The total UK food and drink market is predicted to be worth £315.2 billion by 2028, experiencing a growth of 19% from 2023 (£265 billion), according to a new forecast from IGD that presents a combined outlook covering eating in and eating out.

Merging IGD’s UK retail channel and eating out forecasts, the outlook provides a total picture of the challenges and opportunities across the whole food and drink market over the next five years, including a comparison and breakdown of both sectors.

Forecasted growth for the total market is driven largely by inflation, which IGD predicts peaked in March 2023. However, growth is down in real terms across the total landscape due to the impact the cost-of-living pressures are having on consumer spending, with the eating out sector more impacted as consumers switch to eating at home to save money.

In retail, consumers are also trading down to private label and discount options. By 2025 the market will begin to stabilise as inflation lowers and household disposable incomes rise, IGD said.

Short-term view: 2023 – 2025

Consumers are switching from eating out to eating in as cost pressures rise, as well as down-trading to cheaper products.

Foodservice is experiencing a bigger decline in the short-term compared to retail as consumers reduce spending or drop out of the market completely. In 2020 the effect of lockdowns showed a switch from eating out to eating in followed by a bounce back in dining out from 2022. But retail has stolen some ‘share of stomach’ back in 2023 as consumers switch more routine and impulsive eating out occasions to eating in, using meal deals and ready meals to satisfy the demand for ease and speed on a lower budget.

Long-term view: 2025 – 2028

In the longer term the switch back to eating out will be counterbalanced by an increase in food-to-go options from retailers and additional space and range dedicated to food in larger format stores, said IGD. By 2028 the real value of the industry will be just shy of pre-pandemic levels, showing the longer-term effects of the pandemic and the cost-of-living crisis on consumer spending appetite and habits out of the home.

Total food and drink via the retail channel

IGD predicts that this year the food and drink retail sector will experience an annual growth rate of 15.1% driven by high inflation. Removing inflation from 2023, the market will decline by 2% in real terms as shoppers reduce how much they’re purchasing to save money.

In 2024, the UK will see a continuation of trading down to cheaper products, such as private label options, and shoppers switching to discount retailers such as Aldi and Lidl. The multiples will look to compete using loyalty schemes, price matching, and own-label price reductions.

Commenting on the outlook for the UK food and drink retail landscape, global insight leader at IGD Bryan Roberts said: “Discounters are playing a big role throughout the cost-of-living crisis as people continue to look for ways to save on their food costs, and this this – plus their store opening programmes – is reflected in their projected growth over the next few years.

“During this period it’s going to be hard for the other channels to compete, however as costs start to level out and shoppers become more comfortable with discretionary spending over time, we will begin to see more multi-channel use. Shoppers will continue to maintain a mixed shopping repertoire, prioritising convenience and experience while continuing with some money-saving behaviours that will have become ingrained by this point. This creates opportunities for other channels, particularly as the timings will coincide with a slow-down in discounter expansion plans.

“While shoppers continue to look for ways to save money, a variety of initiatives such as strong value messaging and loyalty schemes is set to continue in the short-term.”

While the long-term outlook for the overall market is fairly positive as the country moves away from cost-of-living pressures, consumers will still be impacted by a lag in price reductions where food is concerned, due to factors such as wages and the price of commodities. IGD said businesses should be mindful of how they can continue to support consumers in saving money, even as the industry moves towards a state of recovery.