UK retail food and grocery market growth to slow sharply in the short term, according to latest IGD market forecasts

Date : 01 July 2021

A five-year period of recovery will see the market bounce back to top pre-pandemic forecasts

In its highly anticipated annual retail food and grocery channel forecasts, IGD, provider of foresight and analysis for the food and consumer goods industry, predicts that the unprecedented 8.5% growth in 2020 will slow to 1.7% in 2021 and then to 0.9% in 2022, as shoppers economise and the eating out industry reclaims sales.

This sharp decline will be followed by a period of modest recovery, that will see the UK retail food and grocery market grow by 8.1% to £229.1bn over 2021-2026. Recovery will be fuelled by rising employment levels, growing consumer confidence, economic recovery and the new channels and opportunities created by the unique disruption of COVID-19, such as quick commerce.

Simon Wainwright, Director of Global Insight at IGD, explains: “The significant dip we’re forecasting in the short term is to be expected; many households will be under increased pressures, making shoppers more value conscious. The reopening of the hospitality sector, despite being from a very low base, will also divert some spend away from retail in the short term.

“That said, there’s an opportunity for the sector to engage with the many shoppers that built up savings during the pandemic and contributed to the estimated £150bn* savings pot, by focusing on quality and convenience as the ‘K-shaped recovery’* takes hold.

“Longer term, the grocery sector will remain bigger than our pre-pandemic forecasts, primarily driven by elevated levels of home-working benefitting stores in suburban areas; the adoption of digital technologies in-store which will alter how and where people shop, and fewer out-of-home eateries operating. Maximising growth will be down to stores inspiring shoppers with an improved choice of relevant products and developing opportunities around events and occasions.”

Key highlights from the channel forecasts:

Online to retain 2020 gains and become the fastest-growing channel post-2024

2021-26: +£4.7bn (+21.4%)

Online will slow after the 2020 growth, as some shoppers, particularly the older demographic, return to stores. However, new capacity and the new quick commerce channel – which sees food and grocery delivered in less than one hour and often sub-30 minutes – will see online become the fastest-growing channel post-2024.

Simon Mayhew, Head of Online Retail Insight at IGD, explains: “Quick commerce has exploded as a result of the pandemic and is now a channel in its own right with a current estimated current value of £1.4bn. The size of the opportunity is significant and has the potential to grow to £3.3bn. Multichannel retailers will need to reduce fulfilment costs and nurture loyalty to protect margins as the online channel takes a greater share of the sales mix.”

Rachel Sibson, Retail Analyst and author of a new series of reports examining the landscape of the quick commerce channel, adds: “Quick commerce is an exciting, fast-paced channel which presents a huge opportunity for suppliers, retailers, aggregators and pure plays. Our annual market estimate is based on our ShopperVista data which shows that 13% of UK shoppers already use quick commerce, but there is a further 22% of shoppers interested, who are still to play for.”

Discount will be the fastest-growing channel 2021-2026

2021-26: +£6.6bn (+23.8%)

A combination of new stores, the need for many shoppers to economise and the increase of food and grocery within variety discounters will fuel this channel’s growth, but it will slow through the forecast period.

Maxime Delacour, Senior Retail Analyst and specialist in the discounter channel, explains: “Discounters are a natural destination for households looking to economise and the key players have extensive expansion plans. But, growth will be held in-check by strong competition on value from the multiples and new entrants to the market.”

Neighbourhood focus to boost convenience

2021-26 +£5.5bn (+12.5%)

Over the next few years, a continued focus on neighbourhood locations underpinned by the higher levels of working from home and suburban living will boost the convenience channel. The reopening of city centres and transport locations will also add to short term growth.

Patrick Mitchell-Fox, Senior Business Analyst, IGD comments: “The historic significance of ‘impulse’ has declined and now top-up shopping is more dominant for the convenience sector: basket sizes have become much larger with a wider range of goods.

“The convenience sector is now focusing on how it retains its current 21% share of the grocery market, by focusing on neighbourhood stores and extending ranges to meet local demand. We expect it to maintain its position over the next five years and predict it will grow to 21.8% by 2026.”

Large stores to reposition as retail destinations

Supermarkets 2021-2026 +£0.8bn (+0.9%) Hypermarkets 2021-2026 –£0.4bn (-2.3%)

In the short term, hypermarkets are well positioned to benefit from the K-shaped recovery, offering a wide range of value-oriented options whilst simultaneously offering the most extensive choice of products for shoppers looking to trade up.

Nick Gladding, Senior Retail Analyst at IGD, explains the longer-term implication: “Shoppers will need to justify the time and travel to large stores as other, more convenient options become increasingly available to them. Operators will need to offer distinct benefits to attract customers. We’ll see more investment in this channel to position large stores as retail destinations.”

Channel values (£bn)

  2021 2022 2023 2024 2025 2026 % change £bn change
Hypermarkets 16.3 16.1 16.0 15.9 15.9 16.0 -2.3 -0.4
Supermarkets 91.0 90.5 90.5 90.6 91.2 91.8 +0.9 +0.8
Convenience 44.5 45.5 46.3 47.5 48.6 50.0 +12.5 +5.5
Discount 27.7 29.0 30.3 31.7 33.0 34.4 +23.8 +6.6
Online 22.2 22.6 23.5 24.6 25.7 26.9 +21.4 +4.7
Other retailers 10.2 10.1 10.2 10.2 10.2 10.1 -0.9 -0.1
Total 211.9 213.8 216.7 220.4 224.7 229.1 +8.1 +17.2

ENDS

For media enquiries please contact Charlotte Jackson at [email protected]

Notes to editors:

* Bank of England Speech: Inflation: A Tiger by the Tail?, 26 February 2021

K-shaped recovery - The recovery from COVID-19 will not benefit everyone equally. Some households will begin to grow in prosperity (on the upward part of the K) once more. Others will get left behind or stay the same (on the downward part of the K).

Channel definitions:

  1. 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
  2. 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
  3. 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
  4. 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
  5. Convenience: Store formats typically under 3,000 sq ft that sell at least seven core convenience categories
  6. 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

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