The State of Grocery Retail Europe 2025 (report)

McKinsey and EuroCommerce collaborated to develop a report on the State of Grocery Retail sector in 2025 and beyond.

Here below are some highlights and the Key Trends that are further detailed in the report.

The European grocery sector mostly stabilized in 2024, showing initial recovery in some markets, though economic pressures continued to challenge grocers, leading to cautious consumer spending. Sales in Europe grew by 2.4 percent, slightly above the 2.3 percent inflation rate. Discounters and private labels continued to gain market share, but at a slower pace, consistent with long-term trends. Up- and downtrading largely balanced out, indicating a stabilization after two years of significant downtrading.

The recovery is expected to gain momentum in 2025, with European grocery CEOs expressing more optimism. However, the coming years are still projected to be challenging, with low volume growth and sustained pressure on profitability. To succeed, grocers could focus on differentiation for growth, improve execution efficiency, cater to future consumer needs, and leverage data, AI, and technology.

Nine key trends have been identified:

1. Low volume growth
Despite low overall volume growth (0.2% in 2024, projected to continue at a similar rate through 2030), the European grocery retail sector has pockets of potential growth in specific regions (Northern and Southern Europe), channels (online and discounters), and categories (fresh, healthy, functional, convenience, and food-to-go). Shifts from traditional to modern trade and population growth offer slight positive volume effects, while the shift to foodservice has a negative impact.

2. From private labels to private brands
In 2024, private labels gained market share in European grocery retail, reaching 39.1% of sales, and are increasingly seen by retailers as distinct alternatives to name brands, with consumer loyalty suggesting further growth to 40-42% by 2030, making them a key driver of market share for grocers. Retailers with strong private label presence and quality are significantly more likely to gain market share.

3. Growing appetite for healthy food
Gen Z is driving increased demand for healthy and functional foods, including fresh and "clean" options, with a significant intent to focus on healthy eating and a willingness to pay more, presenting a key growth opportunity for European grocers.

4. Ready to (h)eat: catering to the no-cooking generation
With a growing number of consumers, particularly younger generations like Gen Z and millennials, opting not to cook, the increasing popularity of ready-to-eat and ready-to-heat meals presents a significant opportunity for grocers to compete with the expanding foodservice sector by catering to the demand for convenience.

5. Unlocking a new level of customer engagement
To foster customer loyalty in the face of evolving expectations, retailers are increasingly leveraging gen AI to enhance personalization and engagement, offering tailored experiences, comprehensive information (especially on sustainability), and seamless channel integration, while also recognizing the continued importance of human interaction and revamping loyalty programs for greater personalization.

6. Sustainability Scope 3 – the challenge ahead
While overall consumer demand for sustainable products has slightly decreased, Gen Z and millennials show significantly higher intent, with local sourcing, recyclability, and social responsibility gaining importance; retailers are now prioritizing compliance with upcoming sustainability regulations, requiring significant effort and investment, particularly in tackling challenging Scope 3 emissions through strategic planning and value chain collaboration to manage costs effectively.

7. European consolidation
Faced with margin pressure from low growth and rising costs, the European grocery sector is expected to see accelerated consolidation in the next five years as larger multinational grocers pursue cross-country synergies in areas like procurement, private labels, and IT to improve efficiency and profitability.

8. The race to get tech right
Data, AI, and technology have become top CEO priorities in the European grocery sector, driving significant capital expenditure as leaders recognize their potential for substantial growth and shareholder returns; however, realizing these benefits requires a strong focus on adoption, organizational alignment, and the development of necessary enablers, as many companies are currently not seeing a return on their AI investments.

9. Retail media growth and professionalization
Retail media is a rapidly growing and significant profit source for European grocers, who are streamlining their advertising sales and diversifying opportunities beyond their own platforms to capitalize on this trend, with standardization and the potential of gen AI expected to further enhance its attractiveness for advertisers.

Source: McKinsey