The U.S. grocery market is forecast to be worth $1,722 billion by 2022, with strong growth expected in both the online and discount channels, according to new figures released by IGD, a UK-based international grocery research organization.
Key findings of the study, “Store of the Future,” include:
- IGD forecasts that the U.S. grocery market will have a compound annual growth rate (CAGR) of 3.6% for the 2017-2022 period.
- Online will be the fastest growing channel in the United States over the next five years, with a CAGR of 18.1%, representing a $20 billion opportunity.
- The discount grocery channel is also expected to generate growth, driven by dollar stores and hard discount operators.
- The market share of hypermarkets and supermarkets is forecast to slip back over this period, as retailers continue to rationalize their store networks, but investment will continue as retailers focus on ensuring they stay relevant.
“The online channel is developing at pace in the U.S., and although many leading retailers have operated online for over 20 years, it is only in the last three years where we have seen an acceleration of investment and activity,” says Stewart Samuel, North America program director. “In the next five years, the online grocery channel will grow by $20 billion, significantly contributing to growth in the U.S. grocery market.”
Three factors underpin this growth:
- To capitalize on growth, many retailers are using their store networks to offer convenient collection options that are often free or low cost.
- Meal kit delivery services are growing at a rapid pace, with specialist companies continuing to expand their operations. Grocery retailers are also entering the foray by testing a curb-side pickup service, or purchasing meal kit service providers, like when Albertsons acquired Plated.
- Grocery retailers are partnering with third-party companies to enter the online channel with relatively lower capital investment.
“A key area for retailers to focus on is to make online shopping as convenient as possible, with a particular emphasis on making it easier to order frequently purchased products,” adds Stewart. “New technologies also have an important role to play in this space, with voice-based ordering set to revolutionize how products are ordered.
“Technology is not just important for ordering products, but also has a big impact in other online fundamentals like fulfilment and delivery,” adds Stewart. “For example, the use of robots to make deliveries and pick orders in store and the advent of drones making small deliveries by air are examples of how new technologies can improve the economics of the online grocery market, although it may be many years before they are deployed at scale in the U.S. market.
“The discount channel is also gaining traction across the U.S.,” he continues. “Dollar store chains continue to expand at pace, opening several hundred new stores each year. Discounters are also increasingly expanding their fresh food offers, and with Aldi aiming to have a store network of 2,500 by the end of 2022 and Lidl entering the market, the discount channel is becoming much more mainstream in the U.S.
“The performance of the convenience channel will hold steady, and we’re expecting consolidation, which so far has been driven by 7-Eleven and Couche-Tard, to continue,” says Stewart. “Convenience stores will increasingly focus on improving their fresh food offer and selling innovative food-to-go ranges, both of which are high priorities for the convenience store shopper.”
“We expect hypermarkets and supermarkets to face a more challenging time, with both experiencing a declining market share over the 5-year period,” adds Stewart. “However, as sales shift online, both types of store are innovating with new ways to entice shoppers in store and merge the digital and physical worlds, for example, by developing healthcare hubs, investing in their prepared foods and food-to-go ranges and using digital tools to inform, engage and reward shoppers.”