According to the latest report by McKinsey and Eurocommerce, due to cost inflation, lower volumes, and more price-sensitive customers Europe’s food retailers are experiencing the biggest drop in margins in five years. Between 2019 and 2022, the average margin of European grocers decreased by three percentage points. The EBITDA margin decreased by one percentage point, while the EBIT margin stagnated. Inflation-adjusted turnover dropped -7.1% due to intensified downtrading as consumers opted for cheaper products.
Analysts expect that consumer behavior will continue reflecting a cautious approach in 2023 due to the knock-on effects of recent economic uncertainty. Retail sales in volume are likely to stay flat for the rest of 2023 due to the difficult economic situation. More than 53% of consumers plan to save more money on food. This is the third time McKinsey and EuroCommerce have launched a joint state of grocery retail report, which includes a survey of more than 12,000 consumers and almost 50 grocery executives and thought leaders.
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Consumer downtrading has led to substantial growth for private label sales all over Europe. Compared with 2021, the value share of private labels increased by 1.9 percent. However, only 0.8 percent of this increase can be explained by same-store downtrading. The remaining is caused by faster–than–average price increases for private label goods (0.8 percent) and above-average growth of the discount channel, which has a higher private label share (0.3 percent). Pure online players grew faster than inflation in 2022, and some of them achieved profitability.
Regarding channels, discounters gained 1.4 percent of the market share in Europe in 2021. This was largely driven by a combination of aggressive footprint growth in recent years, recovery from the pandemic–related sales dip, inflation (faster than the market average), and an increase in price sensitivity in the market. Discounters grew at the expense of all other channels: traditional trade declined by -0.8 percent, hypermarkets by 0.2%, e-commerce by 0.3%, and supermarkets by 0.1%.