In the United States and Western Europe, many traditional grocery retailers now see their sales and margins fall and could lose up to US$700 billion to alternative channels by 2026, according to a report from McKinsey in January.
"To put it bluntly, much of the $5.7 trillion global grocery industry is in trouble. Although it has grown at about 4.5 percent annually over the past decade, that growth has been highly uneven—and has masked deeper problems. For grocers in developed markets, both growth and profitability have been on a downward trajectory due to higher costs, falling productivity, and race-to-the-bottom pricing. One result: a massive decline in publicly listed grocers’ economic value," McKinsey said.
"And it could get much worse. Monumental forces are disrupting the industry. If grocers don’t act, they’ll be letting $200 billion to $700 billion in revenues shift to discount, online, and non-grocery channels and putting at risk more than $1 trillion in earnings before interest and taxes (EBIT). When the dust clears, half of the traditional grocery retailers may not be around."
What has driven the grocery industry to this point? The disruption can be attributed to three major forces: consumers’ changing habits and preferences, intensifying competition, and new technologies. Each of these forces is, to some extent, always at work, but the speed and magnitude of change have caught most grocers off guard.
These disruptions present considerable—yet surmountable—challenges. Based on our research into the global grocery industry, combined with our extensive experience working with the world’s leading grocers, we have identified six imperatives for grocers to win in this rapidly changing environment, McKinsey said.
But all is not lost. Resourceful and nimble grocers have shown that it’s possible not just to fend off competitors and hold on to market share but also to attract new customers and keep them coming back. Profitable growth is achievable—but it will take decisive action in each of the above six areas.