German consumers are numerous, prosperous and picky about value. That has inspired German expansions from two UK-based companies. Premier Inn is a budget hotel chain. Primark is a fast-fashion retailer. Their common features are relatively low prices and high product consistency.
Both businesses have shed light on their German operations via statements from respective FTSE 100-listed owners, Whitbread and Associated British Foods. These showed that German discernment extends beyond a simple cost/quality trade-off.
Premier Inn has opened 9,000 rooms in Germany since 2016, with almost 7,000 more in the pipeline. To become the largest hotel operator, it would only need a 2 per cent market share. That shows how fragmented the industry is — just like the UK 15 years ago.
The business model does not travel without modifications. For example, Germans typically prefer two, not one, duvets on double beds.
The adjusted German pre-tax loss for the full year more than doubled to £50mn on revenues of £118mn. Whitbread believes it can make a 10 to 14 per cent return on £1bn invested so far. Investors should await better evidence the German business can turn a profit — expected next year — before raising a valuation of 21 times forward earnings.
Primark has found that ethical concerns loom larger in Germany than back home in the UK. Some shoppers became convinced Primark’s low prices reflected poor supply chain practices. Its efforts to dispel those concerns were too late to be effective.
Partly because of this, ABF took a £206mn impairment charge last year. It reported on Tuesday a 13 per cent increase in first-half like-for-like sales in Germany. The group promised remedial action to deal with stores that were too large and too close together.
Primark’s experience is relevant to other consumer-facing businesses entering Germany. German shoppers do not just profess to care about ethics, it says. To an extent rarely matched elsewhere, their values guide their shopping choices.
