The European retail industry is on the brink of fundamental shifts. In its annual Future of Retail report, Bain & Company identifies structural trends that will shape the playing field over the next decade. The analysis, based on data from S&P Capital IQ, Euromonitor and Bain's own Shopper Pulse Survey among 7084 European consumers, among others, outlines the technological developments and shifts in consumer behaviour that will shape the retail sector in the coming years.
The AI assistant for back-end and consumer
Core processes such as pricing, promotions and inventory management are becoming increasingly automated. Those who miss out on this technological revolution are losing margin and market share to more efficient competitors. Bain concludes that the advance of consumer AI assistants is putting pressure on brand loyalty. Product information must therefore be structured not only SEO-friendly, but also "AI-agent-friendly".
"Beyond trade" becomes profit engine
Retailers are increasingly moving beyond the traditional realm of sales. "Beyond trade" activities include: setting up their own retail media where advertisers pay to get visibility; third-party marketplaces where retailers facilitate sales from third-party sellers; providing financial services such as insurance or consumer payment solutions; and logistics services such as B2B distribution capacity rental and data monetisation.
These ancillary businesses grew to 10% to 15% of sales in three years, but they already account for 25% of total profits. It enables retailers to tap into new revenue models and reduce their reliance on price-sensitive trading.
Private brands gaining ground
Private brands are no longer budget alternatives, but offer retailers important strategic diversification and bargaining power. Retailers can increase their own margins as well as appeal to AI agents with exclusive products.
At the same time, retailers are forced to drastically rethink their physical footprint. In the US, 15% of supermarkets could disappear to return to pre-Covid productivity levels, a trend also foreseen for Europe.
Scale becomes cross-border
Digital investments and price pressures demand economies of scale. With 70% of costs in sourcing, international M&A increasingly pays off. Alliances without mergers are also possible, but those who manage to achieve scale build lasting clout.
'Retailers are actively exploring how to best use technology, data and new business models to strengthen and diversify their business. "Beyond trade" activities are prominent on the agenda of our retail clients, as is creating the right tools, ecosystems and operational models to harness the full potential of AI. How energetically and smartly retailers seize these opportunities will be decisive in the coming years, especially given a retail environment that is increasingly competitive and under pressure from falling margins,' Michelle Paratore, Partner at Bain & Company Amsterdam.
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Bain & Company
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