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United Kingdom Country Profile

Market Overview:

Euromonitor reports that plagued by uncertainties surrounding Brexit, investment in the U.K. will slow in 2018. Consumer spending will also weaken but this will be partially offset by a relaxation of fiscal austerity and an ultra-loose monetary policy. Exports will see a healthy rise. The slow growth in wages and slightly higher rates of inflation curb private consumption. Then growth will slow sharply in 2019. After that, the economy should gradually strengthen with growth reaching about 1.7% per year by 2025.

  • The U.K.’s economy is slowing - Real Gross Domestic Product (real GDP) grew by 1.5% in 2017 and gains of 1.2% are forecast for 2018
  • Private final consumption rose by 1.4% in 2017 and growth of 1% is predicted for 2018
  • Higher inflation and sluggish wage gains limit growth of household income and consumer spending
  • The U.K. faces a host of problems in the housing market - Home ownership has already fallen to a 30-year low but house building continues to slow
  • One constraint is the fear of higher interest rates; another is the expectation that firms will soon start to move jobs to Europe

In 2017, total population amounted to 65.8 million, up from 58.8 million in 2000. The number will gradually rise in the future and the total will reach 69.5 million in 2030. Median age was 40.1 years in 2017, an increase of 2.6 years over the figure for 2000. Fertility – at 1.8 births per female – is remarkably steady and will not change between 2017 and 2030. The number of those over 65 years represented 18.2% of total population in 2017 and the share will rise to 22% by 2030.

USDA’s Office of Agricultural Affairs, (OAA), in London, hereinafter referred to as “Post” advises with its 2017 nearly US$2.9 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 10th largest U.S. market worldwide for U.S. 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 foodservice markets.

In 2017, U.S. exports of consumer oriented food products were just over US$1 billion, a decrease of 13% from the previous year across many product aggregates. The U.K. is a top market for the export of U.S. processed foods, ranking 6th in 2017 at US$1.1 billion, down 7% from 2016. Top processed food exports to the U.K. in 2016 included:

  • Beer and wine
  • Food preparations
  • Distilled spirits and other alcoholic beverages
  • Processed vegetables and pulses
  • Chocolate and confectionery
  • Snack foods
  • Processed fruit
  • Prepared/preserved seafood
  • Fats and oils
  • Non-alcoholic beverages and condiments and sauces.

The U.K.’s economy has begun to slow since the referendum vote to leave the EU in June 2016. A sustained depreciation of the British pound has increased consumer and producer prices, weighing on consumer spending without spurring a meaningful increase in exports. The U.K. has an extensive trade relationship with other EU members through its single market membership and economic observers have warned the exit will jeopardize its position as the central location for European financial services. Prime Minister May is seeking a new “deep and special” trade relationship with the EU following the U.K.’s exit. However, economists doubt that the U.K. will be able to preserve the benefits of EU membership without the obligations. (Source: CIA World Factbook)

Post reports that 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.

Opportunities for U.S. food exporters include:

  • The scale of the U.S. food industry may offer price competitiveness on large volume orders
  • The U.K. climate limits growing seasons and types of products grown
  • The diversity of the United States population creates innovative food products and concepts which are often mirrored in the U.K.
  • The U.S. has good brand image in the United Kingdom – it is a popular destination for the U.K. tourist and familiarity with products from the United States is widespread
  • A common language means that the U.K. is a natural gateway into Europe
  • The U.K. has a core group of experienced importers with a history of sourcing from the U.S.
  • Strong interest in innovative products - Currently there is high interest in natural, “wholesome” and “health” food categories

Constraints and considerations for U.S. food exporters include:

  • EU products enter duty-free without significant customs checks while U.S. products face EU common external tariffs and strict customs controls
  • Poultry and red meat are highly regulated by the EU, as are dairy product imports from the U.S.
  • Must meet strict U.K./EU/retailer demands on food safety, traceability, environmental issues and plant inspection
  • Labels, including nutritional panels need to be converted to comply with U.K. requirements - Pack sizes and palletization may also need to be adjusted
  • Need to develop relationship with U.K. trade contacts and invest in marketing product
  • Genetically-engineered (GE) food ingredients are not widely accepted in the U.K., perhaps due to aggressive negative press
  • Tastes differ in the U.K. - For example, popcorn is often sweet, relishes are jam-like, and spicy may not mean high chili content.

Retail Sector:

According to Euromonitor, retail sales in the packaged food market in the U.K. were estimated to reach US$76.3 billion in 2017. That represents a growth rate of 1.2% or US$940.5 million since 2013. The U.K. is now the 8th largest package food market in the world and the 3rd largest in all of Europe. By the year 2022, the retail sales in the packaged food market in the U.K. is expected to reach US$87.2 billion, a growth rate of nearly 10.5 or US$8.2 billion. High growth categories in the forecast include:

  • Baby food
  • Ready meals
  • Rice pasta and noodles
  • Soups
  • Savory snacks
  • Sauces, dressings and condiments
  • Processed fruit and vegetables
  • Baked goods
  • Ice cream and frozen desserts

Post reports that the U.K. retail grocery market was valued at nearly US$240 billion in June 2017, an increase of 0.3% from 2016. The Institute of Grocery Distribution (IGD) estimates that the U.K. grocery market will be worth US$293.4 billion in 2022; a 15.3% increase over 2017.

  • In 2016, groceries accounted for 10% of total household spending in the U.K., making it the third largest area of expenditure (the largest is housing, and the second largest is transport)
  • Food and grocery expenditure accounts for 51 pence in every £1.00 of retail spending
  • Four in five shoppers say they have visited a discounter for grocery shopping in the past month
  • 40% of British shoppers say they have bought some of their food by shopping online
  • Nine in ten people visit a convenience store on a regular basis to buy everyday grocery necessities
  • According to IGD, the average shopper makes 26 trips to buy food every month spread over 5 different outlets

Four supermarket chains dominate U.K. food retailing, accounting for 69% of the market. Tesco is the market leader, with 28% market share, followed by Sainsbury’s with 16%, Asda/Wal-Mart with 15%, and Morrison’s has 10%. Other U.K. supermarket chains include Aldi, The Cooperative, Waitrose, Lidl, Iceland, and Marks and Spencer.

The discounters’ (Aldi & Lidl) sales increased 30% in 2016; Aldi’s market share increased to 6.8% an all-time high making it the U.K.’s 5th largest supermarket. The discount retailers continue to strengthen their position in the market with 4 in 5 shoppers saying they have visited an Aldi or Lidl in the past month.

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 up-market 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. has one of the most advanced private label markets in the world and is seen as a flagship market for private label development. The U.K.'s major supermarket chains dominate the private label market and on average 47% of products in their stores are private label. Originally, private label goods were a copy of a branded product but today they are often innovative and marketed as a premium or high quality brand. They give U.K. retailers the opportunity to diversify their product ranges and develop new revenue streams. In comparison the Netherlands has 30% private label products and the U.S. has only 18%.

The U.S. chain Whole Foods has its flagship store in London’s Kensington High Street with the largest food retail space in central London, at 80,000 square feet. Whole Foods also own six smaller stores in London. In the past year it has closed its stores in Cheltenham and Glasgow. Partridges, part of the Shepherd Foods Company, also deserve a mention for its continued dedication to stocking U.S. products.

Visiting a physical store remains an important part of grocery shopping habits as 4 in 10 shoppers say they use a mix of online and supermarket shopping. Innovations such as grocery click and collect have also helped the popularity of this service. Click and collect allows customers to order all their grocery shopping online and then drive to the supermarket to collect it from a designated point. Click and collect lockers are also available at some underground stations. Although this is still a small part of the industry sales are growing year on year. It is the younger generation that is predominately driving the growth with one fifth of 25-34 year olds now doing their grocery shopping online.

Best Product Prospects:

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

  • Snack foods
  • Fresh and dried fruit
  • Nuts
  • Vegetables
  • Seafood
  • Cereal products
  • Cooking sauces
  • Salad dressings
  • Confectioner,
  •  dips and salsas
  • Frozen foods
  • Wine and beer

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:

Post reports that in 2016 the U.K. food service sector (food and beverage sales to consumers) was estimated to be worth £48.6 billion ($63.2 billion). This was an increase of 0.9% from 2015. The food service sector is clearly an enormous market and is one that can provide many opportunities for prepared U.S. exporters.

Major trends currently seen in the U.K.:

  • Menu trends – BBQ, North American, Mexican, South American, Vietnamese, Thai and SE Asian
  • Americana remains popular – pulled pork, bbq, ribs, hotdogs etc.
  • Superfood dishes continue to be 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
  • Premium products
  • Street Food – Quality ingredients, seasonally sourced, quick food

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, Bidfood Foodservice, Brakes, Compass Group, Mitchells & Butler, Sodexho and Whitbread are among the largest food service companies in the U.K. These companies can be categorized as follows:

  • Operators - Operating a foodservice outlet includes all the functions associated with both 'front' and 'back' of house, including kitchen operations and meal preparation. All of the operating functions can be undertaken by the owner. Foodservice operators include: Compass Group, Sodexho, Whitbread, McDonalds and Burger King.

     

  • Delivered Wholesalers - The catering market is predominately supplied in two main ways, either direct from a supplier or an intermediary or from a wholesaler. Currently, over half of all food sold to food service operators are delivered by wholesalers. Smaller operators, such as independent pubs, restaurants and hotels, may purchase from national or regional wholesalers, but given their small size and flexibility, they are more likely to source from regional producers. Examples of these are Bidfood, Brakes, Sodexho and Compass Group.

     

  • Distributors - Unlike the wholesalers, contract distributors do not normally take ownership of goods, but instead, offer a delivery service function. Operators choosing to contract a distributor for all parts of their estates include McDonalds, Burger King, Prêt Manger and Compass. 3663 and Brakes provide a contract distribution service, in addition to their delivered wholesaler service.

The restaurants referred to in this sector, cover establishments where one would sit down to a meal. Eating in a restaurant is more likely to be a planned event for a specific purpose. Ethnic food is very popular in the U.K., so restaurants offering food from all over the world are seen throughout the U.K. Key players include: Mitchells and Butler, Gondola Holdings (U.K. leading casual dining group operating Pizza Express, Ask, Zizzi, plus a number of smaller brands), Whitbread Restaurants and The Restaurant Group (one of the largest independent restaurants and pub restaurant groups owning Chiquito, Frankie and Bennies, Garfunkel’s, Home Country, TRG Concessions and Brunning & Price).

Similar to cafes, quick-service restaurants offer a quick meal on the go, but lack the social element of a café. One in four consumers eats in a quick-service restaurant, because their children or grandchildren want to eat there. Fast food chains will continue to develop healthier alternatives to their standard offerings as consumers demand healthier options. Quick service restaurants have performed well in the last 12 months with many consumers opting for this type of meal rather than a full service restaurant. Also, some of the fast food operators are opting for menu items outside their normal fare. For example, McDonalds has made a success of selling coffee, despite strong competition from the numerous specialist coffee shops. Key players include: McDonald’s, Burger King, Nandos, Eat, Domino’s, KFC, and Pizza Hut, Pret a Manger, Subway and Greggs Plc.

The majority of hotels trading in the U.K. are small independent businesses, mostly run by families; however, this is changing as a number of larger chained operators have entered the market. Each hotel is counted as one outlet, even though there might be several food service components within it, e.g., a restaurant, bar, room service, and leisure. A decline in public spending and the general public’s price consciousness owing to the credit crunch has seen an increased demand for budget accommodation. Hotels, especially those in London and the South-east, have done well in recent years. Key players include: Hilton, Holiday Inn, Marriott, Intercontinental, and The Savoy Group.

Post reports that the best product prospects for U.S. exporters of food service products include:

  • Fish and Seafood
  • Chocolate confectionery
  • Vegetables & Fruit prepared in Vinegar
  • Preserved fruit & nuts
  • Fruit & Vegetable Juice
  • Condiments, Seasonings
  • Soft drinks
  • Wine & Beer   

Food Processing Sector:

Post reports that the 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 2016 of US$124 billion. Around 400,000 people across Britain are employed in jobs associated with food and drink manufacture and sales. Around 117,000 of these workers are of EU nationality, amounting to about a third of the U.K. workforce.

U.K. multinationals such as Unilever and Diageo are among the largest in Europe. Many U.S. 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, raw 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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