Study: The Consumer in an Age of Inflation

Expensiveness and rising prices have become the subject of research and the focus of the European food retail sector.

“Consumers are cutting spending even on essentials, but prices continue to soar upwards,” is the disappointing conclusion of a study presented by EuroCommerce and analyzed by McKinsey in Brussels, published by the Chamber of Commerce and Industry of Piraeus. The report notes that while profit margins have declined, the need for investment in technology, resilience and skills continues to grow. Combined with rising interest rates, this creates new challenges for the retail business as it has to fund its investments with more expensive debt.

Citizens of Europe, living in the same uncertainty as in 2022, react to inflation, adjusting their consumption habits accordingly. The findings of the third McKinsey report aim to take a comprehensive look at key trends shaping the food retail sector both today and in the coming years. The report is based on interviews with 50 top food retailers and research on over 12,000 consumers in nine European countries.

The overall theme of the 2023 report is increased pressure on the retail market. This will further reduce profit margins and increase the need for business innovation, economies of scale in investments needed to protect the future prospects of every business in EU. This report is the third in a series of studies detailing findings, identifying issues, and providing relevant statistics.

Key trends in European food trade are shown in the table above and include the following:

• Consumer behavior in 2023 will continue to reflect a prudent approach driven by the negative effects of economic uncertainty in recent years. 53% of consumers plan to save more money on food, and the spread between higher and lower income groups narrows as all segments become more price sensitive due to rising costs of living. Retail volumes are likely to remain flat until the end of 2023 due to the challenging economic environment.

• Producer prices, wage increases and rising interest rates will continue to weigh on the profitability of food retailers. This leads to the creation and wide distribution of own brands (with the logo of the supermarkets where they are sold) and increasingly tough negotiations with suppliers.

• With online sales projected to grow moderately in the future, the key challenge will be to make online retail more profitable. Online food retailers have grown faster in 2022, and some have achieved unprecedented profitability. Also, food delivery through online stores is growing at a rapid pace and is very profitable.

Christel Delberge, Managing Director of EuroCommerce, said among other things: “Protecting consumers from inflationary pressures and rising energy prices is paramount.”

Vassilis Korkidis, president of the Piraeus Chamber of Commerce and Industry, points out the problem and approaches to solving it in relation to the data of the relevant study. The issue of “unified (single) cost for the same product varies as large consumer goods companies refuse to negotiate. Some consumers in the EU pay more every day for the same product, such as food, detergents, cosmetics and beverages compared to their prices in the neighboring country, costing European consumers an additional 14 billion euros a year, studies estimate.

The solution on the part of the EU and the Member States is to take decisive action to make “TSC Territorial Supply Restrictions (Εδαφικούς Περιορισμούς Εφοδιασμού)” flexible, making better use of competition measures by investigating deliberate strategies. Also announce unacceptable practices that artificially fragment the single market and hinder the cross-border movement of goods on the basis of the results of the commission’s study

Finally, monitoring of progress in lifting restrictions through an annual review is required. The time has come for the single market to benefit everyone, thanks to the European #SingleMarket4All initiative.

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