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The UK grocery market is set for double-digit growth over the next five years, largely driven by inflation.

A new report by IGD forecast that the UK grocery sector will grow by 11.3% – from £216.8bn to £241.3bn – between 2022 and 2027.

This growth is strongly underpinned by inflation, with only a 3.5% value increase increase predicted, which will moderate from 2023 onwards.

With the war in Ukraine impacting the UK supply chain and food prices expected to increase by 8.9% in 2022, IGD anticipates shoppers will respond to this and the spike in general inflation by making real terms cuts in food expenditure.

Caroline Myers, director of retail analysis at IGD, said: “Our new forecast sees growth for all retail channels. Though discount will naturally benefit from shoppers’ desire to save money, growth will be held in check by increasing competitiveness from other channels.

“The outlook has changed most for larger stores, where we expect more competitive pricing and the development of more inspirational store formats to achieve growth, while convenience is well placed to build on the growth achieved during the pandemic. After largely holding on to sale gains from Covid, service investments and the rollout of rapid delivery will boost the online channel further.

“Many shoppers on tight budgets will adopt a more for less mentality – managing their spend closely by trading down to cheaper ranges and pack sizes, switching brands for private label and seeking out the best promotions. Shopping will also be more planned, with many switching to more overtly value-focused retailers.

IGD said discount will be the fastest growing channel over the forecast period, rising by 23.9% or £7.1bn. Growth will be driven by a combination of households looking to save money, discount retailers expanding their store networks, and variety discounters sharpening their grocery offer.

Online is forecast to growth by 22.6% or £5bn as the channel rebuilds momentum to outpace discount from 2025. Growth will pick up as new order capacity is developed, and rapid delivery services expanded.

Convenience will by up 13% or £5.9bn as the channel returns to outperforming the market following a tough 2021, sustained by ongoing investment from retailers in new and improved stores bringing enhanced capability to the channel.

Supermarkets will growth by a more modest 6.2% (£5.7bn) and hypermarkets by 5.2% (£0.9bn) as both will lose market share without the benefit of new space and strengthening competition from other channels.

Read the full write-up on The Grocer here.

Morning update

On the markets this morning, the FTSE 100 has bounced back 0.4% to 7,235.9pts after recent losses.

Early risers include Finsbury Food Group, up 1.9% to 70.9p, Tesco, up 1.1% to 248.9p and Reckitt Benckiser, up 1.1% to 6,106p.

Fallers include Bakkavor, down 3% to 97p, McBride, down 2.9% to 29.9p and Nichols, down 2% to 1,205p.

Yesterday in the City

The FTSE 100 slumped another 1.5% to 7,205.8pts on weaker than expected UK monthly GDP figures and global concerns over interest rate hikes – taking the index’s losses to more than 5% since the middle of last week.

Again, tech focussed consumer firms were badly hit. Just Eat plunged 15.7% to 1,554.2p, Deliveroo fell 15.6% to 84p, THG was down 9.3% to 112.5p and Naked Wines fell 6.8% to 308.8p.

Other grocery stocks on the slide included Hotel Chocolat, down 7.5% to 295p, SSP Group, down 6.9% to 227.1p, Greggs, down 5.5% to 1,912p, C&C Group, down 4.8% to 194p, Compass Group, down 4.7% to 1,662.5p and WH Smith, down 4.4% to 1,412.5p.

The day’s few risers included McBride, up 1% to 30.8p, Kerry Group, up 0.8% to €92.74, PayPoint, up 0.5% to 573p and Greenecore, up 0.2% to 111.5p.