Key Grocery Retail Trends in Europe (2024)

By Peter Vasilyev

Earlier this year, McKinsey released a report titled "Signs of Hope—The State of Grocery Retail 2024: Europe," providing a good overview of industry trends. The title suggests that while current economic challenges may be temporary, the industry's immediate future remains uncertain.

The report covers multiple topics, including differences in consumer behavior, demand for healthy products, sustainability, and others. I put together my reflections below regarding some of the described trends in the context of digitalization and AI technology application.

Top trends for the grocery industry in 2024

The trends are based on a survey of industry CEOs. To simplify, I've condensed the original Top 15 list to 10 main points. The two most important trends, cost and margin pressure and consumer downtrading, reflect the challenging economic situation in Europe.

Among other trends, I'd highlight "IT modernization" and "Advanced analytics and AI," which signal the increasing importance of digitalization. This suggests that the industry is seeking new technologies to improve efficiency and discover new business opportunities.

Top 10 trends for the grocery industry in 2024*

Other noteworthy trends include 'IT modernisation' and 'Advanced analytics and AI', both of which indicate that digitalisation remains a key priority. From my perspective, this signals that the industry is increasingly looking towards new technologies to enhance efficiency and explore new business opportunities.

The pressure on grocery retail remains

The two indicators clearly point to the root cause. Despite the fact that we witness historically high levels of inflation, real sales revenue has declined between 2019 and 2023.

Key indicators reflect the pressure on grocery retail*

This is primarily driven by a reduction in real wages, which in turn leads to a decrease in the price per item in real terms—commonly referred to as downtrading, where consumers shift towards more affordable products. Meanwhile, population growth has contributed to a moderate increase in sales volume, partially offsetting the decline in revenue.

Importance of private label products

Private label products have a surprisingly strong presence in Europe, with an average market share of nearly 40%. While this figure varies significantly by country, it’s steadily growing, increasing by 4 percentage points since 2019.

The value share of private label products is continuously growing

While it may seem that this trend is primarily driven by economic factors—namely, consumers opting for cheaper alternatives to major FMCG brands—the report also highlights that 83% of consumers rate private label products as being of equal or better quality than branded goods. Therefore, price is not always the sole determining factor.

In this context, I would emphasise that category analysis—encompassing factors such as share of shelf, product placement, and pricing—will remain crucial for both manufacturers and retailers moving forward.

Talent-related issues in the retail sector

The grocery retail industry is facing pressure from both sides: consumer demand and operational challenges. The labor market is particularly tough, with employers struggling to hire.

Did you know that with the aging population the number of EU citizens of working age is reducing by 1 million people every year? This trend impacts retailers' ability to recruit new employees, leading to increasing vacancy rates and high staff turnover.

I think that automation and AI technology may play an important role in coping with this problem. Firstly, obviously digital solutions may help reduce the overall demand for labor. Secondly, by replacing the most monotonous and low qualification operations the required roles may be transformed to much more satisfying and attractive.

Offline vs. Online grocery retail

With the rapid growth of food delivery and subscription services, one might wonder whether there is a future for offline grocery stores at all. The authors of the report express uncertainty, titling the relevant section

Offline vs. Online grocery retail volume dynamics

However, looking at the provided numbers, I don’t find it is not so obvious. The market share of online grocery channels has increased only marginally from 2020. The projection for 2030 shows a higher growth rate, but in absolute terms the offline channel will grow two times more than online grocery and meal delivery combined. So, brick and mortar stores are there to stay and will continue providing more than 90% of sales volume in the coming years.

Traditional AI vs. generative AI

McKinsey is quite optimistic about the future of advanced analytics and 'classical' AI technologies. While acknowledging the long-term potential of newer technologies, the report highlights that traditional applications in optimization, recommendation, and forecasting currently account for 80-90% of the added value in the industry.

Advanced analytics and traditional AI still account for the majority of added value

There is clearly significant potential for further expansion in the use of AI, both traditional and generative. Even the use of computer vision, a technology that has been around for some time already, is only beginning to penetrate the industry.

Summary

As the grocery retail industry faces pressure from the weakened buying power of European consumers, labor market challenges, and intensifying competition between branded and private label products, there is ample opportunity for technological innovation—such as AI, robotics, and advanced analytics—to increase the efficiency of retail operations and support business growth. This need applies to the expanding online segment but even more so to offline retail, which is expected to continue growing in the coming years.

About the autor

Peter Vasilyev is an executive specialized in AI-powered image recognition for the retail and CPG industry. With extensive experience in management consulting and marketing, he brings a strong strategic focus to his role. He holds a master’s degree in leadership, strategy, business administration, and management.