In a period where basket sizes have grown and frequency of shop has fallen, it would be logical to assume that the physical shopping format which best serves big-basket demand, supermarkets, will have seen a significant uptick in sales. However, whilst the supermarket sector has seen its strongest growth (+4.3%) in almost a decade, this growth figure lags that of the overall grocery market (+7.6%) and means that large-format grocery stores have once more lost share of all grocery sales – falling to under half (47.5%) for the first time.

Whilst COVID-19 has seen shoppers do fewer ‘top-up’ shops, a key driver away from larger-format stores in the past decade, this has been replaced by two key trends which have served to limit supermarket sales: more local shopping and online growth. With consumers naturally more confined to their immediate area we have seen localised shopping tick-up, on average 25% have shopped more with local businesses since the pandemic hit, and with many large-format stores in out or edge of town locations this has served to limit demand. However, it is the rapid growth in online sales, which we estimate will grow 72% in 2020, which has served to most limit store-based supermarket sales, with online a channel that also excels in serving big-basket demand. Such behaviours have been consistent throughout the year but saw particular peaks in the first and second lockdowns, and will likely be present once more during the January 2021 lockdown.

The longer-term threat to supermarkets is that these purchasing patterns become further engrained. We are expecting online sales to dial back a little once the peak of the pandemic has passed but equally we are expecting a legacy boost to the channel – and this will mean more big-baskets are fulfilled away from larger-format stores. The financial pressures being placed on grocery retailers has also served to see many look to move away from counter-based grocery services, and fill more space with concessionary partnerships. Whilst the latter serves to boost the appeal of large-format stores through ‘multi-mission’ shops, the latter has the potential to remove one of the USPs of large-format stores in the food and drink sector.

However, there are opportunities for supermarkets moving forward. They will remain the dominant channel and we expect the share of sales moving away from large-format stores to ease. Longer-term working at home practices may give a boost to basket sizes and when concerns around store visits ease, this may allow more opportunities for supermarkets to tap into this. However, to fully capitalise on this, the large-format store must represent the best version of store-based shopping, and this means more experiential and retail-based theatre in-store and a celebration of food and drink. If customers are to be convinced to make the trip to often ‘out of the way’ stores, there must be reasons and experiences there that cannot be replicated elsewhere for them to do so.

Key issues covered in this Report

  • The impact of COVID-19 on grocery shopping behaviour and the impact on channel usage.

  • How consumers shop and how frequently for groceries.

  • Retailers used, both in a primary and secondary role.

  • Satisfaction levels with and perceptions of the leading grocery retailers.

  • Attitudes to the role of grocery retailers in communities and support for local producers in light of the UK formally transitioning from the European Union.

COVID-19: Market Context

The first COVID-19 cases were confirmed in the UK at the end of January 2020, with a small number of cases in February. As the case level rose, the government ordered the closure of non-essential stores on 20 March.

A wider lockdown requiring people to stay at home except for essential shopping, exercise and work ‘if absolutely necessary’ followed on 23 March. It wasn't until 15 June that non-essential stores were allowed to re-open, followed by pubs, restaurants, hotels and hairdressers on 4 July, and many beauty businesses on 13 July.

By September, it had become clear that the UK was at the start of a second wave, and social distancing measures were intensified. Continued increases in infection numbers led to Wales implementing a two-week national lockdown from 19 October, England announcing a full month-long lockdown from 5 November, and Scotland introducing a new five-level system of coronavirus restrictions.

Despite these restrictions, however, case numbers continued to increase, and after a brief relaxation for much of the country on Christmas Day, a full national lockdown was announced on the evening of 4 January. There is no defined end date for the lockdown: the legislation presented to Parliament extends to 31 March, but Boris Johnson has said that he hopes that schools will be able to re-open after February half term.

The UK’s vaccination programme started on 8 December, and with both the Pfizer-BioNTech and the Oxford-AstraZeneca vaccines licenced for use in the UK, the government aims to offer a vaccine to 15 million people by mid-February.

Impact of the January lockdown and the vaccination rollout

Much of this Report was prepared in December 2020, before the announcement of the January lockdown, and when the extent of the vaccine rollout was less clear.

However, the content was reassessed and, where necessary, adjusted on 5 January 2021, in order to ensure that our analysis and our forecast expectations still hold true.

Our core assumptions on the path of the pandemic had always included an expectation of severe disruption to markets and consumers’ lifestyles well into 2021, with a strong likelihood that the virus would still be with us even into 2022. Although the second wave of infections and subsequent lockdown puts us towards the negative end of our initial expectations, these developments are still broadly consistent with our previous assumptions.

Similarly, Mintel had factored in the likelihood that an effective vaccine would be available from early- to-mid 2021. The licensing of the Pfizer-BioNTech and Oxford-AstraZeneca vaccines puts us slightly ahead of that assumption, but the challenge associated with rolling out a new vaccination programme to millions of people means that our previous assumptions are still broadly consistent with the new reality.

Economic and other assumptions

Mintel’s economic assumptions are based on the Office for Budget Responsibility’s central scenario included in its November 2020 Fiscal Sustainability Report. The scenario suggests that UK GDP will have fallen by 11.3% in 2020, recovering by 5.5% in 2021, and 6.6% in 2022. GDP isn’t expected to return to pre-COVID levels until the fourth quarter of 2022. The central scenario has unemployment peaking at 7.5% in Q2 2021.

The current uncertainty means that there is wide variation on the range of forecasts, however, and this is reflected in the OBR’s own scenarios. In its upside scenario, economic activity returns to pre-COVID-19 levels by Q4 2021. Its more negative scenario, by contrast, would mean that GDP doesn’t recover until Q3 2024.

The second wave of infections and subsequent lockdown means that the short-term prospects for the country are consistent with the OBR’s negative scenario, but this needs to be balanced against the fact that the vaccine rollout is ahead of even the OBR’s central scenario. Medium- to long-term, then, we are still basing our forecasts and market analysis on the OBR’s central economic scenario.

Products covered in this Report

The main focus of this Report is the supermarkets of the market leaders – those stores in which people have historically done their main shop. Combining market, company and our consumer research data, we analyse why the shift away from supermarkets has occurred, what the state of play is in 2019 and where the sector is heading next.

The term ‘supermarket’ takes in a very broad selection of store sizes. Tesco for example has stores ranging from 10,000 sq ft small high street supermarkets to over 100,000 sq ft hypermarkets, with an average supermarket size of around 37,000 sq ft. Broadly speaking the unifier between these stores is the ability to serve, first and foremost, a shopper’s main shop, or primary grocery needs. As size increases, the range of non-foods and other services such a store can accommodate also increases, with the trade-off being that the largest stores are usually located outside of urban areas and often need a dedicated trip to visit. It is these largest stores that have been most impacted by the trend to smaller, more frequent shopping habits.

Discounters are excluded from our definition of supermarkets as, whilst often similar in size to the supermarkets of the leading players, in reality they fall between the supermarket and convenience sectors. Whilst touched upon in this Report, they are covered in more detail in Mintel’s Food and Non-food Discounters: Inc Impact of COVID-19 – UK, October 2020 Report.

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