E-commerce is shifting how European grocery retailers seek profitable growth

Reaching profitability in online grocery continues to be a challenge for retailers. Compared to store-based business models, even leading e-grocery players have been struggling to be profitable, particularly while trying to expand. The ongoing need for investments in operational infrastructure, technology, and so on that are required to keep increasing capacity and staying competitive makes it difficult to improve profitability, even over time.

McKinsey identified three key pathways to profitability:

  1. Purely online players are offering highly tailored customer value propositions, such as value-focused assortments and service levels, fresh meal kits, and farm-to-table concepts.
  2. Online giants and marketplaces are adding groceries to their offerings to support the overall profitability of the ecosystem by driving traffic and engagement.
  3. Traditional incumbent retailers are rethinking the value propositions that they bring to customers through expanding their online assortments, increasing private-label penetration, doubling down on customer experience, and other methods.

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