Grocery navigating a new normal

At the decade’s midpoint, Europe finds itself in a more settled place than the one that defined its turbulent early stages. Volatility induced by the pandemic, disruptions to Ukrainian exports, and the spike in energy and fertiliser costs has faded. In its place sits a slower economic landscape in which the traditional relationships between labour markets, incomes and consumption behave less predictably. As a non‑discretionary category, grocery fared better than most, proving resilient through the inflationary cycle, even as some retailers absorbed rising input costs and endured prolonged margin compression to shield consumers. However, the price of that protection is now becoming clear, as long‑run balance sheet implications come into view.

Having successfully steered headline inflation back to target — HICP dipped to 1.9% in December 2025 — the European Central Bank has held the policy rate at 2% since June. Food price growth has cooled to 2.5%, down from 6.1% two years prior, while services inflation (3.4%) now accounts for much of the remaining stickiness. While rate cuts are possible in the near term, their stimulatory effect would likely be modest. Meanwhile, labour markets remain historically tight, with EU unemployment anchored around 6%. The long‑standing assumption that low unemployment translates into stronger consumption has weakened after years of real‑income erosion, leaving households cautious. Savings behaviour reinforces this sentiment; households within the eurozone allocate more to reserves than they used to, with the savings rate at 15.1% at end‑2025 — well above the 2014–19 average of 12.6%, according to Oxford Economics data.

Confidence – slowly improving

While consumer confidence across the EU is improving, it is firmly in negative territory. The European Commission’s index rose to -12.5 in December, a strong recovery from the -27.2 trough in 2022, but still well below neutral. In practice, sentiment has shifted from distress to pessimism. Importantly, this rebound has not fully translated into a willingness to spend, creating a consumer base that is more predictable but less expansive, reflected by retailers’ own sentiment: the retail trade confidence indicator has been fairly flat since 2022, currently -4.8, accentuating the view that any uplift in consumer psychology is incremental and that near‑term spending will likely be modest.

Consumers – changing patterns

Consumers have settled into more restrained behaviour, raising the bar for what feels worth buying and embedding a more intentional approach to grocery spending. Habits formed during the inflation shock — sharper comparisons, demanding transparency, and a readiness to trade down — have stuck. Value now rests as much on predictability and fairness as on price, and shoppers are disciplined in trading down.

The market has also pulled into a clear barbell: value at one end, premium at the other, with the middle continuing to thin. Even in high‑income, consumption‑heavy markets like the Netherlands, discounters expand alongside resilient premium concepts, reflecting purpose‑driven shopping rather than a homogeneous consumer identity.

Private label (PL) goods have been central to change, with 81% of European shoppers rating the products equal to or above A-brands last year, according to McKinsey. Many retailers now operate tiered PL ranges spanning entry-price to premium, allowing tighter control over pricing, quality and supply chains while catering to consumer price sensitivity. In the UK, for instance, private label goods accounted for a record 52% of grocery spending in the twelve weeks to 25 January, with retailers such as M&S Food expanding their offer by adding 100 new, larger-format “Bigger Pack, Better Value” lines to better target family shoppers.

Food sales – low growth

Europe’s food and grocery market, valued at roughly €2.1 trillion, has expanded at a five‑year CAGR of 4.6% in nominal terms. Annual growth of around 2.6% is expected through 2030 to surpass €2.3 trillion. This is, however, largely an inflation story rather than a meaningful volume one. In 2025, the sector outperformed other major retail categories, recording 3.1% nominal growth compared with 1.8% in electricals, 1.4% in fashion, and a retail average of 2.7%, with only health and beauty higher at 4.8%. What is evident is retail market normalisation and recalibration after prolonged volatility.

_{Read the articles within Spotlight: European Grocery Report – Q4 2025 below.}