Retail Insights and How to Win in 2025

Why This Matters Now

Once a reliable channel for volume and margin growth, the supermarket sector has changed fundamentally. What used to be a predictable industry with stable cost models and well-established routines is now characterised by shifting consumer habits, margin pressure, and operational complexity. Discounters have reset price expectations, online channels have disrupted traditional sales patterns, and inflation has exposed the fragility of long-standing cost structures.

For FMCG companies, these shifts are not temporary. They require a fundamental rethink of how to engage with retailers, how portfolios are managed, and how value is created across the supply chain. Senior leaders can no longer rely on strategies optimised for a pre-COVID world or assume growth will return through previous channels. The winners will be those who understand the structural nature of the change, anticipate retailer needs before they are made explicit, and allocate investment to the capabilities that matter most—channel-ready innovation, operational flexibility, or collaborative data.

This is happening at a time when FMCGs are struggling with the paradigm change in returns they are experiencing, with the pre-2010 economics being a distant memory.

The Shifting Retail Landscape: From Predictability to Volatility

From 2003 to 2018, most European supermarket markets followed a consistent growth pattern, i.e., annual growth of 2 to 4 per cent, with margins preserved through disciplined cost control. The model depended on careful volume planning and steady consumer demand for retailers and FMCG suppliers.

That period of relative calm has ended. First came the market disruption caused by Discounters, who challenged price structures and shopper expectations. Then, COVID-19 triggered a temporary swing to in-home consumption and online retail, placing further strain on store-based retailers. When inflation followed, it did not just impact shopper budgets; it destabilised cost structures in energy, transport, labour, and raw materials.

What’s changed is the degree of volatility in both revenue and cost lines. For full-service supermarkets operating at slim margins, a sudden rise in input costs can convert a barely profitable store into a loss-making one. This has introduced greater pressure on FMCG firms' promotional efficiency, range productivity, and cost-to-serve. Structural cost inflation means both manufacturers and retailers must revisit their operating assumptions. The challenge now is not just growing sales but retaining any margin.

The Rise of the Discounters: Lessons from Market Disruption

Over the past 15 years, the rise of Discounters has forced a reset in retail dynamics. Their value proposition (limited range, low prices, and efficient store formats) has proven deeply appealing to price-conscious shoppers. In markets like Germany, this trend started early; elsewhere, incumbents underestimated the impact.

The core mistake was a delay. Full-service supermarkets were slow to respond, attempting to protect profitability rather than preparing for structural margin pressure. In response to market share erosion, some eventually cut costs and adjusted pricing, but this typically came after customer loyalty had already shifted.

For FMCG leaders, the key lesson is about simplicity and value clarity. Discounters succeed not only because of price but because of operational focus. They carry fewer SKUs, limit supplier complexity, and concentrate on customers' wants. This has implications for how brands position themselves, which SKUs they prioritise, and how they justify their space on the shelf.

The disruption caused by Discounters also catalysed a broader shift: from supplier-led range planning to customer-led assortment strategies. The days of securing shelf space through promotional funding alone are over. What wins now is evidence of shopper relevance and commercial efficiency.

Format Evolution: What Customers Want Has Changed

The hypermarket was once the flagship of large-scale retail, but now has lost ground. Customers are less inclined to plan weekly trips, drive to out-of-town centres, and spend time navigating 10,000-square-metre stores. Time poverty, declining car ownership, and proximity-based living have shifted demand toward smaller, urban formats.

Retailers have responded by focusing growth on supermarkets in the 1,000 to 2,000 square metre range. This format allows for a curated range at an efficient cost structure and has become the sweet spot for balancing customer expectations with operational viability. Notably, this is also the footprint Discounters use, giving them a format advantage.

For FMCG companies, format changes require tighter range editing and pack-size alignment. Large-pack formats suited for hypermarkets may no longer be relevant. Channel-specific innovation, in terms of product and execution, becomes critical to meeting shopper needs while maintaining retail partnerships.

From Supplier-Led to Customer-Led: Rebuilding Value in the Aisle

Historically, many retailers relied on supplier funding models that prioritised listing fees and promotional income. This led to complex ranges often driven more by supplier pressure than shopper need. Over time, this model created inefficiencies, with too many SKUs contributing too little value.

Retailers have increasingly recognised that overstocked shelves confuse shoppers and inflate costs. Moves like Tesco’s "range reset,” which cut 30–40% of SKUs in some categories, indicate a broader shift. Retailers are reclaiming control of their assortment strategy, focusing on customer relevance, basket simplicity, and supply chain efficiency.

This has direct implications for FMCG firms. The conversation with buyers is no longer just about share of shelf or promotional calendar (it must be about category growth, shopper logic, and operational efficiency). Commercial teams must be prepared with data showing what each SKU contributes in value, not just volume. They must also decide what to remove, not just what to add.

Winning suppliers will help simplify the range while enhancing its appeal. That means focusing on core SKUs, rigorously validating innovation, and ensuring each item earns its place.

The Digital and Omnichannel Challenge: Moving Beyond Silos

Once a small and marginal channel, online grocery has become a central part of retail strategy. Accelerated by the COVID-19 period, online now represents a significant volume share in many markets. However, the growth in digital has not always come with profitability.

For retailers, the challenge has been integrating online and physical store operations into a coherent and sustainable model. Too often, digital initiatives are bolted onto legacy systems, creating disjointed customer experiences and internal inefficiencies. This presents both a challenge and an opportunity for FMCG companies.

By ensuring consistent product data, ecommerce-ready content, optimised pack formats for fulfilment, and shopper marketing adapted to digital browsing, those that support their retail partners across channels stand to gain. Success in omnichannel requires breaking internal silos as well. Trade marketing, ecommerce, and field sales must operate with shared objectives and unified plans.

Omnichannel also changes how products are evaluated. Online visibility is not about shelf height but search relevance and image clarity. Execution must account for algorithms, delivery constraints, and customer review dynamics. C-suite leaders in FMCG firms must ensure that digital capability is treated as a core function, not a support role.

Consolidation and Buyer Power: What This Means for Negotiation

Retail consolidation is not limited to individual banners acquiring one another. Increasingly, European retailers align through international buying groups, giving them more leverage in supplier negotiations. These groups coordinate pricing, promotion, and range decisions across borders, reducing supplier flexibility.

This alters the commercial landscape. A pricing decision in one market can now affect access in several others. National account teams may no longer be the only, or even the primary, decision-makers. FMCG firms must develop a more centralised approach to managing key retailer groups, aligning pricing corridors, and preparing for multi-market deal structures.

The strategic implication is clear: negotiation now requires deeper coordination, stronger internal governance, and a long-term perspective on value exchange. Attempting to manage these relationships purely locally risks fragmentation and loss of influence.

Sustainability: A Strategic Requirement, Not a Differentiator

Sustainability has moved from a brand choice to a regulatory necessity. Retailers face government pressure to reduce emissions, eliminate waste, and meet strict reporting standards, including Scope 1, 2, and 3. They expect suppliers to share the burden and provide evidence of compliance.

This creates both operational demands and reputational exposure for FMCG companies. Retailers want carbon data, recyclable packaging, and sustainable sourcing without expecting customers to pay more. Brands that fail to meet these standards may be excluded from ranges or penalised in negotiations.

The challenge is practical: how to absorb the cost of sustainability investments while maintaining competitiveness. This will require cross-functional coordination, from R&D and procurement to marketing and finance. It also requires external communication strategies that educate shoppers without sounding defensive or self-congratulatory.

C-suite leaders must see sustainability not as a campaign, but as a core part of supply chain and product strategy. Retailers are not waiting, and those delivering compliance-ready, low-impact products will gain preferential treatment.

What Winning Looks Like: Priorities for FMCG C-suites

FMCG leaders need to act decisively to succeed in this reshaped retail environment. Portfolios must be simplified, with each SKU justified by its shopper role and commercial contribution. Commercial models must shift from short-term promotion funding to long-term value partnerships grounded in customer impact and efficiency.

Omnichannel must be treated as a strategic priority, not a side project. Digital capabilities should be integrated into core sales and marketing processes. Sustainability efforts should not be deferred. They must now be built into supply chains and innovation pipelines.

Success will come from focus, discipline, and navigating structural change before it becomes urgent. Those who invest ahead of the curve, in digital, sustainability, and range discipline, will shape the market rather than chase it.

Final Thought: Prepare for Structural Change, Not Cyclical Noise

It is tempting to see current challenges like cost inflation, changing formats, and digital disruption as short-term noise. However, the evidence points to structural shifts in how customers shop, how retailers operate, and how value is created.

FMCG leaders must resist the lure of waiting for things to "normalise." This is the new normal. It requires a new strategy, an operating model, and a new way of engaging with retailers. The choice is not whether to change but how quickly and decisively to move.