2016 Retail Foods United Kingdom
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THIS REPORT CONTAINS ASSESSMENTS OF COMMODITY AND TRADE ISSUES MADE BY USDA STAFF AND NOT NECESSARILY STATEMENTS OF OFFICIAL U.S. GOVERNMENT POLICY Required Report - public distribution Date: 12/13/2016 GAIN Report Number: United Kingdom Retail Foods 2016 Approved By: Stan Phillips – Agricultural Counselor Prepared By: Julie Vasquez-Nicholson Report Highlights: In the UK the retail grocery industry is concentrated with 71 percent market share in the hands of just four supermarket chains. The remainder is scattered over hundreds of outlets. This report overviews the characteristics of UK retail outlets and how best to place U.S. products in the UK market. Post: London Executive Summary: Author Defined: SECTION I. MARKET SUMMARY Overview The UK 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 UK 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 whilst limiting the expansions of large-format outlets in out-of-town locations. By 2021, the total value of the UK Grocery Market will grow 9.9 percent 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 percent 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 UK vote to leave Europe in June 2016, the pound currency has weakened significantly. Given that the UK imports around 40 percent 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 UK 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 UK. The UK 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. Sales through larger format stores such as hypermarkets and superstores are expected to decline 3 percent over the next five years as consumers choose to shop in alternative places. BREXIT On June 23, 2016, UK voters indicated their wish to leave the European Union (EU) by a 52-48 percent referendum margin. Whatever the long term ramifications for the UK and the EU and the way trade between the two and with third countries is ultimately impacted by the June 23 referendum, as of today the UK is still a member of the EU. As such, all existing trade and other arrangements under its existing EU membership continue unchanged and will remain so for the foreseeable future. It is up to the UK Government to decide when to formally notify the EU that the UK 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 UK 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 UK 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 UK electorate wants with the EU or with the rest of the world, including the United States. The United States is currently, by far, the UK’s largest food and agricultural products trading partner outside the EU, both in terms of imports and exports. In 2015, the U.S. exported a record $2.98 billion in agriculture and related products to the UK; the UK imported a record $887 million from the UK (not including an additional $1.5 billion worth of Scotch whisky and other distilled spirits). Over the short to medium term, while this trade will be subject to uncertainty in financial markets, the basic fundamentals for trade in food and agricultural products should not change. UK Grocery Retailing - Store Numbers and Sector Value The UK grocery market is expected to be worth £179.1 billion ($232.8 billion) in 2016. This is an increase of 0.6 percent over 2015. Groceries account for 9 percent of total household spending in the UK, making it the third largest area of expenditure, following housing and transport. Food and grocery expenditures account for 50.2 pence in every £1.00 of retail spending (excluding restaurants). Twenty-one pence in every £1.00 spent on food and grocery is spent in convenience stores. There are 86,332 grocery stores in the UK. These are split into four sectors: Supermarket Chains: Supermarkets have a sales area of 3,000-25,000 square feet and sell a broad range of grocery items. Superstores are defined as stores that have a sales area above 25,000 square feet, selling a broad range of grocery and non-food items. Convenience Stores: These stores have sales areas of less than 3,000 square feet, are open for long hours, and sell products from at least eight different grocery categories. Traditional Retail and Developing Convenience Stores: These stores have sales areas of less than 3,000 square feet, and include news stands, green-grocers, liquor stores and gas stations. Alternative Channels: This category includes a wide range of outlets such as internet or catalogue home shopping, farmers’ markets, and other produce markets and vending machines. Hypermarkets 367 stores, £16.8bn Multiples (Supermarkets) 4,383 stores, £8.1bn Supermarkets 5,530 stores, £88.5bn Co-operatives 2,850 stores, £4.4bn UK Grocery Retail Convenience Retailing 86,332 stores, £178.0bn 47,227 stores, £37.1bn Symbol Groups (Convenience) 15,060 stores, £14.1bn Discounters 3,870 stores, £16.2bn Non-affiliated independents 19,052 stores, £6.5bn Other Retailers Forecourts (Gas marts) 29,338 stores, £10.3bn 8,748 stores, £4.0bn Online £9.3bn Source: Institute of Grocery Distribution, 2016 Advantages and Challenges to U.S. Products in the UK Retail Sector The UK is a sophisticated market that mirrors many trends in the U.S. retail sector. However, it can be surprisingly different from the United States and in-depth research and analysis should be carried out before attempting to export. U.S. products face fierce competition in the British market. Not only is UK food production advanced, but other EU member states benefit from duty free and essentially, border-free access. However, there are opportunities for U.S. products in this competitive and challenging retail environment. The United States is the largest non-EU country supplier to the UK, but on average represents just 5-6 percent of food imports. Due to EU technical barriers, market access can sometimes prove a challenge for U.S. products. Advantages Challenges Market dominated by a few retailers with Supermarket chains demand significant volume and strong market penetration. Sophisticated their concentration can make market access replenishment systems mean U.S. difficult initially. Trial listings must give results in a products can be widely distributed. short time or product will be de-listed. There are a large number of specialty The UK has well-established brands for mainstream importers, capable and interested in products. Brand-building and marketing costs are importing from the United States. substantial. The United States has a good brand Strict (EU) import regulations and image in the UK. labeling/ingredient requirements. The country is English-speaking and is EU competitors do not pay import duty on goods to therefore an easier gateway into the rest the UK. The United States generally pays 0-25 of Europe for U.S. exporters. percent import duty, depending on the product. The United States is a popular Popularity of specialty products from many EU destination for UK tourists and familiarity countries and U.S. competitors is high, e.g. French with U.S. products is widespread. cheeses, Spanish citrus, Italian pasta, South African wines Strong purchasing power, sophisticated Consumer tastes differ in the UK.