Grocery Retailers Facing Real Challenges Returning to Precovid Levels with Consumer Purchasing Power Hit by Inflation
Press release - Competitiveness & Single Market
Even before the impact of the Ukraine invasion on energy prices and cost of certain key commodities, grocery retailers expected market conditions to worsen in 2022. This reflected the drop in sales after the effects of the pandemic receded, pressure on pricing and competition (including from a maturing online market). Inflation was already creating real challenges to grocery retailers in Europe, now exacerbated by the Ukraine invasion and likely to further intensify consumer price sensitivity
The common theme emerging from all these future trends is increased margin pressure on grocery retailers over the coming years with the need to cater for broader consumer demands, growing price pressure and increasing multi-channel complexity. These include:
- Strong pressure on margins through costs rising and consumer purchasing power being squeezed, with households seeking cheaper alternatives and promotions;
- Polarized demand, with higher income consumers having maintained growth in healthy, sustainable and premium products, while lower income households have been trading down;
- Slower online growth with more differentiated offers: consumers splitting their purchases across an increasingly fragmented online market with new emerging offerings
- Retailers looking for new sources of profit in their core business, through advanced analytics and artificial intelligence, or entering new revenue streams (e.g. using loyalty card data to sell advertising space).
- Skills and talent a growing challenge with shortages of skills needed to meet the new business demands (e.g., digital and sustainability transformation)
Daniel Läubli, Global Head of Grocery Retail at McKinsey, said: “Having prospered through the pandemic, Europe’s grocers are facing a tough year ahead. Inflationary pressure, price sensitivity and increased competition are poised to reverse many of the positive trends they have experienced. On the other hand, these changes also offer opportunities for grocery retailers that take bold actions and keep investing in a great private label offering, online, new profit pools, healthy and sustainable products, as well as people.”
Christel Delberghe, Director General of EuroCommerce, said: “Retailers provide an essential service to consumers and can offer a strong basis for the European economy as Europe’s largest private employer. They are facing new challenges arising from increased competition and spiralling costs in many parts of their business: the energy they use to run their stores and logistics, suppliers seeking to pass on the rising cost of their inputs, and disruption in supply of certain products. Retailers will need to find the resources to invest and remain competitive in the digital, sustainability and skills transformation of their business models.”
This report is the second in a series of reports aimed at shedding light on the state of grocery retail now and in the years to come. The research was undertaken before the war in Ukraine started and the insights, therefore, do not account for its present and potential future impacts.
Details of the report’s findings on these issues, and data on developments in the industry are set out in the attached annex