TOP TAKEAWAYS
- U.S. grocery retail to grow 5.6% to $1.5 trillion in 2023
- U.S. grocery retail to grow 4.2% year over year to $1.56 trillion in 2024
- Food-away-from-home share of 53% in 2022 stands to expand to 55.2% in 2027
The U.S. grocery industry is expected to see moderate growth in 2023, projected at a total rise of 5.6% to $1.5 trillion this year, according to a report from data firm Coresight Research.
This projection is down from an inflation-bolstered 9.2% increase to $1.42 trillion in 2022, however, the report also shows signs of a more challenging environment for traditional grocers as food share gains by restaurants and big-box chains are on the rise.
While inflation continues to stabilize, Coresight found that food-at-home inflation climbed steadily over the first eight months of 2022, peaking at 13.5% year-over-year growth in August — it was the largest uptick in 43 years.
“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.”
However, beyond this year, the data forecasts U.S. grocery dollar sales growth to slow annually marking a sharp contrast to the last few pandemic-influenced years:
- Up 4.2% year over year to $1.56 trillion in 2024
- Up 3.3% to nearly $1.74 trillion in 2027
“Looking forward, we expect the market will follow a decelerating growth trajectory through 2027, as inflation eases in line with consumers’ receding economic uncertainty,” the report said. “A sustained consumption shift toward on-premise channels will also support growth.”
Also notable from the report is the shift of restaurants taking more share from grocers after the pandemic ignited sales for food-at-home, but has now reversed (as of 2021). The research predicts dollars to continue to shift to food service over the next several years.
Of total U.S. food spending, food-at-home held a 47% share in 2022, but Coresight projects that to slide to 44.8% in 2027 based on USDA data. Food-away-from-home share of 53% in 2022 stands to expand to 55.2% in 2027.
“The sustained shift of spending from retailers to food service outlets will likely continue moving forward,” the Coresight report 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-box retailers (mass merchants, wholesale clubs, and major discounters like dollar store chains) are also likely to grab more grocery share, especially supermarkets.
The report said that many notable retailers in the U.S. grocery market are nontraditional grocers, with half of the top 10 largest retailers that sell groceries, also having a large general merchandise offering (Costco, Dollar General, Dollar Tree, Target, Walmart, and Sam’s Club).
“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,” it said.
While conventional supermarket grocery sales in the U.S. shrunk from 69.7% in 2017 to 66.6% in 2022, simultaneously, grocery share for mass merchants and dollar/discount stores rose, with warehouse clubs tallied at the biggest grocery share gains (from 8.7% to 10.9%).
The data indicated that while food retailers, including supermarkets, convenience stores, and specialized food stores, will remain the dominant channel for purchasing groceries in 2023, nontraditional grocery retailers have steadily siphoned sales from traditional food retailers which is expected to continue.
Several factors contribute to the shift, but the most appealing is the one-stop shops that are created for consumers who want to save time and money by consolidating shopping trips. Mass merchandisers and warehouse clubs typically offer goods at lower prices on top of a larger product selection — grocery, clothing, electronics, and home offerings.
The research also predicts discount grocers like Aldi, Grocery Outlet, Lidl, and Save A Lot will build a larger following as well.
“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 locations in 2022.”
