus. These measures varied from country to country and restricted both social life and the economy – in some cases considerably.

From an economic perspective, this translated into a combination of immediate supply and demand shocks that led to a global recession. This is reflected in a decline in global real economic output of −2.9% in financial year 2019/20 compared to financial year 2018/19. Especially in Q3 2019/20, where many countries in the METRO portfolio were severely affected by the Covid-19 outbreak, the decline in GDP compared to the same quarter of the previous year was particularly high at −6.6%.

Individual economic sectors and industries were affected by the measures to varying degrees. While some sectors like civil aviation, tourism and hospitality as well as sports and cultural events suffered to some extent even drastic sales losses due to the restrictions imposed by the authorities, a few other sectors such as food retail, pharmaceuticals, IT and manufacturers of hygiene products were able to benefit from the situation.

Compared to previous recessions, the measures imposed to contain the pandemic had an immediate impact on the labour market. However, many countries have so far been able to mitigate the effects through short-time work programmes. In addition, China, the USA and Europe launched extensive and very large-scale economic stimulus programmes to cushion the economic impact and revive the economy. The gradual easing of restrictions on social and economic life also contributed to it. These efforts led to a slight GDP growth in Q4 2019/20 compared to the previous quarter.

However, as of the end of financial year 2019/20, the pandemic has not yet been fully overcome, especially in the largest economies – with the situation in China still being unclear. Due to the economy’s high dependence on the pandemic situation, it is unclear whether the first positive economic trends in Q4 2019/20 will already lead to a lasting recovery.

The effects of the pandemic were also visible in the food wholesale sector. This was mainly due to the massive and immediate slump in sales in the HoReCa customer group. That is particularly true in countries where the hospitality industry and tourism traditionally account for a higher proportion of economic output. Food wholesalers with a broad customer portfolio were able to cushion these negative effects to some extent through sales to other customer groups, for example Traders, or by opening up for end consumers for a short period. In the last quarter of financial year 2019/20, sales in the HoReCa sector as well as in domestic tourism increased in many countries.

Germany

In the course of financial year 2019/20, the German economy slid into a deep recession due to the Covid-19 pandemic and contracted by −4.7% compared to financial year 2018/19. Q3 2019/20 was the main contributor to this development, with a decline in growth of −11.3% compared to the same quarter in the previous year. In Germany, early far-reaching preventive measures meant that the economic and social restrictions were shorter and less extensive than in other countries.

Nevertheless, the measures affected almost all economic sectors, in particular hospitality and recreational services, civil aviation and tourism; meanwhile, domestic tourism already showed the first signs of recovery in the last quarter of financial year 2019/20. Exports, industrial production and private consumption slumped significantly in the course of the reporting year. Conversely, food expenditures increased significantly. Inflation stagnated in the course of the year, partly due to the reduction in value added tax starting on 1 July 2020.

To cushion the impact of the crisis, the German government adopted comprehensive assistance programmes for the entire economy, such as direct Covid-19 aid and an economic stimulus package worth over €200 billion, temporarily suspended the obligation to file for insolvency and extended the option of short-time work for companies. The last 2 measures were intended to definitely curb the otherwise expected increase in insolvency filings and unemployment. By May, the number of employees on short-time work was just under 20% of the workforce, well above the level of the financial crisis in 2008.

Although they are still of economic relevance, the trade conflicts with the USA and the Brexit negotiations have moved into the background of public perception.

After the positive growth at the beginning of financial year 2019/20, food wholesalers were ultimately also affected by the pandemic and the adopted countermeasures, which can be showcased by the sales achieved with these customer groups. The HoReCa customer group recorded massive sales losses from around March 2020, which had a direct impact on food wholesalers. Easing of countermeasures in connection with the hospitality industry led to a recovery in sales since Q3 2019/20. However, the comparable level of the previous year was not reached. By contrast, the Traders customer group, as part of the food retail sector, was able to benefit from the increased demand for food.

Western Europe

Covid-19 and the government countermeasures also had a massive impact on social and economic development in the other Western European countries. All Western European METRO countries recorded declines in economic output compared to financial year 2018/19: Spain (−8.9%), France (−8.1%) and Italy (−8.0%). So far, economic output for financial year 2019/20 is expected to decline by approximately −7.4% in Western Europe compared to the previous year.

In addition to national economic stimulus packages, the €750 billion package adopted by the EU in July 2020 is expected to help cushion the economic impact of Covid-19 and stimulate the economy. Furthermore, the countries launched their own programmes to support the labour market, for example through wage subsidies or short-time work. As a result, the negative effects of the crisis have not yet had a serious impact on the labour markets. However, in France, for example, more than 30% of the total workforce was already on short-time work by May.

In Western Europe, several countries in the METRO portfolio are strongly focused on the HoReCa customer group, especially countries with significant tourism activities such as Spain, Portugal, France and Italy. Since these countries were severely affected by Covid-19 and the associated social restrictions, this also had a direct impact on the HoReCa sector, which had previously been developing positively. Tourism came to a temporary halt and sales in the hospitality industry dropped sharply. However, from May onwards there was a positive development in domestic tourism, possibly triggered by the perceived risks and restrictions associated with travelling abroad. A similar trend was seen in the hospitality sector. This development continued until July (end of the available statistical reporting).

The food retail sector recorded significant growth since the outbreak of the pandemic – with especially high growth rates in March. This trend also likely benefited our Traders customer group.

The described development of the HoReCa and Traders customer groups also had consequences for the food wholesale sector; however, the specific impact depends on the customer group structure of the respective wholesaler.

Russia

Following a positive development in the first half of the financial year, the Russian economy contracted by −2.9% in financial year 2019/20 compared to the previous year. From March onwards, both imports and exports dropped sharply. The unemployment rate increased moderately, and private consumption declined significantly from Q3 2019/20 onwards. To support domestic demand, the Russian government ordered full wage compensation during the self-isolation period, which was imposed by the government to contain the Covid-19 pandemic and lasted several weeks. The measure to support household incomes is part of a stimulus package amounting to around 1.5% of the GDP. As a result of the partial easing of the Covid-19 measures, private consumption, a key driver of future economic growth, started developing in a positive direction again.

The impact of the economic development on the Traders sector was mixed. The traditional and independent small grocery stores recorded a decline in sales that was roughly on a par with previous years. By contrast, the modern small food retailers were able to benefit during the phase of restrictions as well as from the recent positive development of private consumption. The modern small-format grocery shops also include those operated by our franchisees under the Fasol brand. In the past financial year, we expanded the Fasol network considerably again. Overall, METRO performed better than the market in the Traders segment. Similar to the other regions, the HoReCa sector was much more restricted due to the measures imposed to contain the pandemic and correspondingly recorded lower sales.

Eastern Europe

While the remaining Eastern European countries had recorded growth above that of their Western European neighbours in previous years, their economic development in 2019/20 followed the global trend with a decline of −2.1%. Here too, the major factor was the spread of the pandemic and the corresponding government countermeasures. However, some countries such as Turkey, Croatia, the Czech Republic and Poland already recorded positive growth in the last quarter of the financial year compared to Q3 2019/20, which could indicate a trend reversal. In the light of the pandemic, the labour market across all countries has so far only recorded a slight increase in unemployment.

As in the other METRO regions, private consumption in Eastern Europe also collapsed during the reporting year. This applies equally to imports and exports, although they picked up again in Q4 2019/20 compared to Q3 2019/20. Overall, however, the level is significantly lower than in the same period of the previous year.

The exchange rate against the euro remained stable for the most part, while the Turkish lira again recorded a marked depreciation against the euro and the US dollar.

The HoReCa and Traders sectors followed a similar pattern as in Western Europe. Tourism-oriented countries such as Croatia and Turkey recorded a clearly negative development in the sales figures of the hospitality industry at the beginning of the pandemic; however, they bounced back with a more positive development in the last quarter of the financial year. The food retailers were also able to report positive sales growth in Eastern Europe.

Asia

The impact of the pandemic is also being felt in the emerging markets of Asia, most notably in China, where Covid-19 first appeared. After a strong Q1 2019/20, private consumption and economic growth in China dropped sharply during Q2 2019/20, affecting other countries due to China’s important position in the global supply chain. However, a strong economic recovery started in Q3 2019/20 and continued in Q4 2019/20. This recovery had a significant impact on the overall GDP development in the Asian region.

With a slight delay, Covid-19 ultimately also appeared in other Asian countries. India in particular has been severely affected. By now India reports the second-most infections globally, which is also reflected in a very significant decline in economic output and a sharp rise in unemployment in Q3 and Q4 2019/20. These developments had a corresponding impact on private consumption.