The UK grocery market is to grow 11.3% between 2022 and 2027, to a total value of £241.3 billion (€276.9 billion), according to a new study by IGD, with the majority of this growth being driven by inflation.
The group said that with food prices expected to increase by 8.9% this year alone, shoppers will respond to both this and the spike in general inflation by making significant cuts in food expenditure.
In May, the chairman of Marks & Spencer warned that food inflation could reach as high as 10%, while more recent estimates have been set even higher.
“Our new forecast sees growth for all retail channels," commented Caroline Myers, director of retail analysis at IGD. "Though discount will naturally benefit from shoppers’ desire to save money, growth will be held in check by increasing competitiveness from other channels.
“The outlook has changed most for larger stores, where we expect more competitive pricing and the development of more inspirational store formats to achieve growth, while convenience is well placed to build on the growth achieved during the pandemic."
Discount Channel To Expand Rapidly
According to IGD, the discount channel will be the fastest growing over the forecast period, with growth of nearly a quarter (23.9%) to £7.1 billion (€8.26 billion).
This will be driven by a combination of households looking to save money, discount retailers expanding their store networks, and variety discounters sharpening their grocery offer.
“Although like-for-like growth has been a challenge for the discounters, they are well placed with the cost-of-living crisis to appeal to shoppers’ increasing savvy behaviour," commented Maxime Delacour, IGD senior retail analyst and specialist in the discounter channel.
Online Focuses On Profitability
The online channel is set to grow by 22.6% over the forecast period, IGD said, to £5.0 billion (€5.82 billion), with growth set to pick up as new order capacity is developed, and rapid delivery services expanded.
However, with operators facing into cost pressures, delivering profits is likely to be prioritised over sales growth, particularly in the short term, according to IGD.
Traditional Channels Led By Convenience
Of the traditional grocery channels, convenience is likely to be the one to see the strongest growth, according to IGD, with growth of 13.0% expected during the forecast period, to £5.9 billion (€6.86 billion).
This year (2022) is likely to see a return to more buoyant growth for the channel, as shopping behaviour normalises and events provide a boost. Thereafter, the channel will continue to modestly outperform the market, IGD said.
Larger stores, such as supermarkets (+6.2%, to £5.7 billion) and hypermarkets (+5.2%, to £0.9 billion) are also set to grow in terms of value sales, although they will see their market share decline.
“A much-improved value position and effective loyalty schemes will allow operators to defend their market share much better than in the 2008 downturn," said Nick Gladding, senior retail analyst at IGD.
"But operators need to ensure a focus on efficiencies does not compromise shoppers’ experience and that they continue to offer breadth of range to differentiate from discounters.”
© 2022 European Supermarket Magazine – your source for the latest retail news. Article by Stephen Wynne-Jones. Click subscribe to sign up to ESM: European Supermarket Magazine.
