Central European retailers and manufacturers must reassess their offerings to effectively meet customer demands and shrinking budgets, focusing on perceived price attractiveness and store formats.
Looking back at 2022
The outlook for 2022 given pandemic-related inflation was rather pessimistic. In the 2022 McKinsey & Company CEO Survey of 57 European grocery leaders, 60 percent foresaw worsening market conditions. Time has proven them right, yet they underestimated the extent of economic challenges, as Russia's invasion of Ukraine intensified negative trends, pushing food and energy inflation beyond expectations, and driving consumer preference for cheaper options. Rising inflation surpassed per capita disposable income growth, squeezing household budgets; Central European disposable income increased 10 percent over four years, while 2022's food inflation hit 15 percent. Grocery sales in major Central European markets grew only 4 percent in 2022, down from 9 percent in 2021 due to Ukraine, with similar trends affecting the wider EU retail market (Exhibit 1).
Both consumers and CEOs remain cautious as they look towards this evolving landscape, taking actions that are shaping the grocery landscape in 2023 and beyond. Some of the trends reinforce patterns highlighted in the State of Grocery Report for Europe in 2023, along with emerging strategies by Central European consumers to adapt to the less favorable market conditions that linger in the CE economy.