United Kingdom Country Profile

Market Overview:


Euromonitor reports that the biggest risk to the U.K. economy is that of a no-deal Brexit and how fixed investment and business-confidence will be weak owing to the associated uncertainties.  Though the U.K. left the European Union 27 (EU 27) early in 2020, the actual process of Brexit will likely entail a host of temporary arrangements which could be drawn out for 6-8 years.  Dealing with the economic and social fallout relating to the coronavirus is another risk.  Consumption will decelerate in line with slower employment gains.  Exports should recover somewhat.  The pace of Gross Domestic Product (GDP) growth was 1.4% in 2019.  After that, the economy should gradually improve with growth reaching about 1.5% per year by 2027.

  • The U.K.’s economy is performing below-trend. A recession of -1% is forecast for 2020.
  • Private final consumption rose by 0.9% in 2019 and growth of 0.7% is predicted for 2020.  Weaknesses in consumer confidence and low savings rates are drags.
  • Job creation is slowing.  The jobless rate was 3.9% in 2019 and it will grow to 4.4% in 2019. As the number of vacancies has started falling, the unemployment rate has ticked upward.  Net migration from the EU 27 has decelerated markedly since 2017 and has been only partly compensated for by more migrants from non-EU 27 countries.

There have been proposals that the U.S. begin talks with the U.K. to sketch out the details of a potential post-Brexit trade deal.  However, as the U.K. remains in the EU 27 customs union until after the transition period, negotiations cannot begin until after that time. Moreover, such a deal is unlikely to be very lucrative.  Analysts estimate that a trade deal with the U.S. would only boost GDP by about 0.2% in the long term.

In 2020, total population amounted to 65.7 million (CIA World Factbook Est.), up from 58.8 million in 2000.  The number will gradually rise in the future and the total will reach 70.2 million in 2030.  Median age was 40.6 years in 2020, an increase of 3.1 years over the figure for 2000.  Fertility – at 1.8 births per female – is remarkably steady and will not change between 2020 and 2030.  The number of those over 65 years represented 18.4% of total population in 2020 and the share will rise to 21.7% by 2030.

Challenges aside, with its 2019 of US$3.2 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 13th largest U.S. market worldwide for U.S. consumer oriented products, totaling US$964 million, decline of 6% in 2019.  The U.K. has strong historic and cultural ties to the U.S., which are obvious in consumer trends in retail and foodservice markets. 

The U.K. is a top market for the export of U.S. processed foods, ranking 7th overall in 2019 at just over US$1 billion, decline of 10% from 2018.  They actually import more U.S. processed foods than consumer oriented foods (by about US$136 million), which is very rare and makes them the top U.S. market for them in the EU27 + U.K.  Top processed food exports to the U.K. in 2019 included:

  • Beer and Wine
  • Food Preparations
  • Distilled Spirits and Other Alcoholic Beverages
  • Processed Vegetables and Pulses
  • Chocolate and Confectionery
  • Prepared/Preserved Seafood
  • Snack Foods
  • Fats And Oils
  • Condiments and Sauces.

USDA’s Office of Agricultural Affairs (OAA) in London reports that the U.K. has strong social and cultural ties to the United States, demonstrated by the similarities in consumer trends in the retail and food-service markets.  The U.K. presents strong market opportunities for many U.S. consumer-orientated 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 country are looking for variety in high quality food products, especially those perceived to have health benefits.  The U.S. is the largest non EU 27 country supplier to the U.K., but on average represents just 5%-6% of food imports.  Due to EU 27 technical barriers, market access can sometimes prove a challenge for U.S. products.

The U.S. has some distinct advantages and challenges in the U.K. food market

Advantages:

  • Market dominated by a few retailers with strong market penetration. Sophisticated replenishment systems mean U.S. products can be widely distributed
  • There are many specialty importers, capable and interested in importing from the United States.
  • U.S. products are viewed by U.K. consumers as affordable.
  • The country is English speaking and is therefore an easier gateway into the rest of Europe for U.S. exporters.
  • The United States is a popular destination for U.K. tourists and familiarity with U.S. products is widespread.

Challenges:

  • Supermarket chains demand significant volume and their concentration can make market access difficult initially. Trial listings must give results in a short time or product will be de-listed.
  • The U.K. has well-established brands for mainstream products. Brand-building and marketing costs are substantial.
  • The U.K. has well-established brands for mainstream products. Brand-building and marketing costs are substantial
  • There are no duties on qualifying products from other EU27 competitors, but duties on U.S. imports can range from free to 25% Cost, Insurance and Freight (CIF).
  • Popularity of specialty products from many EU27 countries is high, e.g. French cheeses, Spanish citrus, Italian pasta, and South African produce.

Retail Sector:

According to Euromonitor, retail sales in the packaged food market in the U.K. were estimated to reach US$83.2 billion in 2019.  That represents a growth rate of 8% or US$6.1billion since 2015.  The U.K. is now the 7th largest package food market in the world and the 3rd largest in all of Europe.  By the year 2024, the retail sales in the packaged food market in the U.K. is expected to reach US$99.2 billion, a growth rate of nearly 14.9% or US$12.8 billion. High growth products in the forecast include:

  • Baby food
  • Rice, pasta and noodles
  • Processed meat and seafood
  • Ready Meals
  • Sweet Biscuits, Snack Bars and Fruit Snacks
  • Baked goods
  • Savory snacks
  • Ice cream and frozen desserts

Post reports that the sector is saturated, highly consolidated and competitive.  The top five retail groups together account for 76% of the market.  Four supermarket chains dominate U.K. food retailing, accounting for 70% of the market.  Tesco is the market leader, with 27.3% market share, followed by Sainsbury’s and Asda with 15.2% each and Morrison’s with 10.4%.  Other U.K. supermarket chains include Aldi, The Coop, Waitrose, Lidl, and Iceland Independent stores continue to face strong competition from modern grocery retailers.  Online food sales are showing tremendous growth, with the sector being valued at US$15.4 billion in 2018.  U.K. consumers are willing to try foods from other countries but expect quality products at a competitive price

Euromonitor reports that a key trend shaping the supermarkets landscape is partnerships with other providers.  The trend is likely to continue in the future, particularly collaborations in food delivery due to the increasing demand for home delivery. Collaboration with other service providers is becoming vital in a period when supermarkets face challenging conditions, and it can benefit consumers by offering them innovations and increased choice.  Examples include Asda teaming up with Just Eat for 30-minute grocery deliveries.  In early November 2018, Asda announced the trial of a freshly baked pizza delivery service in partnership with Just Eat.  On the back of the success of this trial, the partnership expanded to include a 30-minute home delivery service for Asda’s groceries in July 2019.  Customers in Leicester, Sutton and Bristol will be able to order products from 100 essential lines and have them delivered to their doorstep via express delivery.  The Sainsbury’s chain is working with Deliveroo to offer delivery of oven-baked pizzas and complementary products.  In addition to pizza, customers can also order snacks, side dishes, salads, dips and sweets.  Co-operative Group extended its food, drinks and tobacco delivery service with Deliveroo to cover 11 stores in London, adding to the five stores already covered in Manchester.

The U.K.’s first supermarket designed by public health experts in order to promote healthy food practices has opened as a pop-up in central London.  The People’s Supermarket has a store layout designed to give greater visibility and shelf space to healthy products such as fruit and vegetables.  It is felt that traditional supermarkets have a design, environment and prices that promote unhealthy food (eg crisps, chocolate) and encourage customers to follow unhealthy diets, contributing to causing health problems such as obesity.  The Royal Society for Public Health and Slimming World has recommended that a solution for obesity and unhealthy eating is to allow public health experts to design the supermarkets layouts.  The initiative has the potential to be adopted by supermarket chains in order to tap into the healthy living trend.

Waitrose is planning to reduce the number of supermarket stores it operates due to difficult high street conditions.  Waitrose is adopting a cost-cutting strategy and is planning to remove unprofitable stores from its network.  The supermarket has been hit by the difficult high street conditions, including being affected by discounters such as Aldi and Lidl.  The reduction in the number of stores is also being driven by the supermarket chain investing more in its online channel. Waitrose has ended its home deliveries partnership of many years with Ocado.  After initially signing up with Today Development Partners (TDP) as a new partner for its e-commerce business, it also ended the TDP partnership after a few months.  Although Waitrose still plans to treble the size of its online grocery business to an annual GBP1 billion over the next three years, it will now do so using the expertise available across the John Lewis Partnership group, to which it belongs.

Iceland Foods has announced plans to increase the number of stores it operates.  Despite the challenging economic conditions, Iceland is strongly committed to expanding its store network in an attempt to compete with Aldi and Lidl.  The expansion drive will be mainly focused on London.  Iceland Foods remained in sixth place in supermarkets, behind Tesco, Waitrose, Wm Morrison, Co-operative Group and J Sainsbury.  The top three players’ aggregate value sales account for more than half of overall sales in the channel.  With consumers showing greater price sensitivity, Tesco has looked to attract them through continuous bulk promotions.  Wm Morrison has been focusing on improving its private label products and on local sourcing.

Tesco remained the leader in hypermarkets in value terms in 2019, thanks to the creation of a new hypermarket format with a wider assortment of fresh products and foodservice concessions in-store.  Tesco aims to create a warm, welcoming environment in which shopping is a pleasure and not just a necessity for customers.  The rationalization of big spaces will help Tesco to significantly cut the company’s operational costs and use the empty aisles once dedicated to non-grocery items.  For example, an in-store bar has been opened in a pilot store in Swansea.  The placement of fresh fruit and vegetables in the heart of its stores is designed to boost their image and make shopping more appealing. Tesco has also introduced ready-to-go food even in its largest shops, to provide consumers with the convenience they desire when shopping for groceries.  Tesco has also launched a plant-based food range to tap into the health trend.  To widen its appeal to healthy, vegan and vegetarian consumers, the retailer launched a range of plant-based products under the “Tesco Plant Chef” line at affordable prices.

Euromonitor also reports that Tesco also remained the leader in convenience stores in value terms in 2019.  While its number of stores remained fairly constant in 2019, value sales increased.  This positive performance stemmed from Tesco’s efforts to adapt its offer to convenience stores, with the aim of offering an attractive variety of products in a limited space.  

In January 2018, the merger between Tesco and the largest U.K. wholesaler Booker Group was completed.  While Tesco operates in convenience stores with its One Stop and Tesco Express chains, Booker runs the Budgens Express, Londis and Premier fascias.  The two groups are working to integrate their distribution systems and cut supply costs to provide smaller shops with a price advantage.  In a similar way, The Co-operative Group took over Nisa in April 2018.  Because of the deal, Nisa members will have access to lower-cost supplies, which include both branded products and The Co-operative private label products.  As these bigger players join forces to improve their scale and efficiency, smaller independent players may find it difficult to compete.

Best Product Prospects

Post reports that U.S. products which do well in the U.K. include:

  • Processed products – health food, mainstream grocery, snack foods etc.
  • Dried and Processed Fruit: Cranberries, dried cherries, prunes, raisins, wild berries
  • Nuts: Almonds, peanuts, pecans, pistachios, walnuts
  • Fish and Seafood: Cod, pollock, salmon, scallops & other fish products
  • Fresh Fruit and Vegetables: Apples, grapefruit, pears, sweet potatoes, table grapes
  • Meat: Hormone-free beef and pork products
  • Drinks: Craft beer, spirits, wine
  • Food Ingredients

Food Service Sector:   

 

The U.K. foodservice market is currently more challenging than ever. With Brexit, increasing labor costs and an uncertain climate, have made the foodservice industry become rather volatile.  However, in 2018 the U.K. foodservice sector (food and beverage sales to consumers) was estimated to be worth US$64.3 billion.  The food service sector is clearly an enormous market and is one that can provide many opportunities for prepared U.S. exporters.

The average U.K. consumers ate out twice per week in 2018.  The average amount spent per outing is now US$12.61(£10.09) per person on dinner, US$7.70 (£6.16) on lunch, US$4.08 (£3.26) on breakfast and US$4.92 (£3.94) on snacks per visit.  People aged 18-29 tend to eat out the most.  These figures include restaurants, quick service restaurants and pubs, but exclude hotels, health care and education.  Takeaways and fast food outlets continue to do well with consumers opting for these types of meals rather than more expensive restaurants.

The trend towards more meals outside the home is expected to continue. Smaller/Independent operators will continue to feel pressure, and many are likely to be driven out of the market.  Mid-level restaurants are facing stiff competition with consumers choosing to either downgrade to quick service restaurants or takeaways or upscale to high end restaurants.  Consumer demand for new foods is strong in the U.K. The fastest-growing business types are likely to be new fast food, street food, pop up restaurants, international cuisines, coffee shops and sandwich bars.  Consumer behavior is evolving with more people eating breakfast away from home.  Also, consumers are not ordering as many starters or desserts, so in most cases are just ordering a main course. Many U.K. consumers cook non-British food at home on a regular basis.  Brexit has had an effect and is projected to increase food prices in 2020 absent other mitigating effects.

Over half of all food and beverage products sold to foodservice 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, Bidfood Foodservice, Brakes, Compass Group, Mitchells & Butler, Sodexho and Whitbread are among the largest operators in the U.K.

Best Product Prospects:

Post reports that products in the U.K. hotel, restaurant and institutional (HRI) foodservice market that have good sales potential include:

  • Processed Products – Snack Foods, Sauces, Dips And Salsas, Etc.,
  • Dried And Processed Fruit: Cranberries, Dried Cherries, Prunes, Raisins, Wild Berries,
  • Nuts: Almonds, Peanuts, Pecans, Pistachios, Walnuts, Fish and
  • Seafood: Cod, Pollack, Salmon, Scallops & Other Fish Products,
  • Fresh Fruit And Vegetables: Apples, Grapefruit, Pears, Sweet Potatoes, Table Grapes,
  • Meat: Hormone-Free Beef and Pork Products,
  • Drinks: Craft Beer, Spirits, and Wine.

Food Processing Sector:

 

Post reports that the food and drink sector is the largest single employer in the U.K. manufacturing sector.  Food and drink is also the largest manufacturing industry in the U.K., with an annual turnover in 2018 of US$136.2 billion.  Around 450,000 people across the U.K. are employed in jobs associated with food and drink manufacture and sales.  Around 103,000 of these workers are EU 27 nationals, amounting to about a quarter of the U.K. workforce

Many opportunities exist for ingredient import in all sectors.  The U.K. does not produce all of the ingredients necessary to meet the eclectic tastes and demands of British consumers.  Health and wellbeing is the key trend in the market, driving plant-based and “clean-eating” new product development.  The U.K. demands close attention to technical specifications, traceability, and very competitive pricing.

The U.K. is a key market in the EU 27 + U.K. for U.S. intermediate agricultural products (i.e. those that are lightly processed) such as cereals, dried fruit, nuts, beans, other legumes and seeds.  Although some of these products are consumed directly as snacks, the majority are destined to be utilized as ingredients in the manufacture of U.K. finished goods.  Food and drink is the largest manufacturing sector in the U.K.  Dominated by large grocery store chains, the US$250 billion market (at retail level) offers own-brand/private label at every price point.

The U.K. is an important market for global food and beverage companies.  Food retailing and foodservice are sophisticated and dynamic.  Continual innovation and re-formulation drives new product development activity and pro-active sourcing of new, smarter, safer, and, healthier ingredients.  However, with this comes a high bar for technical specifications, traceability, and compliance with private certification schemes.  Chilled convenience food is more dominant than in the United States, driving demand for exotic ingredients to meet ethnic or local flavor requirements in recipe development.

The U.K.’s departure from the EU 27 (Brexit) has led to volatility of raw material pricing following a 15%-17% devaluation of British Pound Sterling.  While food and drink manufacturers are trying to juggle lower margins and greater uncertainty, British food and drink exports have surged and offset domestic woes, to an extent.

U.K. consumers are generally willing to try new types of foods and are interested in the latest food trends and international flavors.  Health, sustainability, ethics and transparency of ingredient sourcing are the latest mega-trends directing an increasing number of companies to aspire to “clean labels” (no artificial ingredients or synthetic chemicals).  These trends have driven an upswing in vegan and plant-based products, reducing meat consumption, increasing fish consumption, free-from (allergens), gut-friendly foods (including pre-biotics), fermented food, and alcohol-free beverages. U.K. consumers, particularly younger demographics, are increasingly drawing on their personal values when making purchasing decisions.

Given its geographic location and small size, the U.K. must source a considerable amount of raw material from outside its own shores.  National pride in the wake of the Brexit referendum and a history of food scares means that U.K. consumers trust their own produce the most, and retailers/foodservice operators have ensured that their sourcing and marketing plays to this bias.  However, the U.K. is only around 60% self-sufficient in food, not including exports.  Incorporating U.S. ingredients into a British made product is routine but the labeling or marketing will generally not mention the U.S. element, unless it is mis-leading or illegal to leave out that information.  There is opportunity for U.S. ingredients if exporters have the right products and can manage the many demands and conditions placed on suppliers to ship tailored products for the U.K. market.

Best Product Prospects:

Post reports that products present in the market which have good sales potential include wheat products, rice dry beans, legumes dried fruit & nuts specialty seeds e.g. flaxseed, linseed, poppy natural colors, flavors, additives for processed food and drink manufacturing gums and resins fresh fruit, and vegetables not grown in U.K., organic, or available outside of U.K. season preserved fruit and vegetables, juices and fruit concentrates, essential oils soybeans and distillers dried grains (animal feed).

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