McKinsey research

The 400-billion-euro question: Where is French retail going?

By Christelle Hequet-Cotin and Arnaud Minvielle

French retail has managed to get through a very rough patch. But like a patient who changes his diet after a health scare, the behavior of French consumers has changed markedly, and probably permanently. So where is it going? How is it changing?

Here are three important things to know.

1. The digital consumer has arrived: The number of French consumers buying online has almost doubled over the past five years, to 38 million. Almost three-quarters of Internet users are buying online, compared to just 40 percent in 2006, and online sales are still growing 20 percent-plus a year. The big winners in Internet commerce are travel (19 percent of total spending) and cultural goods (16 percent), while food is still very much an in-person buy (only 2 percent). Mobile purchasing is also rising fast— 171 percent in the last year, to 2.2 billion euros— from a small base. As more retailers offer apps that enable customers to buy with via mobile devices, we expect revenues to grow strongly.

Another important virtual trend is that consumers and retailers both are moving ever more seamlessly between in-store and online shopping. Almost half of French consumers say they use at least two technologies when they buy (touch screen, in store, Internet, mobile) and retailers have definitely noticed.

Although French consumers were slower to join the queue of enthusiastic clickers, in just about every category they are increasingly living in a multichannel world. E-commerce cannot be ignored anymore.

2. The shape of the market is shifting: On the surface it looks like not much is changing. The French grocery market is still highly consolidated, with the top five companies accounting for more than three-quarters of sales. And hypermarkets are still the most important retail channel and are maintaining that position. But dig a little deeper and the signs are there. Between 2010 and 2011, for example, hypermarkets lost a significant slice of the market in do-it-yourself goods (down 7.0 percentage points); small appliances (minus 4.8) and large appliances (minus 2.9). Who is picking up the slack? Specialist retailers and the Internet. Online retail now accounts for more than 6 percent of retail sales.

Also the “Drive” category—or “click and collect,” an option where consumers buy online and then go to the store to pick up their purchases —is seeing real growth, although from a very low base, quadrupling since 2010 to 2.3 percent of total food sales.

3. Consumer priorities are changing: Organic has clearly hit the mainstream: More than six in ten consumers bought at least one organic food product last year. That makes this ever-bigger niche very attractive to conventional grocers. While French consumers say they are comparing prices more than before the economic crisis, a large number (43 percent) say they are willing to pay more for goods from companies with good social practices.

Convenience-oriented stores are also being tested. This sector has great promise in part because of France’s demographics. By 2020, more than a third of the French population will be over 60, and many older people do not want to drive to hypermarkets and haul home bulk items.

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