Consumer Packaged Goods Practice

Resetting the
e-commerce model
to achieve profitable
growth in Europe
Winning EU consumer goods players are reprioritizing channels and
markets to drive online sales, shifting to an online-first playbook, and
investing in tech and specialist talent.
This article is a collaborative effort by Isabel Cordoba, Carly Donovan, Max Magni, Jessica Moulton,
and Samantha Phillips, representing views from McKinsey’s Consumer Packaged Goods Practice.

© oatawa/Getty Images

September 2022
 For consumer goods companies in Europe, affected by consumer activities in the metaverse,
e-commerce has gone from a growth opportunity from discovering brands to visiting virtual stores.²
to an imperative. Success rests on an organization’s
ability to push beyond traditional approaches and To understand what it takes to win in Europe, we
innovate. Over the past two years, more-advanced conducted an in-depth survey of 70 e-commerce
players in mature categories (such as fashion and decision makers in consumer goods companies (see
accessories, beauty, consumer durables, and toys) sidebar “About the research”). This effort identified
have increasingly explored new formats (such as live a set of “e-commerce superstars” that outperform
commerce and social commerce). At the same time, on growth relative to others and generate a higher
players in nascent categories, namely food and fast- share of e-commerce sales, all while maintaining
moving consumer goods (FMCG), started to develop the same or higher level of profitability (see sidebar
a winning online-first playbook. “How we define e-commerce superstars”). These
superstars distinguish between offline and online
In the years ahead, fully unlocking growth in models, navigate the complexity of the European
e-commerce will be just as critical. Although landscape, and focus on specific drivers to
offline commerce has begun to bounce back, capture the e-commerce opportunity. Consumer
online channels have enjoyed markedly higher goods companies can use these superstars as a
growth in recent years: mature categories grew blueprint for success to capture a greater share of
about 12 percent in 2021 (1.4 times faster than e-commerce growth.
offline), and nascent categories rose 6 percent
(seven times faster than offline).¹ Given Europe’s
heterogeneous landscape, this growth also varies E-commerce in Europe: A complex
among countries. Beyond the growth potential, the landscape of regional maturity,
role of e-commerce in building privileged consumer category growth, and channel
engagement is becoming more important, from profitability
generating direct-to-consumer (D2C) first-party Europe, like much of the world, saw accelerated
data to engaging digitally with consumer segments digital engagement as a result of COVID-19
in the metaverse. In fact, by 2030, we estimate lockdowns and social-distancing measures. While
that more than 80 percent of commerce could be the US consumer goods e-commerce market

1
E
 uromonitor annual data 2021, e-commerce nonstore value of retail sales across alcoholic drinks, apparel and footwear, beauty and personal
care, consumer health, cooking ingredients and meals, dairy products and alternatives, eyewear, home and garden, home care, hot drinks,
personal accessories, pet care, snacks, soft drinks, staple foods, tissue and hygiene, and toys and games, accessed May 27, 2022.
2
V alue creation in the metaverse: The real business of the virtual world, McKinsey, June 13, 2022.

About the research

In January 2021, we completed our first
annual E-commerce Decision Maker
Survey in Europe. It included responses
from 70 consumer goods executives in
Europe, spanning ten consumer goods
categories. The survey seeks to gauge
the performance of consumer goods
companies in e-commerce via growth
achieved in the channel and investments
across individual subchannels (for
example, Amazon, other pure-play retailers,
omnichannel retailers, emerging platforms,
and direct-to-consumer transactional
websites). The survey also explores
organizational practices to manage this
channel and consumer goods companies’
priorities going into 2022.

2 Resetting the e-commerce model to achieve profitable growth in Europe

How we define e-commerce superstars

In our E-commerce Decision Maker
Survey in Europe, we define “superstars”
as companies that reported above-
industry growth and meaningful scale
without compromising on profitability in
their e-commerce business. Superstars
rank in the top 30 percent of companies
(22 out of 70) on an e-commerce
performance index that considers
a company’s share of e-commerce
sales (55 percent weighting), growth in
e-commerce (30 percent), and profitability
(15 percent), as shown in the exhibit.

Exhibit
Superstars are high-ranking companies in e-commerce share of sales, growth,
Superstars are high-ranking companies in e-commerce share of sales, growth, and profitability.
and profitability.

Online share
55% weight

Superstars

Growth Profitability
30% weight 15% weight

is relatively large and well understood (with 19
percent penetration and approximately 19 percent
growth), each European region is at a different level
of maturity (Exhibit 1).³ Only Northern Europe’s
penetration is similar to that of the United States,
seeing a CAGR of 19 percent from 2019 to 2021.
Southern and Eastern Europe remain relatively
nascent in e-commerce sales; the pandemic
unlocked a more dramatic e-commerce CAGR
of around 27 percent, although online sales
penetration remained at less than 10 percent from
2019 to 2021.

Euromonitor, accessed May 27, 2022.

3

Resetting the e-commerce model to achieve profitable growth in Europe 3

 Exhibit 1

Heterogeneous
HeterogeneousEuropean
Europeanconsumer
consumergoods
goodsmarkets
marketsdemonstrate
demonstratevaried levels
varied of
levels
e-commerce share
of e-commerce of sales
share and and
of sales growth.
growth.

E-commerce share of value sales, 2021, % of consumer goods industry

19 19 13 10 7

United Northern Western Southern Eastern

States Europe¹ Europe² Europe³ Europe⁴

E-commerce CAGR, %
27 27

19 19
16 17
14
12
10
8

2016– 2019– 2016– 2019– 2016– 2019– 2016– 2019– 2016– 2019–
19 21 19 21 19 21 19 21 19 21
1
Finland, Norway, Sweden, and United Kingdom.
2
Austria, Belgium, Denmark, France, Germany, Ireland, Netherlands, and Switzerland.
3
Greece, Italy, Portugal, and Spain.
4
Belarus, Croatia, Czech Republic, Hungary, Poland, Romania, Slovakia, Slovenia, and Ukraine.
Source: Euromonitor annual data 2021, e-commerce nonstore value of retail sales across alcoholic drinks, apparel and footwear, beauty and personal care,
consumer health, cooking ingredients and meals, dairy products and alternatives, eyewear, home and garden, home care, hot drinks, personal accessories, pet
care, snacks, soft drinks, staple foods, tissue and hygiene, and toys and games

The European retailer landscape is also more e-commerce and to grow at rates in the high
fragmented. Of the top five retailers by online double digits. While the past two years of
presence in the EU5,⁴ only Amazon, eBay, accelerated growth—in excess of 40 percent⁵—
MediaMarkt, and Zalando are present in more will eventually slow, these categories have yet to
than two countries. Many of the other leading plateau and should have meaningful headroom
e-commerce retailers are local omnichannel players for growth (given that books, the original online
with a significant brick-and-mortar presence. category, is now about 65 percent online).

Leading categories will continue to grow rapidly — Across food, beverage, and FMCG, we observe
Our research highlights differences in e-commerce two distinct groups. A number of ambient,
growth and maturity for consumer goods not only by stock-up categories with lower penetration,
market but also by category (Exhibit 2). such as shelf-stable food and consumable
household goods, are growing at 15 to 20
— Highly digital categories (defined as apparel percent a year. Meanwhile, beverages and
and accessories, beauty, consumer durables, perishable food—which are still heavily
and toys) continue to lend themselves to dependent on small and less-planned “top-up

France, Germany, Italy, Spain, and the United Kingdom.

4

Versus in-store growth.

5

4 Resetting the e-commerce model to achieve profitable growth in Europe

 Exhibit 2

High-involvement categories,
categories,such
suchas
asapparel
appareland
andtoys,
toys,continue
continuetotolead
lead
channel growth.
Average e-commerce growth and penetration, % Food and FMCG² categories Stock-up categories
Highly digital categories Top-up missions

2020–21 50
e-commerce growth¹

40

30

Consumable Apparel and accessories

household goods Consumer health and beauty
20
Pet food Toys and consumer
Shelf-stable durables
food
Perishable food
10
Beverages

0
0 10 20 30 40 50
E-commerce penetration
1
Vs in-store growth.
2
Fast-moving consumer goods.
Source: McKinsey E-commerce Decision Maker Survey in Europe, Feb 1–28, 2022 (n = 70)

missions”—remain the least penetrated and
slowest to develop online. Still, these product
categories are growing at 7 to 15 percent a year.⁶
Different levels of profitability across channels
Despite abundant growth, consumer goods
companies attempting to scale up in e-commerce
continue to struggle to increase profitability,
especially in business-to-business-to-
consumer (B2B2C) marketplaces. Our research
demonstrates how e-commerce margins vary by
channel (Exhibit 3).
Most players still see their lowest margins on
pure players. On average, companies that sell
directly through Amazon and other pure players
face margins that are two percentage points lower
than omnichannel e-commerce due to factors
such as higher shipping and warehousing costs
as well as on-site advertising. Consumer goods
companies have yet to become as efficient as
traditional retailers in managing the more complex
e-commerce supply chain, leading to a difference
in cost of 1.5 percent of gross sales. Pure players
often require suppliers to follow strict guidelines
(such as frustration-free packaging) to enable
the quick and efficient delivery that consumers
expect, with noncompliance resulting in fines. Pallet
configurations also tend to be more expensive, with
a lower average order value (for example, mixed-
pallet compared with full-pallet orders or less-than-
full truckloads). On-site advertising spending (or the

Versus in-store growth.

6

Resetting the e-commerce model to achieve profitable growth in Europe 5

 Exhibit 3

Consumer
Consumergoods
goodscompanies
companiesare
arenot
notyet achieving
yet equivalent
achieving margins
equivalent using
margins using
digital pure players.
players.

E-commerce sales margins,¹ % Main drivers of difference between pure play and omnichannel

Total sales = 100.0

Returns 3.5 4.1 3.0 2.4
10.5
Promotional allowances 12.7 12.7 13.9
8.4¹
Trade merchandising 7.1 7.3 7.1
6.1
Retail media networks 7.4 6.4 5.9
6.3 7.0
Shipping and warehousing 7.7 7.7

Consumer goods companies’ margin 61.6 61.7 63.8 65.5

Amazon Other digital Omnichannel Emerging

pure players² players³ platforms⁴

Note: Figures may not sum to 100%, because of rounding.

1
Question: For the given channel type, approximately how would you allocate the following costs as a percentage of gross sales on an annual basis?
2
Includes all pure-play marketplaces (excluding Amazon).
3
Includes brick-and-mortar retailers with an e-commerce channel.
4
Includes delivery and quick-commerce platforms.
Source: McKinsey E-commerce Decision Maker Survey in Europe, Feb 1–28, 2022 (n = 70)

marketing budget on Amazon Web Services Media
Services) is also higher: an additional 1.5 percent
of gross sales. While promotional allowances are
critical to secure shelf space in brick-and-mortar
stores, purposeful product investment—such as
targeted ads—can be a key differentiator on pure-
player sites.
These insights suggest that many consumer
companies have yet to rebalance their pure-play
profit-and-loss (P&L) in a structured way. Since
growth happened relatively fast and retailers
often lack historical internal operating models for
e-commerce, P&L decisions may be distributed
across multiple owners (from sales controllers to
digital-marketing assistants to logistics leads),
without a singular view on where trade-offs should
be made.
Omnichannel e-commerce (within grocers and
department stores) retains a similar spending
profile to offline. Promotional allowances offered
in brick-and-mortar stores are likely to be matched
online, and the share of food and FMCG in grocery
that is sold on promotion is typically high. As a
result, consumer goods companies are spending
an average of more than 1 percent of gross sales in
catch-all promotions online, a strategy that likely
leaves better returns on the table.
Emerging platforms currently offer healthier
margins. Quick commerce (such as Gorillas) and
delivery platforms (such as Glovo) have successfully
attracted generous inflows of capital. To date,
more than ten European grocery quick-commerce
companies have collectively raised more than $2
billion and are now focused on achieving scale
to prove the long-term viability of their business
models. Some consumer goods companies have
started selling their products directly (that is, not
through restaurants). Our research shows that
companies can achieve margins with D2C that are

6 Resetting the e-commerce model to achieve profitable growth in Europe

four percentage points higher than Amazon’s and
two percentage points higher than omnichannel
retailers’. These results are likely due to the
willingness of companies to accept losses in the
short term in exchange for adding customers,
nascent investment opportunities (for example,
on-site advertising or placement), or both.
What e-commerce superstars are
doing in Europe
In this increasingly complex landscape, a few
companies across the spectrum of consumer
categories have achieved superior performance
compared with their peers. Our analysis defined
these e-commerce superstars based on their
scale of e-commerce as a percent of sales, growth
outperformance versus other category respondents,
and healthy profit margins (Exhibit 4).
To pinpoint what it takes to lead in e-commerce
in Europe, we analyzed these superstars and
identified five strategies. Some of these strategies
are more prominent in superstars of highly digital
categories, reinforcing our conviction that such
approaches are part of the path to fully capture the
online opportunity.
1. Prioritize markets ripe for profitable growth
and define clear channel roles
Superstars are crystal clear in their prioritization of
online channels (for example, omnichannel retailers,
pure-digital players, and D2C) and markets where
they can win online. When they invest, they do so
with purpose.
Superstars are crystal clear in
their prioritization of online channels
and markets where they can win
online. When they invest, they do so
with purpose.
Resetting the e-commerce model to achieve profitable growth in Europe
From a regional perspective, superstars navigate
the fragmented landscape in Europe with a focused
but broad strategy. On third-party channels
or B2B2C, they double down in key countries
(typically the EU5), optimize their omnichannel
relationships across all countries in which they
operate, and selectively place bets in marketplaces
with increased relevance to boost brand equity.
For owned channels, superstars choose a few pilot
markets with the strongest brand affinity and the
most favorable structural economics (for example,
countries with high population density) to develop a
minimum viable product (MVP) before expanding to
other markets.
From a channel perspective, superstars typically
see e-commerce as an ecosystem of interrelated
subchannels (and even customers)—including
omnichannel retailers, pure-play specialists,
marketplaces, and owned commerce such
as retailers’ own websites—that play specific
complementary roles to support strategy.
Superstars may set financial targets, such as
revenue or profit; define brand-building objectives,
such as reach or affinity; and target shopper roles
across experience, choice, and convenience.
For instance, Amazon might unlock reach and
revenue in most categories and enable maximum
convenience—although this option might be slightly
less profitable. Conversely, D2C will be key to
develop brand affinity, sometimes at lower volumes,
and offer the best customer experience and product
choice. By clearly defining the complementary role
of each subchannel, superstars will minimize conflict,
optimize investment, and broaden reach.
7
 Exhibit 4

Superstars
Superstars have
havehigher
higher growth,
growth, greater
greater scale,
scale,and
andequally
equally healthy
healthy margins
margins when
compared with other
when compared with players.
other players.
Superstars
Rest of players < XX% Difference in percentage points (p.p.) vs rest of players for given indicator
% of given indicator –10–0 p.p. 1–5 p.p. 6–10 p.p. 11–15 p.p.

Indicators that differentiate superstars

E-commerce Share of E-commerce profitability,
Food and FMCG¹ categories growth, % e-commerce, % superstars vs rest of players

Beverages
1–5 p.p.
(n = 8) < 10% < 5%

Perishable food 1–5 p.p.

(n = 4) < 5% < 10%

Household goods 6–10 p.p.

(n = 7) < 15% < 10%

Shelf-stable food 6–10 p.p.

(n = 9) < 15% < 10%

Highly digital categories

Pet food 6–10 p.p.

(n = 6) < 15% < 15%

Consumer health and beauty –10–0 p.p.

(n = 10) < 20% < 10%

Toys and consumer durables –10–0 p.p.

(n = 5) < 15% < 20%

Apparel and accessories –10–0 p.p.

(n = 10) < 20% < 20%

1
Fast-moving consumer goods.
Source: McKinsey E-commerce Decision Maker Survey in Europe, Feb 1–28, 2022 (n = 70)

2. Pivot third-party spending toward selected
online growth drivers
When we compare superstars with the rest of
companies on e-commerce spending with third
parties (such as Amazon and omnichannel), we see
nuanced trends across food, FMCG, and highly
digital categories (Exhibit 5).
In food and FMCG, superstars consistently achieve
healthier e-commerce margins than others. They
are more efficient across all levers in P&L, but
the gap is higher across commercial levers (such
as promotion, trade, and retail media networks),
where they are investing ten percentage points
less, on average, compared with nonsuperstars

8 Resetting the e-commerce model to achieve profitable growth in Europe

Exhibit 5
Superstarshave
Superstars haveshifted
shiftedtheir
theirspend
spendmix
mix toward
toward online
online growth drivers.

Average percentage of costs over total gross sales, % How superstars differ, on average,
from from the rest, percentage points
< –5.0 –5.0–0 0.1–5.0 > 5.0

Total sales = 100.0

Returns 1.5 2.0 3.7 3.0
Promotional allowances 15.7 –6 15.3 –8 9.7 13.9
7.7
Trade merchandising 6.7 7.2 7.1
5.4 +6
Retail media networks 7.7 5.4 5.9 +9
6.0 10.9 6.3
Shipping and warehousing 7.2

Consumer goods 64.1 62.6 63.8

61.1
companies’ margin

Amazon and other Omnichannel Amazon and other Omnichannel

pure players² players³ pure players players

Food and FMCG¹ categories Highly digital categories

Note: Figures may not sum to 100%, because of rounding.

1
Fast-moving consumer goods.
2
Includes all pure-play marketplaces (excluding Amazon).
3
Includes brick-and-mortar retailers with an e-commerce channel.
Source: McKinsey E-commerce Decision Maker Survey in Europe, Feb 1–28, 2022 (n = 70)

while still achieving above-category growth. Sixty
percent of this difference is due to lower spending
in promotional allowances, a key lever in traditional
brick and mortar that is less of a differentiator in the
search-driven e-commerce world.
In highly digital categories, in which online is already
the established battleground, outperformance
comes at a higher cost. Even though superstars
are already achieving at least 30 percent of their
sales online, they are investing ahead of demand to
continue growing faster than the category. They are
also spending differently by consistently focusing
their commercial budget on on-site advertising in
both pure-play channels and omnichannel partners.
These investments can unlock closed-loop media
analysis and ultimately help optimize the return on
e-commerce investment.
3. Coordinate purposeful, pan-European cross-
functional teams
Superstars have adapted their organizations to the
requirements of e-commerce in Europe. Regardless
of company size, they are two times more likely to
have dedicated pan-European teams (with ten or
more members) in addition to in-market resources.
Since Europe is a heterogeneous region, superstars
carefully balance locally made and executed
decisions with those that are centralized to support
scale or the incubation of new capabilities:
— A single European strategy. Superstars often
establish a pan-European center of excellence
(CoE) to define the overall strategy and maximize
consistency across areas such as pricing
corridors, terms and conditions, cross-market
product launches, and promotion principles.

Resetting the e-commerce model to achieve profitable growth in Europe 9

 — Regional scale advantages. Companies can
centralize contracts and ownership of pricing
to increase bargaining power (for example,
pan-European retailer rebates or media agency
partnerships) or amortize large fixed-cost
investments (such as data foundations). This
approach helps to remove complexity from
markets and minimize cross-border challenges.
— Flexible local execution. Superstars typically
decentralize execution where speed and
local relevance are advantages—for example,
assortment selection, e-merchandising,
demand forecasting, and digital marketing.
However, European shared services may also
support content creation.
— Local relationships, regional champions.
Although the management of key accounts
remains mostly localized, some leading
companies are moving pan-European retailer
relationships into the CoE, while others have
created cross-market “champion” roles to
partner with similar buyer structures.
The optimal setup will ultimately depend on the
category maturity for key e-retailers, as well as on
the organization’s geographic breadth. Consumer
goods companies that want to win across subscale
European markets benefit from the insight and
execution expertise that come with some degree
of centralization.
4. Make capital expenditure investments ahead
of current demand
Operating a successful e-commerce unit requires
investing in the right digital capabilities and
technology. Our research found that superstars
invest ahead of channel growth, secure capital
expenditures to develop a fit-for-purpose tech
foundation, and pursue consumer-focused innovation.
The allocation of investment to e-commerce
innovation that will create future value—what we
call investing ahead of or in line with demand—
allows superstars to grow ahead of the category,
10 Resetting the e-commerce model to achieve profitable growth in Europe
rather than waiting for revenue generation to
unlock spending. To break this chicken-and-egg
dynamic, companies must make strategic choices
in the shift toward e-commerce. Thinking two years
ahead can enable companies to innovate in their own
platforms to achieve long-term scale benefits.
Investing ahead of demand is more common in
superstars (80 percent) than in other companies
(65 percent). Superstars are also investing 1.4
times as much as others into owned e-commerce
platforms (D2C sales and beyond). In addition,
advanced players are more likely to ensure that
their online ecosystems are differentiated and
create value—for example, by building active online
communities that create an emotional connection
with consumers. This strategy requires investment
to develop relevant digital content and target
the community (rather than just the consumer).
Companies are also exploring e-commerce in
the metaverse, which could redefine customer
experiences by bringing together the convenience
of e-commerce with the personalization and
atmosphere of an in-person experience.
5. Recruit, train, and promote specialized
digital talent
Digital literacy and analytics capabilities are
critical enablers to move quickly in e-commerce.
Superstars invest to build in-house technical talent
in specific capabilities (such as digital marketing),
which limits their reliance on third-party agencies or
partners and enables agility.
Superstars know that filling the talent gap requires
a focus on attracting experienced candidates for
specialized e-commerce roles. These companies
may routinely hire externally from digital-native
companies such as Amazon. Anchor hires in
leadership roles can bring disruptive, innovative
thinking and the requisite credibility to reset the
business for success in e-commerce. This talent
strategy helps superstars move toward an online
playbook that emphasizes testing and learning
through data and analysis.

Find more content like this on the
McKinsey Insights App
Scan • Download • Personalize
Investing in the right leadership talent as well as
specific capabilities must be done early. Superstars
commit the necessary resources in tandem with
technology innovation.
How top executives can achieve
profitable e-commerce growth in
Europe
The continued growth of e-commerce throughout
Europe—as a channel to support both sales and
consumer engagement—makes it crucial for
consumer goods companies to gain scale and
share in a profitable way. Insights from e-commerce
superstar performers offer a blueprint for success,
with three clear priorities.
First, top executives must embed an e-commerce-
first strategy that prioritizes scaled markets, sets
complementary subchannel roles, and promotes
the online-success model. This strategy may require
organizations to educate leadership teams in digital
commerce. Superstars have distinct playbooks
for commercial investment in online channels,
keeping away from invisible price promotions and
investing in targeted marketing. Companies that
stick to an offline approach will struggle to see
returns. The same holds for logistics. As lower-
value e-commerce orders become the norm,
organizations that have pivoted to data-driven
planning and omnichannel inventory management
will be better positioned for efficiency.
Second, leaders should design a European
e-commerce operating model that encourages
collaboration and transparency while respecting
differences across countries. Superstars overcome
scale limitations through a combination of pan-
European strategy, scaled contracts, and shared
services while still making operational decisions on
a local basis. The optimal structure will depend on a
company’s category and business characteristics.
Last, executives should adopt an online-investment
mindset that decouples e-commerce strategy from
the traditional sales-planning approach. Instead of
expecting essential investments in both technology
and people capabilities to be financed by existing
top-line growth, superstars focus on what it will take
to become the business they want to be in two years
and invest internally to deliver.
E-commerce acceleration is outliving the
pandemic and evolving into much more than a
sales channel. Consumer goods companies in
Europe that make savvy bets on e-commerce now
could gain a lasting advantage.

Isabel Cordoba is a consultant in McKinsey’s London office, where Carly Donovan is an associate partner, Jessica Moulton is a
senior partner, and Samantha Phillips is a partner; and Max Magni is a senior partner in the New Jersey office.

The authors wish to thank Andrei Constantin, Tatiana Sivaeva, Bjorn Timelin, and Bogdan Toma for their contributions to
this article.

Copyright © 2022 McKinsey & Company. All rights reserved.

Resetting the e-commerce model to achieve profitable growth in Europe 11