EXHIBIT 2 Kitchenware in the UK: an overview Definitions Kitchenware may be divided into three categories: Tableware: dishes used for setting a table, serving food and dining. It includes cutlery or flatware (knives, forks and spoons), crockery (plates, saucers, bowls and cups/mugs), glassware, serving dishes and other items fulfilling practical and/or decorative purposes. Quality and design vary according to culture and cuisine. Cookware: pots and pans (used on a hob), ovenware (used in conventional and/or microwave ovens) and bakeware (also used in ovens). Utensils: small handheld tools used in the preparation and serving of food. They include items for preparing food (eg, knives, peelers); cooking tools (eg, wooden spoons, spatulas); serving implements (eg, ladles); and measuring devices (eg, jugs, scales). Kitchenware can be bought in many types of store, including kitchenware specialists, department stores and supermarkets, as well as online and via mail order catalogues. UK market trends The total size of the UK kitchenware market is estimated at over £0.5 billion. It is influenced by a number of factors. Demographic issues The number of UK households and average number of occupants have both steadily increased in recent years. The latter has significant implications for buyer behaviour, fuelling the demand for both larger cookware items that can cater for more people and bigger quantities of tableware. Cooking trends According to research by Mintel, every day around 10 million UK households (38% of the total) cook from basic ingredients, and 21% of adults spend extra money on food and drink at home for a special occasion. These factors are helping to stimulate demand for kitchenware. Home baking is popular, as both a necessity and a leisure activity. The growing number of television programmes devoted to food and cookery has also had a major impact. Prominent among these are The Great British Bake Off and MasterChef, both originating in the UK but now replicated in many countries around the world. Celebrity tie-ups (where a well-known figure from the world of cookery – often someone associated with a food and cookery programme – endorses a company’s products) are common. Consumers continue to live increasingly fast-paced lives, affecting demand for convenience in cooking (time- saving benefits and ease of use). This has had a strong effect on the industry, leading to innovations such as new utensils and improved non-stick surfaces. However, there has also been a negative impact: the availability of ready meals from shops is limiting the frequency with which some households use cooking equipment, and this in turn restricts potential demand and volume of sales. (Ready meals are packaged meals that simply need to be reheated before being eaten.) Eating out at restaurants also remains popular. Globalisation has driven the popularity of international foods over recent years, encouraging consumers to experiment more in their home cookery. The popularity of spicy Thai and Indian food, in particular, has surged, leading to a large rise in ownership of woks and in dishes used for preparing curry. Companies have attempted to exploit demand by bringing more specialist cookware products to market. Such products represent an important potential growth opportunity in an increasingly saturated market. ICAEW/CS/J17 Page 7 of 40 Companies and brands This is a diverse market, characterised by a wide range of companies and brands. Many leading brands in the UK are owned by international companies. These include Amefa (Netherlands), Villeroy and Boch (Germany) and Meyer (US). British companies include recent arrivals such as Joseph Joseph and Emma Bridgewater, among more established companies such as Churchill China and Arthur Price. A vast array of retailers sell kitchenware. Supermarkets and some other large chains such as IKEA account for around 50% of the market, selling large volumes of relatively low-priced goods. Department stores, such as John Lewis, are the main destinations for higher-quality goods (30% market share). The remaining 20% comes from specialists, such as Lakeland, Kitchens Cookshop and Steamer Trading. Brand awareness is strong, with the distinctive style of established names such as Tefal, Le Creuset and Pyrex. Research shows these to be well known and likely to be recommended to friends, as well as being brands that people feel are “worth paying more for”. Premium products are largely perceived to represent value for money owing to their durability. Sales drivers Increased availability of products online is threatening specialist kitchenware retailers and reducing profit margins for manufacturers. With the rise in ownership of smartphones and tablets – and the improved standard of websites (so that consumers can form a good visual impression) – it is easier and more convenient than ever to browse and shop on the internet. Further growth in online shopping is expected in the coming years. Around 60% of UK consumers buy kitchenware each year, especially items in regular use (eg, cups, mugs and glasses) and – to a lesser extent – baking tins and pans. The biggest driver of demand is replacement of damaged items. Many say that upgrading is important to them when they buy a replacement. “Easy-care”, “long-lasting”, “low-cost” and “versatile” are the main factors that they cite. Many consumers see cookware as a treat or as an excellent gift for others. ICAEW/CS/J17 Page 8 of 40 EXHIBIT 3 The UK kitchenware industry: key issues Overview Companies operating in the UK kitchenware sector typically sell their products to retailers, which then sell them to consumers. Some also sell through their own retail stores, and many also sell direct to consumers, whether online or through mail order catalogues. Some companies additionally sell their products to corporates that provide catering services – notably offices and other business premises, restaurants, hotels, cruise ships, sports and conference venues, as well as public sector entities such as schools and hospitals. In each of these different selling models, there are some companies that sell exclusively within the UK and others that also sell to overseas customers. There are also variations in manufacturing. Larger companies traditionally manufactured their own products in their own factories, whether in the UK or overseas. In more recent years, there has been a tendency to outsource production (and other key business processes, such as distribution) to other companies, again both in the UK and overseas. Kitchenware companies that outsource their production usually work closely with the manufacturers on the design and quality of the products and on operational matters such as timescales and sizes of production runs. Pricing The price at which kitchenware companies sell products to retailers needs to cover their costs and earn a profit. Retailers in turn need to be able to sell them to consumers at an acceptable profit. Price is a major consideration for consumers. Many correlate price with performance but, if the price of a product is too high, some consumers will not consider it to represent value for money and others may be unable to afford it. However, there are many products that are viewed as essentials and therefore always in demand. Diversification As in other industries, many kitchenware companies look to diversify, for example by selling ancillary products such as table linens, mats/coasters and small electrical goods (kettles, toasters). This creates the significant advantage of cross-selling as the target market for all these products is essentially the same. The disadvantage is that a company may have too many products and be unable to identify a true profit margin for each, to control inventory or to optimise product mix. Quality, performance and durability A challenge for companies in this industry is to offer products of the ‘right’ quality and durability. They need consumers to be replacing existing items and buying new ones. They need to have a large enough range of products so that something new or different is always available to consumers. Consumers expect metal coatings and non-stick surfaces to be durable, and they are willing to pay more for a product that will last and that is perceived to improve the quality and/or appearance of their cooking or their kitchen. This is reflected in the fact that some premium cookware products come with lifetime guarantees. However, most items will not last indefinitely, and so the ability to replace them if damaged is also important. People who have a set of tableware that they love are unlikely to buy a totally new set just because they have broken a few plates. The ready availability of individual replacements – especially for items that are no longer being manufactured – can therefore also influence consumers’ buying behaviour. ICAEW/CS/J17 Page 9 of 40 Similarly, corporate users of kitchenware such as hotels and restaurants need products that are durable, easy to clean – whether by hand or by machine – and (especially at the upper end of the market) attractive to look at. They will always expect a certain level of breakages or damage (or even theft) and will either ensure that they buy enough of each product to allow for these or expect their suppliers to be able to provide them with replacements at short notice. Product design Design is important, for both aesthetic and practical reasons. Consumers are particularly influenced by the appearance of products that are likely to be on display at home, such as casserole dishes that might be taken to the table at a dinner party, saucepans that openly hang in the kitchen when stored, or utensils such as blocks of knives on the kitchen worktop. ‘Retro’ products (ie, those based on designs from the past) can also be popular. Consumers are also attracted by innovative concepts that enhance ease of use. Big technological developments are relatively rare as the market is mature, but companies continue to improve products by introducing new features.