Circana’s newly published ‘State of the Nation 2025’ report is calling on FMCG retailers and manufacturers to embrace smarter pricing strategies and more efficient marketing mix investment to safeguard profitability.
The research outlines the key trends shaping the future of FMCG, from shifting retail dynamics to changing consumer preferences, offering actionable strategies for growth. It highlights that the cost of living issue is likely to remain the UK’s top concern for 2025, with 36% of shoppers saying they will continue to cut back on groceries, while 48% plan to shop around to make savings.
This year, consumer spending has been gradually increasing as cost pressures ease for some consumers, with Circana forecasting a modest growth of 1% for the food and drink market in 2024. While shoppers are cutting back less on non-essentials, out-of-home consumption remains sluggish, reflecting cautious optimism.
However, the study notes that rising business costs pose significant challenges for 2025. New regulations, including the £3bn extended producer responsibility (EPR) scheme, a national minimum wage hike, and changes to working practices, all fall on top of the £23.7bn hike in employer national insurance contributions.
Meanwhile, HFSS regulations, including restrictions on TV and online advertising and volume promotions, are tightening growth levers for high fat, salt, and sugar products. Circana said that while sugar intake has been gradually decreasing in years, trends in fat, salt, and calories have remained stagnant, signalling the potential for further government intervention.
To stay ahead, the report suggests product reformulation is key. Brands must comply with HFSS regulations while ensuring products still deliver the enjoyment consumers expect, whether changes are visible or behind the scenes.
“2025 is shaping up to be another challenging year for the FMCG sector, but for manufacturers that invest efficiently, solid growth is achievable,” said Alex Lawrence, Senior Strategic Insight Director at Circana.
“With health-conscious trends on the rise, smarter promotions, and better use of retail channels, there are also opportunities to accelerate growth. Those manufacturers that are best equipped to understand and respond to the changing market climate will be the winners in 2025.”
Other highlights from the report include:
Buying power secures major multiple grocer advantage
The major multiple grocers continue to leverage their buying power to stay ahead. Grocery supermarket stores saw a 2.7% year-on-year average unit price increase and convenience stores a 2.8% increase across a consistent basket of goods, whereas symbols and independent store prices increased by 3.9% across the same basket of goods. The major grocer retailers are set to further strengthen their competitive advantage in 2025 in a climate where shoppers continue to look for savings, shoppers will gravitate to major multiple grocer private label, loyalty card pricing, points and price matching offers.
Convenience set to be a key battleground in 2025
Circana’s research shows that 46% of consumers are willing to pay a 25% premium for convenience, and 6% will pay 37.5% more for ultra-convenient online delivery, underlining the margin opportunity for retailers in the channel, but for manufacturers volume shifting to the major multiple grocers erodes margin at a time when business costs are increasing.
Health-conscious trends
Health-focused products are thriving, with gut health and protein-rich options leading the way. The gut health market, valued at £367m, is growing at an impressive 12% year-on-year. Functional foods and drinks are also on the rise, with alcohol-free beverages up 25% and nicotine pouches soaring 92%, marking them as standout growth areas for 2025.
The implementation of the last tranche of HFSS legislation in October 2025 will further encourage shoppers to adopt healthier options, creating headaches for non-compliant products with growth levers further restricted.
Health over sustainability
With meat-free product sales dropping and fewer people calling out climate change as an important issue for the UK, sustainability looks set to be more of a hygiene factor than a basis for accelerated growth in 2025. In contrast, with the NHS second only to the cost of living as an important issue for the UK and a growing health consciousness in UK consumers, functional products with health benefits are set to grow strongly in 2025.
Opportunities for manufacturers and retailers
Circana has identified five key actions driving growth for 2025:
- Retain distribution as the cornerstone to achieve efficient growth in 2025.
- Favour off-shelf display over increasing on-shelf deal depths as the way to drive promotional uplifts and volume growth.
- Use price elasticity as the basis for price decisions but factor in round-pound promotion into price pack architecture decisions.
- Favour round-pound promotions over multibuys to drive promotion uplifts.
- Look to health consciousness trends and functional health product importation, acquisition, licencing and partnerships as the basis for accelerated growth.
NAM Implications:
- Given the unprecedented rate of change in the past five years, we need all the help we can get!
- Hence, the value of accessing big-picture trends from trusted sources.
- Best taken at face value as a basis for exploring your business implications.
- To optimise objectivity…
- …cost of living cutbacks are a given…
- …and those in HFSS categories as evidence of tightening restrictions – no surprise and inevitable.
- Slight, if any, growth next year, all at the expense of rivals.
