Global sales of food and beverage are set to increase by USD653.6bn over the next five years, reaching almost USD3.6trn by 2026, according to analyst forecasts from Edge by Ascential.
Whilst the category as a whole will see a compound annual growth rate of 4.1%, by far the biggest growth opportunity will be within the online channel, which will increase by 10.5% annually, outpacing bricks and mortar retail growth at 3.7%.
For CPG manufacturers and suppliers these figures provide a strong call-to-action, highlighting the need to prioritise ecommerce as a key investment channel to capture a share of this opportunity.
Expect some post-pandemic recalibration within retail
Whilst continuing its growth momentum, growth rates within grocery will naturally be slower than during the height of the pandemic in 2020, when grocery sales soared amidst panic buying, enforced lockdowns and home-based consumption. This deceleration is natural category recalibration, largely due to the reopening of hospitality and foodservice, which is driving more consumption out of home.
This can already be seen as retailers report their performances for the latest quarter. With tough comparisons to 2020, Tesco’s like-for-like sales increased by just 1% in the 13 weeks to 29 May 2021. This follows trends seen worldwide as markets recover. In Australia, Coles Group recorded a 6.1% drop in comparable supermarket sales in the third quarter as customers returned to normal shopping habits.
Meanwhile, sectors such as fashion & apparel and leisure & entertainment which suffered significant sales declines in 2020, can be expected to bounce back with elevated growth rates as society opens back up and retailers recapture lost spend.
Leading growth channels are ecommerce and discount
The fastest growing channel for grocery is ecommerce, which will increase its share of global revenue by 1.8% over the next five years, reaching 6.9% of sales within the category by 2026. This percentage is a global indicator, meaning that in lead ecommerce markets such as the US, China, UK and Western Europe the growth figure will be significantly higher. This makes it the fastest growing channel and a key focus for successful distribution strategies.
Meanwhile the second fastest growing channel is discount, which will grow at an annual rate of 4.4% to reach USD474bn in total sales at the end of the five-year period.
Whilst supermarkets and neighbourhood stores continue to account for the biggest proportion of grocery sales, in terms of overall market share this channel is in decline. Over the five year period to 2026 its share of total grocery sales will edge down 1.1% to 39.2%, from 40.3% in 2021.
This means that - even to maintain existing market share - suppliers cannot rely on supermarkets alone but must actively partner and invest across multiple channels. In order to capture growth, investment should be funnelled as a priority into the channels where consumer spend is increasing.
Boxout: The fastest growing channel for edible grocery over the next five years will be ecommerce. Manufacturers and retailers cannot afford to miss out on this opportunity, as changes to consumer habits drive accelerated online demand.
Where to invest for maximum ROI
Partnerships are key to a successful growth strategy across any channel, but particularly ecommerce. Here it is helpful to assess retailer strategies and performance to understand where the biggest opportunities lie so that investment can be prioritised for maximum return.
Pureplay marketplaces such as Alibaba, Amazon, JD.com and Pinduoduo are major players in the ecommerce sector. Between now and 2026 they will experience the fastest rates of growth and at the same time place greater emphasis on grocery as a strategic priority. Pinduoduo, for example, has outlined its long-term ambition to become the “largest grocer in the world”.
Grocery is a growing focus category for Amazon, with sales of grocery and gourmet food (edible grocery) growing by 20% in Q4 2020 to reach USD2.2bn. Of these, the largest sub-categories were beverages, pantry staples and snack foods. Leading manufacturers PepsiCo, Nestlé and Abbott dominated the top three ranking, demonstrating the strength of their partnerships with Amazon. Third party sales made up just over half of those within the category at 53%.
Traditional retailers accelerating channel investment
Naturally it’s not only pureplayers that are benefiting from the shift online. With rapid channel acceleration and the threat from pureplayer competitors, traditional category leaders are also stepping up their online focus.
The result of online investment strategies can already be seen for some of the world’s largest grocers including Walmart, Kroger and Ahold Delhaize, which appear in our Top Ten ranking for both store-based and ecommerce sales. All have online CAGRs significantly higher than those for store-based sales, as the online channel drives growth for these established players.
Walmart’s ecommerce sales are forecast to reach USD131.6bn by 2026 from USD75.5bn in 2021, accounting for almost one fifth of total sales. To support its growth strategy the global giant plans to invest almost two thirds of Capex into ecommerce and technology initiatives in its current financial year. Among its recent investment initiatives the company has launched a number of online fulfilment pilots, including temperature controlled smart boxes for grocery, driverless trucks and new drone delivery initiatives.
Meanwhile Kroger has partnered with Ocado to open automated grocery fulfilment centres across the US. The first 375,000 sq ft facility opened in Monroe, Ohio, in April with 20 CFCs in the pipeline to support the growth of its ecommerce business. In 2020 Kroger doubled the number of online grocery shoppers that it served year-on-year.
The rise of delivery intermediaries
Even retailers without a dedicated ecommerce presence are also now taking advantage of the acceleration of online to establish last-mile partnerships with delivery intermediaries. This gives them low-cost entry to the channel, and the opportunity to reach new customers.
Intermediaries such as Deliveroo, Instacart and Glovo have partnered with a plethora of established retailers, including Waitrose, Aldi, Kroger and Carrefour. The channel has seen rapid global expansion as the pandemic fuelled demand from home-based consumers. In the US, Instacart is reportedly exploring the use of robotic warehouses to fulfil orders, as it looks to streamline the grocery picking process.
Now the channel is being further developed and disrupted by the emergence of ultra rapid grocery start-ups such as Getir, Gorillas, Zapp and Fancy in major cities worldwide, which use dark stores or ‘micro fulfilment centres’ to deliver groceries in timelines of up to 10 or 15 minutes. Offering a curated range of 2,000-3,500 essential items, these services cater mainly to impulse and distress online convenience purchases, with top sub-categories including snacks, BWS, soft drinks, confectionery, frozen, dairy and ready meals.
The emergence of these new services will drive the channel even faster and provide new micro channels for growth. By identifying potential brands and SKUs that fit within the model, suppliers can tap into new growth and identify priorities for inventory turnover as retailers seek to keep up with rising consumer expectations for convenience.
Prioritising the online channel
The ubiquitous connectivity of consumers will continue to drive growth for the online channel, with new expectations around availability, speed of service and price transparency.
Brands must prioritise a strong digital shelf presence as a top priority and focus on strategies to partner with retailers, marketplaces and new platforms such as those of delivery intermediaries to power ecommerce growth.
Edge can help
As retail consolidates, Edge anticipates that just five leading platforms will account for two thirds of global ecommerce sales by 2025.
We can help you to :
- Understand which platforms will be the most significant for your business
- Decipher the algorithms that power each sale
- Track and optimise your products to power performance in these key retailers