The grocery industry took a few punches last year, led by inflation that contributed to the drop in volume and downtrading. The results showed a battered sector that was below food price inflation.
McKinsey and Company has released a new report on the state of groceries in Europe, sighting a glimmer of hope on the horizon.
“Food price inflation in Europe was 12.8% in 2023, while grocery sales grew at a rate of only 8.6%,” states the report. However, the only winners were discounters and private labels.
This year, experts expect “macroeconomic uncertainty to persist,” but research also indicates the first minor signs of recovery.
McKinsey and Company says the pressure on margins, costs, and prices still gives grocery retail bosses sleepless nights, but there is less pessimism than in previous years. Consumer confidence is returning with the help of economic recovery and wage increases.
“Still, our consumer research shows that the recovery of consumer behavior is very polarized for 2024. While most consumer segments are still price sensitive and trading down, some segments show an increased appetite for uptrading and innovations,” reads the report.
Green shoots on the horizon
But before an unrealistic amount of optimism fills the air, it’s important to note the report also highlights that “economic uncertainty will likely persist in 2024.”
However, there are always ways grocery retailers could fuel profitable growth. According to the research, there are three main options:
- Future-proving the assortment.
- Driving efficiency savings.
- Monetizing retail media.
Future-proving the assortment
Customers have diverse preferences; they want affordable and premium products. For retailers to protect their market share, McKinsey says they should focus on “enhancing their own brand products.”
There is also a new interest in “health-focused and convenient food” options. Retailers who strike the right balance will “tailor their product range to meet local demands.”
Driving efficiency savings
While it remains difficult for retailers to compete with others’ prices, it needs to take “rigorous mitigating actions” to achieve cost savings, says McKinsey.
“With low-hanging fruit already captured, cross-functional and nontrivial cost positions must be addressed in 2024. Operating model redesign, end-to-end supply chain optimization from supplier to store, rent renegotiation, or design-to-value for private label assortment.”
Monetizing retail media
Retail media (RM) is worth $11.7 billion but is expected to grow by 15% yearly. In this study, grocery retail CEOs confirmed to McKinsey and Company that RM is one of the top five opportunities for the year ahead.
“Alliances, such as the Unlimitail (retail media joint venture) partnership between Carrefour and Publicis, and the growth of ad network aggregators such as Amazon Ads are expected to shape the market this year,” states the report.
What does it mean for grocers?
The state of groceries continues to be “challenging,” but executives have opportunities to build new competitive advantages.
Focusing on the three strategic priorities for grocery retailers will make it easier to change the tide in 2024.
About the author
Mia is a multi-award-winning journalist. She has more than 14 years of experience in mainstream media. She's covered many historic moments that happened in Africa and internationally. She has a strong focus on human interest stories, to bring her readers and viewers closer to the topics at hand.
