Food retailers in the UK will need to focus on driving value for customers to maintain market share as the economy reopens, especially for lower-income households amid accelerating inflation, according to an industry study.
The UK-based charity IGD said concerns about inflation doubled to 16% in July compared to April and food prices are expected “to get much more expensive” just as shopper confidence starts to return with the easing of Covid-19 restrictions.
IGD said an index measuring consumer sentiment “remained relatively strong” at minus three in July aided by the Euro 2020 football finals and the coming out of lockdowns, although it added confidence was tempered by the rise of the Delta variant of the virus.
Simon Wainwright, a director of global insight at IGD, said: “During the pandemic and consequent lockdowns, retailers have been able to capitalise on relatively captive audiences. Now, as restrictions lift, shoppers have the freedom to shop around for favourite products, quality and variety. The increase to pre-pandemic levels may be a result of shoppers making up for lost time, boosted by feel-good events such as the Euro finals.
“However, this motivation is only likely to be true of more affluent shoppers. Lower-income households are more likely to be shopping around for value amid rising concerns around price inflation.
“Retailers will need to concentrate on driving loyalty to maintain market share by focusing on range, quality and innovation. There will be a real spotlight on value as inflation rises, particularly for lower-income households.”
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Some 23% of higher-income households believe they will be better off in the year ahead, while 20% expect to be worse off, according to the IGD. However, 23% of lower-income households believe they will be worse off compared to 15% who believe they will be better off.
And despite the operational challenges due to labour shortages, 75% of shoppers still “trust the food and consumer goods industry” to ensure availability of food and groceries, the UK charity said.
Nevertheless, the reduction of government financial support linked to the furlough scheme has weighed on confidence for those in the 18-24 age bracket for a third straight month, with the shopper sentiment index for that age group registering 4 in July versus 8 in April.
The IGD added that the number of food and grocery shops used by shoppers has risen to 13, the highest level since December 2018. “The shift in shopping culture has been seen most in hypermarkets and supermarkets in the last month and is likely to be driven by a combination of the lifting of Covid-19 restrictions, the heatwave conditions and the Euro 2020 finals,” it said.
Overall, at minus three, the Shopper Confidence Index “is one of the highest levels in the last five years”, IGD said. “But this is coupled with several challenges such as the persistent K-shaped economic recovery, which creates increased polarisation between lower- and higher-income households, and rising inflation.”