Future-Proofing Grocery: AI, Labels & Loyalty – Insights from The State of Grocery Retail 2025

Jul 29, 20254 min read

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Executive TL;DR

In 2025, European grocery retail stabilizes—but bold action is required.

Core headwinds: Flat volumes, squeezed margins, digital CX lag
Top performers: Northern + Southern Europe, discounters, tech-mature chains
Strategic levers: AI adoption, private brand elevation, retail media monetization
Consumer unlocks: Gen Z loyalty, health-forward convenience, local relevance

Executive Overview

As 2025 unfolds, the European grocery sector finds itself navigating a fragile equilibrium between recovery and reinvention. Volume growth remains flat at 0.2% across the region, while operating margins continue to tighten under the weight of inflation, labor costs, and sustainability investments. This pressure forces retailers to strike a delicate balance: meeting Gen Z’s expectations for health, convenience, and hyper-personalization, while maintaining value for legacy shoppers in an inflation-weary economy.

Growth will favor those who differentiate—through branded private labels, digital innovation, and agile operations. Regional divergence is widening, with Northern and Southern Europe showing more momentum than Central and Eastern regions. Sector consolidation is accelerating. Leaders must act now to defend market share, margin, and relevance — or risk obsolescence.

Top 10 Strategic Insights

Flat volume growth (0.2%) through 2030 – Grocers must pursue margin through innovation, category expansion, and brand elevation (p.14).
Private label share to reach 42% by 2030 – Labels are evolving into strategic private brands with in-house product and design teams (p.16).
Gen Z’s healthy food intent up 7 pts YoY – Fresh, clean-label, and functional foods are defining next-gen preference (p.18).
77% of Gen Z buys food-to-go monthly – This segment is expected to grow 2x faster than total grocery by 2030 (p.19).
Only 10% of retailers scale AI effectively – Those who do achieve 2.9x higher TSR, driven by adoption of AI across talent, processes, and data governance (p.22, Fig.14).
Retail media to reach €41B by 2030 – Now Europe’s fastest-growing non-core profit stream (p.23, Fig.15).
Scope 3 emissions = top ESG cost risk – CSRD/EUDR compliance requires precision decarbonization (p.20).
>30% increase in M&A since 2020 – Scale through cross-border synergies is vital for margin defense and ESG alignment (p.21, Fig.13).
Only 1 in 4 consumers feel personalization is working – AI-led CX is still underleveraged (p.20).
84% of consumers will keep buying private labels despite higher income – Loyalty is shifting from A-brands to value-based differentiation (p.16).

Three Growth Imperatives for 2025

1. Brand-Led Differentiation via Private Labels and Category Expansion

Private label strategy is no longer about margin — it’s about brand power. Market leaders are evolving labels into full-fledged brands with proprietary products, packaging design, and concept development. Retailers like Albert Heijn lead this shift with products like the award-winning AH Sprank apple, boosting exclusivity and loyalty.

High-growth categories include fresh, healthy, and functional foods — segments where Gen Z leads demand. Retailers are also reclaiming share from foodservice through premium ready-to-eat and heat-and-serve meals tailored for the “no-cook generation.” Food-to-go, in particular, is projected to grow twice as fast as total grocery by 2030.

2. Monetizing Data and Tech for Profit and Personalization

Technology is now central to profitability. But only 10% of grocery retailers successfully scale AI — and those that do earn 2.9x higher shareholder returns. The key isn't just infrastructure — it’s execution: hiring AI-native talent, modernizing governance, and embedding intelligence into the operating model.

Retail media, projected to hit €41B by 2030, is emerging as the most lucrative non-grocery revenue stream. Grocers are integrating GenAI to streamline campaign creation and optimize monetization. Kesko exemplifies data-led execution, using AI to support franchisees and tailor CX. Albert Heijn’s evolution into a “food and tech company” is evident through its five million monthly app users.

3. Responding to Generational Shifts and Regional Fragmentation

Gen Z is transforming the consumption map. Their preference for healthy, personalized, and fast options demands local assortments, functional SKUs, and omnichannel flexibility. The loyalty shift toward private brands — even among affluent buyers — signals a lasting redefinition of customer expectations.

Grocers must also address geographic fragmentation. Countries like Italy require hyper-local strategies, with tailored assortments across regions. Meanwhile, expectations for delivery speed, frictionless checkout, and even voice-activated ordering are reshaping fulfillment models.

Market Forces Shaping 2025

Tech Maturity AI and automation are no longer optional. Top performers now invest over half their AI budgets into activation, not infrastructure (p.22).

Consumer Adoption Retail media and digital loyalty tools are scaling, but Gen Z demands seamless, cross-platform experiences (p.23).

Compliance Pressures Scope 3 emissions and CSRD/EUDR mandates require granular sustainability strategies (p.20).

Competitive Heat Margins have dropped from 6.9% to 6.2% (2019–2024) as discounters and digital-first players disrupt the legacy model (p.21).

Strategic Investment Retailers like Kesko, Selex, and Albert Heijn are prioritizing long-term bets on tech, CX, and talent — even before profits follow (p.26–31).

Regional Landscape Snapshot

Northern and Southern Europe show the strongest volume growth (0.4–0.5% CAGR), while Central and Eastern Europe declines at –0.3% (p.15, Fig.7). Discounters command 23.2% market share (p.9), and their continued rise is forcing legacy chains to adopt faster, leaner models. Kesko and Albert Heijn are scaling through private label innovation, loyalty tech, and fast convenience formats. M&A will remain a core lever for scale and resilience.

Risk & Fragility Zones

Scope 3 Emissions (High–High): Misaligned decarbonization plans risk heavy cost exposure (p.20).
Margin Compression (High–High): Inflation, wage inflation, and flat demand squeeze EBIT (p.21).
Tech ROI Gaps (Medium–High): 90% of AI pilots fail due to lack of cross-functional investment (p.22).
Gen Z Churn (Medium–Medium): Failing to localize and personalize CX may forfeit next-gen loyalty (p.18–20).
Delayed Fulfillment (High–Medium): Grocers who delay fast delivery risk losing high-frequency missions to digital platforms (p.35–36).