Retail sales of food and drink in Europe’s largest markets are at a standstill, leaving European grocery retailers hungry for opportunities to grow. Most leading retailers have already tried e-commerce, with limited success, and expansion abroad, often with more. But almost all have ignored the big, profitable opportunity in their own backyard: the wholesale food and drink trade, which appears to be just the kind of market retailers need.

Wholesale food and drink sales in France, Germany, Italy, Spain, and the United Kingdom (together representing about three-quarters of the European market) came to €166 billion ($167.9 billion) in 2000—more than 40 percent of retail sales. Moreover, average overall margins are higher in wholesale than in retail; wholesale demand from the food service sector is growing quickly as more Europeans eat out more often; and changes in the competitive dynamics of this fragmented industry are at last making it feasible for wholesalers to consolidate. All in all, this clearly seems to be a market in which big retailers could profitably apply their gigantic scale, existing infrastructure, and proven skills in the management of product ranges, logistics, and marketing intelligence.

Retailers that master the intricacies of wholesaling in Europe stand to...