European Commercial – April 2021 European Food and SPOTLIGHT Savills Research Groceries Sector Photo by Nico Smit on Unsplash Consumer trends Occupier demand Food sector trends Investment activity European Food and Groceries Sector TABLE OF CONTENTS Figure 1: Consumer confidence remains downbeat whilst precautionary saving remains high • Grocery performance bucks wider consumer 30.00 trends p.2 20.00 • United Kingdom: Strong occupational growth set 10.00 to continue p.5 • France: Covid-19 has 0.00 seen significant improvement in -10.00 performance for the top 10 foodstore operators -20.00 p.7 negative) versus positive (% replies of Balance -30.00 • Spain: Mercadona Q1 Q2 Q3 Q4 Q1 Q2 Q3 Q4 Q1 Q2 Q3 Q4 Q1 Q2 Q3 Q4 Q1 Q2 Q3 Q4 Q1 Q2 Q3 Q4 Q1 Q2 Q3 Q4 Q1 Q2 Q3 Q4 Q1 Q2 Q3 Q4 Q1 Q2 Q3 Q4 Q1 Q2 Q3 Q4 Q1 remains dominant in the 2010 2011 2012 2013 2014 2015 2016 2017 2018 2019 2020 2021 market in what has been Year/Quarter a positive year for all Average of Confidence Indicator Average of Financial situation over last 12 months foodstore operators p.8 Average of Financial situation over next 12 months Average of Savings at present Average of Savings over next 12 months Average of Statement on financial situation of household • Italy: Domestic brands dominate the market, Source: European Commission Directorate-General for Economic and Financial Affairs giving them the confidence to expand as performance improves Grocery performance bucks p.9 • Germany: Some of the wider consumer trends best proportional uplift in operator performance Consumer confidence remains suppressed; however, the grocery across Europe doesn’t sector shows strong resilience. The key question remains, how to convince retailers to predict consumer behaviour in the new normal. expand their portfolios p.10 Consumer confidence at its regard to the financial situation Savings ratios rise, improving lowest point since the global across each of the European consumer perception of • How are food retailers financial crisis (GFC), but nations. At the outset of the personal finances coping with the rise of sentiment tentatively improves pandemic, sentiment fell by 8.6% In response to the trepidation online? p.11 Since Covid-19 took hold from a positive outlook of 0.7% toward national finances and in March 2020, we have seen to a negative feeling at -7.8%. the fall in consumer confidence • Pure players and new consumer confidence fall into However, at the end of Q1 2021, brought about by Covid-19, it concepts p.12 negative territory across Europe, consumer opinion on national has been of no surprise that • In-store experience and akin to levels last seen in 2012 finances has shown a marked precautionary saving has also other trends p.15 during the GFC. In Q2 2020, at improvement and currently dramatically increased over the the onset of the pandemic, figures stands at -2.9%. This suggests last 12 months. Average ‘Savings • The impact of changing dropped by close to 1,000 basis that consumers across Europe at present’ rose considerably from consumer habits on points to -18.5%, from -8.6% we believe we are perhaps through a position of 7.9% in Q1 2020 to a foodstore operators’ saw the previous quarter. This the worst of the pain financially, decade high of 23.8% by Q1 2021; space requirements p.17 is the lowest it has fallen since in response to Covid-19, and that the financial difficulties associated Q4 2012, in the midst of the last financial security should improve with the global recession clearly • The food and groceries global recession when consumer somewhat, albeit tentatively, as living long in the memory, sector is becoming the confidence stood at -21.73%. the difficulties associated with the resulting in consumers opting new core in retail The decline in confidence has, pandemic continue to linger into to err on the side of caution with investment p.18 unsurprisingly, been matched this year. regard to their personal finances. • Summary and key by consumer sentiment with One positive upshot of this takeaways p.20 We could see a portion of consumers opt to spend more enthusiastically, driven by the pent-up demand following the last 12 months of heightened savings. savills.com/research 2 European Food and Groceries Sector At the end of Q1 behaviour, however, has been the Europe and lockdowns begin to likely to see a ‘normal distribution’ 2021, consumer consequential effect of the financial ease. Low consumer confidence in statistical terms, rather than a opinion on national security of individual consumer and job uncertainty are expected full swing in either direction that finances has shown improvement and household finances. It may seem to uphold high personal saving favours either a position of caution stood at -2.9%. counter-intuitive, but in the period ratios until well into 2021, or one of avidity. The majority where both consumer confidence fostering a much more cautious of consumers will undoubtedly and perception of national finances approach to spending for some. tighten their belts and restrict fell, the average statement on the Figure 2 highlights how average spending in some sectors, only financial situation of households unemployment expectations to increase their expenditure in continued to rise steadily, as it has rose exorbitantly in Q2 2020 as others, thus sitting somewhere been doing for the last few years. Covid-19 became globally apparent. between the two extremes of the Consumer perception was at 16.8% The balance of public perception consumer spending spectrum. at the start of the pandemic and more than tripled from 16.2% at the Average ‘Savings at has risen to 19.5% by the beginning beginning of the year to 57.8% by Retail sales – opposite fortunes present’ rose of the New Year. Although only the beginning of March. Although for groceries and fashion considerably from a modest climb, the continued this position has been steadily It is fair to say, however, we a position of 7.9% gradual upward trajectory suggests falling ever since, as European have indeed seen a significant in Q1 2020 to a that with a dramatic increase in governments introduced their polarisation in trading results by decade high of precautionary saving, brought own measures of financial support subsector over the previous 12 23.8% by Q1 2021. about by long periods of national for businesses and their working months. While spend across more lockdown and a reduction in populations, it still remains high at pandemic sensitie segments such as our daily expenditure, overall 47.4% at the end of Q1 2021. fashion, travel and eating out have consumers believe their personal Conversely, that being said, we been suppressed, it has fostered finances have somewhat improved, could see a portion of consumers growth opportunities across other despite the financial difficulties opt to spend more enthusiastically, sectors, with grocery emerging as in their wider economies and driven by the pent-up demand one of the biggest beneficiaries. Despite the sharp the subsequent retraction in the following the last 12 months Figure 3 highlights a decline in decline of retail confidence of the consumer. of heightened savings, as we total retail sales growth across sales growth across steadily relax lockdown and social Europe in 2020 as the impact Europe in 2020, Unemployment expectations are distancing measures throughout of the pandemic took hold and food and grocery high, but pent-up demand will Europe. As a result, GlobalData is consumer confidence began to fall. sales increased by drive consumer spending anticipating European consumer The average growth rate across 7.5%. We could, therefore, witness spend on all retail goods to all European area countries fell by consumer spending behaviour increase by 0.8% in 2021, compared more than half, from 3.9% in 2019 to swing in two directions this to the year prior. When it comes to only 1.7% in 2020. By comparison, summer as the vaccination consumer spending behaviour, we clothing and footwear sales have programme continues across are, in reality, therefore much more been one of the worst affected Figure 2: Average of unemployment expectations in Europe over next 12 The online growth months have been faling but remain high rate of the grocery sector went up 70 from 19.5% in 2019 to 56.1% in 2020. 60 50 40 30 20 The online share of 10 Food & Drink jumped from 3.4% 0 to 5.3% on average negative) versus positive (% replies of Balance across Western -10 Europe and is Q1 Q2 Q3 Q4 Q1 Q2 Q3 Q4 Q1 Q2 Q3 Q4 Q1 Q2 Q3 Q4 Q1 Q2 Q3 Q4 Q1 Q2 Q3 Q4 Q1 Q2 Q3 Q4 Q1 Q2 Q3 Q4 Q1 Q2 Q3 Q4 Q1 Q2 Q3 Q4 Q1 Q2 Q3 Q4 Q1 projected to reach 2010 2011 2012 2013 2014 2015 2016 2017 2018 2019 2020 2021 12.6% by 2025. Year/Quarter Average of Unemployment expectations over next 12 months Source: European Commission Directorate-General for Economic and Financial Affairs 3 European Food and Groceries Sector subsectors, sales falling from a in 2020. Even online clothing and Figure 3: Annual European retail sales growth position of 2.8% growth in 2019 to an footwear sales grew despite a fall Online food and grocery sales saw the highest rise -18.7% decline in 2020. in sales in the market overall; those Nevertheless, food and grocery purchases that were made were 60% sales have very evidently bucked largely done so online, and thus 50% that trend and posted the complete e-commerce fashion saw growth of opposite change in fortune over the 16.2% in 2019 rise to 25.6% in 2020 40% last 12 months; sales growth in the across Europe as a whole.