IGD releases new UK market and channel forecasts

Nick Gladding
Senior Retail Analyst

Date : 20 August 2020

In its new UK Channel Opportunities report, IGD predicts that UK food and grocery market is set to grow by 10%, or £19.1bn, between 2019 and 2022. The report reveals the impact of COVID-19 on the overall market over the next two years, with a breakdown of expected implications and performance on individual channels.

Pandemic accelerates transformation of UK food and grocery market

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, driven by a rise in unemployment and shoppers looking to economise.

Large stores will lose market share faster than previously expected and account for only half of grocery sales by 2022. For convenience stores, which many shoppers used for their main shopping trips during the lockdown, a challenge will be to retain this trade while also managing the transition back to impulse and food-for-now.

Channel highlights

Online: +£7.0bn / +59.2%, 2019-2022

IGD forecasts e-commerce will gain market share faster than previously predicted, following the dramatic influx of new shoppers and bigger order sizes in 2020 brought on by COVID-19. 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.

  • Online market share will increase 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
  • The value of the online channel will overtake that of hypermarkets in 2020
  • Online will take £1 in every £11 spent on grocery in 2022.

Discount: +£6.3bn / +25.4%, 2019-2022

Though eclipsed by the surge in online sales in 2020, IGD expects discount will be the fastest growing channel in 2021 and 2022 as unemployment climbs and shoppers across the income spectrum look to economise. 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.”

  • Discount market share will increase from 12.8% in 2019 to 14.6% in 2022
  • Discount will be the fastest-growing channel in 2021 and 2022
  • Aldi and Lidl’s rapid expansion is expected to continue
  • Some variety discounters will see rapid growth as they scale up their focus on grocery, with new openings from B&M and Home Bargains

Convenience: +£5.4bn / +13.2%, 2019-2022

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 centres and transient locations is likely to affect overall channel performance.

  • Convenience market share will increase from 21.4% in 2019 to 22% in 2022
  • The channel benefitted significantly from meeting local shoppers’ needs during lockdown
  • Growth in the channel will moderate over the next two years

Large stores: Supermarkets +£0.7bn/ +0.8%. Hypermarkets –£0.1bn/-0.3%, 2019-2022

For large stores, strong growth at the start of the pandemic – driven by shoppers stocking up and preferring spacious stores – has receded. IGD now expects 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. Making stores easier to shop while also differentiating through their range and emphasising value will be vital as stores pivot towards more functional retailing.

  • Hypermarket market share will decrease from 8.4% in 2019 to 7.6% in 2022
  • Supermarket market share will decrease from 46.1% in 2019 to 42.3% in 2022
  • After a boost to sales in 2020 from the pandemic, supermarket growth will turn negative by 2022

Resources for Retail Analysis subscribers

  • The full report is available to subscribers here

  • Join our subscribers only Future Talk by Retail Analysis webinar on September 16th. Sign up details available here shortly

Other resources

  • A free dynamic visualisation of the report is available here

  • Video - UK forecast lead analyst Nick Gladding talks through the thinking shaping the numbers here