UK Discount Grocers Taking a Bigger Slice of the Pie as Food Inflation Remains Stubbornly High

UK food inflation remains stubbornly high after setting a 45-year record last month. This commentary focuses on how this is driving changes in consumer behaviour that are favouring discount grocers and enabling them to make notable market share gains.

Key highlights include the following:
-- UK food and non-alcoholic beverage inflation for April remained stubbornly high at 19.1% after setting a 45-year record at 19.2% in March 2023.

-- Consumers have responded to the inflationary pressures by altering their behaviour and curtailing or relocating their spending.

-- These changes in consumer behaviour have benefitted discount grocers and have given them the opportunity to achieve sales growth significantly above that of their conventional peers.

-- While we expect this dynamic to continue for some time, as economic conditions normalize we anticipate that volume growth trends will gradually return to historical levels in the context of an intensely competitive operating environment.

-- We believe discount grocers should see a structural benefit, holding on to at least some of their recent market share gains, and believe that their existing long-term growth trends could be amplified, especially against the backdrop of discount grocers' efforts to continue to increase their store count.

“Consumers’ efforts to curtail their spending, including seeking promotional discounts on individual items, substituting branded offerings with private label products, and trading down to more affordable offerings within the same product category, have benefitted discount grocers, allowing them to make notable market share gains,” said Moritz Steinbauer, Vice President, Team Lead—Diversified Industries, DBRS Morningstar.