In its European “Grocery profitability outlook," consultant firm McKinsey concludes that grocery retail margins are low compared to other industries and have been under pressure. Macroeconomic conditions and industry dynamics have negatively affected hypermarkets and supermarkets over the past five years whereas discounters slightly increased margin.
The average operating profit margin (EBITDA) of food retailers was 7.1 percent between 2009 and 2023. Hypermarkets and supermarkets only post an EBITDA margin of 6.6 percent on average in 2023. According to the researchers, the decrease in the past five years. McKinsey warns that these are averages, as profitability varies considerably between retailers.
For example, over the past five years, Polish Dino has an EBITDA margin of 9.2% and Kesko has 9.1 percent. Axfood reached an 8.6% margin and Ahold Delhaize posted 8.5%. Sonae’s margin was 8.1% and Colruyt 7.9%. For Jeronimo Martins it amounts to 7.5%, for Lidl it is 6.1% and for Carrefour 5.9%. Metro Germany closes the ranks with an EBITDA margin of 4.8%.
McKinsey expects that over the next five years, pressure on grocers’ margins will continue, especially for hyper/supermarkets. If no counter measures are taken, average EBITDA impact could average to a decrease of -0.2 to -2.7 pp for hyper/ supermarkets.
The company advises supermarkets to do a step change across a set of levers on growth, operational excellence and transformative change. It says that bolder actions are needed as historical cost optimization will not be sufficient and impact will heavily depend on the actions taken. The experts say that while many grocers are making progress, none fully accelerated their efforts.
McKinsey anticipates that the discounters’ share of sales in Europe will grow from 21.8 in 2023 to between 23 and 26 percent in 2026, an increase of +0.9 to 3.8pp. It expects private label share of hypermarket/supermarket volume in Europe to increase from 27.7 in 2023 to between 31 and 33% in 2029, an increase of 3.1 to 5.6pp.