Inflation across all food and grocery categories in the UK has well and truly set in, with consumers forced to pay more for their daily essentials and treats, boosting annual spend per head by £55 to £2,686 in 2017, according to research and consulting firm GlobalData.
The company's latest report states that the steepest price hikes will be seen across alcohol, sugar and sweet products, and meat and fish over the next five years, impacting volume growth in these categories and compelling consumers to trade down. However, price rises will ultimately be unavoidable, with annual spend per head set to be £440 higher by 2022.
Tom Berry, Retail Analyst for GlobalData, explains: 'The fall in the value of the pound since the EU referendum, combined with poor harvests, has caused significant price rises in imported produce, pressurising retailers to find supply side efficiencies, reduce margins or increase prices for consumers.'
The sector is already incredibly price competitive and retailer margins, bar Ocado, have all been eroded over the last five years, forcing shoppers to pay more for a basket as retailers have little flexibility to absorb higher costs. This comes despite moves to source more produce from within the UK to offset currency fluctuations.
Emphasis on tightening budgets means that the discounters will continue to disrupt the sector over the forecast period. Aldi overtook The Co-operative in 2016 to become the UK's fifth largest grocer with a 4.9% share of the market, while Lidl is vying for eighth position as it edges closer to Waitrose, with a forecast share of 3.6% in 2017.
Berry adds: 'Aldi and Lidl source 77% and 70% of their core product ranges from British suppliers, respectively, leaving them far better protected to cope against currency fluctuations compared to competitors such as Sainsbury's, which sources 50% of its products domestically. The discounters will therefore be in a stronger position to minimise price inflation and undercut the big four, appealing to price sensitive consumers in search of greater value.'
- Information based on GlobalData's report: The UK Food & Grocery Market 2017-2022.