Europe Grocery Report

The EU 28’s Grocery Markets are a €1.0 Trillion Sector

The EU 28’s grocery markets are a €1.0 trillion sector, a barrier that was broken for the first time in 2015. 
 
Despite decades of EU integration, national grocery markets remain quite different from each other. But there are strong commonalities too – one is the rise of German hard discount. 
 
The discounters will become the biggest retailers by sales in the EU. Schwarz Gruppe, Lidl’s parent, is already the number 1 in the EU. Total turnover including Kaufland reached €96.9bn (+7.4%) in 2017 (YE Feb 2018). For comparison, Carrefour 2017 sales stood at €88.2bn (EU and ROW), with the retailer struggling for growth. Aldi sales were not far behind. 
 
To understand what’s in store in other markets one should look to their domestic market. And currently there is nothing short of a revolution going on at Aldi in Germany.
 
After years of Lidl’s growth outperforming the sector, the discounter has run out of steam and radical change is afoot. Once again Lidl acts as a trailblazer innovating in the supply chain, logistics and store design, but now against a backdrop of Aldi flying high. 

As all major players have pledged record investment levels into their store estate and digital transformation, German grocery looks likely to become a beacon for store design and in store as well as store format innovation for years to come.
 
With €186bn in sales France has become the biggest grocery market in the EU. 2017 saw significant changes in the sector with E.Leclerc becoming the biggest grocer and toppling Carrefour of its perch. 
 
Regarding online, the drive boom is now over, due to legislation and saturation, so that the rate of openings has significantly slowed. Moreover there is a shopper behaviour shift towards ultra fast deliveries (hence the Ocado/Monoprix or Amazon/Casino deal) and most of the big players are pushing innovative partnerships with logistics start ups to speed up same day deliveries.
 
In the UK consumer spending is under enormous pressure. Prices are rising, wage growth is flat and interest rates are on the up. At the same time, retailers face increasing cost pressures from online, rate rises, minimum wage rises and input cost inflation.
 
The structure of the market is changing, with both Tesco buying into wholesale (Booker) and Sainsbury’s into non food (Argos) and … the competition (Asda). 
 
Looking ahead, Aldi and Lidl could more than double their market share to as much as a quarter of the market over the next 3-5 years. If it comes to a no deal Brexit then the damage to the sector would be immense. The big 4, Tesco, Sainsbury, Asda and Morrisons would suffer for years to come. 
 
In a clear sign that the crisis in Spain is now well and truly over, Mercadona is ramping up the SKU counts in stores again (easily done as it controls its inter providores suppliers) and investing heavily in brighter new store outlets (as well as online) – as Spanish shoppers have finally more disposable income to spend again. The move to downscale in 2007/8 and speedy reaction to changed realities on the ground is credited with the retailer gaining market leadership in the country.
 
While negotiating its transition after the death of its founder, Italy’s Esselunga remained the most efficient grocer in all of the EU in 2016 with over €16,000 of sales per square meter. To put this figure in context, market leader Coop reported sales of €6,700 per square meter – or almost €10k less. Looking ahead, the market will be shaken up by the entry of Aldi and the investment pledged by Lidl.