Food and Beverage Business
Manufacturing

UK food and drink market predicted to fully recover by 2025

UK food and drink market predicted to fully recover by 2025 2025, recovery, Total UK food and drink market Food and Beverage Business

The UK food and drink market is projected to reach a value of £315.2 billion by 2028, experiencing a substantial growth of 19% from 2023 (£265 billion), according to a unique new forecast from IGD. This comprehensive outlook combines projections for both eating in and eating out, providing a holistic view of the entire food and drink market over the next five years. Inflation is a major driver of the forecasted growth, with IGD predicting that it will peak in March 2023. However, the market’s real growth is constrained due to the impact of the cost-of-living crisis on consumer spending. As a result, the eating out sector is particularly affected as consumers choose to save money by eating at home.

In the retail sector, consumers are also opting for private label and discount options. It is anticipated that the market will stabilize by 2025 as inflation decreases and household disposable incomes rise.

Short-term view: 2023 – 2025

The current economic climate has caused a shift from eating out to eating in as consumers tighten their belts. Retail has experienced a transition from hypermarkets and supermarkets to discounters, convenience stores, and online platforms. Additionally, consumers are down-trading to more affordable products.

UK food and drink market predicted to fully recover by 2025 2025, recovery, Total UK food and drink market Food and Beverage BusinessIn the short term, the foodservice sector is experiencing a more substantial decline compared to retail. This is due to consumer spending reductions and a decrease in market participation. From 2020 onward, lockdowns have resulted in a shift from eating out to eating in, followed by a resurgence in dining out from 2022. However, retail has managed to reclaim some market share in 2023 as consumers prefer more affordable and convenient meal options such as meal deals and ready-made meals.

Long-term view: 2025 – 2028

In the long term, the return to eating out will be counterbalanced by an increase in food-to-go options offered by retailers. Larger format stores will also dedicate more space and range to food products. By 2028, the industry’s real value will nearly reach pre-pandemic levels. This illustrates the lasting impact of the pandemic and the cost-of-living crisis on consumer spending habits outside of the home.

Total food and drink via the retail channel

This year, the food and drink retail sector is expected to experience an annual growth rate of +15.1% due to high inflation. However, when accounting for inflation from 2023, the market is projected to decline by 2% in real terms as consumers cut back on purchases to save money. In 2024, there will be a continuation of the trend towards purchasing cheaper products, including private label options, and a shift towards discount retailers like Aldi and Lidl. To compete, larger retailers will focus on implementing loyalty schemes, price matching, and reducing prices on own-label products.

Bryan Roberts, Global Insight Leader at IGD, commented on the outlook for the UK food and drink retail landscape, stating, “Discounters are playing a significant role during the cost-of-living crisis as people continue to seek ways to save on their food costs. This trend, coupled with their planned store expansions, is reflected in their projected growth over the next few years.”

Roberts further adds, “While discounters dominate in the short term, as costs level out and shoppers regain confidence in discretionary spending, we will witness a return to multi-channel usage. Shoppers will maintain a mixed shopping repertoire, prioritizing convenience and experience while still employing some cost-saving behaviors that will have become deeply ingrained by this point. This provides opportunities for other channels, particularly as the timing coincides with a slowdown in discounter expansion plans.”

He concludes, “Despite consumers’ ongoing pursuit of savings, initiatives such as strong value messaging and loyalty schemes will continue to be prevalent in the short term.”

Total food and drink consumed through the UK eating out channel

Eating out is anticipated to experience modest growth of 4.1% in 2024, primarily driven by price increases that lag behind commodity inflation rates. However, this growth will be offset by a continued reduction in visits and down trading within the sector. Looking towards the longer term, hospitality volume growth is expected to rebound at the start of 2025 as real wage growth and consumer confidence improve.

Examining the challenges and opportunities for the eating out market over the next five years, Nicola Knight, senior analyst and sector expert, states, “Eating out will gradually return as household incomes rise in the mid-term, but consumers will expect exceptional experiences and high-quality offerings. Full-service establishments will be particularly attractive, creating a market polarization between special treat occasions and everyday quick-service restaurant visits.”

Knight continues, “In the short term, restaurants will need to employ strategies to manage customer spending. This will involve offering fewer or smaller courses, promoting cheaper alternatives, and providing deals and discounts. Restaurants must work diligently to attract customers back in the long term, which will require improving value and experience, cultivating loyalty, and encouraging patrons to upgrade their meals and order more courses.”

She further suggests that businesses should consider utilizing loyalty scheme data to retain customers effectively. Drive-thrus, fuel station concessions, and locations in leisure facilities will also prove popular strategies for quick-service restaurants.

While the overall market shows positive signs in the long term as the country recovers from the cost-of-living crisis, consumers will still feel the lag in price reductions for food due to factors such as wages and commodity costs. Therefore, businesses should remain mindful of how they can continue to support customers in saving money, even during the industry’s recovery phase.

The full report is available to subscribers of IGD Retail Analysis:

Click here to access the Total UK food and drink market outlook.

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