The UK Grocery Shake-Up: Why Discounters and Health Brands Are the New Kings

The UK grocery market is undergoing a seismic shift. Inflation at a 15-month high of 4.1%, coupled with the rise of GLP-1 drugs (think Ozempic and Wegovy), is reshaping consumer habits—and investors must pay attention. Value-driven shoppers are flocking to discounters like Aldi and Lidl, while health-focused brands are capitalizing on a snacking revolution. Traditional supermarkets like Asda and Morrisons are lagging, but Tesco is fighting back with savvy strategies. Here's how to position your portfolio for this new era.

The Discounters Are Winning—And They're Just Getting Started

Aldi and Lidl have cemented themselves as the kings of the UK grocery scene. Aldi's market share hit 11.1% in May 2025, overtaking Asda to become the third-largest grocer by food and drink sales. Lidl, meanwhile, surged to 8.1% market share, closing in on Morrisons (8.6%). Their secret? Aggressive pricing, relentless expansion, and a focus on British-sourced products.

• Aldi's Playbook: Plans to open 40 new stores by late 2025 as part of a £650 million investment. Their strategy includes upgraded stores with expanded chiller spaces and affordable staples like 100% British Wagyu beef kebabs.
• Lidl's Momentum: Grew sales by 10.9% year-on-year in May 2025, driven by 419,000 new shoppers. Their £500 million expansion plan aims to open 40+ stores annually through 2027.

Investors should overweight discounters' suppliers and logistics partners. Private equity firms or real estate trusts tied to Aldi/Lidl's expansion could also be winners.

Tesco: Resilient, But Must Innovate

Tesco remains the UK's largest grocer with a 27.9% market share, up 0.6 percentage points year-on-year. But complacency is dangerous. Tesco's 5.4% sales growth in May 2025 is solid, but it faces pressure from discounters and the health-conscious shift.

• Strengths: Its loyalty program and online grocery dominance (via Tesco.com) are key.
• Weaknesses: Must double down on private-label innovation and cost control. A misstep here could see Aldi close the gap further.

Investment Takeaway: Hold Tesco for now, but keep an eye on its ability to adapt.

The GLP-1 Revolution: Goodbye Snacks, Hello Health

Here's where things get fascinating. GLP-1 drugs, which suppress appetite by 25-35%, are reshaping UK diets. Over 4.1% of households now include a GLP-1 user, and the effects are clear:

• Snacking Declines: 64% of users cut snacking, reducing sales of ultra-processed snacks like pizza and peanut butter.
• Health Brands Rise: Demand for fresh produce, yogurt, and protein-rich products is surging. Categories like blueberries and mangoes saw record sales in 2025.

The UK snacking market could lose £528 million by 2030 due to GLP-1 adoption. This isn't just a fad—it's a long-term trend.

Investment Play: Back health-focused brands with nutrient-dense offerings. Look for companies like Unilever (UL) (with its Ben & Jerry's and Hellmann's lines) or ocado (OCC.L), which is capitalizing on online grocery demand. Avoid pure-play snack giants.

The Losers: Traditional Supermarkets in Denial

Asda and Morrisons are in trouble.

• Asda: Its market share dropped to 12.1%, with sales falling 3.2% year-on-year. Its defense—“we're not just a grocery store; we have fuel and clothing”—rings hollow.
• Morrisons: Slumped to 8.6% market share, with no clear strategy to counter Aldi/Lidl's price wars.

Investment Advice: Avoid these stocks. Their valuations are already pricing in decline, and without a bold turnaround, they'll keep losing customers.

Final Call: Go All-In on Discounters and Health

The UK grocery sector is a battleground between cost-cutters and health-conscious innovators. Aldi and Lidl are leading the value charge, while GLP-1-driven trends are turbocharging demand for whole foods.

• Buy: Aldi/Lidl suppliers (e.g., British farmers or logistics firms), health-focused brands (ocado, Unilever's private labels).
• Avoid: Asda, Morrisons, and snack-focused companies.
• Hold: Tesco if it stays agile.

This isn't just about surviving inflation—it's about thriving in a new era of grocery. The winners will be those who adapt fastest.

Data sources: Kantar Worldpanel, NIQ, and Which? reports as of June 2025.