Food Retail Sector Shows Signs of Recovery Amidst Consumer Divide

Written by Camilla Jessen

Apr.10 - 2024 6:44 PM CET

A new report reveals emerging optimism in the food retail market.

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After enduring years of economic strain and tight consumer spending, the European food retail sector is beginning to see the first glimmers of recovery.

A new report by McKinsey, in collaboration with EuroCommerce, points to a cautiously optimistic outlook for the industry, marked by initial signs of economic recuperation and shifts in consumer behavior.

This analysis provides a comprehensive overview of the grocery retail landscape across Europe, reflecting on the challenges of 2023 and the emerging opportunities for 2024.

A Turnaround in Grocery Volume and Consumer Confidence

Despite a real-term decline in grocery sales in 2023, attributed to inflation, the latter part of the year witnessed a halt in this downward trend, with some markets even experiencing growth.

This positive shift is supported by a gradual return of consumer confidence, buoyed by economic recovery signs and wage increases in select European countries.

Notably, the proportion of consumers seeking cost-saving measures in their grocery shopping has decreased from 51% in 2023 to 45% in 2024.

The Rise of High-Quality and Organic Products

One of the standout findings of the McKinsey report is the increasing consumer interest in high-quality and organic food products.

High-income households, in particular, have shown a pronounced intent to invest in premium food options, signaling a potential relief for the EU's organic farming sector.

This shift comes after years of declining sales in organic products, attributed to the cost of living crisis and diminishing consumer purchasing power.

The Challenge of Pricing and Affordability

Despite the positive trends, the report acknowledges a "very polarised" consumer behavior outlook for 2024, influenced by economic disparities across European countries.

Camille Perrin, head of food policy at BEUC, the European consumer organization, notes the importance of making sustainable food options more accessible through pricing strategies and promotions.

Perrin also calls for a more efficient allocation of EU farm subsidies to support this goal.

Supply Chain Pressures

Grocery retailers continue to navigate margin pressures, a concern echoed by 70% of retail CEOs surveyed by McKinsey.

Strategies to mitigate these pressures include negotiations with suppliers and participation in buying alliances, although these approaches raise concerns about potential disadvantages for farmers.

The report also emphasizes the need for greater supply chain transparency to ensure fair distribution of costs and margins across the food supply chain.

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