In its annual retail food and grocery channel forecasts, IGD predicts that 8.5% growth seen in 2020 will slow to 1.7% in 2021 and then to 0.9% in 2022. This sharp decline is expected to be followed by a period of modest recovery that will see the market grow by 8.1% to £229.1bn over the next five years, according to the IGD report.
Simon Wainwright, Director of Global Insight at IGD, commented: “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.”
The IGD study forecasts the performance of individual grocery channels up until 2026.
Online expected to slow
Online is expected to slow after its strong 2020, as some shoppers, particularly the older demographic, return to stores. Extra capacity and the new quick commerce market is likely to result in online becoming the fastest-growing channel post-2024 and increase its value by 21.4% over the next five years, according tot he IGD report.
Simon Mayhew, Head of Online Retail Insight at IGD, commented: “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.”
Meanwhile, the discount channel is forecast to be the fastest-growing channel, increasing by 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, although it is expected to slow through the five-year period.
“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,” said Maxime Delacour, IGD’s specialist in the channel.
Robust growth for convenience sector
Convenience also looks set for robust growth (+12.5%) over the coming years as a continued focus on neighbourhood locations, underpinned by the higher levels of working from home and suburban living, boosts demand in the channel. The reopening of city centres and transport locations is also expected to add to short term growth.
“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,” said IGD Business Analyst, Patrick Mitchell-Fox.
“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.”
Demise of large grocery stores
The long-term demise of traditional large grocery stores is expected to continue with supermarkets growing only 0.9% and hypermarkets declining 2.3%.
In the short term, hypermarkets are likely to benefit from a K-shaped recovery, offering a wide range of value-oriented options whilst simultaneously offering the most extensive choice of products for shoppers wanting to trade up.
Looking longer-term, Nick Gladding, Senior Retail Analyst at IGD, said: “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)
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