RETAIL UPDATE: Tough year ahead for European grocers

New Verdict research highlights six main areas of grocery retailing to be adversely affected by downturn.
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The European grocery market grew considerably in 2008, with most of this driven by inflation due to exceptionally high oil prices and agricultural raw material price increases, according to a new report from Verdict Research.

However, the study - European Grocery Retailers 2009 - says that both trends have now reversed and, coupled with the increased pressure from discounter chains such as Aldi and LDL, will lead to significant easing in grocery prices in Europe this year.

"While grocers are to a certain extent insulated against the downturn that is severely hurting the rest of the retail sector, the effects of the credit crunch and the onset of the global recession will still be felt across the European grocery market," said Daniel Lucht, European retail analyst at Verdict.

Several grocers have suffered declining sales growth of their organic ranges, says the report, while non-food ranges are no longer pulling in customers as they used to and their is a slump in demand for home-related product.

Marketing activity and investments such as store refurbishment have been put on the back burner.

However, despite this Verdict believes that there are still opportunities in the market. Significant chances lie in ramping up private label development, gaining more effciencies in buying and supply chains, cutting unnecessary costs, lateral diversification and in green retailing.

In the post credit crunch era, the report says that organics will be one of the first sectors to bounce back.

"Retailers with the necessary financial muscle should not let this crisis go to waste without emerging far stronger from it," said the report's author, Simon Chinn.

The report comes a day after Tesco reported its smallest Christmas sales rise since 1993 (click here for full story). However, Sainsbury's reported its best ever Christmas last week.

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