U.S. grocery retail market pegged to grow nearly 6% for 2023

The U.S. grocery retail market stands to see moderate growth in 2023, marked by lower inflation, an ongoing consumer shift toward foodservice and share gains by nontraditional grocery retailers, according to Coresight Research.

In its latest “Market Navigator: U.S. Grocery Retailing” report, released in late June, Coresight projects total U.S. grocery retail sales to rise 5.6% to $1.5 trillion this year, down from an inflation-bolstered 9.2% increase to $1.42 trillion in 2022.

Inflation is expected to be less of a factor for 2023 as food-at-home pricing continues to recede. Coresight noted that food-at-home inflation climbed steadily over the first eight months of 2022—peaking at 13.5% year-over-year growth in August 2022, the largest uptick in 43 years—but relaxed gradually to 8.4% in March 2023.

Indeed, the latest Consumer Price Index data from the U.S. Bureau of Labor Statistics showed May food-at-home inflation at 5.8%, about half of its year-ago level. The U.S. Department of Agriculture, Coresight reported, estimates a 6.6% overall consumer price inflation rate for food categories this year.

“As such, we expect a moderate real-term (volume) retail sales decline in the grocery market in 2023, as consumers remain judicious with their spending,” Coresight said in its analysis. “There is a potential for a wide variation in company performances across the sector in 2023 due to inflation uncertainty. Although we expect food-at-home inflation to slow significantly in the second half of the year, grocery retailers may continue to experience unexpected cost increases from consumer packaged goods vendors, which will likely be passed along to consumers.”

Source: Coresight Research, "Market Navigator: U.S. Grocery Retailing" report, June 2023.

Beyond this year, Coresight forecasts U.S. grocery retail dollar-sales growth to slow annually, up 4.2% year over year to $1.56 trillion in 2024 and later up 3.3% to nearly $1.74 trillion in 2027. That would mark a sharp contrast to the past few pandemic-influenced years, as grocery retail sales growth of 3.8% to $1.13 trillion in 2019 jumped to 10.8% to $1.25 trillion in 2020, fell to 4.4% growth to $1.3 trillion in 2021 and surged back up 9.2% to $1.42 trillion last year.

“Looking forward, we expect the market will follow a decelerating growth trajectory through 2027, as inflation eases in line with consumers’ receding economic uncertainty,” Coresight’s report said. “A sustained consumption shift toward on-premise channels will also support growth.”

Restaurants to take more share from grocers

The pandemic-triggered consumer shift from food-away-from-home to food-at-home—starting in 2020 and igniting a sales windfall for grocers—reversed beginning in 2021 and looks to bring more food market share to foodservice over the next several years, according to Coresight.

Of total U.S. food spending, food-at-home held a 47% share in 2022, yet Coresight projects that percentage to slide to 44.8% in 2027, based on USDA data. Meanwhile, food-away-from-home share of 53% in 2022 stands to expand to 55.2% in 2027.

Source: Coresight Research, "Market Navigator: U.S. Grocery Retailing" report, June 2023.

Prior to the pandemic, a “challenging decade” had seemed in store for grocery retailers as restaurants and other foodservice operators snatched dollars from supermarkets by serving up convenient meal options to time-squeezed consumers, Coresight explained in the study. The reversal of the food-at-home spurt as COVID-19 waned further underscored the “strength and resilience” of restaurants, the researcher observed.

“The sustained shift of spending from retailers to foodservice outlets will likely continue moving forward,” Coresight stated. “If retailers want to effectively compete for an increased share of total consumer food spending, they should consider developing in-store experiences that match out-of-home dining offerings or increasing their foodservice options that amplify convenience, affordability, nutrition and culinary experiences.”

Big-boxes feed on grocery

With inflation honing consumers’ value instincts and convenience a top-of-mind attribute for shoppers, big-box retailers—including mass merchants, wholesale clubs and major discounters (dollar store chains)—are likely to grab more grocery market share from traditional food retailers, namely supermarkets, Coresight predicts.

“Many notable retailers in the U.S. grocery space are nontraditional grocers, with half of the top 10 largest retailers that sell groceries also having sizable general merchandise offerings (Costco, Dollar General, Dollar Tree, Target, Walmart and Sam’s Club),” the report said. “These retailers generally use grocery to drive store traffic, often leading to sales of higher-margin general merchandise items. This practice, in turn, incentivizes these retailers to price groceries aggressively, as they have numerous avenues to monetize grocery-driven traffic.”

Conventional supermarkets’ U.S. grocery sales share shrunk from 69.7% in 2017 to 66.6% in 2022. During that time span, grocery share rose from 18.4% to 19% for mass merchants and from 3.1% to 3.4% for dollar/discount stores, Coresight reported. Warehouse clubs tallied the biggest grocery share gain, from 8.7% to 10.9%.

Source: Coresight Research, "Market Navigator: U.S. Grocery Retailing" report, June 2023.

“Food retailers (including supermarkets, convenience stores and specialized food stores), which were responsible for over three-quarters of the grocery market’s 2022 sales, will remain the dominant channel for purchasing groceries in 2023. However, over the past few years, nontraditional grocery retailers have steadily siphoned sales from traditional food retailers, a trend we expect to continue moving forward,” Coresight explained in its study.

“Several factors are contributing to this shift,” the researcher noted. “Mass merchandisers and warehouse clubs typically offer goods at lower prices than conventional supermarkets, making them more attractive to value-oriented shoppers. Additionally, they offer a comprehensive product selection—including grocery, clothing, electronics and home offerings—creating one-stop shops that appeal to consumers who want to save time and money by consolidating their shopping trips.”

Still, e-tail giant and Whole Foods Market owner Amazon remains a key grocery player on the brick-and-mortar grocery front, and the inflationary environment has helped discount grocers like Aldi, Grocery Outlet, Lidl and Save A Lot build larger consumer followings, Coresight added.

“We believe that grocery discounters such as Aldi will continue to exert margin pressure on retailers in the short and medium term, as they attract inflation-impacted, price-sensitive customers while rapidly expanding their brick-and-mortar fleets,” the report said. “Meanwhile, we expect Amazon to continue causing market disruption as it builds out its multichannel grocery model. The company opened 22 new Amazon Fresh [supermarket] locations in 2022.”