The battle for the new shopper in Central Europe 2023
After speaking with a large numbers of consumers, interviewing leaders of CE retail and CPG (Consumer Packaged Goods) manufacturers, and combining those insights with additional research, a new report from McKinsey concludes that the grocery sector is experiencing a remarkable transition. This shift may alter the way consumers shop, the way grocers build their value propositions, and the way manufacturers build their brands.
The main insights we are sharing in this report are as follows:
Consumers trading down at scale, shifting to cheaper grocers, switching brands, and giving up on quality.
After the severe inflationary shock of the past 18 months, consumers have become more sensitive to increasing price points and are looking for cheaper options. Although this means being cautious about how much they buy, it’s mostly about finding the best places to shop, identifying name-brand products they can replace with private-label brands, and reducing overall grocery spending to compensate for lower disposable income. All of this has resulted in a greater willingness to swap usual shopping destinations or favourite brands with acceptable replacements.
The search for promotions and discounts.
Promotions have always played an important role in driving traffic for the grocery business, when done properly. Bearing in mind the current all-time high interest in attractive promotions, retailers and suppliers need to increase their focus on crafting the right selections to lure shoppers and increase brand attractiveness.
The commoditisation of health and locality.
Inflation is cooling consumer sentiment towards healthier and more sustainable products. In our view, this shift is driven by an increasing penchant to purchase affordable products. Consumers are no longer willing to pay extra for products with already-inflated prices, which holds true for all age groups except Gen Z, who understand the value of organic and locally sourced products,and are willing to pay more.
Local one-stop shopping reinvented.
Consumers still require proximity to a shopping destination. Regardless of how price sensitive they become, some weekly shopping will always be carried out in a local store. More importantly, the better the value proposition of a local store, the more shopping will be done there.
The search for a competitive edge in online.
Online grocery shopping in Central Europe continued to gain share in 2022, building on pandemic-related gains from 2020–2021. This differs from Western Europe, which experienced a market correction last year. At the same time, CE consumers intend to spend less on online grocery in the coming year, with price being the key barrier to entry. Central Europe is also not a uniform market, since Czechs and Romanians shop online primarily for convenience, while Poles often hunt for deals.
Adapting to the Gen Z-driven market shift going forward.
One of the most important trends impacting the market in the next couple of years will be the increasing role of Gen Z consumers (born in 1995 -2012) as primary household spenders. The growing economic clout of Gen Z means networks will need to adjust their value propositions accordingly. This includes meeting the increased interest in specific types of products—which can be done by proper assortment management and building seamless experiences—to increase attraction and loyalty. Combining online and offline experiences into a seamless one will be crucial in convincing Gen Z shoppers to stick with specific retailers, despite their greater willingness to switch between players.
Addressing cost and margin pressures are a paramount priority for grocery players.
Recent inflationary pressures affected both retailers and CPG manufacturers, with 53 percent of CE companies reporting lower profitability in 2022. In order to maintain or recover profits moving forward, retailers and CPG manufacturers should focus on pulling all key levers to help them rebuild their fundamentals.
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