McKinsey: Inflation Hurting European Grocery Sector

McKinsey report on State of Grocery Europe 2024 shows high prices are dampening consumer spending and margins are being squeezed by rising costs

The profitability of grocers fell further in 2023 and is set to remain challenging throughout 2024, a new McKinsey report concludes.

‘State of Grocery Europe 2024: Signs of Hope’ shows that 2023 for the European grocery sector was dominated by inflation. 

The report details how European food price-inflation averaged 12.8%, reaching its highest level since the end of the Second World War. 

It does add, however, that although high prices are dampening consumer spending and margins are being squeezed by rising costs, there are signs of hope: inflation has stabilised, real wages are recovering, and consumer spending is looking more robust.

McKinsey surveyed 12,000 consumers across 11 European countries and 30 grocery executives from 15 countries across Europe. It also canvassed four grocery CEOs. 

It found that overall market share of supermarkets remained stable at 37% in Europe, and that supermarkets in Italy, the Netherlands, Portugal, and Spain saw a slight upturn (between 0,5-0.8%), thanks to strategies to succeed despite high price pressure. 

Online sales remained stable, at 6% of total grocery sales, but there was significant differences among countries. France had the highest online gain with 0.5%, while the online market-share fell slightly in Sweden (by 1.2%), the United Kingdom (by 0.7%), and Italy (0.5%)

McKinsey: 2024 food inflation 'will stabilise

McKinsey says in 2024 inflation is expected to stabilise around 2%, with food inflation “slightly below this in the short to medium term”. 

Three of the four CEOs canvassed remain concerned about challenging market conditions, while one expects market conditions to worsen in 2024. CEOs are particularly concerned about prices and inflation. That said, CEOs in Central and Eastern Europe are somewhat less pessimistic than their peers in Western Europe. Only 29% of Central and Eastern European CEOs expect market conditions to become worse, compared with 50% in Western Europe.

McKinsey says 2023 saw “intense supplier negotiations during which some leading products were temporarily not available in stores”, and adds that in 2024 retailers are likely to “intensify supplier negotiations, buying-alliance activity and consolidation efforts in 2024”. 

Buying alliances are also gaining strength, it says, and new ones are emerging. It gives as an example the recently announced partnership between Auchan and Intermarché. 

“This will be a real game changer,” Auchan CEO Yves Claude told McKinsey. 

Meanwhile, M&A activity is expected to remain high, as retailers seek economies of scale, building on the 2023 record of 21 transactions in Europe – including Reitan’s acquisition of the majority of the ALDI store network in Denmark.

Trends likely to dominate 2024 Euro grocery industry

The McKinsey report also discusses the issues likeliest to influence the grocery industry in 2024 and beyond. These include:

  • How grocers can mitigate further cost increases and improve margins 
  • The future of food to-go
  • Whether progress will be made on sustainability targets 
  • How businesses can get ahead in the online grocery market 
  • How grocers can develop retail media businesses that support profitability 

It also explores where grocers should invest in AI and advanced analytics to achieve the highest impact, and asks how grocery retailers can navigate tight labour markets to attract and retain the right talent for future growth.

The report co-authors were Christel Delberghe, Director General of EuroCommerce; Anton Delbarre, Chief Economist, EuroCommerce; Dirk Vissers, Consumer Insights Director, Europanel; and Daniel Läubli and Franck Laiset, Senior Partners in McKinsey’s Zurich office.

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