McKinsey & Company: The retail market in Romania and Central Europe is growing

The main concern of customers in Central Europe in 2022 was related to rising food prices, driven by inflation. As a result, a larger portion of consumers’ income this year was spent on food. In fact, 66% of Romanians stated that a significantly larger portion of their income would be spent on food in 2023.

While experts were pessimistic in assessing the state of the retail market, they underestimated the impact of rising prices on the economy and consumer behavior. In 2023, 29% of Romanians, the highest percentage among the surveyed countries, stated that they intend to make purchases to support a healthier lifestyle and make more nutritious food choices.

After the shock caused by rising prices, consumers adapted their buying behavior to reduce long-term expenses. These behavioral changes include choosing less expensive variants of the same types of food, decreasing loyalty to preferred brands and retailers, as well as a growing trend of buying own-label food brands offered by supermarkets.

Despite the tripling of the inflation rate in Romania in 2022, Romanians continue to spend money on food, and the offline retail market value has increased by 16%. Romania recorded the highest growth among Central European countries, followed by Croatia with 13% growth, Poland with 12%, and the Czech Republic with 9%.

A new McKinsey report, titled “State of Grocery in Central Europe 2023: The battle for the new shopper”, presents the factors that will affect the retail market in the next 12 months. The report is based on a survey of over 4,500 consumers from five European countries: Poland, Romania, the Czech Republic, Croatia, and Ukraine, as well as interviews with representatives from retail and packaged food companies.

Some of the trends presented in the report include:

Choosing affordable food products: Over 50% of consumers in Central and Eastern Europe intend to buy more from discounters and save money by choosing own-label store brands. These changes will lead to an increase in the market share of discounters, decreased loyalty to top brands, and a prioritization of lower cost over product quality. Discounters in Romania recorded the highest sales growth among those in Central and Eastern European countries, with a 12% increase in 2022 compared to the annual growth rate recorded between 2017-2022.
Consumers value convenience, sustainability, and proximity but are wary of high prices that come with them. The development of the online shopping market will be affected by rising prices, despite its market share growing by 0.2 pp in 2022 compared to 2021. Approximately 35% of respondents intend to reduce online shopping in the next 12 months, as they are unwilling to pay delivery fees and higher prices charged by online retailers. Instead, they will choose the best online and offline offers from different retailers. The growth of online sales will depend more on accessibility than the comfort offered by this segment. Almost 30% of Romanian respondents stated that they prefer to shop for groceries online because it consumes less time, while just under 10% do so because they have a more diverse product portfolio to choose from.
Generation Z is moving away from mass trends – the purchasing power of young people currently represents 17% of total consumers, but it will increase as they become the main representatives of households. For young people, convenience defined by proximity or less time spent on grocery shopping is normal, they choose own-label store brands more than other consumer categories, and they are willing to pay a higher price for products that support causes important to them.
These factors compel retailers and FMCG companies to make efforts for operational excellence, as 50% of retailers and FMCG companies continue to report low profitability compared to pre-pandemic levels.

“Consumers seem to prefer offers from stores that are not only sustainable but also prioritize health, but they are increasingly cautious about large expenses caused by rising inflation. Retailers and FMCG companies are in a delicate moment, forced to find a balance between the quality they offer and its price. With Generation Z customers not adhering to the consumption habits we were used to, retailers are forced to innovate their business practices to meet their customers’ needs,” said Marcin Purta, Partner at McKinsey & Company Warsaw and co-author of the report.

Read the full report: “State of Grocery in Central Europe 2023”