The European grocery sector is set for dramatic consolidation over the next decade, leaving just half as many large grocers by 2025 compared with today.
That is the message from a new report from consultants Oliver Wyman, out this week, which urges retailers to prepare for a new era of cross-border M&A activity or risk being left behind and forced into a market exit.
At present, there are 25 grocers in Europe with more than €10bn (£7.1bn) each in revenue. “By 2025, we suspect this will have fallen by half - although the survivors will be much, much larger,” the report says.
Traditional grocers in almost every European market were under growing pressure from discounters and new online-focused players; at the same time, food retail consolidation at a national level had run out of room, said report author Nick Harrison, co-leader of the Oliver Wyman European retail practice.
“To drive scale, these companies will need to look at something they probably haven’t looked at before: cross-border consolidation and collaboration.”
The discounters had already embraced this model, and the planned merger between the Netherlands’ Ahold and Belgium’s Delhaize was a sign of things to come, added Harrison. “The key message to retailers now is: accept the landscape has changed. Five years ago, people thought the discounters would disappear again. People have to know the world is changing.”
Cross-border deals would initially be more likely between retailers on the Continent - “because of geographical and cultural proximity” and because these retailers had been exposed to the discounters for longer - but would ultimately also include the UK, Harrison said.
Likely M&A partners for UK grocers could include retailers from the Netherlands, the Nordics and Switzerland. “There’s probably a bit of cluster there in terms of where retailers are at with their CSR programmes, things like sustainability, and the role of own-label offerings,” he said.
As a “pre-trend” to full-on M&A deals, cross-border buying alliances were set to be more common, Harrison said. These are already popular on the Continent, but Morrisons and Booker are the only major UK names using them at the moment, with both part of the AMS group. Retailers not able to build scale through cross-border mega mergers were not necessarily headed for an exit, as there would be space in the market for “nimble local winners, Harrison said. But these would need to have a very clearly differentiated positioning, be it around price, a strong own-label offering or a market-leading “omnichannel ecosystem” such as home delivery, click & collect and shopping apps.