According to Savills’ European Grocery Market 2024 report, the future remains bright for grocery retailers despite the challenges of inflation.

Let’s examine why grocery chains are expanding while other retailers are struggling and what the future holds for this essential industry.

2023: A Rollercoaster Year for Retail

2023 was a challenging year for European retailers.

Due to inflation, consumers tightened their wallets, leading to a 6% drop in total retail sales. But while most retail sectors struggled, grocery stores showed incredible resilience.

Why? Because no matter what, people still need to eat.

As inflation soared, peaking at 19% in March 2023, many consumers switched from expensive brands to more affordable ones. Yet, grocery stores still managed to increase their revenue and plan further store expansion.

For instance, Lenka Pechová, Senior Research Analyst at Savills, notes that grocery sales in the Czech Republic have steadily risen for six consecutive months. This consistent growth has led grocery chains to expand and increase the number of stores, particularly in larger cities.

2024 and Beyond: Why the Future Looks Bright

Looking ahead, the grocery sector is on track for growth.

Oxford Economics predicts a 5% boost in retail sales for 2024, with another 4% increase in 2025. The Czech Republic and Belgium are set to see the highest growth in 2025, with sales expected to jump by 6% in both countries.

Penny Market has the most stores in the Czech Republic, but Lidl is leading in revenue, closely followed by Kaufland. According to Savills’ research, competition is set to intensify with the Polish discount chain Biedronka planning to enter the Slovak market in 2025. This will not only offer more choices to consumers but also push the industry towards more innovation.

James Burke, Director of Global Cross-Border Investment at Savills, also highlights that while stock availability may limit the number of transactions in the market, activities like sale-and-leaseback deals and mergers and acquisitions will keep it active. He expects big grocery players to continue consolidating their portfolios to increase their market share.

Shifting Consumer Preferences: The Rise of Convenience Stores

One of the most significant trends shaping the future of the grocery sector is the shift toward convenience.

Savills’ research points out that “consumers’ preference is shifting towards convenience and smaller stores, leading to many retailers focusing on city-center ‘express’ shops and reducing the larger hypermarket format.

Convenience and independent stores, which have become increasingly prominent since the onset of the pandemic, allow consumers to make smaller and more frequent, essential, ‘top up’ purchases close to their homes. As a result, shoppers have become much more reliant on what is local, in addition to larger, less frequent supermarket shops.

This trend is particularly evident in the Czech Republic, where major retail chains are expanding their presence in urban areas.

At the same time, smaller independent food stores, which are not part of any retail network, continue to close down, particularly in smaller towns.

Grocery Market: Stable, But Not Unshakable

Even though the grocery market is strong, it’s not completely immune to economic pressures.

In 2023, consumer spending on food dropped by 4% due to high prices. However, when you compare this to the wild swings in fashion sales—which ranged from a 12% drop to a 13% increase—grocery sales are remarkably stable, usually fluctuating between -5% and 5%.

This stability, noted by analysts at Savills, makes the grocery sector a safe bet for investors, even in uncertain times.

Key Takeaway

While other retail sectors are on shaky ground, Europe’s grocery market continues to thrive. Its essential nature, combined with steady consumer demand, ensures it remains a strong player in the retail world.

With positive growth forecasts and increasing competition, the future looks promising for grocery retailers across Europe.