The food retail sector is showing the first signs of recovery after years of tight spending, according to the latest McKinsey report.

Consumers are starting to spend more

The share of European consumers seeking ways to save money when grocery shopping has decreased from 51% in 2023 to 45% in 2024, while those with higher incomes have expressed their intention to buy more organic or premium foods this year. The European food retail sector is showing early signs of recovery after years of tight spending due to inflation, although consumer behavior remains divided.

The analysis, conducted in collaboration with EuroCommerce, the organization representing the European retail and wholesale sector, examines the latest trends in food retail across the continent. Despite the challenging market conditions in 2023 that led to a decline in food sales in real terms (adjusted for inflation), the report suggests a "reason for hope" for 2024.

"The volume of food products stopped declining towards the end of 2023 and even began to increase in some markets," the text says. Additionally, McKinsey's analysis shows that consumer confidence is returning, driven by early signs of economic recovery and wage increases in certain European countries.

For example, the share of European consumers seeking ways to save money on food shopping decreased from 51% in 2023 to 45% in 2024, while those with higher incomes have expressed their intention to buy more organic or premium foods this year.

"The net intention of households with high incomes to buy more organic or high-quality products increased even more at the beginning of 2024 and is now clearly positive," the report states.

This trend could alleviate pressure on the EU's organic farming sector, one of the most affected by the cost-of-living crisis in Europe and the declining purchasing power of consumers.

Sales of organic products in the EU began to decline in 2021 after a decade of steady growth and have not recovered since. In 2022, the area dedicated to organic farming and the number of producers increased, but the bloc faced a decline in retail sales of organic food in 2022, according to the new report from the Institute for Organic Agriculture Research.

Two-speed prices

Commenting on these findings, Camille Perrin, head of food policy at BEUC, the organization representing European consumers, told Euractiv that McKinsey's report confirms consumers' willingness to purchase sustainable food options when they can afford it.

However, Perrin emphasized that supermarkets "need to do more" to make these products more accessible through promotions and pricing strategies. "The EU needs to do even more, starting by using its agricultural subsidies more efficiently than what we are witnessing today," Perrin added.

However, McKinsey predicted that consumer behavior will remain "highly polarized" in 2024, largely influenced by disparities in the economic situation of European countries. For example, consumers in Germany reported a clear intention to selectively purchase more expensive products again, while buyers in Italy and Switzerland were less optimistic about the economic situation.

A great variation

"There is an increasing variation between European countries due to divergent demographics and different rates of purchasing power recovery," the report emphasizes. Transparency in the supply chain The report anticipated that retailers will continue to face "margin pressure," identified as a top priority for 70% of retail CEOs surveyed by McKinsey.

It mentioned that retailers will "continue to protect consumers from price increases" through negotiations with suppliers, including participation in purchasing alliances - a practice that could disadvantage farmers compared to stronger purchasing actors.

Christel Delberghe, Director General of EuroCommerce, emphasized that retailers "worked hard in 2023" to "protect consumers from the most severe inflation, despite facing higher costs and reduced consumer spending on products."

However, Camille Perrin emphasized that while energy and raw material prices continue to decline, this is not yet fully reflected in final food prices. "We continue to wonder about the distribution of costs and margins along the food supply chain," Perrin added.

She hoped that the creation of a new EU observatory on agri-food commercial practices would bring "more transparency." The launch of the observatory is part of a series of measures announced by the European Commission to strengthen farmers' position in the food supply chain in response to sector demands for fairer compensation during recent protests. (Photo: Dreamstime)