Before the pandemic, Europe’s retail sector was already undergoing a seismic shift. The digitization of consumer activity was gathering pace, while traditional brick-and-mortar retail was paddling fast to adapt to this growing mode of consumption. Now, a year and a half of sustained Covid-related disruptions have only compounded and embedded new behaviors and expectations among consumers. This has ushered in an even bigger sea change for the sector, putting businesses, supply chains, marketing operations, and customer strategies under immense pressure – and wiping certain businesses off the high street altogether.
However, with digital becoming the dominant mode of purchase in this period of flux, forward-thinking and fast-adapting traditional players have held their ground and gone head-to-head with the pure digital retailers.
Here, we look at the retail trends, particularly for the grocery segment, that have emerged over the past 12 months and how flexibility, adaptability, and relationship-building have been vital to creating value.
After the global financial crisis in 2008, private capital fueled a rapid retail expansion in Europe. With high rents and increasing fixed costs, high streets across many European cities began to look alike as chain retailers moved in, slowly eroding the local identity of these communities. At the same time, technology was rapidly changing consumer behavior – personalization became increasingly the norm as e-commerce (the rise of pure-play online retailers), mobile phones, and social media allowed instant access to whatever consumers wanted, whenever they wanted it. This flipped the traditional retail business model on its head: the consumer, not the retailer, really was now king. To put this shift in perspective, online spending in the UK grew to about 31% of total retail sales in 2020 from just 7% in 2010.1
As the role of the physical store began to change, many retailers found themselves with high debt, excess floor space, and balance sheets that struggled to fund the IT infrastructure required to meet their customers’ needs. This resulted in supply chain issues, an erosion of customer loyalty, and ultimately a swath of brands, particularly in the fashion sector, becoming insolvent and filing for administration. For Europe’s typical high street and fashion-led shopping centers, vacancy rates increased while rents were being challenged.
A new reality was becoming apparent: the need for “omnichannel retail” – the ability to communicate with customers and allow them to browse and make purchases through multiple touch points – was growing more urgent as customers sought out the most convenient options and the best value.
For the likes of retail parks (typically single-level warehouse units without enclosed malls) on the edge of town, however, this was an opportunity. A good example is the discount sector, which has seen significant growth over the past five years.2 With cheaper overheads, ease of access, and adaptability (for use as “click and collect” hubs or for last-mile logistics/fulfilment in store), along with large, free surface parking (for vans, too), retail parks in the right locations were high on retailers’ acquisitions list. Consequently, this sector continued to perform well.
The onset of the pandemic only quickened the pace of disruption. Social distancing, travel restrictions, and safety concerns reduced and altered consumers’ mobility (for example, they took fewer trips to the city). European consumers cut back on in-person grocery shopping frequency by around 5% on average, while increasing basket sizes by approximately 16%.3 This proved beneficial for some retailers, such as local neighborhood stores in markets like Italy, where residents were only permitted to venture out close to their homes during the lockdown.
As a general trend, certain countries across Europe have either better protected their historic town centers from new construction or didn’t have the land value to justify the new builds seen across the US and the UK. This lack of oversupply in retail space has been a very defensive tool against structural change. In the UK, words like “convenience,” “local,” and “hyper local” came into frequent use during the pandemic as consumers became far more attached to their local amenities and supported local businesses. Consequently, grocery-anchored retail parks and rural town centers have fared well.
As online shopping became an imperative during the pandemic, traditional retailers that were forced to close but already had a digital presence were steps ahead in keeping their businesses going. Meanwhile, others not as advanced were investing heavily into their digital platforms. For retailers with already high debt and limited online exposure, recovering from Covid-related disruptions was exceptionally tough – or proved terminal in many cases.
Pure online retailers faced different challenges. Chief among them were securing enough delivery staff to meet the increase in demand while ensuring workers’ health and safety. On the supply side, a number of fashion brands faced inventory shortages; in other cases, hoarding became an issue. And with so much choice available at the click of a button, retaining customer loyalty was paramount: One slip-up could push customers to look elsewhere.
A 2020 retail survey found that 71% of customers wouldn’t return if they’d had a bad experience either in a store or online.4 Moreover, 60% of consumers in a different survey said they had changed their shopping behaviors, and 31% said they had changed the store where they shop. The key reasons cited were better value (especially on price) and convenience – particularly easy accessibility or delivery options.5 With 73% of customers expecting businesses to maintain the flexibility they have shown during lockdowns, this trend looks like it’s here to stay.6
Not surprisingly, online grocery sales accelerated in 2020 as both consumers and retailers pivoted to adapt to the new normal. Homebound office workers shifted their spending to grocery retail from food service, and with most, if not all, family members eating at home, their grocery lists were longer. Online grocery sales jumped 56.1% in 2020 from 19.5% in 2019, while the online share of food and beverage sales rose to 5.3% from 3.4% on average across Western Europe and is forecast to reach 12.6% by 2025.7 As a recent McKinsey report noted, established French and British online grocers took advantage of demand and were rewarded with significant absolute revenue growth. But the trend did not exclude companies from other countries with smaller bases, which also performed well – some even growing their online businesses by 80% or more.8
The resounding rise of online grocery shopping led to a shift in use for the traditional store. During the pandemic, large food retailers appeared able to meet the surge in online demand because of their networks or physical stores, which could be used to fulfill orders. On a more local level, traditional grocery retailers began solving the “last mile” delivery challenge through micro-fulfilment centers and “dark” supermarkets (mini-logistics hubs located in high-density urban centers), as well as by partnering with online food delivery companies.
As established pure players have grown, new e-grocer models have emerged, differentiating themselves by the types of products and services they offer and their method of ordering, fulfilment, and delivery. Although they do not require physical retail stores, these companies depend on near-instant delivery and rely on urban warehouses or dark stores to survive in this competitive market, where several start-ups are jostling for position.
Amid these trends, the grocery sector appears to be attracting capital and emerging as an attractive asset due to its operational resilience. Investments in supermarkets, hypermarkets, and food discount stores last year accounted for 21% of total retail activity, up from a five-year average of 7%.9
Well located, grocery-anchored retail parks have drawn similar interest. In addition to the benefits of easy access (including “click and collect” points or potential last-mile logistics hubs) and free parking, they offer “open air” environments that are deemed safer for consumers relative to enclosed malls. With strong demand from homeware, do-it-yourself (DIY), and convenience shoppers, retailers with these supporting services appear to have performed well throughout the pandemic.
The offline and digital retail worlds are merging closer and closer. In the UK, an analysis by CACI in 2019 revealed the extent to which online and in-store channels work together: According to the report, a physical store increases online sales locally by an average of 106%. Click-and-collect services and digital returns via physical shops further deepened the symbiosis. In addition, 90% of all retail spending in the UK is influenced by a store, which lends support to efforts by some pure online retailers to open up physical storefronts.10 Likewise, pure traditional retailers have invested millions into their digital platforms, using their well-located stores to support this effort.
The merging of the physical and digital realms will likely become ever more critical as retailers leverage technology to inject greater value into stores – for example, by offering extended product ranges, showrooms, the use of augmented reality (AR), and, crucially, online fulfilment of physical orders. Redundant sales space could be repurposed to facilitate online fulfilment, serving as hubs for consolidating deliveries, convenient click-and-collect points, or drop-off destinations for returns. It is, therefore, vital that owners look to continually innovate the way physical space can be used and work more collaboratively with retailers to fully understand their business plans and goals and what their customers are looking for.
As Europe begins to emerge from lockdowns and return to some form of normality, the convenience grocery sector is expected to remain strong, particularly for those that continually evolve their businesses and meet the needs and demands of both existing and prospective customers. Keeping the unprecedented sales they have recently experienced will be a tough ask, particularly as the dust settles and consumer habits evolve in turn.
Businesses will have to be dynamic, respond fast, and ultimately listen to their customers. With some subsectors of retail appearing to fade away and others emerging or re-emerging, one thing is clear: Retail is certainly not dead, but it’s readjusting – and with that comes opportunity.
1 Office of National Statistics, UK as of 31 December 2020, https://www.ons.gov.uk/businessindustryandtrade/retailindustry/timeseries/j4mc/drsi
2 European Discount Retail Market: Size, Trends & Forecasts (2021-2025 Edition) March 2021, https://www.researchandmarkets.com/reports/5308254
3 “Disruption & Uncertainty: The State of Grocery Retail 2021,” McKinsey, March 2021, https://www.mckinsey.com/~/media/mckinsey/industries/retail/our%20insights/the%20path%20forward%20for%20european%20grocery%20retailers/disruption-and-uncertainty-the-state-of-grocery-retail-2021-europe-final.pdf
4 Adyen Retail Report 2020, https://www.adyen.com/knowledge-hub/reports/retail-report-new-beginnings
5 “Consumer sentiment and behavior continue to reflect the uncertainty of the Covid-19 crisis,” McKinsey, 26 October 2020, https://www.mckinsey.com/business-functions/marketing-and-sales/our-insights/a-global-view-of-how-consumer-behavior-is-changing-amid-covid-19
6 Adyen Retail Report 2020, https://www.adyen.com/knowledge-hub/reports/retail-report-new-beginnings
7 “Spotlight: European Food and Groceries Sector,” Savills, 29 April 2021, https://www.savills.com/research_articles/255800/313608-0
8 “Disruption & Uncertainty: The State of Grocery Retail 2021,” McKinsey, March 2021, https://www.mckinsey.com/~/media/mckinsey/industries/retail/our%20insights/the%20path%20forward%20for%20european%20grocery%20retailers/disruption-and-uncertainty-the-state-of-grocery-retail-2021-europe-final.pdf
9 “The food and groceries sector is becoming the new core in retail investment” Savills, 29 April 2021, https://www.savills.co.uk/research_articles/229130/313664-0
10 “The Halo Effect,” CACI, July 2019, https://www.caci.co.uk/news/halo-effect
Investing involves risk, including possible loss of principal. The information presented herein is for illustrative purposes only and should not be considered reflective of any particular security, strategy, or investment product. It represents a general assessment of the markets at a specific time and is not a guarantee of future performance results or market movement. This material does not constitute investment, financial, legal, tax, or other advice; investment research or a product of any research department; an offer to sell, or the solicitation of an offer to purchase any security or interest in a fund; or a recommendation for any investment product or strategy. PineBridge Investments is not soliciting or recommending any action based on information in this document. Any opinions, projections, or forward-looking statements expressed herein are solely those of the author, may differ from the views or opinions expressed by other areas of PineBridge Investments, and are only for general informational purposes as of the date indicated. Views may be based on third-party data that has not been independently verified. PineBridge Investments does not approve of or endorse any re-publication or sharing of this material. You are solely responsible for deciding whether any investment product or strategy is appropriate for you based upon your investment goals, financial situation and tolerance for risk.
For additional legal and regulatory information related to PineBridge offices and countries, please refer to our Regulatory Disclosures.
PineBridge Investments is a group of international companies that provides investment advice and markets asset management products and services to clients around the world. PineBridge Investments is a registered trademark proprietary to PineBridge Investments IP Holding Company Limited.
Readership: This document is intended solely for the addressee(s) and may not be redistributed without the prior permission of PineBridge Investments. Its content may be confidential, proprietary, and/or trade secret information. PineBridge Investments and its subsidiaries are not responsible for any unlawful distribution of this document to any third parties, in whole or in part./p>
Opinions: Any opinions expressed in this document represent the views of the manager, are valid only as of the date indicated, and are subject to change without notice. There can be no guarantee that any of the opinions expressed in this document or any underlying position will be maintained at the time of this presentation or thereafter. We are not soliciting or recommending any action based on this material.
Risk Warning: All investments involve risk, including possible loss of principal. If applicable, the offering document should be read for further details including the risk factors. Our investment management services relate to a variety of investments, each of which can fluctuate in value. The investment risks vary between different types of instruments. For example, for investments involving exposure to a currency other than that in which the portfolio is denominated, changes in the rate of exchange may cause the value of investments, and consequently the value of the portfolio, to go up or down. In the case of a higher volatility portfolio, the loss on realization or cancellation may be very high (including total loss of investment), as the value of such an investment may fall suddenly and substantially. In making an investment decision, prospective investors must rely on their own examination of the merits and risks involved.
Performance Notes: Past performance is not indicative of future results. There can be no assurance that any investment objective will be met. PineBridge Investments often uses benchmarks for the purpose of comparison of results. Benchmarks are used for illustrative purposes only, and any such references should not be understood to mean there would necessarily be a correlation between investment returns of any investment and any benchmark. Any referenced benchmark does not reflect fees and expenses associated with the active management of an investment. PineBridge Investments may, from time to time, show the efficacy of its strategies or communicate general industry views via modeling. Such methods are intended to show only an expected range of possible investment outcomes, and should not be viewed as a guide to future performance. There is no assurance that any returns can be achieved, that the strategy will be successful or profitable for any investor, or that any industry views will come to pass. Actual investors may experience different results.
Information is unaudited unless otherwise indicated, and any information from third-party sources is believed to be reliable, but PineBridge Investments cannot guarantee its accuracy or completeness.
This document and the information contained herein does not constitute and is not intended to constitute an offer of securities or provision of financial advice and accordingly should not be construed as such. The securities and any other products or services referenced in this document may not be licensed in all jurisdictions, and unless otherwise indicated, no regulator or government authority has reviewed this document or the merits of the products and services referenced herein. This document and the information contained herein has been made available in accordance with the restrictions and/or limitations implemented by any applicable laws and regulations. This document is directed at and intended for institutional and qualified investors (as such term is defined in each jurisdiction in which the security is marketed). This document is provided on a confidential basis for informational purposes only and may not be reproduced in any form. Before acting on any information in this document, prospective investors should inform themselves of and observe all applicable laws, rules and regulations of any relevant jurisdictions and obtain independent advice if required. This document is for the use of the named addressee only and should not be given, forwarded or shown to any other person (other than employees, agents or consultants in connection with the addressee’s consideration thereof).
Disclosures by location:
Australia: PineBridge Investments LLC is exempt from the requirement to hold an Australian financial services license under the Corporations Act 2001 (Cth) in respect of the financial services it provides to wholesale clients, and is not licensed to provide financial services to individual investors or retail clients. Nothing herein constitutes an offer or solicitation to anyone in or outside Australia where such offer or solicitation is not authorised or to whom it is unlawful. This information is not directed to any person to whom its publication or availability is restricted.
Brazil: PineBridge Investments is not accredited with the Brazilian Securities Commission - CVM to perform investment management services. The investment management services may not be publicly offered or sold to the public in Brazil. Documents relating to the investment management services as well as the information contained therein may not be supplied to the public in Brazil.
Chile: PineBridge Investments is not registered or licensed in Chile to provide managed account services and is not subject to the supervision of the Comisión para el Mercado Financiero of Chile (“CMF”). The managed account services may not be publicly offered or sold in Chile.
Colombia: This document does not have the purpose or the effect of initiating, directly or indirectly, the purchase of a product or the rendering of a service by PineBridge Investments ("investment adviser") to Colombian residents. The investment adviser’s products and/or services may not be promoted or marketed in Colombia or to Colombian residents unless such promotion and marketing is made in compliance with decree 2555 of 2010 and other applicable rules and regulations related to the promotion of foreign financial and/or securities related products or services in Colombia. The investment adviser has not received authorisation of licensing from The Financial Superintendency of Colombia or any other governmental authority in Colombia to market or sell its financial products or services in Colombia. By receiving this document, each recipient resident in Colombia acknowledges and agrees that such recipient has contacted the investment adviser at its own initiative and not as a result of any promotion or publicity by the investment adviser or any of its representatives. Colombian residents acknowledge and represent that (1) the receipt of this presentation does not constitute a solicitation from the investment adviser for its financial products and/or services, and (2) they are not receiving from the investment adviser any direct or indirect promotion or marketing of financial products and/or services. Marketing and offering of products and/or services of a foreign financial [or securities related] entity represented in Colombia.
Promoción y oferta de los negocios y servicios de la entidad del mercado de valores del exterior [o financiera, según sea el caso] representada en Colombia.
Dubai: PineBridge Investments Europe Limited is regulated by the Dubai Financial Services Authority as a Representative Office and is making this document available to you. This document is intended for sophisticated/professional investors only and no other Person should act upon it.
Germany: This material is issued by PineBridge Investments Deutschland GmbH, licensed and regulated by the Bundesanstalt für Finanzdienstleistungsaufsicht (BaFin).
Hong Kong: The issuer of this document is PineBridge Investments Asia Limited, a company incorporated in Bermuda with limited liability, licensed and regulated by the Securities and Futures Commission (SFC). This document has not been reviewed by the SFC.
Ireland: When this document is issued in the EEA, unless stated otherwise, it is approved and issued by PineBridge Investments Ireland Limited, licensed and regulated by the Central Bank of Ireland.
Israel: PineBridge Investments is neither licensed nor insured under the Israeli Investment Advice Law.
Japan: This document is not, and under no circumstances is to be considered as, a public offering of securities in Japan. No registration pursuant to Article 4 paragraph 1 of Japan’s Financial Instruments and Exchange Act (“FIEA”) has been or will be made with respect to any solicitation of applications for acquisition of interests of any vehicle or any account that may be undertaken, on the grounds that any such solicitation would constitute a “solicitation for qualified institutional investors” as set forth in Article 23-13, paragraph 1 of the FIEA. In Japan, this document is directed at and intended for qualified institutional investors (as such term is defined in Article 2, paragraph 3, item 1 of the FIEA; “QIIs”). If any offering is to be made, that would be made on the condition that each investor enters into an agreement whereby the investor covenants not to transfer its interests (i) to persons other than QIIs, or (ii) without entering into an agreement whereby the transferee covenants not to transfer its interests to persons other than QIIs.
Kuwait: The offering of any security in any vehicle has not been approved or licensed by the Kuwait Capital Markets Authority or any other relevant licensing authorities in the State of Kuwait, and accordingly does not constitute a public offer in the State of Kuwait in accordance with Law no. 7 for 2010 regarding the Establishment of the Capital Markets Authority and the Regulating Securities Activities (“CMA Law”). This document is strictly private and confidential and is being issued to a limited number of professional investors: A) who meet the criteria of a Professional Client by Nature as defined in Article 2-6 of Module 8 of the Executive Regulations No. 72 of 2015 of the CMA Law; B) upon their request and confirmation that they understand that the securities have not been approved or licensed by or registered with the Kuwait Capital Markets Authority or any other relevant licensing authorities or governmental agencies in the State of Kuwait; and must not be provided to any person other than the original recipient, and may not be reproduced or used for any other purposes whatsoever.
Malaysia: PineBridge Investments Malaysia Sdn Bhd is licensed and regulated by Securities Commission of Malaysia (SC). This material is not reviewed or endorsed by the SC.
Netherlands: PineBridge Investment Ireland Limited, Netherlands Branch is licensed and regulated by The Dutch Authority for the Financial Markets (AFM). This is a branch office of PineBridge Investments Ireland Limited, licensed and regulated by the Central Bank of Ireland.
Peru: Specifically, the Interests will not be subject to a public offering in Peru. The Interests described herein have not been and will not be approved by or registered with the Peruvian Superintendency of Capital Markets (Superintendencia del Mercado de Valores, or the “SMV”) or the Lima Stock Exchange (Bolsa de Valores de Lima). Accordingly, the Interests may not be offered or sold in Peru except, among others, if such offering is considered a private offer under the securities laws and regulations of Peru. The Interests cannot be offered or sold in Peru or in any other jurisdiction except in compliance with the securities laws thereof. In making an investment decision, institutional investors (as defined by Peruvian law) must rely on their own examination of the terms of the offering of the Interests to determine their ability to invest in the Interests. All content in this document is for information or general use only. The information contained in this document is referential and may not be construed as an offer, invitation or recommendation, nor should be taken as a basis to take (or stop taking) any decision. This document has been prepared on the basis of public information that is subject to change. This information may not be construed as services provided by PineBridge Investments within Peru without having the corresponding banking or similar license according to the applicable regulation.
Singapore: PineBridge Investments Singapore Limited is licensed and regulated by the Monetary Authority of Singapore (MAS). In Singapore, this material may not be suitable to a retail investor. This advertisement or publication has not been reviewed by the MAS.
Sweden: PineBridge Investments Ireland Limited Sweden filial is licensed and regulated by Finansinspektionen. This is a branch office of PineBridge Investments Ireland Limited, licensed and regulated by the Central Bank of Ireland.
Switzerland: This material is issued by PineBridge Investments Switzerland GmbH and classes this communication as a financial promotion which is intended for Institutional and Professional clients as defined by the Swiss Federal Financial Services Act ("FinSA") and its implementing ordinance, the Federal Financial Services Ordinance ("FinSO"). PineBridge Investments Switzerland GmbH is affiliated with the Swiss Chambers’ Arbitration Institution (SCAI), 4, boulevard du Théâtre, P.O. Box 5039, 1211 Geneva 11, Switzerland, Tel: +41 (0)22 819 91 57.
Taiwan: PineBridge Investments Management Taiwan Ltd. Is licensed and regulated by Securities and Futures Bureau of Taiwan (SFB). In Taiwan, this material may not be suitable to investors and is not reviewed or endorsed by the SFB.
United Kingdom: This material is issued by PineBridge Investments Europe Limited, licensed and regulated by the Financial Conduct Authority. In the UK this communication is a financial promotion solely intended for professional clients as defined in the FCA Handbook and has been approved by PineBridge Investments Europe Limited. Should you like to request a different classification, please contact your PineBridge representative.
In the UK, this material may also be issued by PineBridge Benson Elliot LLP, registered in England (company number OC317119) with its registered address at 50 Hans Crescent, London, SW1X 0NA. PineBridge Benson Elliot LLP is authorised and regulated by the Financial Conduct Authority.
Uruguay: The sale of the securities qualifies as a private placement pursuant to section 2 of Uruguayan law 18.627. The issuer represents and agrees that it has not offered or sold, and will not offer or sell, any securities to the public in Uruguay, except in circumstances which do not constitute a public offering or distribution under Uruguayan laws and regulations. The securities are not and will not be registered with the Central Bank of Uruguay to be publicly offered in Uruguay. The securities correspond to investment funds that are not investment funds regulated by Uruguayan law 16,774 dated 27 September 1996, as amended.
Last updated 3 June 2021