As IGD releases its new five year forecasts for the UK grocery market, senior retail analyst Nick Gladding outlines the thinking behind the new numbers.
Market growth to slow
Over the next five years the market will grow by 16.3%, a significant slowdown on the 19.5% of 2009-14, reflecting continuing shopper actions to control their grocery expenditure. The slow growth follows a challenging year to April 2014 when the market increased in value by just 2.8% as more shoppers migrated to discounters and took advantage of new price comparison tools. In the current year, IGD expects only a marginal uplift in growth as well communicated price cuts deliver some volume growth. However growth is set to slip back next year as expected interest rate rises prompt shoppers to again shop more cautiously.
Opportunities concentrated in three fast growth channels
Sales in the three fast growth channels of online, discount and convenience are set to increase by £31.3bn, equivalent to 110% of market growth, with shoppers using a wider repertoire of channels to meet their grocery needs - our ShopperVista research shows that shoppers now typically make 24 shopping trips and use 3.9 channels per month. While supermarkets and convenience are the most widely used channels, shoppers are using more types of retailer than ever before.
Online to grow fastest over next five years
Over the next five years, online will be the fastest growing channel with sales more than doubling to £16.9bn. The channel will benefit from an increasing choice of retailers, devices and fulfilment options, and lower delivery costs will also drive growth. One of the biggest drivers will be the rollout of grocery Click & Collect to more locations. Tesco has prioritised the rollout of Click & Collect in its drive to create a seamless customer experience, while Asda is on track to bring Click & Collect to 1,000 locations by 2018, including many non-Asda sites that will help grow its market share in the South.
Discounters will growth fastest in 2014/15
IGD expects discounters will be the fastest growing channel for the third year running in 2014 with sales doubling over the next five years to £21.4bn. The channel will benefit from a virtuous circle of increasing sales densities making more locations viable, which will attract new shoppers. Improving perceptions value and quality perceptions of Aldi, Lidl and the high street discounters will also fuel future growth.
Convenience to take almost a quarter of the market
Convenience will take almost a quarter (24.1%) of the market by 2019 as shoppers increasingly prefer to shop locally as part of a multichannel approach to their grocery needs and investment, particularly from multiples and symbol groups, accelerates. Shopper-centric and mission-based thinking will continue to create opportunities.
Lower sales expected through superstores and hypermarkets
Sales through superstores and hypermarkets will decline by £2.9bn as shoppers migrate to alternative formats but they will remain by far the biggest channel in the market. While they will lose market share they will still account for over one-third of the market in 2019 and play a vital additional role as home delivery and click & collect hubs (whose sales are captured in the online channel).
The decline in sales at large format stores will be slowed by retailers' investments to improve the shopping experience. Easier-to-shop store layouts, a more inviting store ambience and more widespread adoption of digital technologies will all play a part here. A remodelling of the non-food offer to focus on priority categories (and free up more space for food and foodservice) will also help to renew the appeal of large format stores.
For the latest UK Grocery: market and channel forecasts, click here.
Note: all data is for the year to April