Key Trends Transforming the Food Retail Landscape

In the last few years there have been major and hugely significant changes in the UK food retail sector. These are having what could be described as seismic impacts on the main players in the sector – the multiple supermarkets who account for about 97-98% of all the food sold in the UK!

These changes have been driven by changing consumer habits which are revolutionary, rather than evolutionary, in their nature and impact. The revolutionary nature makes it much more problematical for major players to react to – just as a supertanker is less manoeuvrable and takes more time to change course!

Over the next few weeks, this blog will address the three significant retail market changes, which are

1. The growth of convenience stores as a proportion of where consumers do their food shopping
2. The growth of online shopping
3. The “polarisation” of food shoppers’ destination for their food shopping
           a. The growth of “upmarket” consumption in Waitrose and Marks & Spencer
           b. The massive increase in food spend in the discounters such as Aldi and Lidl

In this week’s blog we will look at the overall impact of these changes and how they are changing the way in which we shop for food as a nation.

The body that represents the way in which food suppliers and retailers carry out their business is IGD – The Institute of Grocery Distribution. Their 5 year market forecast compares the current consumer spend via various food purchase channels and compares this with a “five year ahead” forecast to plot the expected channel changes. Their latest 5 year forecast predicts the following changes as shown in the table below –

What this shows is that in the 5 years to April 2015 all channels in the Food retail market in the UK showed positive growth. The largest channel – Superstores and Hypermarkets – showed modest growth in real terms of 4.2%. The three channels showing large growth were

Convenience stores   £29.6bn up to £37.7bn   + 27.3%
Discounters   £ 6.2bn up to £12.8bn   +106.9% !!
Online   £ 4.2bn up to £ 8.9bn   +116.7% !!

Whilst growth in real terms is forecast to slow down in the 5 years 2015-2020 at £23.1bn compared to the actual growth 2010-2015 which was £25.5bn, the re-alignment through the various channels is remarkable-

• Superstores and Hypermarkets is forecast to remain the largest channel at £69.6bn in 2020, albeit a 2.9% decline on £71.7bn actual sales in 2015 
• Convenience channel opens a very clear gap against small supermarkets - £2.3bn in 2015, forecast to grow to £8.3bn by 2020
• A similar growth in the opening gap between Discounters and “Other Retailers” (the independents, symbol groups and private corner shops). Discounters had a £1.8bn actual gap in 2015 and this is forecast to grow to £12.4bn by 2020. 
• Online is currently the smallest value channel - £8.9bn in 2015. This channel is forecast to overtake “Other Retailers” by 2020 with sales of £17.2bn Online against the “Other Retailers” £10.8bn.

Over the coming blogs we will look in more detail at what is driving the growth in these increasingly important channels, the impact on the established multiples and how they are trying to respond via reduced margins, store closures and range reduction.