United Kingdom Country Profile

Market Overview:

According to Euromonitor the U.K. will see a period of uncertainty until new agreements with the European Union (EU) are ratified. The economic impact of “Brexit”, withdrawal from the EU is not clear. Real Gross Domestic Product (GDP) grew by 2.2% in 2015 and growth of 2% in 2016 was calculated. A slowdown in business investment is expected, though policy action taken by the central bank softens the impact. Consumer spending should be the main driver. Growth in 2017 is expected to slip to 1%. The slowdown will be largely due to deferred investment, particularly from overseas. In 2018-2020, growth of real Gross Domestic Product (GDP) should average about 1.8% per year.

Private final consumption should hold up better than investment, but will still ease in 2016. Private consumption rose by 2.9% in 2015 and growth of 2.1% is predicted for 2016. The U.K. faces a number of structural problems in the housing market.  Home ownership has fallen to a 30-year low. The rise in house prices is expected to ease in the aftermath of Brexit. The effects will be most apparent in London’s wealthiest areas where a drop of 9% is predicted in 2016.

Ultimately, Brexit will likely entail a host of temporary arrangements and the whole process of disentanglement could last until 2024. The country’s departure from the EU could cost as much as €20 billion.  Political risks such as the resurgence of Scottish independence could threaten political stability in the medium term. Concerns about the U.K.’s future trading relationships with the EU will also loom large in the longer term.

In 2016, total population amounted to 64.4 (est.) million, up from 58.8 million in 2000. The number will gradually rise in the future and the total will reach 70.1 million in 2030. Median age was 40 years in 2015, an increase of 2.5 years over the figure for 2000. Fertility – at 1.8 births per female – is remarkably steady and will not change between 2015 and 2030. The number of those over 65 years represented 17.8% of total population in 2015 and the share will rise to 22.4% by 2030.

USDA’s Office of Agricultural Affairs, (OAA), in London, hereinafter referred to as “Post” advises with its 2016 nearly US$2.8 trillion GDP on a Purchasing Power Parity Basis, (PPP) ranking it 9th in the world and 2nd in Europe, the U.K. remains one the United States’ top European markets and 9th largest U.S. market worldwide for consumer oriented products. The U.K. has strong historic and cultural ties to the U.S., which are obvious in consumer trends in retail and food service markets. 

On June 23, 2016, U.K. voters indicated their wish to leave the European Union (EU) by a 52%-48% referendum margin. Nevertheless all existing trade and other arrangements under the U.K.’s existing EU membership continue unchanged and remain so for the foreseeable future. It is up to the U.K. Government to decide when to formally notify the EU that the U.K. intends to withdraw from the EU pursuant to Article 50 of the Lisbon Treaty. The Article 50 procedure has never been utilized before and while significant uncertainty exists as to how the process will play out, the Article provides for a 2 year period of negotiation on terms of departure. It is accordingly likely that the U.K. will remain a member of the EU until April 2019. 

The referendum result, a democratic indication of the will of the people, does not create a legal requirement for the U.K. to leave the EU but all indications are that this will be the result. What form this will take is currently subject to much speculation. Whatever the outcome, the referendum did not come with a clear road map as to what relationship the U.K. electorate wants with the EU or with the rest of the world, including the United States. The U.S. is currently, by far, the U.K.’s largest food and agricultural products trading partner outside the EU, both in terms of imports and exports.

The U.K. presents market opportunities for many U.S. consumer-oriented products, including specialty food products, “healthy” food items, wine, sauces, fruit, nuts and juices. Health and convenience foods are the main driving forces in the U.K. value-added food and beverage market. Consumers in this relatively wealthy country are looking for variety in high quality food products especially those perceived to have health and fitness benefits. The U.S. is the largest non EU country supplier to the U.K., but on average represents just 5%-6% of food imports. Due to EU technical barriers, market access can sometimes prove a challenge for U.S. products.

2016 U.S. agricultural exports to the U.K. amounted to nearly US$1.9 billion, growth of 7% for the year. In 2016, U.S. exports of consumer oriented food products were nearly US$1.2 billion, an increase of 6% from the previous year, and 63% of the agricultural total. The U.K. is a top market for the export of U.S. processed foods, ranking 6th in 2016 at US$1.2 billion. Top processed food exports to the U.K. in 2016 included beer and wine, distilled spirits and other alcoholic beverages, food preparations, processed vegetables and pulses, prepared/preserved seafood, snack food, processed fruit, chocolate and confectionery, non-alcoholic beverages and condiments and sauces.

Retail Sector:

According to Euromonitor, retail sales in the packaged food market in the U.K. were estimated to reach US$82.5 billion in 2016. That represents a growth rate of 3.5% or US$2.7 billion since 2012. The U.K. is now the 6th largest package food market in the world and the 3rd largest in all of Europe. By the year 2021, the retail sales in the packaged food market in the U.K. is expected to reach US$93.3 billion, a growth rate of nearly 11% or nearly US$9.1 billion. High growth categories in the forecast include baby food, breakfast cereals, ready meals, rice pasta and noodles, savory snacks, soup and confectionery.

Post reports that in the U.K. the retail grocery industry is concentrated with 71% market share in the hands of just four supermarket chains. The remainder is scattered over hundreds of outlets. Four supermarket chains dominate U.K. food retailing, accounting for 70.1% of the market. Tesco is the market leader, with 28.1% market share, followed by Sainsbury’s with 15.9%, Asda/Wal-Mart with 15.7%, and Morrison’s has 10.4%. Other U.K. supermarket chains include The Cooperative, Waitrose, Iceland, Aldi, Lidl and Marks and Spencer.

In general, each chain focuses on a specific market segment. For example, Tesco targets the middle market, providing both economy and up-scale products. Sainsbury’s is pitched slightly upmarket of Tesco, with Asda/Wal-Mart slightly down-market. Morrison’s and the Cooperative both compete at much the same level as Asda/Wal-Mart, while Waitrose, part of the John Lewis Partnership, is the most up-market of the leading chains. Iceland, Aldi, and Lidl are all price focused outlets.

The U.K. grocery sector is one of the most sophisticated in the world. The four leading supermarket chains compete fiercely for customers with an ever growing popularity of the discount chains. The grocery sector continues to record the strongest growth in retailing in the U.K. driven by modern grocery retailers. Convenience stores, discounters and online grocery retailing are the formats which are seeing the strongest expansion, with major chains opening smaller stores in city and town center’s while limiting the expansions of large-format outlets in out-of-town locations.

By 2021, the total value of the U.K. Grocery Market will grow 9.9 to £196.9 billion. Hypermarkets and Supermarkets will make changes to reflect the changing needs of shoppers. Online grocery shopping will remain the biggest growing channel with an increase of 68% over the next 5 years. By 2021 discounters will be worth £24.9 billion and Convenience stores will remain the third fastest growing sector with sales increasing from £37.5 billion in 2016 to £41.9 billion by 2021. “Click and Collect” sales will continue to increase rapidly. Discounters will continue to be the fastest growing channel as both quality and value are recognized by consumers. By 2021 they will claim £1.00 in every £8.00 being spent on grocery items. Also other stores such as B&M, Home Bargains and Poundland are targeting opportunities in grocery.

Food prices have decreased in recent years due to the success of the discounters and competition; however, since the U.K. vote to leave Europe in June 2016, the pound currency has weakened significantly. Given that the U.K. imports around 40% of all food consumed domestically, food prices are expected to increase in the near future as a result of the weaker pound. In the last few years, the U.K. has witnessed a remarkable shift in how and where consumers choose to buy their food, with the discounters and online shopping being the winners. Online grocery shopping is rapidly growing; the boom in sales of tablets and smart phones has meant more access to online shopping. New players will provide more choice to shoppers.

In 2016, Aldi launched “Special buys” and “wine online”. AmazonFresh has also launched in the U.K. The U.K. convenience sector (similar to 7/11 stores in the United States) is thriving as shoppers respond positively to the greater choice of high quality local stores helping them shop a little at a time but often. All the major food retailers are increasing their convenience store openings. Franchises are also investing in their stores meaning that it is anticipated that the convenience sector will represent almost a quarter of the grocery market by 2021.

Best Product Prospects:

Post reports that U.S. products which do well in the U.K. are snack foods, fresh and dried fruit, nuts, vegetables, seafood, cereal products, cooking sauces, salad dressings, confectionery, dips and salsas, frozen foods, wine and beer, and food ingredients. The U.K. Government is increasingly promoting healthy eating and healthy lifestyles. There are opportunities for U.S. products that can be marketed as natural, wholesome, and healthy. Within this category, organic products are also good prospects provided they comply with EU/U.K. organic regulations. Convenience (semi-prepared) foods are estimated to account for around 50% of household food expenditures. This trend continues to be a major driving force in the U.K. food and beverage industry.

Food Service Sector:

The hotel, restaurant and institutional (HRI) market is the U.K.’s fourth largest consumer market following food retail, motoring, and clothing and footwear. The HRI market provides prepared meals and refreshments for consumption, primarily outside the home.

In 2015 the U.K. food service sector (food and beverage sales to consumers) was estimated to be worth £47.9 billion ($62.2 billion). This was an increase of 2.8% on 2014. The food service sector is clearly an enormous market and is one that can provide many opportunities for prepared U.S. exporters. Although eating out is a way of life for many U.K. consumers, the number of times people eat out and the type of place where they eat are dictated by how much they want to spend. During 2016 Post has seen consumers wanting to eat out more and spend more. The average amount spent per outing is now £13.18 per person including drinks, £1.00 less than 12 months ago. Takeaways and fast food outlets have continued to do well with consumers opting for these types of meals rather than more expensive restaurants. Burgers remain the number one item on menus, but other trends are becoming more main stream such as Americana, world cuisines, healthy food and indulgence.

Menu trends reported by Post include South American seeds and grains, Middle Eastern flavors, ceviche, Vietnamese, popping candy and sweet and salty flavors. Americana remains popular – pulled pork, bbq, ribs, hotdogs etc. Superfood dishes are increasingly popular, dishes including seeds, salads, quinoa, vegetables etc.  Rice is appearing much more on menus. A dish containing rice can now be found on 75% of menus.  Provenance – Products marketed with a focus on the country of origin, how the product was cooked, farm names and references to smaller, family owned business’ on labels and menus.  Personalization – whether it is choosing your own toppings, or building your own burger. And “Street Food” with quality ingredients, seasonally sourced, quick food is popular.

Over half of all food and beverage products sold to food service operators are through wholesalers. Larger operators will purchase from wholesalers, while smaller outlets are likely to buy from either cash and carries or retail stores. Due to the large number of companies operating within the food service market, intermediaries skilled in fulfilling small orders efficiently play a pivotal role in the distribution of products. Aramark, Bidvest Foodservice, Brakes, Compass Group, Mitchells & Butler, Sodexho and Whitbread are among the largest operators in the U.K.

Best Product Prospects:

Post reports that U.S. products that do well in the U.K. food service industry are snack foods, fresh and dried fruit, nuts, salmon and seafood, cooking sauces, salad dressings, confectionery, dips and salsas, frozen foods, wine and beer. The U.K government is increasingly promoting healthy eating and healthy lifestyles. There are opportunities for U.S. products that are natural, wholesome and healthy.   

Food Processing Sector:

Post advises that the U.K. food and drink sector is the largest single employer in the manufacturing sector. Food and drink is also the largest manufacturing industry in the U.K., with an annual turnover in 2015 of $125.0 billion (£81.8 billion). Around 400,000 people across Britain are employed in jobs associated with food and drink manufacture and sales. 

In 2015, there are almost 6,620 food-manufacturing enterprises in the U.K. Many of these are small companies employing less than 10 people. U.K. multinationals such as Unilever and Diageo are among the largest in Europe. Many United States companies, such as Kraft, Pepsico, Kellogg’s, ADM, ConAgra and Cargill, also have substantial interests in the U.K.  

The major unprocessed commodities that are not commercially produced by the U.K. are rice, citrus fruit, bananas, corn, coffee, cocoa, stone fruit, tea and some oilseeds. Although the U.K. produces beet sugar, cane sugar is imported. Processed products that the U.K. has to import include wine and preserved/frozen fruit and fruit juices

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