A photograph of a female worker in a storeroom.

How to generate retail growth through alternative revenue streams

By Chehab Wahby

EY-Parthenon EMEIA Consumer Leader

Strategist. Intellectually curious. Traveler. Cycling enthusiast. Petrol head.

5 minute read 13 Jul 2022

To address the deterioration in their margins, retailers need to seek profitable, alternative new sources of revenue.

In brief
  • Retailers face a squeeze on their profitability, driven by the consumer’s shift to digital, rising customer expectations and the effects of COVID-19.
  • Retailers need to identify profitable alternative revenue streams, by utilizing and monetizing data in ways that get closer to customers.

These are challenging times for retailers across Europe. Historically, they’ve focused on improving their core business by strengthening existing revenue streams. More recently, many have moved to a twin-track approach, based on cutting costs and reinvesting the savings for growth. But it’s now increasingly clear that these strategies are failing to reinvigorate their revenues or margins.

A blizzard of change

With customer expectations rising relentlessly, shoppers are increasingly gravitating to digital channels at the expense of brick-and-mortar. The strong service offering of incumbent e-commerce players has driven higher customer expectations, e.g., same day delivery and convenient returns. This leads to increased competition from disruptive data-driven entrants with powerful customer-focused propositions and heightened transparency, forcing retailers to compete increasingly on price.

Margins being driven downward

These pressures were already evident before COVID-19 and now the pandemic has intensified the squeeze by accelerating customers’ shift to online. The EY Future Consumer Index research shows that 46% of consumers will now increasingly shop online for products that they previously bought in stores – and 37% will stay online and only visit stores that provide great customer experiences.

In combination, these factors have driven the retailers’ profit margins to new lows. The past decade has seen average industry margins fall by 240 basis points (bps) – including 70bps in the past year alone (see Figure 1).

A line chart plotting the profit margins of European retailers from 2011 to 2020 shows their margins were the lowest in 2020 due to COVID-19.

The need for new revenue from multiple sources

The message is clear: without radical changes, retailers face being driven inexorably toward irrelevance. So, how can they change course, restore their margins to historical levels and reenergize their growth?

One possible answer is to harness revenue streams outside their traditional business. As Figure 2 shows, alternative sources of revenue have grown three times as fast as retailers’ traditional business in recent years and are between 2 and 11 times more profitable.

A stacked bar chart comparing the mix of the European retailers' revenue from 2015 to 2020.

What types of revenue streams are we talking about? To name a few, in the media, there are opportunities to sell targeted advertising to buyers, including other retailers, and audience insights to product vendors. In the data arena, retailers can monetize their consumer data to support retargeting or consumer research by other players. In terms of marketplaces, they can host online platforms that allow other merchants to sell direct to consumers. And in health care, they can use their brick-and-mortar outlets to deliver therapies – such as offering health screening or vaccinations during and beyond the pandemic.

What is the common thread? The answer is leveraging digital capabilities to monetize retailers’ wealth of data – while also enhancing the consumer experience to drive traffic across all channels and deepen customer loyalty. The key to success is investing in technology, data and analytics to provide deeper operational and customer insights.

Many European retailers are already tapping into alternative revenue streams – and reaping the benefits. Take the multinational groceries and general merchandise retailer Tesco’s launch of its new one-hour home delivery service ‘‘Whoosh’’ during the pandemic to meet an unprecedented demand for online orders. After a successful pilot, it has been extended to multiple locations in the UK. Or the international retail company Ceconomy’s move to create new online platforms aimed at leveraging customer data more effectively and unlocking advertising revenues. The current plans include the launch of a new membership club to provide personalized digital content and enhance loyalty.

A five-step approach to activate new revenue models

These pioneers are showing the way forward. So how can other retailers follow suit – and activate new high-margin revenue streams for themselves? The answer: by creating and scaling up alternative business platforms that leverage their existing (or acquired) assets and capabilities to serve customers differently.

Through our work with retail clients across Europe, we’ve developed a five-step approach to help retailers identify, develop and activate new alternative business platforms. The five steps are:

1. Set the ambition

This stage involves defining the “where,” “why” and “how” of the alternative revenue model to drive strategic choices. Anchoring on the organization’s purpose — this means clarifying the organization’s long-term vision and objectives, and its degree of alignment with relevant stakeholders – employees, customers, shareholders, society and more. It also means asking whether the purpose builds resiliency into the existing business model and working out the means to make the corporate growth strategy sustainable for the long term.

2. Assess resources

The focus here is on gauging the fitness and suitability of the business’s resources – both tangible and intangible – to enable it to open up and grow alternative revenue streams, while addressing existing pain points. The key questions include how the resources differ from those of competitors, which ones are currently underutilized or can be repurposed, and what unique value they can provide to customers.

3. Customer-centered design

This phase involves navigating the journey from the identification of a market opportunity or customer need, via the development of a use case concept and solution to meet it, to the creation of a product- or service-based business model to monetize the solution. A key enabler for success is an agile testing process to ensure the solution meets the needs of customers and is suited to the current market dynamics. It’s also vital to map out how the solution will scale and its path to profitability.

4. Analyze capabilities

Depending on whether or not the organization already possesses the capabilities needed to operationalize the business model, it can make a strategic choice either to recombine existing capabilities to create something new, or to evaluate ways to acquire what it needs. Each of the various ways to fill capabilities gaps – via acquisition, strategic partnership or in-house development – brings its own implications in terms of capital.

5. Create new businesses

This is where the business model, leveraging the alterative revenue streams, is implemented and commences operations. Important success factors include having the right operating model, change management capabilities, integration strategy and incentives. Equally key is establishing how outcomes will be measured against plans.

Defining and activating alternative revenue streams is a bold move that – by definition – takes retailers outside their historical comfort zone. But it’s a challenge they must tackle if they’re to break out of the margin squeeze facing their traditional business. When would be the right time to start? We need to start today – before others move to seize the opportunities on offer.


Retailers’ traditional business models are under strain due to changing consumer expectations and behaviors — and COVID-19 has increased the pressure. To reinvigorate their growth, they need to leverage new sources of revenue.

About this article

By Chehab Wahby

EY-Parthenon EMEIA Consumer Leader

Strategist. Intellectually curious. Traveler. Cycling enthusiast. Petrol head.