As the grocery sector returns to pre-COVID levels, it is likely to face strong inflationary headwinds, a new report by McKinsey and EuroCommerce has found.
The report, Navigating the market headwinds - The State of Grocery Retail 2022, features interviews with 60 European grocery CEOs as well as a survey of more than 12,000 consumers across nine European countries.
According to the report, even before the impact of the Ukraine conflict on energy prices, as well as the resultant price increase on key commodities, many grocery retailers expected market conditions to worsen in 2022.
This was due to a drop in sales as the pandemic receded, price pressures and competition from a maturing online market. While inflation was already an emerging presence, this has been exacerbated by the Ukraine invasion, and is likely to further intensify consumer price sensitivity, the report finds.
This in turn is likely to lead to 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.
'A Tough Year Ahead'
“Having prospered through the pandemic, Europe’s grocers are facing a tough year ahead," commented Daniel Läubli, global head of grocery retail at McKinsey.
"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.”
The research in the report was undertaken before the war in Ukraine began, and as such does not account for the present and future impacts of the conflict. It is the second in a series of reports carried out by McKinsey and EuroCommerce on the 'state of grocery retail' both now and in the years to come.
"[Retailers] 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," added Christel Delberghe, director general of EuroCommerce.
"Retailers will need to find the resources to invest and remain competitive in the digital, sustainability and skills transformation of their business models.”