With inflation rising, and this set to continue in 2022, the fact that 59% of grocery shoppers say that savings available via loyalty schemes have become more important to them since the COVID-19 pandemic began highlights how critical recent investments made in such schemes by the big-four supermarkets will be at fighting back a resurgent discounter sector.

COVID-19 brought record demand for the grocery sector, with all grocery retail sales growing 6.8% in 2020 and only expected to fall 0.6% in 2021, as greater time spent at home grew in-home food and drink needs. More flexible working will mean that in-home volumes continued to be heightened and this should boost the channels, supermarket, discount and online, which thrive on big-basket demand.

However, in-store sales at supermarkets have been impacted by heightened online use during the pandemic. Serving similar needs, the expected legacy boost to online will mean this is a persisting issue for large-format stores. Reinvesting in the ‘multi-mission’ experience, including non-foods and services, will be important in creating a modern format that serves the needs of shoppers and provides a fully differentiated experience to online ordering.

The biggest opportunity for supermarkets in 2022 is to recapture some shoppers on the strength of their value offering. While inflation is rising in food and drink, it is currently rising quicker in out-of-home venues, and for grocery retail this brings a significant opportunity to drive meal replacement solutions for events usually celebrated out of home. Loyalty schemes will play a key role in keeping weekly shopping bills down, and grocers’ value offering in non-foods, particularly clothing, will also find a greater audience moving forward than the patchy demand provided since the pandemic began.

Key issues covered in this Report

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

  • Market size for all grocery retail sales and supermarket sector sales.

  • How consumers shop for groceries and how frequently.

  • Retailers used for primary and secondary shops and total sector market shares.

  • Types of stores used currently and expected changes over the next 12 months.

  • Key drivers of supermarket use, and barriers to greater spending in the channel.

  • Attitudes to price, loyalty schemes, sustainability and convenience.

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. Rapidly rising case numbers led to the first national lockdown, starting on 23 March. It wasn’t until 15 June that non-essential stores were allowed to reopen, 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. All four UK nations tightened restrictions further in January 2021, effectively leading to a full UK-wide lockdown, and it wasn’t until 19 July that England returned to near-normality. The Welsh and Scottish governments have tended to take a slightly more cautious approach to the one planned for England.

The emergence of the Omicron variant in late November 2021 has created additional uncertainty and travel and social-distancing restrictions have been tightened significantly. In England, the move to ‘Plan B’ meant that masks were made compulsory in shops and on public transport, people were recommended to work at home where possible, and people must show a COVID pass to enter certain leisure venues.

At the time of writing, however, the government believed that there was no need for the country to return to a full lockdown. Mintel’s own COVID-19 Tracker data showed that in the week to 1 December the new variant had not had an impact on consumer sentiment: 15% were extremely worried about the risk of being exposed to COVID-19, unchanged from the two previous waves of research.

The UK’s vaccination programme started on 8 December, 2020. As of 1 December, 2021, 51m people had received their first dose of the vaccine and 46m had received their second dose. A further 19m have received a booster dose, and the government had announced a significant scaling up of the booster programme.

The government’s furlough scheme ended on 30 September, and the Office for National Statistics (ONS) estimates that 1m employees were still furloughed at the end of the scheme. However, job vacancies are high, meaning that the ending of the scheme will not have as damaging an impact on unemployment levels as was once feared, and post-furlough data on job vacancies has been strong.

Economic and other assumptions

Mintel’s economic assumptions are based on the Office for Budget Responsibility’s central scenario included in its October 2021 Economic and Fiscal Outlook Report, but also take into account predictions made by other economic forecasts, including the Bank of England.

After the fall of 9.8% over the course of 2020, the OBR’s scenario suggests that UK GDP will have grown by 6.5% in 2021, and will increase by 6% in 2022. This is significantly more positive than the OBR’s March 2021 forecasts, which were themselves more optimistic than previous estimates. Even more importantly for consumer-facing markets, the OBR expects household consumption to grow by 9.8% in 2022.

In the October OBR report, unemployment was forecast to peak at 5.2% in Q4 2021, but the positive data from the three months to September 2021 means that expectations have already shifted for the better.

As with GDP, the OBR’s latest forecast is more positive than the one contained in OBR’s March 2021 report, but the OBR does raise the prospect of long-term scarring on employment, especially in the more exposed retail and hospitality sectors. More recently, the combination of ongoing supply chain challenges and the emergence of the Omicron COVID variant means that some forecasters have started to revise their 2022 expectations downwards.

Beyond COVID, probably the biggest challenge facing the economy is the rapid increase in inflation. The CPI measure of inflation showed that consumer prices had risen by 5.1% in the year to November 2021, the highest level in over a decade.

Even before the full reopening of the economy, retail sales and Mintel’s own Household Finance Tracker provided encouraging signs of a rapid return to consumer confidence, and sentiment remained high throughout the summer. By October, however, supply chain disruption and rising inflation meant that confidence had started to dip, although all three of Mintel’s measures of sentiment were still well ahead of where they were pre-pandemic.

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-square-foot small high-street supermarkets to over 100,000-square-foot hypermarkets, with an average supermarket size of around 39,000 square feet. 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.

Discounters are excluded from our definition of supermarkets as, while often similar in size to the supermarkets of the leading players, in reality they fall between the supermarket and convenience sectors. While touched upon in this Report, they are covered in more detail in Mintel’s Food and Non-food Discounters – UK, 2021 Report.

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