The report, by Verdict Research, predicts that 2006 will bring the third consecutive year of deflation in the food and grocery sector.
Lower prices saved the consumer more than £1bn in 2005 compared with 2003 and food will cost almost 2% less in 2006 than in 2003.
The report added that the main players could continue their growth by examining small store format retailing and expanding into the non food arena.
It also singled out market leader Tesco for praise. Gavin Rothwell, senior retail analyst at Verdict Research and author or the report, said: “Tesco has been highly successful in putting the customer at the heart of everything it does.”
“It’s Clubcard loyalty scheme has been a key tool that has helped it to give the customer what he or she wants, and it has supported this with a strong focus on value.”
Meanwhile, Tesco is expected to report its third-quarter results tomorrow. Analysts are predicting the retailer to reveal underlying growth of 6% against 7.5% last year.