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Growth forecast across all retail channels

20 June 2022

Cost-of-living crisis replaces covid as key challenge to sector

The UK grocery market is set to grow by 11.3% – from £216.8bn to £241.3bn – between 2022 and 2027, according to highly anticipated new figures from insight provider IGD. While inflation will underpin the majority of growth in 2022, with a 3.5% value increase predicted, this will moderate from 2023 onwards.

With the war in Ukraine impacting the UK supply chain and food prices expected to increase by 8.9% in 2022, IGD anticipates shoppers will respond to this and the spike in general inflation by making real terms cuts in food expenditure.

Caroline Myers, Director of Retail Analysis at IGD, said: “Our new forecast sees growth for all retail channels. Though discount will naturally benefit from shoppers’ desire to save money, growth will be held in check by increasing competitiveness from other channels."

“Many shoppers on tight budgets will adopt a more for less mentality – managing their spend closely by trading down to cheaper ranges and pack sizes, switching brands for private label and seeking out the best promotions. Shopping will also be more planned, with many switching to more overtly value-focused retailers."

“Retailers’ sales will however be supported by shoppers eating out less often, building demand for at-home entertaining and premium meal solutions”.

Key highlights from the channel forecasts:

Discount gains from shoppers’ need for value

2022-27: +£7.1bn (+23.9%)

Discount will be the fastest growing channel over the forecast period, driven by a combination of households looking to save money, discount retailers expanding their store networks, and variety discounters sharpening their grocery offer. Channel growth however will be held in check by a more competitive offer at multiples and by the increasing risk of sales cannibalization in catchments where they are already well represented.

Maxime Delacour, Senior Retail Analyst and specialist in the discounter channel, explains: “Physical expansion will remain key to growth for discounters, with both Aldi and Lidl looking to maintain their ambitious opening targets for 2025. However, with the possibility of the retailers missing these targets and openings likely to slow following this date, forecast growth is also slowing."

“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. Attracting new shoppers will be key, with Lidl in a strong position here to use its Lidl Plus app to encourage loyalty.”

Online focus on profitability post Covid

2022-27: +£5.0bn (+22.6%)

After a slight decline in 2021 against huge surges in shopper numbers and order sizes, online will rebuild momentum and outpace discount from 2025. Growth will 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 prioritized over sales growth, particularly in the short term.

Simon Mayhew, Head of Online Retail Insight at IGD, explains: “Increasing competition will ensure that bricks and clicks retailers continually invest in their online businesses. Quick commerce pure plays and bricks and clicks retailers will continue to expand their rapid delivery operations, enabling online to cater for a broader range of shopping missions, such as food for now and top-up shops. This will attract new shoppers to the channel and increase how frequently they shop. ”

Neighbourhood focus to boost convenience

2022-27 +£5.9bn (+13.0%)

Following a 2021 impacted by tough comparatives, 2022 will see a return to more buoyant growth for the convenience channel as shopping behaviour normalises and events provide a boost. Thereafter, the channel will continue to modestly outperform the market, sustained by ongoing investment from retailers in new and improved stores bringing enhanced capability to the channel.

Patrick Mitchell-Fox, Senior Business Analyst at IGD and convenience channel expert, comments: “2022 will be boosted by a number of big event opportunities – including the Platinum Jubilee in early June and the football World Cup in November. A hoped-for good summer would create additional opportunities, helping cement the recovery of city centres and travel, both domestic and in-bound tourism. However, it is clear that inflation will be an important factor in driving value sales during the year.”

Large stores need to differentiate

Supermarkets +£5.7bn (+6.2%)

Supermarkets’ modestly positive growth over the forecast period will mean they outperform hypermarkets though the channel’s market share will decline slightly.

Hypermarkets +£0.9bn (+5.2%)

Assisted by inflation, large stores will grow sales modestly. However, without the benefit of new space and strengthening competition from other channels, hypermarkets’ market share will decline.

Nick Gladding, Senior Retail Analyst at IGD, comments: “A much-improved value position and effective loyalty schemes will allow operators to defend their market share much better than in the 2008 downturn. 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.”

Channel values (£bn)

	2022	2023	2024	2025	2026	2027	% change	£bn change
Hypermarkets	16.3	16.9	17.0	17.2	17.3	17.5	+5.2	+0.9
Supermarkets	91.1	92.6	93.4	94.6	95.6	96.8	+6.2	+5.7
Convenience	45.1	46.3	47.4	48.6	49.7	50.9	+13.0	+5.9
Discount	29.7	31.2	32.6	34.1	35.5	36.8	+23.9	+7.1
Online	22.0	22.7	23.7	24.8	25.8	26.9	+22.6	+5.0
Other retailers	12.4	12.5	12.4	12.5	12.4	12.4	+0.3	0.0
Total	216.8	222.1	226.5	231.7	236.4	241.3	+11.3	+24.5

Notes: channels may not exactly sum to market total because of numerical rounding in this table.
‘Discount’ includes all sales of Aldi, Lidl, and grocery only sales of the principal variety discounters.
‘Other retailers’ includes specialist food and drink retailers, CTNs, and the food sales of mainly non-food retailers and street markets.

ENDS

For media enquiries please contact Alexandra Crisp at [email protected]

Notes to editors:

Channel definitions:

Discount: Limited assortment retailers with a strict focus on everyday low prices. Includes all sales of food discounters such as Aldi and Lidl and estimated grocery sales of variety discounters such as Poundland, Home Bargains, B&M and Wilko
Online: Includes online grocery sales of multiples and sales of online-only food and drinks specialists, quick commerce pure plays, supplier direct-to-consumer and sales through takeaway aggregators, such as Deliveroo
Hypermarkets: Store formats typically over 60,000 sq ft where non-grocery is a substantial part of the store offer. Excludes online purchases fulfilled from stores
Supermarkets: Food-focused retail formats, typically between 3,000-60,000 sq ft. Includes frozen food specialists but excludes discounters. Excludes online purchases fulfilled from stores
Convenience: Store formats typically under 3,000 sq ft that sell at least seven core convenience categories
Other: Includes sales through food retailers not covered above such as food specialists (e.g. butchers, bakers and greengrocers), CTNs, street markets and food sold through mainly non-food retailers

IGD’s forecast

IGD’s UK grocery retail market size is built from the ONS’s retail sales data for predominantly food stores, adjusted to include grocery sales of mainly non-food stores and to include sales in Northern Ireland. The data includes VAT but excludes fuel.

About IGD