The UK Value, Discount, Variety Stores and General Merchandise Retail channel is set to grow by 5% per year taking its value to £59.4bn in 2027 as more shoppers turn to value-focused retailers to make their budgets stretch further during the cost-of-living crisis. The collapse of Wilko should be seen as an outlier in a sector that consumers will continue to shop at frequently and heavily, according to new research from leading data and analytics company, GlobalData.
Rising prices prompt shift in shopping habits
With annual CPI inflation currently running at almost 8% and food price inflation at over 17% shoppers1are keen to make economies where they can and shopping at discounters has become an increasingly popular course of action.
Nick Gladding, lead retail analyst at GlobalData, comments: “Discount retailers are continuing to benefit from a clear thirst for value among consumers. Our research found that 48% of shoppers say they are trading down to cope with rising prices in essential sectors like food, groceries and toiletries, either by switching retailers or by turning to cheaper products at the same retailer. This proportion rises to 54% for women and 62% for 25-34 year olds. And with average earnings failing to keep pace with inflation, six out 10 shoppers expect their personal finances to worsen over the next six months, according to GlobalData’s latest UK retail trend tracker2, ensuring demand for discounters will continue to be strong.”
Food & grocery sector to drive growth
Food & grocery will be the dominant force within the discount channel, with almost 60% of discounters’ shoppers using them to buy these products and 37% of shoppers stating that the high cost of food has prompted them to make the switch from mainstream supermarkets. Discounters are also appealing to shoppers for the quality of their food as well as low prices. 55% of consumers said they were very or extremely satisfied and 39% somewhat satisfied according to GlobalData’s discounters survey3.
Gladding adds, “Aldi and Lidl are set to be the prime beneficiaries as they expand to meet the surge in demand. Over the next five years we expect the pair to grow their combined sales by almost £10bn as they deliver on their fast-paced store opening programmes and make their stores more compelling. With other operators also targeting grocery, notably Home Bargains and B&M, discounters’ sales of food & grocery are set to rise from £26.3bn to £36.8bn. This will lift discounters’ share of the total food & grocery market from 15.3% to 18.0% over the next five years.”
Home and electricals purchases offer further opportunities for discounters
After food & grocery, the home and electricals sector is set to achieve the biggest cash gain in sales over the next five years of £1.2bn as shoppers turn to discounters to make affordable improvements to their living space, GlobalData predicts. With discretionary purchases limited by the failure of incomes to keep pace with inflation and steep rises in mortgage repayments impacting homeowners, value retailers are well placed to capitalize on demand for competitively priced items for the home.
Efficiency and customer focus are key for long term competitiveness
While the challenging outlook for consumers supports demand for discounters in the short term, longer-term prospects will depend on their underlying competitiveness. The key here will be a relentless focus on operational efficiency to enable low prices and compelling promotions.
Gladding comments: “When the economy does recover, retailers will need to adapt their ranges to retain customer loyalty. Expect to see them increase their focus on quality and improve their ethical credentials. We are also likely to see them broaden their offer of higher priced items.”
