Retail Markets Today & Tomorrow In Ireland & the UK August 2011 Growing the success of Irish food & horticulture SCB Partners for Board Bia, In Confidence 1 contents Background & Research Objectives • Report Objectives 3 • Methodology 4 1. State of the Grocery Retail Industry • Summary Overview 5 • Food Retail Sales Projections 5 • Convergence of Irish and UK Retail Markets 6 • Mergers & Acquisitions in the Retail Sector 6 • Grocery Retail Format Growth 7 • Challenges within UK and Irish Retail Markets 9 • How Irish Food is Perceived at the Moment 10 2. Retailer Expansion Plans • Summary Overview 11 • Expansion Plans 12 • Major Convenience Expansion 13 • International Expansion 14 3. Technologies for Channel Expansion • Summary Overview 15 • Developed Online Shopping Experience 16 • M Commerce 17 • Merger of Digital & Physical World 19 • New Technology 20 4. Trends in Promotions • Summary Overview 21 • Retailer Promotions 21 5. Private Label vs Branded • Summary Overview 23 • Private Label Developments 23 6. Retailer Perspective on Best-In-Class Products • Summary Overview 26 • Best-In-Class Formulation 27 • Best-In-Class Packaging 29 • Best-In-Class Positioning 31 7. Supply Chain Advancements • Summary Overview 32 • Retailer Supply Chain Overview 33 • Sustainable Distribution 34 • Logistics 35 • Rationalisation 36 8. Appendix: Implications for Irish Producers • Summary Overview 37 • Food for Thought 37 SCB Partners for Board Bia, In Confidence 2 BACKGROUND & RESEARCH OBJECTIVES Report Objectives Retailers in Ireland and the UK are essential to the success of • A vision and understanding of the grocery retail environment Irish food and beverage suppliers. In order to help drive future and expected changes competitive advantage for the Irish food and beverage industry, a • Expansion, contraction or consolidation of retailers and the deep understanding of the key grocery retail trends and changing effect on Irish suppliers retail dynamics is required to prepare for the future. • Drivers, scenarios and conditions that will impact on the retail The objective of this report is to answer the question “What does the environment future hold for the Irish and UK Retail Landscape?” • Strategies that traditional retailers and discounters have in place This report provides an in-depth forecast of the food and beverage to develop growth retail environment in Ireland and the UK in the next 3 – 5 years • Supply chain implications for retailers and provides critical insights into how Irish producers can achieve • Opportunities for Irish retailers to expand their share of shelf in competitive advantage. The report provides: retailers in Ireland and the UK 1 2 State of Retailer the Grocery Report Overview Expansion Retail Retail Markets Today and Tomorrow in Plans Industry Ireland and UK 8 This report provides a detailed projection of a series of Technologies 3 key trends that will materially impact Irish food and drinks Implications for suppliers. The report illuminates developments in the Irish Producers for Channel following areas over the next 3-5 years and is structured Expansion as follows: Supply Chain Trends in Advancements Promotions 7 4 Retailer Private Perspective Label vs. on Product Branded Innovation 6 5 Currency used is using exchange rate at May 2011 of 1 = $1.42, 1 = £0.87 SCB Partners for Board Bia, In Confidence 3 Background & Research Objectives Methodology The report was developed using a combination of secondary desk research and primary qualitative research. Secondary Desk Research Selected Qualitative Interviews During the desk research phase a variety of publications were As part of the qualitative research, key figures in the retail and sourced and analysed. Rigorous analysis of socio, political and food sectors of Ireland and UK were interviewed for their insights. economic data from reports and white papers from governments, Interviews were conducted with high-ranking trade body research institutions and annual reports from key retail sector representatives, CEOs of food retailers and distributors, food sector organisations was conducted. These are referenced below: academics and journalists as well as product-innovation experts, FMCG industry experts and packaging experts. SCB conducted a Selected Bibliography: Desk Research combination of telephone and face-to-face interviews from over • Building on Success, IGD 30 organisations. Each interview lasted between 15 – 60 minutes. • Full Year Results 2010/2011, Marks & Spencer A breakdown of the profile of respondents is illustrated in the • Pathways for Growth, Bord Bia table below. • Where Britain Shops 2010, Verdict • UK Food & Grocery Retailers 2010, Verdict The interviews were conducted with executives from a diverse range • Food Retailing, November 2010, Mintel of organisations including: • Food Harvest 2020, Dept. of Agriculture, Fisheries and Food • Allied Irish Bank • Musgrave • European Food Retail, Barclays Capital • Anglo Beef Processors • One Stop Convenience Stores • UK Retail Futures 2012: Food & Grocery, Verdict • Association of Convenience Stores • Partridges • UK e-Retail Grocery Retailers 2010, Verdict • Barclays • Planet Organic • Future of Retail 2010, PSFK • Check Out Magazine • Retail Excellence Ireland • Retail Industry Global Report 2010, IMAP Retail • Dawns Meats • RG Data Ireland • Sustainability Trends in European Retail, 2009, Forum for the Future • Flahavans • Tennant and Ruttle • Retail Futures, Forum for the Future • Irish Dairy Board • Tesco • Food 2030, Defra • Jeraboams • Trinity College • UK Food Industry 2010, Keynote • Kepak Foods • Utilyx • UK Market Forecasts: Food Catering & Drink Market 2010, Keynote • Marks & Spencer • Waitrose • Planet Retail 2010 • Anual Report 2010 Tesco Profile Breakdown of Respondent TYPE OF RESPONDENT NO. OF INTERVIEWS Food Retailers 15 Media 2 Producers 7 Financial 3 Other 7 About SCB Partners This report has been produced by SCB Partners; an international trend- based marketing insights consultancy specialising in providing critical business learnings for some of the world’s major blue chip companies. SCB specialises in consumer insights, research analysis, innovations, marketing and brand strategies. SCB Partners for Board Bia, In Confidence 4 STATE OF THE GROCERY RETAIL INDUSTRY “As today, retailers will need to provide “The concept of the weekly grocery extraordinary good value. Whatever shop is ‘past its sell by date. The happens to the economy, people are younger generation are performing still going be in the market for a treat, the shopping equivalent of grazing and but only at the right price.” want more ready-made or easier to eat Head of Food – Major Multiple food than ever before.” Academic, Trinity College Summary Overview Both the Irish and the UK retail markets are both set to expand Food Retail Sales Projections in 3-5 years time, with Irish food retail growing at an average of 1% a year and UK food retail growing at an average 2.8% Total Irish food retail sales in Ireland have recently been in decline, per year through 2014. The grocery retail industry in Ireland from a high of 11,398 million in 2007 declining to 10,370 million is expected to return to previous growth levels as the Irish in 2010. However, sales’ projections to 2014 look positive, with economy recovers, while the UK will expand at a steady rate. growth of 3.91% projected to be achieved by 2014 - creating new opportunities for Irish producers. A degree of convergence of the Irish and the UK retail markets is expected, as retailers look to streamline costs and Food retail sales in the UK are expected to achieve CAGR of 2.8% create areas of mutual benefit. over the next 4 years. Food retail sales in the UK for 2010 were estimated at 129,260 million, and are predicted to reach 144, 511 In Ireland, the environment has been difficult for domestic million by 2014. producers. Such convergence, as UK retailers such as Tesco move towards its UK supply network will compound this unless the producers are active in their business to the brand against UK suppliers. As in the UK, merger activity is more likely to be in the area of acquisition to expand into the convenience sector. All Food Retail Sales 2007 - 2015 Republic of Ireland United Kingdom % Annual % Annual Value Index Change Value Index Change 2007 11,398 m 116 9.4% 112,229 m 87 4.3% 2008 11,204 m 114 -1.7% 118,877 m 92 5.9% 2009 10,602 m 108 -5.37% 128,107 m 99 7.8% 2010 (est) 10,370 m 106 -2.18% 129,260 m 100 0.9% 2011 (fore) 10,392 m 106 .2% 131,392 m 102 1.6% 2012 (proj) 10,492 m 107 .96% 134,668 m 104 2.5% 2013 (proj) 10,728 m 110 2.25% 137,807 m 107 2.3% 2014 (proj) 10,776 m 110 .44% 141,183 m 109 2.5% 2015 (proj) 10,823 m 111 .44% 144,511 m 112 2.4% Source: Mintel 2010 SCB Partners for Board Bia, In Confidence 5 State of The Grocery Retail Industry Convergence of Irish and UK Mergers & Acquisitions in Retail Retail Markets The degree of consolidation in the Irish and UK retail sectors, as well as competition law, indicate that there will be limited merger and The cultural and commercial ties between Ireland and the UK acquisition activity in either Irish or the UK markets in the next 3-5 years. stretch back centuries, and the next five years will see increasing Weaker independent retailers, for example, are the most likely takeover convergence of the two markets from the perspective of major candidates. players within the grocery sector, with a growing number using a singular UK and Irish strategy. Mature Markets Today, the UK is Ireland’s largest single trading partner, accounting for Both the Irish and UK retail markets are considered very mature, and 13.4bn of Irish exports (16% of total) and 13.7bn of Ireland’s imports thus, growth in the retail sectors is unlikely to outstrip that of the wider (30% of total). UK trade with Ireland exceeds the total UK trade with Brazil, economy.