According to the latest forecasts, the European grocery retail market will add EUR377.6bn in sales to reach EUR2.3tn by 2022, with growth in the region driven by the dynamic economies of Central and Eastern Europe. Jon Wright, Head of Retail Insight at IGD explores the trends driving growth across the continent.
After Asia, Europe is set to benefit from the biggest increase in shopper spend to 2022, however we are predicting mixed growth for the top five grocery markets – Russia, Germany, France, the UK and Turkey.
Markets experiencing strong growth
Germany, France and the UK will experience a slower pace of expansion. The German grocery retail market will be limited by low population growth, in addition to shoppers being more cautious with their spending. Shoppers in the UK are facing higher inflation, which is eroding wage increases, and therefore creating a more cautious attitude to spending.
However, the grocery retail markets of Poland, Romania and Russia are expected to enjoy strong growth to 2022. Turkey is also a big winner – with a compound annual growth rate of 11.7% to 2022, the country will experience the most dynamic sales growth in Europe. While rising shopper spending will drive some of the real growth, inflation will also underpin the market’s outlook, especially in the short term.
The grocery retail market in CEE continues to develop at pace with retailers investing in their stores to encourage shoppers to visit more frequently and to stay for longer periods of time. Russian retailers X5 Retail Group and Lenta, are planning extensive store opening programs as market consolidation is still low. This will help accelerate growth across CEE and fuel the entire grocery market in Europe.
Discounters showing most dynamic sales growth
Although bigger stores will remain Europe’s largest grocery format, we’re forecasting that discount retailers will show the most dynamic sales growth to 2022, underpinned by new store openings and remodeling existing stores. The discounter chains are continuing to focus on becoming a ‘main shop’ destination for more shoppers and are increasing their presence in city centers, residential areas and on main shopping streets to help achieve this.
Many discounters are expanding their ranges to ensure they stay relevant for today’s shoppers. By tapping into shoppers’ desire for food-to-go products, easy meals for tonight and premium ranges, discounters will continue to attract new shoppers and help cement their position in the market.
Convenience will also perform well
The convenience channel will also perform well, with strong sales growth forecast across Europe to 2022. Many multichannel retailers are focusing investment on their convenience formats, taking an adaptable approach so ranges and promotions can be flexed by location to meet a variety of shopper needs.
The top three retailers in Europe in the convenience channel are focusing their investment in several different areas:
- Convenience stores are playing an increasingly important part in Carrefour’s strategy to 2022. The retailer will roll out a range of banners, many focused on more specialist needs, such as food-to-go and organic, to help drive growth
- Magnit’s convenience format will remain its largest contributor to sales revenue, at over 70% by 2020. In the next five years, the retailer will concentrate on increasing its presence in Western Russia’s top cities, rapidly increasing the number of stores
- Tesco’s convenience strategy is shifting from rapid expansion of its store estate to making stores easy to shop and ensuring the product range is relevant for local shoppers
Big box stores remain core
Big box stores, supermarkets and hypermarkets, will remain a core part of European retailers’ operations, with many investing in new ways to continue attracting shoppers to stores. New concepts include in-store dining and other complementary services like pharmacies and store concessions all of which help to attract new shoppers and extend the length of their stay.
Hypermarkets and supermarkets also play a key role in many retailers’ omnichannel plans, with online pick-up services often connected to big box stores, helping shoppers to combine buying in-store and online easily. Retailers are also experimenting with an array of new technologies all aimed at making shopping easier and quicker.
Further investment in price expected
Another significant trend we’re seeing across European grocery retailing is retailers’ investing further in prices. This has put an increased pressure on margins and is encouraging retailers to seek new ways to promote their value messages. Some examples include:
- Aldi Nord and Sud offering discounts on selected branded goods for the first time in Germany
- Sainsbury’s trialing a new approach to Nectar to ‘redefine loyalty’ by providing shoppers with personalized offers
- Events have become more important than ever before – retailers in France are creating their own events to help try and drive excitement
- Kaufland adds ‘favorite’ private label range to enhance its ‘good price-performance ratio’
To help try and recoup the pressure on margins, many retailers are using a range of solutions to save costs where possible. Some great examples we’ve seen include IBM and Shell trialing a checkout that scans a complete basket in one go, Migros in Turkey is using digital name badges so staff can check inventory and reorder products from the salesfloor and Lenta is using promobots that greet customers showing them new products and discounts.
Many opportunities for growth
The opportunities for growth in European grocery retail are not limited by, or to, a specific channel. Retailers that can offer value, inspiration and convenient shopping, coupled with low operational costs, will prosper and drive market growth. Shoppers will continue to value convenience and time saving shopping meaning they will have less interaction with retailers and brands – companies need to ensure they are creating additional value to ensure they are not forgotten.
