State of Grocery Europe 2022: Navigating the market headwinds

March 31, 2022

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Retailers must be prepared to take bold actions and keep investing in key areas such as online, new profit pools, analytics, sustainability, and people.

In 2021, the COVID-19 pandemic continued to influence the grocery retail market in Europe. Sales in the last three quarters of 2021 were lower than in the previous year but still significantly higher than in 2019, resulting from the partial closure of food services.

Going into 2022, grocery CEOs expected market conditions to deteriorate. Five key themes will likely shape European grocery retail in 2022 and beyond: 1) decreasing volumes and rising inflation; 2) widening polarization with higher price sensitivity and more focus on health, premium, and sustainability at the same time; 3) a slower online growth with more differentiated offers; 4) the search for new profit pools; and 5) a shift in the people model.

Looking back on 2021
In 2021, price inflation and slight uptrading helped offset decreased volume in Europe.

The European grocery retail market in 2021 was shaped by the ongoing effects of the COVID-19 pandemic, the gradual reopening of the hospitality sector, the emergence of instant-delivery players (also called quick commerce), and price inflation.

Sales decreased in Europe by 0.6 percent in 2021 compared with the previous year, to a level that was still substantially higher than 2019. Volume decreased by 2.1 percent, but this development was partially offset by price inflation of 1.3 percent and slight uptrading of 0.2 percent. The results varied significantly across countries (see “Food and grocery market KPIs”). The first quarter of 2021 was significantly higher than the prepandemic first quarter of 2020, reflecting the effects of market restrictions. From the second quarter of 2021 onward, hospitality activity began to resume and grocery retail sales stayed below the previous year, though they remained substantially above 2019 levels across quarters and countries (See right).

From a format standpoint, online and discounters posted highest results in 2021, growing faster than the market in most countries. Supermarkets and hypermarkets saw a decline in sales as a result. Online revenues across Europe rose by 8.8 percent compared with 2020. Most of online’s growth occurred in the first quarter of 2021; in the following quarters, online stayed at roughly the same level as in 2020. This growth was quite unequal across Europe: countries in Southern Europe (such as Italy and Portugal) and Central Europe (for example, Poland) saw a decrease in online. On the other end, Germany, the Netherlands, Sweden, and the United Kingdom recorded robust growth in 2021. Despite falling sales in offline formats and even higher declines in offline volume, retailers kept expanding their store networks, with available sales space expanding by 1.6 percent (see “Food and grocery market KPIs”). Especially for discounters, with store space 4 percent greater than that of 2020, this strategy was successful, resulting in growth and strong results reported by this format.

Within online, instant delivery had a year of substantial expansion, fueled by massive inflows of funding. The top 15 players in Europe had opened more than 800 dark stores by the end of 2021. Further, many traditional grocers formed partnerships with instant-delivery companies to extend their offerings beyond physical stores. Still, the instant market remains in its early days. It is small, lacks transparency, and is unprofitable in most cases. Our research suggests that the instant-delivery market in Europe reached between €3 billion and €6 billion in 2021, accounting for less than 1 percent of the total market but with three-digit percent growth annually.

To learn about McKinsey's market forecast and trends for 2022, read the full report here
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