Led by discount and online, UK grocery market forecast to improve through 2022

Led by discount and online, UK grocery market forecast to improve through 2022

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The UK grocery and food market is set to grow by 10% to £211bn through 2022, according to the latest market and channel forecast research from IGD.

The new report reveals the impact of COVID-19 on the overall market over the next three years, with a breakdown of expected implications and performance on individual channels. The pandemic has accelerated the shift to online, a channel IGD expects to mostly retain the loyalty of new shoppers gained during the pandemic.

Discount will, however, become the fastest-growing channel in 2021 and 2022, as shoppers looking to economize due to rising unemployment. The online segment is expected to grow at a whopping 59%, equivalent to £7bn, with the category’s share of total sales rising from 6.2% in 2019 to 8.9% in 2022.

Online will be the fastest-growing channel in 2020, following dramatic increases in shopper numbers and bigger order sizes, taking £1 in every £11 spent on grocery in 2022.

“We forecast e-commerce will gain market share faster than previously predicted, following the dramatic influx of new shoppers and bigger order sizes in 2020 as a result of COVID-19,” said Simon Wainwright, Director of Global Insight at IGD, said. “While we expect growth to pause in 2021, it will later resume, with continuing expansion from Amazon and the launch of online operations by M&S through Ocado supplementing activity by the Big Four [Tesco, Asda, Sainsbury’s and Morrisons].”

Meanwhile, the discount segment is forecast to rise by 25%, or £6.3bn, and Aldi and Lidl’s rapid expansion is expected to continue. The discount market share will increase from 12.8% in 2019 to 14.6% in 2022.

“Though eclipsed by the surge in online sales in 2020, discount will be the fastest-growing channel in 2021 and 2022 as unemployment climbs and shoppers across the income spectrum look to economize,” Wainwright said.

“Store network expansion will enable this growth, with smaller store formats enabling Aldi and Lidl to boost their reach into urban areas and some variety discounters scaling up their grocery operations.”

The convenience channel is to grow by 13%, or £5.4bn, increasing its share modestly from 21.4% to 22%.

“Having benefited significantly from meeting local needs during lockdown, growth for convenience stores will slow in 2021 and 2022. There is a key opportunity for stores that develop their role as destinations for local community needs going forward, but the slow recovery of trading in city centers and transient locations is likely to affect overall channel performance.”

Large stores are expected to remain virtually flat, with supermarkets rising 0.8% and hypermarkets falling by 0.3%. From 2019 to 2022, the hypermarket market share will decrease from 8.4% to 7.6% while supermarkets will fall from 46.1% in to 42.3%, according to IGD. After a boost to sales in 2020 from the pandemic, supermarket growth will turn negative by 2022

“Strong growth at the start of the pandemic – driven by shoppers stocking up and preferring spacious stores – has receded,” Wainwright said. “We expect hypermarkets to revert to sales declines as more shoppers migrate to other channels. The supermarket channel will lose ground, particularly to discount and online, though it will defend its share better than hypermarkets.”

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