Discount grocery stores are expected to outshine their conventional counterparts in 2023 as shoppers seek out cheaper food to cope with staggering price increases, a new report released Monday said.

The DBRS Morningstar commentary said surging inflation and interest rates are shaping consumer behaviour and increasing sales at lower-cost grocery stores.

Consumer efforts to curtail spending are expected to encourage more home cooking, benefitting the grocery industry in general as people forgo restaurant dining to cut costs, it said.

Yet discount grocers are expected to see the biggest increase in sales, the report said.

Efforts to curb spending B次元官网网址渟hould favour discount grocers over their conventional peers, as consumers seek promotional discounts on individual items, substitute branded offerings with private-label products, and trade down to more affordable offerings within the same product category,B次元官网网址� it said.

Grocery prices were up 11 per cent in December compared with a year ago, Statistics Canada reported last week. Overall, grocery prices in Canada were up 9.8 per cent in 2022 compared with a year earlier B次元官网网址� the fastest pace since 1981.

In the U.K., where food inflation has surpassed Canada, discount grocery stores have reported strong sales growth.

Discount grocer Aldi, for example, recorded year-over-year sales growth of about 23 per cent, 24 per cent, and 27 per cent in October, November, and December of 2022, respectively, the report said.

Discount store Lidl reported similar growth during the same period ranging from 22 per cent to 24 per cent year over year, it said.

B次元官网网址淭his is significantly above the sales growth of their traditional competitors, including Tesco, SainsburyB次元官网网址檚, and Asda, which all saw growth of no more than 6.4 per cent during the same months,B次元官网网址� the report said.

The expected growth in discount in Canada the opposite of what occurred during the COVID-19 pandemic.

Stay-at-home orders, health and safety concerns, the desire for convenient B次元官网网址渙ne-stop shopsB次元官网网址� and the growth of online grocery all drove sales at conventional or B次元官网网址渕arketB次元官网网址� supermarkets.

For example, Loblaw Cos. Ltd.B次元官网网址檚 market division recorded same-store sales growth of 10 per cent, seven per cent and nine per cent during the last three quarters of 2020, the report said. In comparison, the companyB次元官网网址檚 discount division reported growth of five per cent, five per cent and seven per cent during the same period.

The strength of the market grocery stores began to ebb as the cost of living began increasing, the report said.

B次元官网网址淎lthough discount grocery storesB次元官网网址� volumes were mostly outpaced by conventional stores during the B次元官网网址� pandemic, given the changes in consumer behaviour following surging levels of inflation and rising interest rates, we expect the reverse during this continued period of economic distress,B次元官网网址� Moritz Steinbauer, vice-president of consumer and retail at DBRS Morningstar, said in a statement.

Sales trends between discount and conventional stores are expected to gradually return to historic levels as economic conditions stabilize, the report said.

Still, discount grocery could see some B次元官网网址渟tructural benefitB次元官网网址� if they can hold on to new customers, it said.

This could B次元官网网址渁mplify discountersB次元官网网址� existing long-term growth and market share gains,B次元官网网址� the report said.

Brett Bundale, The Canadian Press

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