NEW YORK — A report from Coresight Research predicts the $1.5 trillion US retail grocery market will expand by 1.1% this year, down from 3.9% in 2023. Modest 1.2% consumer price inflation for food will support the growth, the report said, although real-term volume retail sales are expected to slip 0.1% as consumers continue to keep a close eye on their grocery budget.

“Inflation is stabilizing after a 40-year high in 2022 and 2023, and inflation was about 0.9% in August, so the inflation is very low now,” said Sujeet Naik, analyst, Coresight. “But at an aggregate level, the price of groceries remains elevated compared to what it was three or four years ago, and that continues to put pressure on consumers.”

He added that accumulated inflation in the past two to three years has failed to keep pace with income, and consequently, groceries comprise a much larger proportion of the household budget.

Coresight’s “Market Navigator: US Grocery Retailing” report, released Sept. 30, includes information from an April survey of 2,032 US consumers about where they shop and why. The survey found nearly 73% of in-store shoppers bought groceries from Walmart in the past 12 months, and 59% of online shoppers had done the same. Forty-one percent said they had bought groceries online via Amazon.

Proximity and accessibility are key factors for about two-thirds of consumers when it comes to choosing a brick-and-mortar store, the survey found. For online shoppers, nearly half said how easy a store’s website or app was to use was the most important aspect.

Coresight Research found major mass merchandisers, discount/dollar stores and warehouse clubs are gaining share in the retail grocery market as more consumers look for specials and discounts. From 2017-23, major mass merchandisers saw their share of total grocery market sales rise to 19.4% from 18.4%, the report said, while the sales share of major discount and dollar stores crept up to 3.5% from 3.1%. During the same period, food retailers’ share dropped to 66% from 69.7%.

“Supermarkets are losing share to mass marketers and warehouse clubs and discount stores because they offer lower prices than others,” Naik said. “Second is they are offering other products, including electronics, and provide a one-stop shop that appeals to people who want convenience. Groceries are a traffic-driving category as people shop every week. It helps to monetize traffic, so they keep prices lower than conventional supermarkets.”

The report noted how demographic shifts are influencing product portfolios of consumer packaged goods (CPG) companies and what’s available on grocery store shelves. For example, consumers aged 65 and older are expected to increase 2.7% between 2022-27 to hit 69.2 million, the report said, dictating more functional foods and ready-to-eat meals in single-serving packages. More ethnic specialty stores and products also are expected, the report noted.

Among other factors impacting grocery retailers are GLP-1 drugs used for type 2 diabetes and weight loss, Coresight’s report said. The drugs, including Mounjaro, Ozempic and Wegovy, can reduce appetite and cause consumers to buy fewer snacks and other foods.

“We estimate there are approximately 121 million obese individuals over the age of 20 in the US, or more than 45% of the population, so the penetration level of GLP-1 drugs is going to increase in the future,” Naik said. “There are some supply constraints that are going to resolve, but prices will also come down. They are currently injected, but some drugs are in the pipeline that can be taken orally.”

Large grocery retailers such as Walmart are engaging in price-cutting strategies to stimulate volume sales, according to the report, which Naik called an approach that can only go so far as long as people are not consuming as much as they did last year.

“I think grocery retailers will ramp up promotional activity in the next few months, but with the continued margin pressures and headwinds they currently face, I think widespread price-cutting won’t keep going on,” he said. “These companies have to preserve their margins. They have to dial down on margins for the next few months to increase volume sales, but in the next six months, they have to come back to normal pricing to preserve their margins.”