IGD: Total food and drink market moving towards recovery by 2025

Merging IGD’s sought after UK retail channel and eating out forecasts, the new outlook provides a total picture of the challenges and opportunities across the whole food and drink market over the next five years, including a comparison and breakdown of both sectors.

Forecasted growth for the total market is driven largely by inflation, which IGD predicts peaked in March 2023. However, growth is down in real terms across the total landscape due to the impact the cost-of-living crisis is having on consumer spending, with the eating out sector more impacted as consumers switch to eating at home to save money.

In retail, consumers are also trading down to private label and discount options. By 2025 the market will begin to stabilise as inflation lowers and household disposable incomes rise.

Short-term view: 2023 – 2025

This year has seen a switch back from eating out to eating in as consumers are forced to cut back on spending. Retail has seen a switch from hypermarkets and supermarkets into discounters, convenience and online, as well as down-trading to cheaper products.

Foodservice is experiencing a bigger decline in the short-term compared to retail as consumers reduce spending or drop out of the market completely. In 2020 the effect of lockdowns showed a switch from eating out to eating in followed by a bounce back in dining out from 2022. But retail has stolen some ‘share of stomach’ back in 2023 as consumers switch more routine and impulsive eating out occasions to eating in, using meal deals and ready meals to satisfy the demand for ease and speed on a lower budget.

Long-term view: 2025 – 2028

In the longer term the switch back to eating out will be counterbalanced by an increase in food-to-go options from retailers and additional space and range dedicated to food in larger format stores. By 2028 the real value of the industry will be just shy of pre-pandemic levels, showing the longer-term effects of the pandemic and the cost-of-living crisis on consumer spending appetite and habits out of the home.

Total food and drink via the retail channel

This year the food and drink retail sector will experience an annual growth rate of +15.1% driven by high inflation. Removing inflation from 2023, the market will decline by 2% in real terms as shoppers reduce how much they’re purchasing to save money. 2024 will see a continuation of trading down to cheaper products, such as private label options, and shoppers switching to discount retailers such as Aldi and Lidl. The multiples will look to compete using loyalty schemes, price matching, and own-label price reductions.

IGD