sainsburys trolley supermarket night unsplash

As we have reached the FIFA World Cup final, I’m going to steal a footballing cliché: it’s been a game of two halves.

We started the year trading against a pandemic and with a recovering on-trade sector; grocery spend was reduced, people bought less. As we moved through Q2, following the outbreak of the Ukraine war, the cost of goods increased and supply chains creaked, and consumer spending remained cautious.

But from Q3 onwards, inflation really began to accelerate. Money through the tills increased, but volumes couldn’t recover, and we witnessed the most significant step-change in fmcg spending since the economic crisis in 2009.

Looking at the full year for 2021, nominal growth (total spend) and inflationary growth both sat at 1.6%, with volumes flat. In comparison, as we look to the end of 2022, nominal growth will be lower – at close to 0.5%. Meanwhile, inflationary growth is at around 4.5% – possibly as high as 8% in Q4 – and volumes are expected to be down around 4% [NielsenIQ Scantrack, total GB plus discounters]. It’s the third consecutive year of disruption, and consumers yet again have had to make changes to how they shop.

Across the industry we saw the return of ‘little and often’ shopping this year, with spend per visit sitting at £18.50 – a reduction on last year’s figure of £18.70. Shoppers have also returned to stores, with online share of fmcg dipping to 12% from a pandemic peak of 16%. That being said, over one in four households still shop online for groceries every four weeks [NielsenIQ Homescan], so don’t dismiss the omni-shopper opportunity.

Read more: The Grocer Top Products Survey 2022: How can brands stay in focus?

In terms of bricks and mortar, there were occasional boosts in 2022. The additional bank holidays and heatwaves saw the convenience sector grow ahead of the market between April and September. These effects are evident in the Top Products Survey, which shows growth in areas that tend to overindex in convenience. Sales of carbonated soft drinks are up 7.9% to £265m, sports and energy drinks have soared 16.1% to £251m, while bagged snacking products have grown 6.7% to £229m and handheld ice cream is up 7.1% to £54m [NielsenIQ Scantrack, 52 w/e 10 September 2022, excluding discounters].

And in the second half of the year, as consumers looked for lower prices and better deals, the discounters have seen market share accelerate. A potential combined share of 20% is within reach in 2023.

The latter has been driven by the cost of living crisis. In August, our Homescan panel survey asked how much the crisis was impacting household spend, and 57.7% of households said severely or moderately. When asked to comment on the expected impact over the winter months, that figure rose to 76.8%. The British shopper is looking to cut back and is focusing on three main coping strategies to manage rising inflation. This includes monitoring the cost of their overall shopping basket (26%), opting for private label products (27%) and shopping more at the discounters (23%) [NielsenIQ Homescan survey August 2022].

So, what will this mean for 2023? We expect goods inflation to slow by mid-year and product shortages will hopefully start to ease. However, consumers face another 20% increase in utility prices in April 2023, when the government’s energy price guarantee for the average annual household utility bill rises from £2,500 to £3,000.

For retailers and the hospitality industry, wage and services inflation will also continue, which may lead to higher prices for consumers. And rising interest rates will add to mortgage costs and encourage more saving rather than spending, putting further pressure on retailers and their suppliers.

With consumer confidence at its lowest in 40 years, consumers will be more considered in what they buy. In grocery, they will continue to look to eliminate food waste – buying less fresh but more often, looking to buy best-value pack sizes. Some will also look to drop products altogether until household finances start to stabilise.

Given what the past three years have brought, making any further predictions for the fmcg industry in 2023 is tricky. What we do know is those that play the long game and really understand the consumer, and make the most of chances to offer the best value for money, are going to be the winners.