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UK Food & Beverage: is there a world beyond supermarkets?

The UK retail sector is one of the most sophisticated in the world. The UK was one of the first to pioneer ‘Click and Collect’ and online grocery shopping. COVID-19 has seen the way in which consumers shopping patterns changed in the past year with online shopping far more popular. Consumers are more health conscious and are choosing to shop more locally.

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The United Kingdom is the second largest economy in Europe. Agriculture is intensive, and efficient by European standards, but is less than 1% of Gross Domestic Product (GDP).
While UK agriculture produces about 55% of the country’s food needs with less than 2% of the labor force, the UK is heavily reliant on imports to meet the varied demands of the UK consumer who expects year-round availability of all food products.

The UK withdrew from the EU on January 31, 2020. On that date, it entered an 11-month transition period which ended on December 31, 2020. The EU-UK Trade and Cooperation Agreement applied provisionally from January 1, 2021, until its full ratification on May 1, 2021. Since then, this agreement has allowed for free trade in goods and some mutual market access. Customs formalities and COVID slowdowns caused major delays in shipping and distribution in 2021. The most direct consequence of Brexit observed in 2021 is the massive labor shortage plaguing restaurants, bars, and hotels.

UK economy indicators

CPG: the British retail sector

The UK retail grocery market sector was valued at $297 billion (£205 billion) in August 2020, an increase of 6.7% on 2019. Online grocery shopping was the fastest growing channel in 2020 and is expected to increase 59% between 2019 and 2022. While it is expected to grow, it will be at a slower pace compared to the beginning of the pandemic.

Discounter and Price-oriented consumer

Retail food prices in the UK are much cheaper than those found in other parts of Europe and other western countries. Apart from supplying quality products, consumers consider the price of the product as one of the major factors to consider when shopping either online or in the grocery store. This makes the UK grocery sector a highly competitive market. The retailers can achieve low pricing due to fierce competition and the vast amount of product bought. The rise of the discounters has further increased buying power.

Discounters will be the fastest growing channel in 2021 and 2022, as both consumers recognize quality and value. By 2022, discounters will be worth $44.8 billion (£30.9 billion), and convenience store sales are expected to increase moderately in the next two years from $59.4 billion (£41.0 billion) in 2019 to $67.2 billion (£46.4 billion) by 2022. Other stores such as B&M, Home Bargains, Iceland, and Poundland continue to increase their grocery sections.

Consumers are choosing to support local businesses and therefore shopping locally and sales from these ‘convenience shops’ increased 179% on the previous year. These stores are mainly ‘top up’ shops for milk, bread, snack foods, and convenience meals. Many mainstream grocery lines such as confectionery, cereals, baking mixes etc., are sold in the independent convenience stores.

The UK has one of the most advanced private label markets in the world and is seen as a flagship market for private-label development. The UK’s major supermarket chains dominate the private-label market with 42% of products in their stores being 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 UK retailers the opportunity to diversify their product ranges and develop new revenue streams.

Consumers are more health conscious

Initially, sales of snack foods and sweet treats increased during the first part of lockdown in 2020; however, with increased UK government guidance encouraging citizens to eat healthier, reduce sugar and fat consumption, and cook from fresh, this increased the preference for healthy foods.

UK consumers are buying more organic food. In 2019, $2.3 billion (£1.67 billion) was spent on Fairtrade food and drink products in the UK. Organic and Fairtrade products will maintain their growth, with some consumers considering these options to be safer and of a higher quality.

The rise of vegetarianism and veganism will continue to expand, highlighting the importance of including fruit and vegetables in the daily diet and driving growth. Sales of fresh vegetables rose by more than 15% in the past year. One of the biggest trends is the move towards sustainable products. Consumers (whether or not vegetarian) are choosing to eat more plant based or meat alternative products to help the environment.

One of the biggest trends is the move towards more sustainable food products. Consumers are more conscious to what they eat and the effect it has on the environment. With the food choices they make, they want to feel that they are playing their part in reducing the amount of greenhouse gases and deforestation. Consumers want food sold in UK retailers to be produced more sustainably. Sustainability and climate change is at the forefront of UK retailers’ minds and is part of the decision-making process.

UK CPG

CPG: the UK Foodservice sector

The service sector contributes a whopping 70.9% of the UK’s GDP, with the hospitality industry (composed of the country’s hotels, pubs, restaurants, and leisure companies) constituting 4% of the total GDP. Tourism has been a critical aspect of the service industry, and while some forecasts predict an upwards trend, it is likely that tourism will continue to lag as the Delta variant and some government restrictions remain. Meanwhile, the consumer-oriented product market is steadfast, and demand for U.S. consumer-oriented food products continues to define the U.S.-UK relationship.

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, Sodexo, and Whitbread are among the largest operators of this type in the UK.

Notably, pubs, clubs, and bars make up the largest channel in the UK food service profit sector by revenue, representing 23 percent of total sector revenue in 2020. Exporters and distributors providing to these venues have ample opportunity, although they may be hindered by the lingering supply chain challenges referenced above.

Fastest Growing ChainGlobal Brand OwnerNumber of outlets in 2020
Enterprise InnsEnterprise Inns3,300
Costa CoffeeCoca-Cola2,467
SubwayDoctor’s Associates2,229
GreggsGreggs2,059
Marston’sMarston’s1,357
McDonald’sMcDonald’s1,325
Punch TavernsHeineken1,250
Domino’s PizzaDomino’s Pizza1,133
StarbucksStarbucks1,062
Admiral TavernsAdmiral Taverns1,010
Source: Euromonitor

One major future consideration is the impact the food service industry missing out on 40 million or so overseas leisure visitors in 2020 and 2021. These tourists contributed an estimated $33.9 billion in revenue in 2019 and now their absence is keenly felt. The UK hospitality industry will have to do its utmost to ensure they return in 2022.

Route to Market

For years, importers have played a key role when doing business in the UK. Food importation is a specialized business, and an importer plays a pivotal role in navigating the hurdles of UK food law. It is much harder to supply UK retailers directly. However, retailers want to keep prices as low as possible and will occasionally look to source directly from suppliers.

Many fresh produce importers have controlled-atmosphere warehousing facilities and almost all importers of frozen and chilled foods contract out to specialized storage, handling, and distribution companies.

Some of the largest importers will only consider a product if it has large volume potential in the UK supermarket chains and is backed by substantial marketing and financial support. Others specialize entirely in independent grocer or food service distribution.

Costs vary widely too. Some importers may ask for a start-up fee; some are commission-only agents; and others may seek a fixed fee that switches to commission when sales reach a target level. A full brokerage rate may range anywhere between 17 and 25%. Marketing costs from FOB level to retail may include some or all the following: sea/air freight costs, insurance costs, import duty/value added tax/excise duty (if applicable), customs entry and clearance, handling charge to importer (can be a small charge deducted from wholesale price), packaging and labeling, overheads, wastage, and shrinkage allowance, and mark-up by supermarket retailer (35-70%).