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Carl Collen

BY CARL COLLEN

Thursday 20th August 2020, 09:58 London

Growth forecast for UK grocery market

IGD report predicts that the coronavirus pandemic will accelerate the transformation of the food and grocery industry

Growth forecast for UK grocery market

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The UK food and grocery market is set to grow by 10 per cent, or by £19.1bn to £211bn, between 2019 and 2022, according to the latest market and channel forecast research from IGD.

The new report revealed 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.

According to IGD, the pandemic has accelerated the shift to online, a channel that is expected 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 economise due to rising unemployment, IGD noted.
 
The online segment in the UK is set to grow by £7bn, or 59.2 per cent, for the 2019-2022 period, with online market share increasing from 6.2 per cent in 2019 to 8.9 per cent in 2022.

Online will be the fastest-growing channel in 2020, following dramatic increases in shopper numbers and bigger order sizes, while the value of the online channel will overtake that of hypermarkets in 2020.

“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. "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."
 
In the discount segment, growth will come in £6.3bn higher, up 25.4 per cent for the three-year period, with discount market share rising 12.8 per cent in 2019 to 14.6 per cent in 2022.

IGD said that discount would be the fastest-growing channel in 2021 and 2022, with Aldi and Lidl’s rapid expansion expected to continue.

“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 economise," Wainwright continued. "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 predicted to grow £5.4bn or 13.2 per cent during 2019-2022, with market share increasing from 21.4 per cent in 2019 to 22 per cent in 2022. The channel benefitted "significantly" from meeting local shoppers’ needs during lockdown, IGD explained.

“Having benefited significantly from meeting local needs during lockdown, growth for convenience stores will slow in 2021 and 2022," Wainwright outlined. "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 centres and transient locations is likely to affect overall channel performance.”

For large stores, IGD noted that supermarkets would see growth of £0.7bn, up 0.8 per cent, while hypermarkets would endure a drop of £0.1bn  or down 0.3 per cent.

Hypermarket market share will decrease from 8.4 per cent in 2019 to 7.6 per cent in 2022, the group predicted, while supermarket market share is set to decrease from 46.1 per cent in 2019 to 42.3 per cent in 2022.

“Strong growth at the start of the pandemic – driven by shoppers stocking up and preferring spacious stores – has receded," Wainwright explained. "We expect hypermarkets to revert to sales declines as more shoppers migrate to other channels.

"After a boost to sales in 2020 from Covid-19, supermarket growth will turn negative by 2022. The channel will lose ground, particularly to discount and online, though it will defend its share better than hypermarkets.

“Retaining the loyalty of shoppers who switched to them at the start of the pandemic will be the priority for operators of large stores." he concluded. "Making stores easier to shop while also differentiating through their range and emphasising value will be vital as stores pivot towards more functional retailing.”

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