The UK Market for Agri-Food and
Horticultural Products: opportunities
for Dutch SME’s
1
Report produced on behalf of the E...
Background
• The Embassy of the Netherlands commissioned leading agri-food consultancy Promar International to
review the ...
Contents
Chapter 1: Executive Summary........................................................................4
Chapter 2: ...
Chapter 1: Executive Summary
4
Chapter contents:
•Key research findings.
•Key conclusions and opportunities for Dutch SME’s
Executive Summary
• We believe the UK is an attractive market for Dutch businesses for several reasons.
• A large and grow...
Executive Summary
• The UK agri-food market is also highly competitive and there are no easy opportunities
• The UK is a m...
Executive Summary
• Overall we believe that suppliers from the Netherlands are in an excellent position.
• Dutch businesse...
Executive Summary
8
• However, suppliers must also be responsive to a fast changing environment and consider how best
to e...
Executive Summary
• We believe there are two broad ways in which Dutch suppliers should approach the UK market.(1)
• The d...
Executive Summary
10
Niche players
• The innovative potential of Dutch suppliers provides an excellent platform for Dutch ...
Chapter 2: Economic Outlook
Chapter contents:
•Brief overview of UK economic position.
•Impact of economic environment on ...
Economic outlook
• The financial crisis of 2008 caused a deep recession in the UK economy lasting 15 months.
• An initial ...
Industry perspective(1)
• “I would expect 2013 to be more or less a carbon copy of 2012. Little or no growth. I think 2014...
Economic outlook
-8
-6
-4
-2
0
2
4
6
2007 2008 2009 2010 2011 2012 2013
UK GDP growth (%)(1)
Quarter-on-quarter
Year-on-ye...
Regional economy
Map of the UK distorted to reflect
population density(1)
(1) The Daily Telegraph
(2) Office for National ...
Demographics
People in a non-white ethnic group as a
percentage of all people(1)
• The UK population is ageing. In 2011 16...
Consumer reaction
• UK consumer activity has been heavily influenced by the prevailing economic environment since 2007.
– ...
Consumer reaction
• At the same time UK consumers are also more demanding that their food and drink deliver additional ben...
Consumer reaction
-2
-1
0
1
2
2008Q4
2009Q1
2009Q2
2009Q3
2009Q4
2010Q1
2010Q2
2010Q3
2010Q4
2011Q1
2011Q2
2011Q3
2011Q4
2...
Food retail prices & consumer reaction
0
2
4
6
8
10
12
14
2007 2008 2009 2010 2011 2012 2013
CPI
Food RPI
UK Food Inflatio...
Industry perspective(1)
• “We regularly track consumer behaviour and one of the key things that we see is a re-evaluation ...
Industry perspective(1)
• “Consumers are more price conscious and that has led to an increased expectation that
promotions...
Chapter 3: UK agri-food sector map
Chapter contents:
•Diagrammatical overview of the UK supply chain.
•Brief discussion on...
UK agri-food sector map(1)
UK Consumers
63 million
Total consumer expenditure (retail and food
service channels) £187bn
Co...
Key trends
• The key stages of the UK agri-food supply chain include production, processing and manufacturing, wholesaling...
Chapter 4: UK Agriculture
Chapter contents:
•UK agriculture facts and figures
•Overview of key product sectors (production...
UK agriculture overview
• Farming defines the national landscape and plays a critical role in supplying two thirds of the ...
Land, labour and holdings
21%
10%
3%
3%
35%
19%
9%
Cereals & industrial crops
Vegetables & horticultural products
Potatoes...
0
5 000
10 000
15 000
20 000
25 000
2007 2008 2009 2010 2011 2012
Gross output (basic prices)
Gross value added (basic pri...
UK agriculture compared to the Netherlands
(1) Defra: “Agriculture in the United Kingdom: 2012”
17,190
1,858
0
2,000
4,000...
UK agriculture trends
• The route-to-market for agricultural commodities has become increasingly consolidated.
• Farmers a...
Industry perspective(1)
• “The underlying and long term trend is of consolidation. In all sectors we see fewer farms but t...
Industry perspective(1)
• “Following the ‘Horsegate’ scandal [i.e. Detection of horse meat in products labelled otherwise]...
Cereals
Cereals(2): The UK is the fourth largest producer of
cereals and oilseed crops in the EU. 5 million
hectares of la...
Cereals vertical summary
Cereal farming
Maltsters Millers/ flour mills
Starch
manufacturers
Feed
Exports
Imports
Food indu...
Horticulture: fruit
Horticulture: 200,000 hectares of land is
used to grow horticulture (fruit,
vegetables and ornamentals...
Horticulture: vegetables
Total value of production (£million)
and prices (£tonne)(1)
£/tonne
£million
0
50
100
150
2007 20...
Horticulture: potatoes
38
Total production area (000 ha)(1)
(1) Defra: “Agriculture in the United Kingdom: 2012”
0%
10%
20...
Fresh produce vertical summary
Seed merchants, agro-chemicals,
machinery, plant breeders, R&D
UK horticultural farms
200,0...
UK floriculture production by type (000tonnes)(1)
Total production area (000 ha)(1)
(1) Defra: “Agriculture in the United ...
Floriculture vertical summary
41
UK production (incl. bulbs, cut flowers, foliage, indoor
plants, outdoor plants and trees...
Pigs
Production (000 tonnes) and self-
sufficiency (1)
47%
21%
11%
9%
12%
1 to 9 pigs
10 to 49
50 to 299
300 to 999
1 000 ...
Pig meat vertical summary
Pig marketings
Pig Herd
Live pig imports
Wholesalers, traders, depots
Processors
Retail Fresh/Fr...
Poultry
58%25%
17%
1 to 9 999 broilers
10 000 to 99 999
100 000 and over
UK poultry holdings (000’s), by size of holding(1...
Poultry vertical summary
Company Growing Units
Raise broilers (hens reared for
meat, not eggs)
Marketable broilers
Abattoi...
Beef
UK beef holdings (000’s), by size of holding(1)
39%
19%
13%
13%
11%
5%
1 to 9 beef cows
10 to 19
20 to 29
30 to 49
50...
Beef vertical summary
Feed, Agrochem, Machinery
UK Dairy farms UK Suckler Herd
Store producers Finishers
Live cattle impor...
Dairy
32%
14%
22%
15%
17%
1 to 9 dairy cows
10 to 49
50 to 99
100 to 149
150 and over
UK dairy herd (000’s), by size of ho...
Dairy vertical summary
Feed, Agrochem, Machinery UK Dairy farms
Available for human
consumption
On farm waste and stock us...
Cross-cutting themes
• Environment. As agriculture accounts for 70% of total land use in the UK its role in managing the e...
Cross-cutting themes
• Succession. The average age of a farmer in the UK is 58 and there is a shortfall of younger people ...
Industry perspective(1)
• “UK [horticultural] production is highly exposed to the weather because the vast majority of pro...
Industry perspective(1)
• “The UK liquid milk market is effectively closed to foreign suppliers without direct inward inve...
Industry perspective(1)
• “Although the UK is technically self-sufficient in lamb we still import a considerable amount of...
Industry perspective(1)
• “In some cases producers have invested in processing, packing and distribution facilities and de...
Chapter 5: UK Food and Drink Manufacturing
Chapter contents:
•UK food and drink manufacturing key facts and figures
•Inves...
UK food and drink manufacturing
• Employing 400,000 people, worth £72 billion in total turnover and contributing £19.5 bil...
Size and performance
£66,052
£69,673
£72,862
£72,062
£18,309
£18,762
£19,343
£19,476
6,489
6,327
6,380
6,439 0%
2%
4%
6%
8...
UK manufacturing compared to the Netherlands
(1) Office for National Statistics and CBS (Statistics Netherlands)
6,439
4,1...
Meat and meat products,
£14,741
Fruit and fresh
vegetables, £5,985
Vegetable/animal oils and
fats, £1,111
Dairy products, ...
Foreign investment in UK manufacturing
• In recent years some of the biggest investment in food and drink processing and m...
Demand for agricultural materials
• UK food manufacturers purchase over £50 billion in goods and services per annum:
• App...
Identifying procurement strategies
Leverage
•Short term relationship
•Focus on price
negotiation
•Highly competitive
•Deal...
Demand for speciality ingredients
• Speciality food ingredients (flavours, flavour enhancers, preservatives, sweeteners, c...
Speciality ingredients create value not cost
65
57%
18% 17%
4%
3%
Dried milk
Sugar
Vegetable fat
Functional systems
Flavou...
Chapter 6: UK Trade in Food and Drink
Chapter contents:
•UK food and drink trade key facts and figures
•Sector specific an...
Trade overview
• UK self-sufficiency in food and drink was 62% in 2012 (underlying trend of long term decline).
• The UK i...
£4,568
£4,363
£3,501
£3,287
£2,329
£2,072
£1,947
£1,452
£1,032
£1,031
0 1000 2000 3000 4000 5000
Netherlands
France
Irish ...
Trade balance – fruit
69
0
500
1,000
1,500
2,000
2,500
3,000
3,500
4,000
2002 2003 2004 2005 2006 2007 2008 2009 2010 2011...
16
9
8
77
6
5
4
4
34
Spain
South Africa
Costa Rica
Colombia
Netherlands
Dom Republic
France
Brazil
Ecuador
Others
Importer...
Trade balance - vegetables
71
0
500
1,000
1,500
2,000
2,500
2002 2003 2004 2005 2006 2007 2008 2009 2010 2011 2012
Fresh v...
39
31
4
4
2
20
Spain
Netherlands
France
Poland
Irish Republic
Others
Importer share - vegetables
Share of UK vegetable imp...
Trade in seed potatoes
73
54%
46%
68%
60%
58%
63%
0%
10%
20%
30%
40%
50%
60%
70%
80%
2007 2008 2009 2010 2011 2012
NL Belg...
Trade in flowers and plants
-1200
-1000
-800
-600
-400
-200
0
200
Bulbs
Cutflowers
Foliage
Indoorplants
Outdoorplants
Tree...
Trade balance – poultry meat
75
0
50
100
150
200
250
300
350
400
450
2002 2003 2004 2005 2006 2007 2008 2009 2010 2011 201...
46
12
8
7
27
Netherlands
Poland
Germany
Irish Republic
Others
Importer shares in poultry meat(1)
Share of UK poultry meat ...
Trade balance – poultry meat products
77
0
50
100
150
200
250
300
350
2002 2003 2004 2005 2006 2007 2008 2009 2010 2011 20...
46
11
10
7
26
Thailand
Netherlands
Irish Republic
Brazil
Others
Importer shares in poultry meat products(1)
Share of UK po...
Trade balance - pork
79
0
50
100
150
200
250
300
350
400
450
500
2002 2003 2004 2005 2006 2007 2008 2009 2010 2011 2012
Po...
29
19
14
11
27
Denmark
Germany
Netherlands
Irish Republic
Others
Importer shares in pork(1)
Share of UK pork imports by co...
Trade balance – bacon and ham
81
0
50
100
150
200
250
300
350
2002 2003 2004 2005 2006 2007 2008 2009 2010 2011 2012
Bacon...
41
41
12
3 3
Denmark
Netherlands
Germany
Irish Republic
Others
Importer shares in bacon and ham
Share of UK bacon and ham ...
Trade balance – beef and veal
83
0
50
100
150
200
250
300
2002 2003 2004 2005 2006 2007 2008 2009 2010 2011 2012
Beef and ...
68
9
5
3
15
Irish Republic
Netherlands
Germany
Poland
Others
Importer shares in beef and veal
Share of UK beef and veal im...
Trade balance in wheat
85
0
500
1,000
1,500
2,000
2,500
3,000
3,500
4,000
2002 2003 2004 2005 2006 2007 2008 2009 2010 201...
32
26
10
9
23
Spain
Netherlands
USA
Portugal
Others
Importer shares in wheat(2)
Share of wheat imports by country of despa...
Chapter 7: Retail and Food Service Market
Chapter contents:
•UK retail and food service market key facts and figures
•Cate...
Grocery retail market
• With a population of 63million, household expenditure on food and non-alcoholic drink worth £88.5b...
Food service market
• The ‘Food service market’ defines food and drink consumed out of the home. It includes food and drin...
Food service supply chain (simplified)
90
Consumers
Profit sector Cost sector
Restaurant
(e.g.
Traditional
‘sit down’
rest...
Food retail & food service market value
UK Household Food Expenditure (Food and
Non-Alcoholic Drink) £millions(1)
UK Expen...
UK food retail & food service compared to the
Netherlands
63
17
0
10
20
30
40
50
60
70
UK NL
Population (millions)(1)
Cons...
UK country variations in food and drink
expenditure
26.32
25.4
24.15
24.28
2.97
3.38
2.79
2.99
11.01
8.72
7.35
8.49
4.11
3...
Regional differences – food retail
25.45
27.32
25.52
27.23
26.84
28.59
27.6
30.33
29.14
27.84
23
24
25
26
27
28
29
30
31
N...
Regional differences – food service
5,375
15,185
11,580
9,545
11,400
13,095
23,805
20,955
13,940
7,300
12,030
4,075
0 5,00...
Regional variation
• On the whole there is little distinction in food consumption patterns between the regions.
• One of t...
Food retail
Retail Expenditure Share % (14 April 2013) (1)
“Pressure on household budgets is undoubtedly driving some of t...
Industry perspective(1)
• “Growth in the grocery retail market has come mainly from the premium and budget end of the mark...
Industry perspective(1)
• “We are starting to see retailers segment the UK retail market geographically to isolate London ...
Industry perspective(1)
• “Our retail customers are extremely demanding, we have to operate to tight deadlines, usually 2 ...
Category dynamics(1)
(1) Various sources incl. Mintel, Kantar, Defra
*Flowers and plants consumption per capita in £ not k...
Category dynamics
Product Trend* Driver >5 years
Poultry Increasing -Perceived as value for money
-Positive health percept...
Category dynamics
Product Trend* Driver >5 years
Ready meals Increasing -Convenience
-Quality improvements (own label)
-In...
Category dynamics
Product Trend* Driver >5 years
Cheese Increasing -Category innovation driven by
convenience (e.g. snacki...
Innovation examples: flavoured milk
Product name Frijj Milkshake
Company Dairy Crest
Price (£) 1.25
Size 471ml
Product des...
Innovation examples: lactose-free milk
Product name Lacto-Free
Company Arla
Price (£) 1.29
Size 1litre
Product description...
Innovation examples: extra filtered milk
Product name Cravendale Milk
Company Arla
Price (£) 1.98
Size 2litre
Product desc...
Innovation examples: Danone Activia
Product name Activia
Company Danone
Price (£) 1.84
Size 4X125g
Product description Str...
Innovation examples: Dairylea Dunkers
Product name Dairylea Dunkers
Company Kraft Foods
Price (£) 1.12
Size 4X47g
Product ...
Innovation examples: Cathedral City
Product name Cathedral City Cheddar
Company Dairy Crest
Price (£) 2.55
Size 200g
Produ...
Innovation examples: processed meat
Product name Mattessons Fridge Raiders
Company Kerry Foods
Price (£) 1.49
Size 3X25g
P...
Innovation examples: prepared meals
Product name Innocent Veg Pot
Company Innocent
Price (£) 3.99
Size 390g
Product descri...
Product name Charlie Bighams Cottage Pie
Company Charlie Bigham
Price (£) 7.00
Size 650g
Product description Tender pieces...
Innovation examples: prepared vegetables
Product name Sainsbury's Ready To Roast
Mediterranean Vegetables Drizzled With
Ol...
Innovation examples: prepared fruit
Product name Sainsburys Classic Fruit Salad
Company J Sainsbury’s
Price (£) 2.00
Size ...
Innovation examples: prepared salad
Product name Sainsbury's Pomodorino Tomato Side Salad
Bowl, Taste the Difference
Compa...
The importance of innovation
• Continual innovation is extremely important in the UK market.
• Circa 12,000 food and drink...
Trends – online shopping
• Internet access in the UK is around 85%, this is lower than the Netherlands where it is 94%, bu...
The UK Market for Agri-Food and Horticultural Products: opportunities for Dutch SME’s
The UK Market for Agri-Food and Horticultural Products: opportunities for Dutch SME’s
The UK Market for Agri-Food and Horticultural Products: opportunities for Dutch SME’s
The UK Market for Agri-Food and Horticultural Products: opportunities for Dutch SME’s
The UK Market for Agri-Food and Horticultural Products: opportunities for Dutch SME’s
The UK Market for Agri-Food and Horticultural Products: opportunities for Dutch SME’s
The UK Market for Agri-Food and Horticultural Products: opportunities for Dutch SME’s
The UK Market for Agri-Food and Horticultural Products: opportunities for Dutch SME’s
The UK Market for Agri-Food and Horticultural Products: opportunities for Dutch SME’s
The UK Market for Agri-Food and Horticultural Products: opportunities for Dutch SME’s
The UK Market for Agri-Food and Horticultural Products: opportunities for Dutch SME’s
The UK Market for Agri-Food and Horticultural Products: opportunities for Dutch SME’s
The UK Market for Agri-Food and Horticultural Products: opportunities for Dutch SME’s
The UK Market for Agri-Food and Horticultural Products: opportunities for Dutch SME’s
The UK Market for Agri-Food and Horticultural Products: opportunities for Dutch SME’s
The UK Market for Agri-Food and Horticultural Products: opportunities for Dutch SME’s
The UK Market for Agri-Food and Horticultural Products: opportunities for Dutch SME’s
The UK Market for Agri-Food and Horticultural Products: opportunities for Dutch SME’s
The UK Market for Agri-Food and Horticultural Products: opportunities for Dutch SME’s
The UK Market for Agri-Food and Horticultural Products: opportunities for Dutch SME’s
The UK Market for Agri-Food and Horticultural Products: opportunities for Dutch SME’s
The UK Market for Agri-Food and Horticultural Products: opportunities for Dutch SME’s
The UK Market for Agri-Food and Horticultural Products: opportunities for Dutch SME’s
The UK Market for Agri-Food and Horticultural Products: opportunities for Dutch SME’s
The UK Market for Agri-Food and Horticultural Products: opportunities for Dutch SME’s
The UK Market for Agri-Food and Horticultural Products: opportunities for Dutch SME’s
The UK Market for Agri-Food and Horticultural Products: opportunities for Dutch SME’s
The UK Market for Agri-Food and Horticultural Products: opportunities for Dutch SME’s
The UK Market for Agri-Food and Horticultural Products: opportunities for Dutch SME’s
The UK Market for Agri-Food and Horticultural Products: opportunities for Dutch SME’s
The UK Market for Agri-Food and Horticultural Products: opportunities for Dutch SME’s
The UK Market for Agri-Food and Horticultural Products: opportunities for Dutch SME’s
The UK Market for Agri-Food and Horticultural Products: opportunities for Dutch SME’s
The UK Market for Agri-Food and Horticultural Products: opportunities for Dutch SME’s
The UK Market for Agri-Food and Horticultural Products: opportunities for Dutch SME’s
The UK Market for Agri-Food and Horticultural Products: opportunities for Dutch SME’s
The UK Market for Agri-Food and Horticultural Products: opportunities for Dutch SME’s
The UK Market for Agri-Food and Horticultural Products: opportunities for Dutch SME’s
The UK Market for Agri-Food and Horticultural Products: opportunities for Dutch SME’s
The UK Market for Agri-Food and Horticultural Products: opportunities for Dutch SME’s
The UK Market for Agri-Food and Horticultural Products: opportunities for Dutch SME’s
The UK Market for Agri-Food and Horticultural Products: opportunities for Dutch SME’s
The UK Market for Agri-Food and Horticultural Products: opportunities for Dutch SME’s
The UK Market for Agri-Food and Horticultural Products: opportunities for Dutch SME’s
The UK Market for Agri-Food and Horticultural Products: opportunities for Dutch SME’s
The UK Market for Agri-Food and Horticultural Products: opportunities for Dutch SME’s
The UK Market for Agri-Food and Horticultural Products: opportunities for Dutch SME’s
The UK Market for Agri-Food and Horticultural Products: opportunities for Dutch SME’s
The UK Market for Agri-Food and Horticultural Products: opportunities for Dutch SME’s
The UK Market for Agri-Food and Horticultural Products: opportunities for Dutch SME’s
The UK Market for Agri-Food and Horticultural Products: opportunities for Dutch SME’s
The UK Market for Agri-Food and Horticultural Products: opportunities for Dutch SME’s
The UK Market for Agri-Food and Horticultural Products: opportunities for Dutch SME’s
The UK Market for Agri-Food and Horticultural Products: opportunities for Dutch SME’s
The UK Market for Agri-Food and Horticultural Products: opportunities for Dutch SME’s
The UK Market for Agri-Food and Horticultural Products: opportunities for Dutch SME’s
The UK Market for Agri-Food and Horticultural Products: opportunities for Dutch SME’s
The UK Market for Agri-Food and Horticultural Products: opportunities for Dutch SME’s
The UK Market for Agri-Food and Horticultural Products: opportunities for Dutch SME’s
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The UK Market for Agri-Food and Horticultural Products: opportunities for Dutch SME’s

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The Embassy of the Netherlands commissioned leading agri-food consultancy Promar International to review the UK agri-food and horticultural market. The purpose of the research was to identify opportunities in the UK agri-food market for Dutch food and drink Small and Medium Sized Enterprises (SME’s) (1-5 year time horizon). The research was carried out between April and June 2013, consisting of:
-Desk-based analysis of a significant body of published information and data.
-Supplemented by telephone interviews with industry leaders.

This report documents key analysis, insights and conclusions.

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The UK Market for Agri-Food and Horticultural Products: opportunities for Dutch SME’s

  1. 1. The UK Market for Agri-Food and Horticultural Products: opportunities for Dutch SME’s 1 Report produced on behalf of the Embassy of the Kingdom of the Netherlands, UK by Promar International. July 2013
  2. 2. Background • The Embassy of the Netherlands commissioned leading agri-food consultancy Promar International to review the UK agri-food and horticultural market. • The purpose of the research was to identify opportunities in the UK agri-food market for Dutch food and drink Small and Medium Sized Enterprises (SME’s) (1-5 year time horizon). • The research was carried out between April and June 2013, consisting of: – Desk-based analysis of a significant body of published information and data. – Supplemented by telephone interviews with industry leaders. • This report documents key analysis, insights and conclusions. 2
  3. 3. Contents Chapter 1: Executive Summary........................................................................4 Chapter 2: Economic Outlook..........................................................................11 Chapter 4: UK Agriculture.................................................................................26 Chapter 5: UK Food and Drink Manufacturing................................................56 Chapter 6: UK Trade in Food and Drink............................................................66 Chapter 7: UK Food Retail and Food Service Market......................................87 Chapter 8: Opportunities for Dutch Suppliers.................................................135 Chapter 3: UK Agri Food Sector Map...............................................................23 3 Chapter 9: Supporting Information...................................................................151
  4. 4. Chapter 1: Executive Summary 4 Chapter contents: •Key research findings. •Key conclusions and opportunities for Dutch SME’s
  5. 5. Executive Summary • We believe the UK is an attractive market for Dutch businesses for several reasons. • A large and growing population means there is significant demand for food and drink products: – In 2012 total household expenditure on food and drink through retail and food service channels was £187* billion – a figure that has grown by 2.5% per annum since 2008. – The UK has one of the biggest and most advanced grocery retail markets in Europe. It is more than twice the size of the retail market in the Netherlands and UK grocery retailers are considered to be some of the best in the world. – The food service market in the UK is more than 3.5 times the size of the Netherlands. There are many leading global businesses as well as a huge variety of cafes, restaurants and bars. • The agri-food industry in the UK is becoming increasingly globalised: – This means the UK is becoming more reliant on trade. This is extremely promising as the Netherlands is the UK’s biggest trading partner accounting for 12% of all food and drink imports in 2012. – The UK welcomes direct inward investment by foreign businesses. Indeed, in the last decade there have been several major, high profile investments made by foreign investors in the UK and foreign firms now occupy major positions in the UK agri-food sector. There is no reason to suggest this trend cannot continue. 5 Includes retail sales of alcoholic drinks
  6. 6. Executive Summary • The UK agri-food market is also highly competitive and there are no easy opportunities • The UK is a major food producer focused on supplying the domestic market: – Dutch businesses must compete against a large, well established and technically proficient agricultural industry, which supplies two-thirds of the food industry’s domestic requirements. • Consolidation of the agricultural industry and supply chain integration has created greater alignment between farmers and the food chain, which (aided by volatile market conditions) has led to the formation of long-term supply chain relationships between buyers and suppliers in both retail and food service channels. It will be especially difficult for Dutch businesses to establish a foothold in the market where long-term supply chain relationships are already in place. • The current climate supports a pro-British approach to sourcing some commodity items; in particular meat, seasonal fresh produce, poultry, cereals and milk. In some cases (especially liquid milk) the UK market is effectively closed to foreign businesses unless they invest directly in the supply chain. • The demands and specifications of buyers can be extremely challenging, especially for those new to the market: – Product safety and quality protocols are extremely high and recent events have only increased the requirements for suppliers to demonstrate transparency and traceability throughout the supply chain. – Price is important and negotiations can be notoriously difficult but there are also high expectations with regards to product innovation, marketing requirements, demonstrating sustainability and ethical credentials. • There are many established global and local players that fiercely defend their market share. • It can take suppliers a long time and require significant investment to enter the market. 6
  7. 7. Executive Summary • Overall we believe that suppliers from the Netherlands are in an excellent position. • Dutch businesses have several key assets which enhance the potential for doing business in the UK: – Significant potential for innovation at all stages of the value chain. The Dutch agri-food landscape (i.e. the interaction of universities, R&D centres and businesses) promotes innovation and knowledge transfer. – An entrepreneurial and progressive mindset. The Dutch agri-food complex has arguably evolved at a quicker pace than its European counterparts when it comes to the withdrawal of political intervention. – Focussed on supplying international markets. Dutch businesses have historically aligned their businesses to supply target markets. – Already a key supplier to the UK market. There is a long history of doing business between Dutch and UK markets, which facilitates even more engagement. 7
  8. 8. Executive Summary 8 • However, suppliers must also be responsive to a fast changing environment and consider how best to engage the UK market. • How things have been done in the past is not necessarily how things should be done in the future. – How and where consumers purchase food and drink is changing. – Consumers, heavily influenced by the economic environment, increasingly seek value (price) as well as values (e.g. ethical considerations). – Local and global provenance co-exist as local and global issues matter more to consumers. – There is increased pressure for supply chains to be shorter, more agile, more transparent and based more on a long-term relationship focus than short-term and transactional. – Market and economic conditions constantly change the dynamics of the industry. • There is no reason to suggest that businesses in the Netherlands cannot succeed in the UK market providing they have a good product / service, a clear strategy, operational plan and the right mentality.
  9. 9. Executive Summary • We believe there are two broad ways in which Dutch suppliers should approach the UK market.(1) • The difference is distinguished by whether the business is a volume player in the market or a niche player in the market. Volume players • Volume suppliers to the UK market have benefited from a well functioning wholesale market system on both sides of the channel. • This has undoubtedly helped the Netherlands to achieve its current position as the leading non-domestic source of food supply to the UK market. • However, the wholesale market model is under threat from buyers that increasingly demand short, transparent and dedicated producer aligned supply chains and – for some commodities - growing support for British product. • We believe the wholesale market model will be an opportunity for some but it will not be the preferred route-to- market the major UK buyers would like to use. • In our view, this leads to an increasing necessity for Dutch suppliers to ‘get closer’ to the UK market in other ways; for example: – By establishing direct-supply relationships with UK buyers. – By utilising a UK based marketing partner. – Through direct investment in the UK supply chain (M&A or greenfield investment). (1) We do not suggest these are by any means the ‘only’ opportunities. Our conclusions are based on the weight of evidence analysed and the insights obtained through trade interviews. 9
  10. 10. Executive Summary 10 Niche players • The innovative potential of Dutch suppliers provides an excellent platform for Dutch SME’s to create opportunities at all stages of the value chain. • The precise opportunities are potentially endless but we have categorised them in three broad areas as follows: 1. ‘Exporting’ high-tech production and processing technologies and agri-food intellectual capital. Enabled by significant clusters of R&D organisations in Food Valley and close collaboration between government, academia and industry. 2. Creating higher value products from standard foodstuffs to provide high value solutions to UK businesses. For example, functional food ingredients such as enzymes, proteins, flavours, colours and nutraceuticals. 3. Marketing artisanal and traditional Dutch speciality products on a ‘global provenance’ platform. Current knowledge and awareness by UK consumers of Dutch specialities (e.g. cheeses, cooked meats, waffles and so on) is low but, with appropriate marketing, could follow in the footsteps of suppliers from France, Spain and Italy.
  11. 11. Chapter 2: Economic Outlook Chapter contents: •Brief overview of UK economic position. •Impact of economic environment on UK consumers. •Industry perspectives.
  12. 12. Economic outlook • The financial crisis of 2008 caused a deep recession in the UK economy lasting 15 months. • An initial rebound in 2009/10 gave way to a second recession in 2011 which lasted for 9 months. • Recent data from the Office for National Statistics shows that the UK narrowly avoided a third recession at the end of 2012 and beginning of 2013. In fact the economy grew by 0.3% in the first quarter of 2013. • This recent data has meant more people are cautiously optimistic that the UK economy is on the ‘road to recovery’. – GDP growth of up to 1% is forecast for the UK in 2013. – GDP growth of 2% per annum is forecast from 2014 onwards. • At the same time as the outlook for Eurozone countries has got worse: – Economic growth in the Euro area in 2013 will be virtually nil according to the OECD. – Debt problems in southern Mediterranean countries and the political structure of the EU continues to prevent recovery. • In the short term the UK economy looks to be in a better position than Europe. • We believe this creates immediate opportunities for businesses in the Netherlands to invest in and/or trade with the UK. • Once the UK economy is on a path to sustainable growth we believe that the UK economy will continue to be a fundamentally attractive long term market for businesses in the Netherlands to invest in and/or trade with. 12
  13. 13. Industry perspective(1) • “I would expect 2013 to be more or less a carbon copy of 2012. Little or no growth. I think 2014 will feel like the year of recovery.” • “I am cautiously optimistic about the economy in 2013.” • “The sense of optimism is improving. We are clearly not out of the woods yet but we are getting there.” • “Europe looks to be in a far worse position than the UK. Some of the unemployment data looks terrifying and Germany is fundamental to keep the whole economy going. I question how sustainable that is.” • Right now I think the UK is more attractive because it’s outside Europe; our prospects look better and we are a relatively less risky economy to do business with at the moment.” 13 (1) Trade interviews
  14. 14. Economic outlook -8 -6 -4 -2 0 2 4 6 2007 2008 2009 2010 2011 2012 2013 UK GDP growth (%)(1) Quarter-on-quarter Year-on-year UK inflation growth (CPI measure (%) (1) Euro: Sterling Monthly Average Spot Exchange Rate (2) 0 1 2 3 4 5 6 7 2007 2008 2009 2010 2011 2012 2013 UK Central Bank Interest Rate (%) (2) 0 1 2 3 4 5 6 2007 2008 2009 2010 2011 2012 2013 Bank of England Target Actual (1) Office for National Statistics (2) Bank of England 0.8 0.9 1 1.1 1.2 1.3 1.4 1.5 1.6 2005 2006 2007 2008 2009 2010 2011 2012 2013 14
  15. 15. Regional economy Map of the UK distorted to reflect population density(1) (1) The Daily Telegraph (2) Office for National Statistics • The UK population is estimated to be 63.2 million (31 million men and 32.2 million women). • London is the most highly populated area (circa. 8 million people). • Other densely populated urban areas include major cities such as Birmingham, Manchester, Leeds, Liverpool, Newcastle, Glasgow, Bristol, Edinburgh, Cardiff and Belfast • Average earnings are highest in London (£34,984 p.a.) and the South East (£28,181 p.a.) and lowest in Wales (£23,617) and the North East (£23,779). 0 10,000 20,000 30,000 40,000 United Kingdom North East North West Yorkshire and The Humber East Midlands West Midlands East London South East South West Wales Scotland Northern Ireland Average Annual Earnings by Region (£)(2) London and the South East has proven to be more resilient to the economic environment than other regions of the UK. 15
  16. 16. Demographics People in a non-white ethnic group as a percentage of all people(1) • The UK population is ageing. In 2011 16% of the population was aged 65 and over a figure that is expected to increase to circa 23% by 2035. • The median age of the population in 2011 is circa. 40 years and is increasing. 30.8 18.8 17.6 63.8 65.4 66 5.3 15.9 16.4 0% 10% 20% 30% 40% 50% 60% 70% 80% 90% 100% 1911 2001 2011 65+ 15-64 0-14 Changing age structure of UK population 1911-2011)(1) • The UK is an ethnically diverse population. There are concentrations of ethnic groups in major urban centres such as London, Birmingham, Leicester and Manchester. • Indian is the largest non-white ethnic group followed by Pakistani and Black/African/Caribbean/Black British. 16 (1) Office for National Statistics
  17. 17. Consumer reaction • UK consumer activity has been heavily influenced by the prevailing economic environment since 2007. – Household expenditure (all items) has been subdued. – Unemployment is currently at 7.8% - its highest level for some time. – Slow growth in average earnings has failed to compensate for rising prices (especially fuel and food). As a result most households in the UK feel ‘worse off’. • Although food and drink is less exposed to the effects of recession than other sectors of the economy, there has been a notable impact on consumer behaviour: – Consumers are far more conscious of food prices. – Consumers have been buying less or trading down (i.e. selecting more economical options) for products such as bread, cereals, red meat, fruit and vegetables (amongst others). – Promotions, discounts and value for money are important motivating factors for consumers. – Eating out (e.g. in restaurants) has once again become more of an indulgence or to mark a special occasion than a regular occurrence. 17
  18. 18. Consumer reaction • At the same time UK consumers are also more demanding that their food and drink deliver additional benefits and are still prepared to pay a price premium for them; for example: – Many (but not all) consumers increasingly expect staple items such as bread, meat, milk, seasonal fruit and vegetables to be of British origin. – Many (but not all) consumers increasingly expect food to be produced in a fair and ethical way. Consumers rely on third party product labels (e.g. FairTrade, Red Tractor, RSPCA Freedom Foods) as evidence of welfare/sustainability credentials. – Health and wellness is a key motivating factor for many consumers that seek out products which are low in salt, fat and sugar, contribute to their daily required intake of 5 portions of fruit and vegetables, are free-from artificial additives and ingredients, contain functional health ingredients and so on. – Consumers are increasingly demanding convenience products that fit in with busy time poor lifestyles (especially for weekday meals), particularly those that are positioned on a health and wellness platform (e.g. healthy prepared meals, salad pots, fruit juices and smoothies and so on). • The legacy of the events of recent years appears to be an adjustment in what consumers consider to be value-for-money. – Consumers will seek out promotions and discounts for undifferentiated everyday products. – Consumers are prepared to pay more on products that deliver clear tangible benefits (e.g. convenience, health). 18
  19. 19. Consumer reaction -2 -1 0 1 2 2008Q4 2009Q1 2009Q2 2009Q3 2009Q4 2010Q1 2010Q2 2010Q3 2010Q4 2011Q1 2011Q2 2011Q3 2011Q4 2012Q1 2012Q2 2012Q3 2012Q4 UK Household Expenditure Growth(% change, quarterly)(1) 0 2 4 6 8 10 12 2008 2009 2010 2011 2012 2013 European Union United Kingdom UK Unemployment (%)(1) Comparison of Monthly Earnings (EUR)(2) Growth in earning and prices (%)(1) 0 1 2 3 4 5 6 2007 2008 2009 2010 2011 2012 2013 Earnings Prices €0 €500 €1,000 €1,500 €2,000 €2,500 €3,000 €3,500 €4,000 Ger Nl It Fr UK Sp (1) Office for National Statistics (2) Eurostat (as at 2012) 19
  20. 20. Food retail prices & consumer reaction 0 2 4 6 8 10 12 14 2007 2008 2009 2010 2011 2012 2013 CPI Food RPI UK Food Inflation (percentage change on last year)(1) % Bought4.2%less •Consumers bought 4.2% less food in 2011 than in 2007, in particular: •Bread •Beef •Lamb •Fish •Fruit •Vegetables •Potatoes •Alcoholic drinks Spent12%more •Consumers spent 12% more for food in 2011 than in 2007, especially on: •Butter •Eggs •Sugar and preserves •Chocolate •Bacon •Cereals •Coffee and other hot drinks •Consumers saved 6.8% by trading down, especially on: •Cereals •Biscuits and cakes •Lamb •Pork •Fish •Butter •Eggs •Tea (1) Office for National Statistics 20
  21. 21. Industry perspective(1) • “We regularly track consumer behaviour and one of the key things that we see is a re-evaluation of value for money. Overall the quantity of consumer goods being purchased is falling as consumers improve their own financial position by paying down debt.” • “Food prices remain a key issue for shoppers; they are very aware and sensitive to changes. Shopping behaviours are becoming more polarised – there is growth in the premium and economy extremes of the market but little to no growth in the middle. I believe that is because the value for money proposition is more obvious to consumers at the premium and economy extremes of the market.” • “We are still seeing double digit growth in our food service sales channels, which is not the rational response we expected to see. People do not seem to be cutting back on food purchased out of home and ‘affordable indulgences’. • We are seeing increased demand for messaging and labelling on menus; for example, dietary information, sustainability information because consumers are more concerned about how their food is produced.” 21 (1) Trade interviews
  22. 22. Industry perspective(1) • “Consumers are more price conscious and that has led to an increased expectation that promotions are more common, loyalty has diminished as consumers are prepared to seek out the best deals and private label products are a bigger feature of the market.” • “We see a mixture of consumer behaviours. London and the South East is quite different, it’s more multi-cultural and affluent and people seem to be prepared to experiment more, try new products. In other parts of the country people are more conservative and less prepared to take risks.” • “Consumers appear to be a lot more price and issue driven. Price is a symptom of the economic environment. Issues such as sustainability, waste, provenance, animal welfare, safety are more important to consumers but as they tend to be informed mostly by the media the level of knowledge is mostly superficial.” 22 (1) Trade interviews
  23. 23. Chapter 3: UK agri-food sector map Chapter contents: •Diagrammatical overview of the UK supply chain. •Brief discussion on key trends.
  24. 24. UK agri-food sector map(1) UK Consumers 63 million Total consumer expenditure (retail and food service channels) £187bn Consumer spend – food retail £106.4bnConsumer spend – food service £81bn Food retailers Gross Value Added - £26.1bn Employees – 1,246,000 Enterprises – 53,641 Stores – 89,679 Food service outlets Gross Value Added - £25.2bn Employees – 1,514,000 Enterprises – 115,177 Outlets – 431,109 Whoelaslers Gross Value Added - £9.2bn Employees – 195,000 Enterprises – 15,115 Manufacturing (includes everything from primary processing to more complex foods) Gross Value Added - £26.4bn Employees – 404,000 Enterprises – 7,472 Manufacturing sites – 9,340 Agricultural Whoelaslers Gross Value Added - £2.0bn Employees – 40,000 Enterprises – 4,125 Supply industry (incl. Machinery) Gross Value Added - £407m Employees – 6,000 Enterprises – 433 Farmers & Primary Producers Gross Value Added - £8.8bn Employees – 481,000 Farm holdings – 222,668 Agricultural supply industry (machinery, fertilizers, pesticides) Gross Value Added - £1.1bn Employees – 12,000 Enterprises - 427 Imports 37.6bn (of which) Highly processed – £13.8bn Lightly processed £16.8bn Unprocessed £7.1bn Exports £18.2bn(of which) Highly processed – £10.6bn Lightly processed £6.9bn Unprocessed £1.6bn (1) Defra 24
  25. 25. Key trends • The key stages of the UK agri-food supply chain include production, processing and manufacturing, wholesaling, import and export and sales direct to consumers via retail and food service channels. • The processes within the grocery supply chain are becoming more integrated. Retailers want to work closer with suppliers so that they can increase flexibility, reduce lead time and increase frequency of deliveries to lower the amount of stock held. • Consolidation within the supply chain has also become more widespread. Certainly vertical consolidation has seen strong growth. – Retailers for specific product categories are now using their own processing facilities, with direct sourcing pools. – Manufacturing facilities will have direct agreed contracts with retailers, and will have to deliver large volumes at competitive pricing. • Horizontal consolidation has also occurred, with fewer, but larger processors, and the same is seen with producers. • Whilst retailers work directly with suppliers and processors for their products, and will already have established relationships, smaller chains and independent retailers use wholesalers to buy produce. Price tends to be the main driver. 25
  26. 26. Chapter 4: UK Agriculture Chapter contents: •UK agriculture facts and figures •Overview of key product sectors (production & self-sufficiency) •Sector specific summary of the supply chain vertical. •Key trends analysis. •Industry perspectives.
  27. 27. UK agriculture overview • Farming defines the national landscape and plays a critical role in supplying two thirds of the UK’s food and drink manufacturers raw material requirements. – Land in agricultural use is +17million hectares (~70% of total UK area) and nine times that of the Netherlands. – There are 221,000 registered holdings and employs 476,000 workers, which is three times that of the Netherlands. – It contributes £8billion gross value added to the UK economy (~2% of total UK output) and twice that of the Netherlands. • The UK’s temperate climate and varied geography means that a broad base of commodities can be sustainably produced; key sectors include livestock ((i.e. meat - beef, lamb, pig and poultry) equivalent to 35% of total agricultural output), cereals and industrial crops (21% of total output), livestock products (e.g. milk and eggs) (19% of total output) and vegetable and horticultural products (10% of total output). • UK self-sufficiency for all food and drink products in 2012 was 62% and varies considerably by sector: – Self-sufficiency is highest in cereals (105%), milk (102%), beef (89%) and poultry (87%). – Self-sufficiency is lowest for fruit (12%), vegetables (59%) and pigs (56%). • UK farming is regarded as technically proficient and globally competitive and plays an important role in managing the natural environment. 27
  28. 28. Land, labour and holdings 21% 10% 3% 3% 35% 19% 9% Cereals & industrial crops Vegetables & horticultural products Potatoes Fruit Other crop products Livestock Livestock products Other Agricultural land use(1) Land use by farming type(%)(1) Number of holdings by size (000’s)(1) Agricultural labour force (000’s)(1) Ave decline of 3,000 pa Employeesandowners (1) Defra: “Agriculture in the United Kingdom: 2012” 28 68% 69% 70% 71% 72% 73% 74% 0 2 000 4 000 6 000 8 000 10 000 12 000 14 000 16 000 18 000 20 000 2005 2006 2007 2008 2009 2010 2011 2012 Utilised agricultural area (000 ha) % of total UK area 420 440 460 480 500 520 2000 2002 2004 2006 2008 2010 2012 120 104 49 42 37 34 42 42 0 50 100 150 200 250 2005 2012 100 hectares and over 50 to under 100 hectares 20 to under 50 hectares under 20 hectares
  29. 29. 0 5 000 10 000 15 000 20 000 25 000 2007 2008 2009 2010 2011 2012 Gross output (basic prices) Gross value added (basic prices) Total income from farming UK agricultural output and value added CAGR (07-12) 7% CAGR (07-11) 7% CAGR (07-11) 8% Agricultural accounts UK 07-12 £million(1) (1) Defra: “Agriculture in the United Kingdom: 2012” 29
  30. 30. UK agriculture compared to the Netherlands (1) Defra: “Agriculture in the United Kingdom: 2012” 17,190 1,858 0 2,000 4,000 6,000 8,000 10,000 12,000 14,000 16,000 18,000 20,000 Agriculturalland use (000ha) UK NL 222 83 0 50 100 150 200 250 Number of holdings (000) UK NL 476 209 0 50 100 150 200 250 300 350 400 450 500 Employment (000) UK NL 8 4 0 1 2 3 4 5 6 7 8 9 Gross value added (EURbn) UK NL 30
  31. 31. UK agriculture trends • The route-to-market for agricultural commodities has become increasingly consolidated. • Farmers are increasingly aligned to the supply chain with long term supply contracts. Often these are through business structures such as co-operatives, which may also own processing operations or through marketing groups which act as an intermediary between the farmer and processor. • These supply chain relationships sometimes extend to the retailer where they see benefit in securing long-term supplies or in marketing the provenance of key products such as milk. This arrangement creates a vertically integrated supply chain model from producer to retailer, which is a barrier to entry to foreign businesses without direct inward investment. • Sectors with the highest degree of vertical integration – and therefore represent a major barrier to businesses in the Netherlands – include: – Liquid milk. Virtually all retailers have a long term supply contract with farmers via the major milk processors (Muller/Wiseman, Arla and First Milk). – Poultry. +70% of poultry consumed (by volume) in the UK flows through a supply chain involving a major integrator and multiple retailer. • Other sectors such as pork, beef, fresh produce are also integrated but to a lesser extent (i.e. they may involve integration of some but not all of the supply chain such as production and processing only) but other supply chain models are also evident (such as wholesale markets for fresh produce). These chains remain less closed to opportunities for Dutch traders. 31
  32. 32. Industry perspective(1) • “The underlying and long term trend is of consolidation. In all sectors we see fewer farms but they tend to be operating on a larger scale.” • “One of the biggest challenges in the agricultural industry remains farmer succession. We struggle to recruit enough young farmers into the industry to replace those retiring and exiting the industry. The average age of a farmer in the UK is 58 which is far higher than other industries.” • “UK agriculture is benefitting from the global tightening in the balance of supply and demand for agricultural commodities. It is helping to drive prices up and provides long-term optimism they might remain at a higher level.” • “A lot of knowledge is leaving the industry. As older farmers retire and there are fewer younger people taking over we risk losing valuable farming know-how.” 32 (1) Trade interviews
  33. 33. Industry perspective(1) • “Following the ‘Horsegate’ scandal [i.e. Detection of horse meat in products labelled otherwise] we have seen renewed demand for British agricultural produce, not just in the retail sector but also in the food service sector from companies such as Greggs and Boots.” • “We have seen the ‘strategic supply chain’ model in the retail sector start to take hold in the food service sector. Companies such as KFC are wanting to build closer relationships with suppliers.” • “The outlook for the agri-food sector in the UK is very positive. The UK is home to world class farmers and agri-food businesses who are technically proficient and globally competitive. We have strong domestic markets in sectors such as dairy, grains, pig poultry and beef and food companies that are interested in local sourcing.” 33 (1) Trade interviews
  34. 34. Cereals Cereals(2): The UK is the fourth largest producer of cereals and oilseed crops in the EU. 5 million hectares of land in the UK is used for growing crops with 80% of this used for production of cereals and oilseeds. Cereal production in the UK tends to be focused on the Eastern side of the country. As a result cereal processing units and stores tend to be located in the same parts of the country. Total value of production and prices (1) £/tonne £million (1) Defra: “Agriculture in the United Kingdom: 2012” (2) Agriculture and Horticulture Development Board 34 85% 90% 95% 100% 105% 110% 115% 0 5 000 10 000 15 000 20 000 25 000 30 000 2007 2008 2009 2010 2011 2012 Vol (000 tonnes) Productio n as % of total usage (rhs) 0 50 100 150 200 250 300 350 400 450 0 500 1 000 1 500 2 000 2 500 3 000 3 500 2007 2008 2009 2010 2011 2012 Cereals production £millions Milling wheat price £ tonne Malting barley price £tonne Oilseed rape price £tonnes) Production (000 tonnes) and self- sufficiency (1)
  35. 35. Cereals vertical summary Cereal farming Maltsters Millers/ flour mills Starch manufacturers Feed Exports Imports Food industry E.g. manufacturers of baked goods, breakfast cereals, sauces Bread, biscuits, cakes, flour, breakfast cereals, sauces Brewers & distillers Beer and whisky Merchants/FCBs Central Storage Livestock farms Meat, Dairy, Eggs Production Primary Processing Secondary Processing Consumption 35
  36. 36. Horticulture: fruit Horticulture: 200,000 hectares of land is used to grow horticulture (fruit, vegetables and ornamentals) in the UK. The highest concentration of horticultural production is in Eastern England – with much of the glasshouse production occurring in this area. Flower production again occurs mainly in the East with another cluster in Cornwall in the West. Total value of production (£million) and prices (£/tonne)(1) (1) Defra: “Agriculture in the United Kingdom: 2012” (2) Trade interview 36 0% 2% 4% 6% 8% 10% 12% 14% 320 330 340 350 360 370 380 390 400 410 420 430 2007 2008 2009 2010 2011 2012 Vol (000 tonnes) Production as % of total usage (rhs) 0 1000 2000 3000 4000 5000 6000 7000 8000 0 100 200 300 400 500 600 700 2007 2008 2009 2010 2011 2012 Fruit production £millions Dessert apples Pears Raspberries Stawberries Production (000 tonnes) and self- sufficiency (1)
  37. 37. Horticulture: vegetables Total value of production (£million) and prices (£tonne)(1) £/tonne £million 0 50 100 150 2007 2008 2009 2010 2011 Total production area (000 ha)(1) 99% open production 1% protected (1) Defra: “Agriculture in the United Kingdom: 2012” 37 0% 10% 20% 30% 40% 50% 60% 70% 0 500 1 000 1 500 2 000 2 500 3 000 2007 2008 2009 2010 2011 2012 Vol (000 tonnes) Production as % of total usage (rhs) 0 200 400 600 800 1 000 1 200 1 400 0 200 400 600 800 1 000 1 200 1 400 2007 2008 2009 2010 2011 2012 Fresh vegetable production £millions" cauliflowers tomatoes Production (000 tonnes) and self- sufficiency (1)
  38. 38. Horticulture: potatoes 38 Total production area (000 ha)(1) (1) Defra: “Agriculture in the United Kingdom: 2012” 0% 10% 20% 30% 40% 50% 60% 70% 80% 90% 0 1 000 2 000 3 000 4 000 5 000 6 000 7 000 2007 2008 2009 2010 2011 2012 Vol (000 tonnes) Production as % of total usage (rhs) 0 50 100 150 200 250 300 350 0 100 200 300 400 500 600 700 800 2007 2008 2009 2010 2011 2012 Fresh potato production £millions early potatoes maincrop potatoes all potatoes Total value of production (£million) and prices (£tonne)(1) Production (000 tonnes) and self- sufficiency (1) 130 135 140 145 150 2007 2008 2009 2010 2011 2012
  39. 39. Fresh produce vertical summary Seed merchants, agro-chemicals, machinery, plant breeders, R&D UK horticultural farms 200,000ha planted area Producer groups, Co-Ops, marketing agents Food servicePYOb/Farm shop/veggie boxes Multiple retailers (c.80% by volume) Wholesalers Independent retailers Packing facility Fresh fruit Fresh Vegetables Fruit and Vegetables imports 39
  40. 40. UK floriculture production by type (000tonnes)(1) Total production area (000 ha)(1) (1) Defra: “Agriculture in the United Kingdom: 2012” Floriculture 40 The overall value of production in the ornamental sector remained static at £1.0 billion in 2012, reflecting slow and challenging trading conditions across all market sectors 17 17 18 18 19 19 20 20 2007 2008 2009 2010 2011 2012 Production (£ million) and self- sufficiency (1) 43% 44% 45% 46% 47% 48% 49% 50% 51% 52% 53% 0 200 400 600 800 1 000 1 200 2007 2008 2009 2010 2011 2012 Total production £million Production as % of total usage
  41. 41. Floriculture vertical summary 41 UK production (incl. bulbs, cut flowers, foliage, indoor plants, outdoor plants and trees (c. £1.05bn) UK exports (mostly narcissi) £0.47bn Imports (c.£1.05bn) NL account for 77% Wholesale Markets (e.g. New Covent Garden Market) Garden centres & nurseries OnlineSupermarkets Consumers (c. £2.05bn spend) Retailers are increasingly establishing direct sourcing relationships with growers (UK and overseas).
  42. 42. Pigs Production (000 tonnes) and self- sufficiency (1) 47% 21% 11% 9% 12% 1 to 9 pigs 10 to 49 50 to 299 300 to 999 1 000 and over Total 10,900 holdings UK pig holdings (000’s), by size of holding(1) (1) Defra: “Agriculture in the United Kingdom: 2012” 42 0% 10% 20% 30% 40% 50% 60% 70% 0 100 200 300 400 500 600 700 800 900 2007 2008 2009 2010 2011 2012 Vol (000 tonnes) Production as % of total usage (rhs) 0 20 40 60 80 100 120 140 160 0 200 400 600 800 1 000 1 200 2007 2008 2009 2010(e) 2011 2012 Total production £millions Pig price (pence/kg deadweight) Total value of production (£million) and prices (£tonne)(1)
  43. 43. Pig meat vertical summary Pig marketings Pig Herd Live pig imports Wholesalers, traders, depots Processors Retail Fresh/Frozen Retail Processed Food Service Consumers Imports Live pig Exports Feed, Agrochem, Machinery Marketing Groups Abattoirs Exports Retail Bacon 43
  44. 44. Poultry 58%25% 17% 1 to 9 999 broilers 10 000 to 99 999 100 000 and over UK poultry holdings (000’s), by size of holding(1) Total 2,400 holdings (1) Defra: “Agriculture in the United Kingdom: 2012” 44 0% 10% 20% 30% 40% 50% 60% 70% 80% 90% 100% 0 200 400 600 800 1 000 1 200 1 400 1 600 1 800 2007 2008 2009 2010 2011 2012 Vol (000 tonnes) Production as % of total usage (rhs) Production (000 tonnes) and self- sufficiency (1) 0 20 40 60 80 100 120 140 0 200 400 600 800 1 000 1 200 2007 2008 2009 2010(e) 2011 2012 Total production £millions Prices (average producer prices (pence per kg carcase weight)): Total value of production (£million) and prices (£tonne)(1)
  45. 45. Poultry vertical summary Company Growing Units Raise broilers (hens reared for meat, not eggs) Marketable broilers Abattoirs Processors Fresh exports (mostly dark meat) Wholesalers Fresh and processed Imports Food Service Retailers Processed Exports Consumers Breeding Farms & Laying Hens Egg Hatcheries Contract Broiler Growers This aspect of the chain is typically integrated by major players 45
  46. 46. Beef UK beef holdings (000’s), by size of holding(1) 39% 19% 13% 13% 11% 5% 1 to 9 beef cows 10 to 19 20 to 29 30 to 49 50 to 99 100 and over Total 60,500 holdings (1) Defra: “Agriculture in the United Kingdom: 2012” 46 0% 10% 20% 30% 40% 50% 60% 70% 80% 90% 100% 0 100 200 300 400 500 600 700 800 900 1 000 2007 2008 2009 2010 2011 2012 Vol (000 tonnes) Production as % of total usage (rhs) 0 20 40 60 80 100 120 140 160 180 200 0 500 1 000 1 500 2 000 2 500 3 000 2007 2008 2009 2010(e) 2011 2012 Total production £millions Finished cattle (pence per kg liveweight): All prime cattle Total value of production (£million) and prices (£tonne)(1) Production (000 tonnes) and self- sufficiency (1)
  47. 47. Beef vertical summary Feed, Agrochem, Machinery UK Dairy farms UK Suckler Herd Store producers Finishers Live cattle imports Marketing Groups Auctions Abattoirs ProcessorsExports Intervention Wholesaler s/traders Retail Fresh/Frozen Retail Processed Food Service Consumers Imports Home fed beef marketings Live cattle Exports 47
  48. 48. Dairy 32% 14% 22% 15% 17% 1 to 9 dairy cows 10 to 49 50 to 99 100 to 149 150 and over UK dairy herd (000’s), by size of holding(1) Total 22,600 holdings (1) Defra: “Agriculture in the United Kingdom: 2012” 48 0% 20% 40% 60% 80% 100% 120% 0 2 000 4 000 6 000 8 000 10 000 12 000 14 000 16 000 2007 2008 2009 2010 2011 2012 Vol (000 tonnes) Production as % of total usage (rhs) 0 5 10 15 20 25 30 0 500 1 000 1 500 2 000 2 500 3 000 3 500 4 000 2007 2008 2009 2010(e) 2011 2012 Total production £millions Prices (average price received by milk producers, net of delivery charges (pence per litre)) (f) Total value of production (£million) and prices (£tonne)(1) Production (000 tonnes) and self- sufficiency (1)
  49. 49. Dairy vertical summary Feed, Agrochem, Machinery UK Dairy farms Available for human consumption On farm waste and stock use Liquid imports Liquid exports Liquid milk Manufacture Doorstep Retail Consumers 51 Dairies 11 Dairies n/a 6 Dairies 11 Dairies Cheese Butter Cream Condensed SMP 42 Dairies 49
  50. 50. Cross-cutting themes • Environment. As agriculture accounts for 70% of total land use in the UK its role in managing the environment is key. It is also a key feature of the CAP (recent negotiations identified three core areas: crop diversification, ecological focus areas and retention of permanent grassland ) which will continue to have a significant bearing on farming practices. • Compliance & legislation. Driven in-part by environment factors as well as pressure to increase supply chain transparency and accountability there has been a significant increase in the extent of legislative compliance UK farmers are required to complete. Whilst seen as burdensome it also helps to raise production standards across the whole of the farming base. • Profitability. Total Income From Farming (TIFF), which is the governments measure of profitability, indicates that UK farming is the most profitable periods it has been for over 30 years. However, profitability varies considerably depending on enterprise size and type (e.g. dairy / livestock / arable / fresh produce etc) as well as natural cycles and unforeseen events. As the UK agricultural industry is increasingly liberalised profitability is increasingly affected by global events, in particular the balance of global supply and demand for commodity products influencing UK prices. • Confidence and investment. Investment by agricultural enterprises in the UK also varies in line with profitability. In some sectors, such as pig production, extended periods of poor profitability has left a legacy of under- investment in assets. Even when profitability levels improve farmers are sometimes reluctant to invest because of a lack of confidence that profitability can be sustained. 50
  51. 51. Cross-cutting themes • Succession. The average age of a farmer in the UK is 58 and there is a shortfall of younger people entering the industry. Business succession is therefore a major issue to many businesses but particularly in family run generational farms. Rather than family farm being passed on to the next generation it is increasingly likely that farms will continue to consolidate so that there are fewer, larger farms. • Supply chain practices. In 2009 the Competition Commission introduced a Grocery Supply Chain Code of Practice (GSCCOP) to govern practices and policies throughout the supply chain. The code of practice was introduced following sustained concerns of unfair practices. • Economic liberalisation and political reform. Ongoing CAP reform and globalisation of markets means that the UK agriculture industry is increasingly exposed to global developments. For example, global commodity prices have much more significant bearing on UK commodity prices, changes in natural business cycles, the development of global supply chains, geopolitical shocks (such as trade restrictions) and so on. 51
  52. 52. Industry perspective(1) • “UK [horticultural] production is highly exposed to the weather because the vast majority of production is not protected under glass. This makes it difficult to guarantee volume supply at the edges of the growing season. It also influences consumers. An early sunny spell in March creates instant demand for produce that is not yet in season.” • “Food on the move is a key target for us. We target out of home consumption opportunities [such as lunch] with single serve salad products that are, healthy, easy and convenient to eat.” • “Safety is much less of a concern in fresh produce supply chains so the decision to source British or imported produce is more of a commercial or moral decision. Low prices can still open doors in some parts of the market.” • “Currently our pre-prepared salads are showing the strongest sales growth. These are premium lines that retail for £2.50 to £3.00 per item, which is not what we expected to see given the economic environment. I think that consumers see these as value-for-money because the cost of purchasing all the individual elements are greater and there is less waste.” 52 (1) Trade interviews
  53. 53. Industry perspective(1) • “The UK liquid milk market is effectively closed to foreign suppliers without direct inward investment in the UK supply chain. It is difficult to envisage a SME entering this market as it is highly concentrated and capital costs of entry very high.” • “The big picture indicators for UK dairy are positive. We are close to cost of production prices but that’s largely due to 2 years of poor weather. We are currently seeing prices pick up and this is leading to increased confidence.” • “There are opportunities outside of the cow liquid milk market. Alpro have been successful not just in the UK market but globally as the appeal for non-dairy sources of milk [e.g. Soy, rice, almond] grows amongst a group of consumers that perceive them as healthier.” • “I believe that the major milk processors in the UK will increasingly look to capitalise on milk powder markets in high growth economies such as the BRICs.” • “The biggest barrier to entry to the UK liquid milk market is scale.” 53 (1) Trade interviews
  54. 54. Industry perspective(1) • “Although the UK is technically self-sufficient in lamb we still import a considerable amount of meat from New Zealand because UK consumers demand year round supply.” • “The horse meat scandal has helped UK producers in the short-term at least. We have seen demand for British beef sustained and people have traded up and purchased more expensive cuts.” • “One of the biggest challenges to producer profitability [meat sector] is the price of feed...it often means the difference between a producer making a profit or a loss.” • “There is a massive opportunity for Dutch growers to get closer to the UK market. Projects such as Thanet Earth demonstrate that it is possible.” • “A major challenge for Dutch SME businesses is going to be receiving financial backing.” • “The fresh vegetables industry is in a period of consolidation. Farming and packaging has become very much a scale business. It is difficult to compete without scale now because the business is capital hungry on the production.” 54 (1) Trade interviews
  55. 55. Industry perspective(1) • “In some cases producers have invested in processing, packing and distribution facilities and deal directly with multiple retailers” • “We have one of the best [pig meat processing] plants in the UK, which is about 10-15% more efficient than the rest. But if you compare this plant with European ones, particularly in Denmark and Holland we are only really on a par with their average and a long way behind the best” • “I think that in the next five years we will see more rationalisation and consolidation across the processing sector. However, there is also likely to be more investment in new processing facilities, especially in East Anglia.” • “The rise in feed [prices] has significantly impacted the profitability of the [poultry] industry because the price increases at retail have not been sufficient to compensate. This cost pressure will force more rationalisation and drive more efficiency in the supply chain.” 55 (1) Trade interviews
  56. 56. Chapter 5: UK Food and Drink Manufacturing Chapter contents: •UK food and drink manufacturing key facts and figures •Investment examples. •Procurement strategies. •Key trends analysis. •Industry perspectives.
  57. 57. UK food and drink manufacturing • Employing 400,000 people, worth £72 billion in total turnover and contributing £19.5 billion in gross value added food and drink manufacturing is the single biggest manufacturing sector in the UK and is therefore vital to the UK economy. • There are approximately 7,000 food and drink manufacturers registered in the UK. There is tremendous variety – the UK is home to many of the world’s most recognised global FMCG brands as well as many local and regional players. – Beverages represents the biggest manufacturing sector worth £16.5 billion. – Meat and meat products represents the second biggest sector worth £14 billion. – Bakery (£10 billion) and Dairy (£8 billion) are other major sectors. – They are also mature sectors and output growth is in the low single digits. – Although fruit and fresh vegetables processing is a smaller market by comparison (£6 billion), it is a sizeable high margin opportunity that is growing by as much as 10% per annum. 57
  58. 58. Size and performance £66,052 £69,673 £72,862 £72,062 £18,309 £18,762 £19,343 £19,476 6,489 6,327 6,380 6,439 0% 2% 4% 6% 8% 10% 12% 14% 16% 18% 0 10,000 20,000 30,000 40,000 50,000 60,000 70,000 80,000 2008 2009 2010 2011 Total t'over food manufacturing (£million) Gross value added (£million) Number of enterprises Food manufacture t'over as % of total UK manufacturing t'over (rhs) UK food manufacturing industry(1) CAGR (08-11) +2.2% +1.6% -0.2% (1) Office for National Statistics, Annual Business Survey 18% 8% 2% 10% 8% 12% 19% 23% Meat and meat products Fruit and fresh vegetables Vegetable and animal fats Dairy products Grain mill and starch products Bakery Other food Beverages UK Food manufacturing turnover by industrial classification (%)(1) 58
  59. 59. UK manufacturing compared to the Netherlands (1) Office for National Statistics and CBS (Statistics Netherlands) 6,439 4,195 0 1,000 2,000 3,000 4,000 5,000 6,000 7,000 UK NL Number of enterprises(1) 400 171 0 50 100 150 200 250 300 350 400 450 UK NL Number of employees (000) (1) 61 59 0 10 20 30 40 50 60 70 UK NL Gross output EURbn(1) 17 11 0 2 4 6 8 10 12 14 16 18 UK NL Gross value added EURbn(1) 59
  60. 60. Meat and meat products, £14,741 Fruit and fresh vegetables, £5,985 Vegetable/animal oils and fats, £1,111 Dairy products, £8,386 Grain mill and starch products, £6,647 Bakery, £9,880 Other food products, £15,647 Beverages, £18,440 0% 5% 10% 15% 20% 25% 30% 35% 40% 45% -6% -4% -2% 0% 2% 4% 6% 8% 10% 12% Manufacturing growth by industrial classification(1) Turnover growth (% p.a.) GVA as a percentage of turnover (1) Office for National Statistics, Annual Business Survey & Promar International Calculations. Other foods includes: sugar; cocoa, chocolate and sugar confectionery; tea and coffee; condiments and seasonings; prepared meals and other foods not easily classified. Size of bubble equates to market size £million 60
  61. 61. Foreign investment in UK manufacturing • In recent years some of the biggest investment in food and drink processing and manufacturing has come from overseas investors, for example: – Bright Foods, a Chinese owned firm purchases 60% of leading cereal brand Weetabix in 2012 – remaining 40% held in private equity firm Lion Capital. – Tulip (part of Danish Crown group), established in UK since 2003 through acquisition of Hygrade Foods and Flagship Foods. – Arla, a Danish owned dairy co-operative with a 26% share of the liquid milk market, present in UK since 2003 – The Muller Group, German owned dairy business established £30m UK operations in 1991 to sustain rapidly growing demand for its Muller Corner product. – Bakkavor Group, Icelandic processor made major step in UK by acquiring Geest (Dutch) business in 2005. – ForFarmers, a Dutch owned feed company that acquired BOCM Pauls for £58million in 2012. • The recent history of inward investment is evidence of the strategic value investors see in the UK and that the UK welcomes and protects foreign investment. • Dutch businesses that are also considering direct investment in the UK should therefore feel positive. • However, the scale of these investments also indicate the funds required to enter key sectors of the UK market, which may be a barrier to entry for small and medium sized businesses. 61
  62. 62. Demand for agricultural materials • UK food manufacturers purchase over £50 billion in goods and services per annum: • Approximately two thirds of manufacturers requirements are supplied by domestic producers with the remaining balance supplied by importers. • Many large manufacturers employ sophisticated procurement strategies to sourcing and supply of raw materials. • Price volatility and continuity of supply has increased the importance of effective procurement. – In general, manufacturers sourcing strategically important raw materials are under pressure by stakeholders (such as customers and consumers) to demonstrate transparency and provenance are adopting long term partnership style relationships with suppliers. – At the same time, manufacturers also seek opportunities to improve their margins by making the procurement process more competitive between suppliers and use purchasing tactics such as auctions, e-tenders and so on to obtain the best price. • The matrix below is a quick and effective way for suppliers to evaluate their position in relation to buyers in order to anticipate strategies and tactics buyers are most likely to employ. 62
  63. 63. Identifying procurement strategies Leverage •Short term relationship •Focus on price negotiation •Highly competitive •Deal only with buyer Transactional •Minimal (no) contact •Automated processes •Contact with junior staff Strategic •Long-term partnership •High level of contact & communication •Personal relationships •Deal with senior staff Security •Off and on relationship •Contact high but infrequent e.g. agreeing specifications Low High Low High Buyer spend* Market difficulty** Where you are supplying a strategically vital ingredient where there are little/no available alternatives. For example, a rare breed/variety that the retailer is known for selling. Where you are supplying an undifferentiated product and competing against many other suppliers and it is a high spend item for the customer; for example bread-making flour for a bakery. Where you are supplying an undifferentiated product, there are other suppliers in the market and it is a low spend item (e.g. salt). Where you are supplying an ingredient to a detailed specification or where an element of risk is involved (e.g. shellfish) but the customers overall spend is low and infrequent. *Determined by value of spend and/or percentage contribution to customer costs of production **How easy/difficult it is for the customer to obtain ingredient/material from other suppliers and/or extent of technical specification required. 63
  64. 64. Demand for speciality ingredients • Speciality food ingredients (flavours, flavour enhancers, preservatives, sweeteners, colours, enzymes, hydrocolloids, acidulants, antioxidants etc) are in high demand by UK food manufacturers. • Speciality ingredients typically represent a small proportion of overall costs of production but have the potential to add significant value to the product; for example: – Salt reduction solutions (especially in meat, bread and cheese) to help achieve industry-wide salt reduction targets set by government. – Natural, non-caloric sweeteners (such as Steviol Glycosides extracted from the leaf of the Stevia plant and Monk Fruit) enable drinks manufacturers to reduce sugar levels in response to consumer demand and industry pressure groups. – ‘Natural’ food additives such as colours, flavours, sweeteners and preservatives to support a widespread trend in positioning food and drink products as ‘natural’ or ‘free-from artificial additives.’ • Fruits, vegetables, herbs, leaves feature as the raw material source for artificial additives e.g. Anthocyanins are found in a wide range of fruits, flowers and vegetables and have a red to purple colour that can be used in a wide range of products such as confectionery, jellies, jam, soft drinks. – Ingredients such as beta-glucans, calcium, vitamins, plant stanol esters, pro and pre-biotics etc that provide functional benefits to heart, bone, digestive health etc. The UK market for functional products is worth an estimated +£700M with annual growth of +5%. 64
  65. 65. Speciality ingredients create value not cost 65 57% 18% 17% 4% 3% Dried milk Sugar Vegetable fat Functional systems Flavour Ice cream cost structure (1) (1) Danisco • Functional ingredients provide benefits that are closely aligned with consumer benefits and therefore create value. • In the ice cream example (opposite) the value adding ingredients are the flavour and functional systems (e.g. emulsifiers that may be used to stabilise a low fat ice cream). • Milk, sugar and fat account for 93% of costs of production but do not necessarily add value (i.e. these are ingredients consumers would expect to see and therefore do not attribute a higher value to them). • Functional ingredients solutions are derived from sustained investment in R&D and core competencies in technical and scientific disciplines such as food technology and biosciences. • The Dutch agri-food industry is extremely well placed to capitalise on these opportunities. • Significant R&D expertise • Agri-food landscape promotes close working relationships between academia, R&D centres (TNO, NIZO, Food Valley) and business. • Extremely high educational standards (esp. in universities). • A progressive and innovative mindset.
  66. 66. Chapter 6: UK Trade in Food and Drink Chapter contents: •UK food and drink trade key facts and figures •Sector specific analysis of position of the Netherlands. •Key trends analysis. •Industry perspectives.
  67. 67. Trade overview • UK self-sufficiency in food and drink was 62% in 2012 (underlying trend of long term decline). • The UK is a net importer of food and drink. In 2012 the UK’s trade gap (value of exports minus cost of imports) was -£18.1 billion. • The UK is particularly reliant on imported fruit and vegetables and meat, which account for 22% and 15% of total imports respectively. • The Netherlands is the single biggest source of food imports to the UK ahead of France, Ireland, Germany and Spain. In 2012 the UK imported £4.6billion worth of food from the Netherlands, which is equivalent to 12.2% of total UK imports. • Key products the UK imports from the Netherlands include (amongst others): – Poultry (145,000 tonnes equivalent to 38% of total poultry imports. The Netherlands is the UK’s single biggest source of imported poultry). – Bacon and ham (116,000 tonnes equivalent to 37% of total bacon and ham imports. The Netherlands is the UK’s second biggest source of imported bacon and ham). – Vegetables (600,000 tonnes equivalent to 32% of total vegetable imports. The Netherlands is the UK’s second biggest source of imported vegetables). – Pork (64,500 tonnes equivalent to 18% of total pork imports. The Netherlands is the UK’s second biggest source of imported pork). 67
  68. 68. £4,568 £4,363 £3,501 £3,287 £2,329 £2,072 £1,947 £1,452 £1,032 £1,031 0 1000 2000 3000 4000 5000 Netherlands France Irish Republic Germany Spain Italy Belgium Denmark U.S.A. Poland Trade UK Food Self-Sufficiency(1) UK Balance of Trade in Food and Drink(1) £million UK Imports by country of despatch(1) £million 12% of UK total 22% 15% 13%8% 7% 7% 7% 7% 6% 5% 3% Fruit and Veg Meat Drink Coffee, tea, etc. Dairy Fish Cereals Misc. Oils Animal feed Sugar UK Imports by commodity type (%) (1) (1) HM Revenue and Customs 68 -13,248 -13,583 -14,351 -15,419 -16,521 -17,014 -17,370 -20,158 -20,346 -18,748 -18,646 -18,179 -£25,000 -£20,000 -£15,000 -£10,000 -£5,000 £0 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011 2012 0 10 20 30 40 50 60 70 80 90 2000 2002 2004 2006 2008 2010 2012 % of all food % of indigenous type food
  69. 69. Trade balance – fruit 69 0 500 1,000 1,500 2,000 2,500 3,000 3,500 4,000 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011 2012 Fresh fruit Imports Fresh fruit Exports (1) HM Revenue and Customs 000tonnes Total imports and exports 2002-2012(1) The UK is a major net importer of fruit and currently imports 3.4 million tonnes. Exports have grown since 2004 but still represent 3% of imports.
  70. 70. 16 9 8 77 6 5 4 4 34 Spain South Africa Costa Rica Colombia Netherlands Dom Republic France Brazil Ecuador Others Importer share - fruit 6% 5% 5% 5% 5% 6% 0% 2% 4% 6% 8% 10% 12% 14% 16% 18% 2005 2006 2007 2008 2009 2010 Spain Costa Rica South Africa Colombia Netherlands UK Fruit imports (% of total) by country of despatch – Provisional 2012(1) Share of UK fruit imports by country of despatch (top 5 countries only) (1) (1) HM Revenue and Customs Equivalent to circa 5% of total domestic demand. 70
  71. 71. Trade balance - vegetables 71 0 500 1,000 1,500 2,000 2,500 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011 2012 Fresh vegetables Imports Fresh vegetables Exports 000tonnes (1) HM Revenue and Customs Total imports and exports 2002-2012(1) The UK increasingly has a trade deficit in fresh vegetables. Despite a slight decline in 2009/10 imports have continued to rise in 2011/12. The UK currently imports +2 million tonnes per year.
  72. 72. 39 31 4 4 2 20 Spain Netherlands France Poland Irish Republic Others Importer share - vegetables Share of UK vegetable imports by country of despatch (top 5 countries only) (1) 32% 31% 31% 30% 31% 32% 0% 5% 10% 15% 20% 25% 30% 35% 40% 45% 2005 2006 2007 2008 2009 2010 Spain Netherlands France Poland Irish Republic (1) HM Revenue and Customs Equivalent to circa 13% of total domestic demand. 72 UK Vegetable imports (% of total) by country of despatch – Provisional 2012(1)
  73. 73. Trade in seed potatoes 73 54% 46% 68% 60% 58% 63% 0% 10% 20% 30% 40% 50% 60% 70% 80% 2007 2008 2009 2010 2011 2012 NL Belgium France Germany Ireland Others UK seed potato imports by country of despatch, 000 tonnes(1) Share of UK vegetable imports by country of despatch (top 5 countries only) (1) - 5,000 10,000 15,000 20,000 NL France Belgium Germany Ireland Average annual seed potato imports are circa. 25 million tonnes. The majority of which come from the Netherlands. Dutch seed imports account for ~4% of total UK seed potato supply(2). (1) United Nations (2) British Potato Council
  74. 74. Trade in flowers and plants -1200 -1000 -800 -600 -400 -200 0 200 Bulbs Cutflowers Foliage Indoorplants Outdoorplants Trees Other Total Import Export UK imports and exports of plants and flowers, £million (2012)(1) 77 9 6 1 1 6 The Netherlands Kenya Colombia South Africa Spain ROW Origin of flower and plant imports (%)(2) (1) Defra (2) HM Revenue and Customs 74 The Netherlands has a dominant position accounting for over three quarters of cut flower imports. Cut flowers from other destinations are also likely to have passed through the Netherlands flower auction markets at some stage. Daffodils are the only main UK export.
  75. 75. Trade balance – poultry meat 75 0 50 100 150 200 250 300 350 400 450 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011 2012 Poultrymeat Imports Poultrymeat Exports 000tonnes (1) HM Revenue and Customs Total imports and exports 2002-2012(1) The UK has a long-run trade deficit in poultry meat. 2011 was a record year for poultry meat imports; therefore the fall off in 2012 does not necessarily mark a period of decline.
  76. 76. 46 12 8 7 27 Netherlands Poland Germany Irish Republic Others Importer shares in poultry meat(1) Share of UK poultry meat imports by country of despatch (top 5 countries only) (2) 39% 43% 45% 45% 47% 38% 0% 5% 10% 15% 20% 25% 30% 35% 40% 45% 50% 2005 2006 2007 2008 2009 2010 Netherlands Irish Republic Poland Germany Belgium-Luxembourg (1) Poultry meat: includes fresh, chilled or frozen carcase meat, cuts and offal (inc. liver). (2) HM Revenue and Customs Equivalent to circa 7% of total domestic demand. 76 UK poultry meat imports (% of total) by country of despatch – Provisional 2012(1)
  77. 77. Trade balance – poultry meat products 77 0 50 100 150 200 250 300 350 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011 2012 Poultry meat products Imports Poultry meat products Exports 000tonnes (1) HM Revenue and Customs Total imports and exports 2002-2012(1) Imports of poultry meat products (including (prepared, salted, cooked poultry meat) have more than doubled in the 10 years to 2012. Exports have also increased in this time but equivalent in volume to 15% of imports.
  78. 78. 46 11 10 7 26 Thailand Netherlands Irish Republic Brazil Others Importer shares in poultry meat products(1) Share of UK poultry meat products imports by country of despatch (top 5 countries only) (2) 15% 14% 14% 16% 12% 8% 0% 10% 20% 30% 40% 50% 60% 2005 2006 2007 2008 2009 2010 Thailand Irish Republic Brazil Netherlands Germany (1) Poultry meat products: includes prepared, preserved, salted or cooked poultrymeat and offal (inc. liver). (2) HM Revenue and Customs Consumer concerns over food safety may threaten poultry meat imports from Thailand, possibly to the advantage of the NL 78 UK poultry meat product imports (% of total) by country of despatch – Provisional 2012(1)
  79. 79. Trade balance - pork 79 0 50 100 150 200 250 300 350 400 450 500 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011 2012 Pork Imports Pork Exports 000tonnes (1) HM Revenue and Customs Total imports and exports 2002-2012(1) There has been a gradual decline in the volume of fresh pork imports since a peak of 462,000 tonnes in 2007. In 2012 the UK imported 349,000 tonnes. At the same time exports have been gradually increasing and reached their highest level in 2012 -154,000 tonnes.
  80. 80. 29 19 14 11 27 Denmark Germany Netherlands Irish Republic Others Importer shares in pork(1) Share of UK pork imports by country of despatch (top 5 countries only) (2) (1) includes carcase meat and cuts, both bone-in and boneless. (2) HM Revenue and Customs 12% 13% 12% 11% 15% 18% 0% 5% 10% 15% 20% 25% 30% 35% 40% 45% 50% 2005 2006 2007 2008 2009 2010 Denmark Netherlands Belgium-Luxembourg Germany Irish Republic Unbalanced consumer demand for loin meat creates supply deficit and import requirement. UK exports/processes surplus cuts such as shoulder and leg. 80 UK pork imports (% of total) by country of despatch – Provisional 2012(1)
  81. 81. Trade balance – bacon and ham 81 0 50 100 150 200 250 300 350 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011 2012 Bacon and ham Imports Bacon and ham Exports 000tonnes (1) HM Revenue and Customs Total imports and exports 2002-2012(1) The UK has a long-standing trade deficit in bacon and ham products although recently imports have been falling and currently stand at 257,000 tonnes – its lowest level in over a decade.
  82. 82. 41 41 12 3 3 Denmark Netherlands Germany Irish Republic Others Importer shares in bacon and ham Share of UK bacon and ham imports by country of despatch (top 5 countries only) (1) 50% 45% 49% 44% 37% 37% 0% 10% 20% 30% 40% 50% 60% 2005 2006 2007 2008 2009 2010 Denmark Netherlands Germany Italy France (1) HM Revenue and Customs Bacon is an everyday item for British consumers and highly price sensitive. UK bacon is sold at a substantial premium. 82 UK bacon and ham imports (% of total) by country of despatch – Provisional 2012(1)
  83. 83. Trade balance – beef and veal 83 0 50 100 150 200 250 300 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011 2012 Beef and veal Imports Beef and veal Exports 000tonnes (1) HM Revenue and Customs Total imports and exports 2002-2012(1) Beef exports have been rising since 2005 because of the lifting of an export ban (exports prior to 2005 were beef and veal of non- UK origin). Beef and veal imports have been fairly stable since 2005, the majority of which originates in Ireland.
  84. 84. 68 9 5 3 15 Irish Republic Netherlands Germany Poland Others Importer shares in beef and veal Share of UK beef and veal imports by country of despatch (top 5 countries only) (1) 5% 5% 6% 7% 7% 6% 0% 10% 20% 30% 40% 50% 60% 70% 80% 2005 2006 2007 2008 2009 2010 Irish Republic Netherlands Uruguay Germany Namibia (1) HM Revenue and Customs In contrast to Europe veal has limited appeal to the UK market. It is more likely to be sold through specialist independent butchers and food service channels. 84 UK beef and veal imports (% of total) by country of despatch – Provisional 2012(1)
  85. 85. Trade balance in wheat 85 0 500 1,000 1,500 2,000 2,500 3,000 3,500 4,000 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011 2012 Wheat, unmilled Imports Wheat, unmilled Exports 000tonnes (1) HM Revenue and Customs Total imports and exports 2002-2012(1) Wheat is one of the few products where the UK consistently runs a trade surplus. The reversal of this trend in 2012 was caused by extremely adverse weather in the summer of 2012 prompting record level of imports.
  86. 86. 32 26 10 9 23 Spain Netherlands USA Portugal Others Importer shares in wheat(2) Share of wheat imports by country of despatch (top 6 countries only) (1) 2% 4% 1% 2% 1% 3% 0% 5% 10% 15% 20% 25% 30% 35% 40% 2005 2006 2007 2008 2009 2010 Canada Germany France U.S.A. Irish Republic Netherlands (1) HM Revenue and Customs (2) Bread making wheat 86 UK unmilled wheat imports (% of total) by country of despatch – Provisional 2012(1)
  87. 87. Chapter 7: Retail and Food Service Market Chapter contents: •UK retail and food service market key facts and figures •Category specific market analysis, trends and opportunities. •Key trends analysis. •Industry perspectives.
  88. 88. Grocery retail market • With a population of 63million, household expenditure on food and non-alcoholic drink worth £88.5billion and growing by +4% p.a. the UK is one of the most attractive grocery retail markets in Europe. • Over +95% of food and drink purchased for consumption in the home is sold through a supermarket chain; the remaining share of the market is accounted for by independent retailers (such as butchers or farmers markets). • Four supermarket chains account for 76% of the market. – Tesco is the market leader with a 29.9% share. – Asda, part of the Wal Mart group has a 17.5% share – Sainsbury’s has a 16.9% share – Morrisons, following acquisition of Safeway group in 2007 has an 11.5% share. • Collectively, the ‘Big 4’ have grown their share of the market by 8.1% since 2010 at the expense of small independent and convenience stores. • Recently, premium retailer Waitrose and discount stores Aldi and Lidl posted record collective market share figures of 4.9% and 6.4% respectively. Aldi and Lidl have benefitted from their position as a cheaper option for shoppers, whilst Waitrose has been successful by re-positioning themselves from being expensive to value-for-money. • These recent successes aside, it is still the four leading retailers Tesco, Asda, Sainsbury’s and Morrisons that exert considerable influence over the UK food and drink industry and shape opportunities and challenges for suppliers. 88
  89. 89. Food service market • The ‘Food service market’ defines food and drink consumed out of the home. It includes food and drink consumed in public sector organisations (e.g. hospitals, schools etc) as well as private sector organisations (e.g. bars, restaurant, hotels etc). • UK consumer expenditure on food eaten out of the home in 2012 was £51.8billion, which is 3.5 times that of the Netherlands. In the five years to 2012 expenditure grew by 3% p.a. • The UK foodservice market is highly fragmented. In 2012 there were 168,000 foodservice units, of these, 72% were independently ran. • The foodservice market is highly mature, with many outlets established for a number of years. Recent years have seen the decline in foodservice sales and the sector become more competitive, with consumers cutting back on their spending. • With a decline in sales, operators have had to concentrate on what the consumer is demanding so to gain sales. Areas of success have been; – Health and wellness – Convenience – home delivery and take away – Ethical sourcing – Innovation • Large food service chains, such as McDonalds have consolidated their supply chain, and now have direct links with farmers. Other larger food service businesses have contracts with suppliers for their produce. • Smaller, or independent retailers will often use wholesalers for their produce of work with suppliers for the more expensive products e.g. meat. For high end restaurants the sourcing of the product and the story behind it is more important, however this tends to be the case for the main element of the dish, e.g. meat. 89
  90. 90. Food service supply chain (simplified) 90 Consumers Profit sector Cost sector Restaurant (e.g. Traditional ‘sit down’ restaurant) Quick service restaurant (e.g. Fast food) Pubs (e.g. Traditional pubs) Hotels Leisure (e.g. Sports clubs) Staff catering (e.g. In the work place) Health education services (e.g. Schools, hospitals) Food service operator (Compass, Sodexo & Aramark are the major players in the market) Delivered wholesale (Brake Bros. and 3663 are the major players) Wholesale / Cash & Carry (click here to see list) Manufacturer / producer / supplier NB: Distribution channels in the food service market can be complex. Manufacturers/suppliers can have direct supply relationships with the outlets (e.g. Restaurant) or supply through a food service operator (i.e. A contract caterer that prepares and serves the meal); through a wholesale / cash and carry business or through a delivered wholesale business (this is the same as a wholesale but they physically deliver the goods as well).
  91. 91. Food retail & food service market value UK Household Food Expenditure (Food and Non-Alcoholic Drink) £millions(1) UK Expenditure Food Eaten Out £millions(1) CAGR 07-12: 3% CAGR 07-12: 4% (1) Defra: “Agriculture in the United Kingdom: 2012” 91 0% 1% 2% 3% 4% 5% 6% £0 £10,000 £20,000 £30,000 £40,000 £50,000 £60,000 £70,000 £80,000 £90,000 £100,000 2007 2008 2009 2010 2011 2012 Household Food Annual % change -4% -2% 0% 2% 4% 6% 8% 10% £0 £10,000 £20,000 £30,000 £40,000 £50,000 £60,000 2007 2008 2009 2010 2011 2012 Food eaten out Annual % change
  92. 92. UK food retail & food service compared to the Netherlands 63 17 0 10 20 30 40 50 60 70 UK NL Population (millions)(1) Consumer retail spend on food and drink (EURbn)(2,3) Consumer food service spend on food and drink (EURbn) (2,3) Per capita spend on food and drink through all channels (EUR p.a.) (2,3) (1) Office for National Statistics and CBS (Statistics Netherlands) (2) Defra (3) Agricultural Economic Report 2012, LEI Wageningen 92 88 40 0 20 40 60 80 100 UK NL 51 13 0 10 20 30 40 50 60 UK NL 2,206 2,352 2,100 2,150 2,200 2,250 2,300 2,350 2,400 UK NL
  93. 93. UK country variations in food and drink expenditure 26.32 25.4 24.15 24.28 2.97 3.38 2.79 2.99 11.01 8.72 7.35 8.49 4.11 3.2 2.7 3.09 0 5 10 15 20 25 30 35 40 45 50 N Ireland Total £44.40 Scotland Total £40.69 Wales Total £37.05 England Total £38.85 H'hold food & drink ex. alcohol H'hold alcoholic drinks Eating out food & drink ex alcohol Eating out alcoholic drinks Country variations in average food and drink expenditure £ per person, per week(1) Population: 53 million Population: 3.1 million Population: 5.3 million Population: 1.8 million 93 (1) Office for National Statistics
  94. 94. Regional differences – food retail 25.45 27.32 25.52 27.23 26.84 28.59 27.6 30.33 29.14 27.84 23 24 25 26 27 28 29 30 31 NorthEast NorthWest Yorkshire&theHumber EastMidlands WestMidlands East London SouthEast SouthWest Englandave Regional variations in average household food and drink expenditure £ per person, per week(1) UK ‘big 4’ supermarket density (Tesco, Sainsbury’s, Asda and Morrisons only, 2010)(2) 94 (1) Office for National Statistics (2) Ordnance Survey
  95. 95. Regional differences – food service 5,375 15,185 11,580 9,545 11,400 13,095 23,805 20,955 13,940 7,300 12,030 4,075 0 5,000 10,000 15,000 20,000 25,000 North East North West Yorkshire and The Humber East Midlands West Midlands East London South East South West Wales Scotland Northern Ireland Number of food and beverage service businesses, by region(1) (1) Office for National Statistics (based on VAT registrations and PAYE data) Regional variations in average out of home food and drink expenditure £ per person, per week(1) 11.13 10.87 11.24 10.66 10.52 11.55 13.48 13.44 12.56 11.93 0 2 4 6 8 10 12 14 16 NorthEast NorthWest Yorkshire&the Humber EastMidlands WestMidlands EastMidlands London SouthEast SouthWest Englandave. 95
  96. 96. Regional variation • On the whole there is little distinction in food consumption patterns between the regions. • One of the major reasons for this is the national distribution network of the major supermarkets which account for the majority of food and drink purchased in the UK whose local adaptation of product lines is fairly limited. • Many of the major food service companies operating in the UK also tend to standardise their menus. • That said, some regional differences do exist: – There is a higher concentration of food service establishments in London and the South East. Average earnings are also higher in these areas and eating out is more commonplace than in other areas of the UK. – Ethnic and religious influences on food consumption patterns are more pronounced in major urban areas with diverse population ethnicities (e.g. London, Birmingham, Manchester, Leeds). – London stands out as the only region in the UK that could be described as ‘distinctly different’ to the rest of the UK. – Some companies are reportedly implementing organisational structures to serve London as a distinct market. 96
  97. 97. Food retail Retail Expenditure Share % (14 April 2013) (1) “Pressure on household budgets is undoubtedly driving some of the growth at the discounters, but messages about quality are starting to resonate. Lidl announced this week that it will increase its fresh meat and poultry floorspace by 50% within the year, and Aldi’s new ‘convenience’ store in Kilburn is a departure from its traditional edge- of-town offering. These changes are likely to appeal to a new and different group of shoppers which will bolster the performance of the discounters even further.(1)” (1) Kantar Worldpanel (2) Trade Interviews 2.7 3.1 2.1 0.2 -1 0 1 1.3 -9.4 -15 -10 -5 0 5 Tesco Asda Sainsbury's Morrisons Co-Op M&S Waitrose Hard discounters Others Changes in retailer share of the grocery market (2010 – 2013) % With the exception of the Co-Op all retailers have increased their market share at the expense of ‘other’ supermarkets, made up of independent retailers and symbol groups. Asda, Tesco and Sainsbury’s have benefitted. So too has Waitrose and the hard discounters both of which have increased their share. 97 Retailer profiles can be found in Chapter 9: Supporting Information
  98. 98. Industry perspective(1) • “Growth in the grocery retail market has come mainly from the premium and budget end of the market. The middle ground is being squeezed and is highly pressured. It appears that the value for money proposition is strong at the premium and budget market but less clear in the middle.” • “Growth is coming from convenience store formats and online sales, larger supermarket stores are faring less well. This is clear when you look at retailers such as Morrison and the Co-Operative that are not exposed to online or convenience store formats performing less well.” • “There’s a competitive and consumer element to consider in the polarisation of the retail market. Necessity is a major driver; consumers generally aspire to shop in more stores that are perceived to be more premium so as confidence improves they will look to trade up not down. Other retailers will also look to regain market share and use powerful tools and mechanics such as promotions to attract consumers. In time I expect this issue will settle down.” • “We have seen a resurgence in small, independent retail stores that have exciting and new concepts such as Cook and Laverstoke Park. These tend to be at the premium end of the market and located in affluent areas (e.g. London, Harrogate in the North) where there is a strong food culture.” (1) Trade interviews 98
  99. 99. Industry perspective(1) • “We are starting to see retailers segment the UK retail market geographically to isolate London as its own market supported by a management structure purely focussed on this market. This is quite exciting, suppliers can really capitalise on this if they are quick to react.” • “Online is an exciting development in the UK grocery retail market. It’s not a simple case of what’s in- store is also on-line; the supply chain cycle is shorter and products (e.g. especially packaging) needs to be carefully adapted. Online brings suppliers from the Netherlands closer to the UK, products could be packaged and shipped from the Netherlands to the UK with relative ease.” • “The retailers are extremely good at what they do. They are capable of creating an extremely good environment to showcase our [fresh produce] products ensuring it’s fresh, displayed well and they respond well to consumers. Ultimately they are able to grow category sales, which benefits us financially.” (1) Trade interviews 99
  100. 100. Industry perspective(1) • “Our retail customers are extremely demanding, we have to operate to tight deadlines, usually 2 weeks is a maximum to deal with any issues and questions they need solving. We are also expected to provide a lot of technical and R&D support and we have therefore needed to invest heavily in this area.” • “Retailers say they understand the pressure on suppliers but do not engage in dialogue with them. They are only concerned with shareholders and are resistant to change.” • “The UK is much more sophisticated than other European/World markets. For example, processing standards much higher, many more accreditations, sophisticated retailers, tiered branding, sourcing & supply chains. A brand is “not just a crest” like in many other countries – it must have ethics, CSR, genuine point of difference, has to mean something.” • “Price is important but becoming less of a way to achieve competitive advantage. In an era when price matching is so prevalent buyers look to other ways of differentiating their category. This opens up potential discussions on how suppliers can add value in other ways, such as through improved sustainability. These are good ways to position yourself as supplier.” (1) Trade interviews 100
  101. 101. Category dynamics(1) (1) Various sources incl. Mintel, Kantar, Defra *Flowers and plants consumption per capita in £ not kg Bread & Bread products, £3.8 Butter & Yellow fats, 1.5 Cheese, £2.5 Desserts, £1.5 Ice Cream, £1.1 Processed Meat, £6.8 Ready Meals (inc pizza), 3.8 Yoghurt, £1.8 Red Meat (beef, pork, lamb), £3.7 Vegetables, £5.0 Fruit, £3.8 Potatoes, £1.1 Salad, £1.7 Milk, £3.2 Poultry, £4.0 Flowers and plants, £2 -10 0 10 20 30 40 50 60 70 -3 -2 -1 0 1 2 3 4 5 Consumption per capita, per annum (kg) * Volume growth/decline (y-o-y%) Bubble size varies according to market size (£bn) 101
  102. 102. Category dynamics Product Trend* Driver >5 years Poultry Increasing -Perceived as value for money -Positive health perceptions -Sustained market growth. -”Nations favourite protein” -Welfare, safety and traceability essential. Red meat Decreasing -Perceived as expensive & indulgent -Negative health perceptions -Steady decline. -Changes in demand by cut (less premium cuts) -Special occasion protein. -Welfare, safety and traceability essential. Fresh vegetables Increasing -Convenience: growth in processed ‘ready to cook’ vegetables. -Heavy category promotions -Convenience: pre-packed portions -British when in season Fresh fruit Increasing -Convenience: growth in processed snacking fruit. -Heavy category promotions -Convenience: pre-packed portions -British when in season Processed meats Increasing -Convenience -Increased product innovation -Sustained growth. -Improved profile of frozen foods. -Welfare, safety and traceability essential. *Volume consumption 102
  103. 103. Category dynamics Product Trend* Driver >5 years Ready meals Increasing -Convenience -Quality improvements (own label) -Increased product innovation -Improvements to health profile -High growth. -Increased innovation. -Labelling transparency. -Own label products dominate brands Salad Increasing -Growth in salad bowls -Heavy category promotion. -Product innovation (e.g. leaf varieties) -Convenience: pre-packed portions -British when in season Milk Decreasing -People drinking less milk. -Dietary changes. -More functional milk innovation -Niche markets (soy, rice milk) on the rise. Yoghurt Increasing -Product format innovation (e.g. pouring yoghurt, pouches). -Strong health positioning (e.g. digestive health). -More ‘occasion’ driven product innovation (e.g. breakfast, dessert yoghurts) -Sustained market growth. -Indirect health claims. -Packaging/format innovation. 103 *Volume consumption
  104. 104. Category dynamics Product Trend* Driver >5 years Cheese Increasing -Category innovation driven by convenience (e.g. snacking). -Improved health profile (e.g. low fat) for everyday consumption. -Appeal of speciality cheese (occasional consumption), artisanal producers -Processed cheese growth via NPD (convenience & health important). -Speciality cheese growth via product innovation, category promotion. Bread & bread products Decreasing -Fall in white bread consumption. -Sensitivity to price changes. -Increased consumption of ‘healthy breads’. -Further decline in white bread sales. -More ‘healthy breads’. Ice Cream Decreasing -Decline of everyday consumption but increase in occasional indulgence -Continued shift from everyday to indulgent consumption. Butter & yellow fats Decreasing -Increased use of cooking oils over fats on health grounds. -Further decline of use as cooking ingredient. -Use as spread driven by NPD. 104 *Volume consumption
  105. 105. Innovation examples: flavoured milk Product name Frijj Milkshake Company Dairy Crest Price (£) 1.25 Size 471ml Product description Frijj is a fresh milkshake product which is said to be ‘thick and smooth’. The range contains several flavours such as vanilla, chocolate, banana etc Positioning claims Low fat, free-from artificial colouring and flavourings, fresh, high in calcium Ingredients Skimmed Milk (76%), Whole Milk (18%), Sugar, Buttermilk Powder, Modified Maize Starch, Strawberry Flavouring, Stabilisers (Carrageenan, Guar Gum), Colour (Beetroot Red). Analysis Dairy Crest has invested in the Frijj brand to create a much fresher and healthier image and emphasise health driven benefits such as fat content, calcium levels, absence of artificial colours and flavours. The product still retains a sense of fun (appealing to a younger market) as well as capturing the food-to- go market.
  106. 106. Innovation examples: lactose-free milk Product name Lacto-Free Company Arla Price (£) 1.29 Size 1litre Product description Lactose free*, pasteurised semi skimmed filtered dairy drink. Part of a lactose-free range of products that also includes cream and cheese. Positioning claims Lactose free* Ingredients Semi Skimmed Milk, Lactase Enzyme Analysis Lactose and gluten free product have significantly increased in popularity in recent years owing to consumer perceptions that they are ‘healthier’ than conventional varieties (regardless of a diagnosed allergy). The ‘free-from’ market continues to grow rapidly and several major companies (including Arla) have entered this market. *We make every effort possible to ensure that Lactofree dairy drink contains no lactose. We carry out rigorous scientific testing using the most accurate UKAS-accredited tests available which enable us to detect lactose at the trace level of 0.03%. At this detection level our tests show that there is no lactose present in Lactofree. Please refer to www.lactofree.co.uk for more information. Not suitable for milk allergy sufferers.
  107. 107. Innovation examples: extra filtered milk Product name Cravendale Milk Company Arla Price (£) 1.98 Size 2litre Product description Pasteurised, homogenised, semi- skimmed, fresh filtered milk Positioning claims Stays fresh for 7 days Red Tractor (Assured Food Standards) , Recyclable Materials Ingredients Semi-skimmedmilk Analysis The filtration process that keeps milk ‘fresher for longer’ is designed to fit in with busy consumer lifestyles (less frequent trips to local shops) and to minimise waste. The product has been supported with heavy marketing and stands out as most milk is sold unbranded.
  108. 108. Innovation examples: Danone Activia Product name Activia Company Danone Price (£) 1.84 Size 4X125g Product description Strawberry flavoured yoghurt, which is said to be ‘deliciously creamy’ Positioning claims Contains Bifidus ActiRegularis, suitable for vegetarians, recyclable packaging Ingredients Yogurt with Bifidus ActiRegularis® (Whole Milk, Skimmed Milk Powder, Cream, Yogurt Cultures), Strawberry (10%), Sugar (8.3%), Stabilisers (Modified Maize Starch, Pectin, Guar Gum), Colours (Anthocyanins, Beta- Carotene), Acidity Regulators (Citric Acid, Calcium Citrate, Sodium Citrate), Flavouring. Analysis Activia has successfully repositioned its message in light of European health claims legislation on ‘functional health claims’. Despite being unable to make digestive health claims the brand and products still have mass appeal with the UK market on the basis of ‘softer’ health claims messaging and use of imagery.
  109. 109. Innovation examples: Dairylea Dunkers Product name Dairylea Dunkers Company Kraft Foods Price (£) 1.12 Size 4X47g Product description Cheese dip with breadsticks designed as a lunchbox/snack item primarily aimed at children. Positioning claims Free-from artificial colours, flavours, preservatives, convenience, suitable for vegetarians Ingredients Cheese Dip: Skimmed Milk (Water, Skimmed Milk Powder*) (58%), Cheese (16%), Whey Powder (from Milk), Butter, Milk Proteins, Concentrated Natural Lemon Juice (from fresh lemons), Stabiliser (Sodium Carbonate)**, Citrus Fibre, Salt, White Breadsticks: Wheat Flour, Vegetable Fat, Wheat Dextrin (5.5%), Barley Malt Extract, Yeast, Wheat Germ (1%), Salt, *Spray Dried, **To hold all the ingredients together. Analysis A good example of a product that aims to increase out of home cheese consumption. Positioned as a children's lunchbox item. The product is supported by health driven marketing claims in particular the absence of artificial colours, flavours and preservatives.
  110. 110. Innovation examples: Cathedral City Product name Cathedral City Cheddar Company Dairy Crest Price (£) 2.55 Size 200g Product description Cheddar cheese available in various line extensions said to be the “nations favourite cheddar brand” Positioning claims “The nations favourite cheddar brand” Ingredients Reclosable stay fresh packaging Analysis Mass market cheddar cheese (like liquid milk) is largely undifferentiated and therefore heavily dominated by sales of retailer own label products. Dairy Crest have been able to create a brand with significant mass market appeal.
  111. 111. Innovation examples: processed meat Product name Mattessons Fridge Raiders Company Kerry Foods Price (£) 1.49 Size 3X25g Product description Roast flavour chopped and shaped chicken breast with added starch Positioning claims High protein, children, convenience Ingredients Chicken Breast (91%), Vegetable Oil, Roast Seasoning (Salt, Yeast Extract, Garlic Powder, Onion Powder, Sage, Flavourings), Rusk (Wheat), Tapioca Starch, Dextrose Analysis Mattesons Fridge Raiders have capitalised on a number of key trends such as snacking and convenience to increase the popularity of their meat snacks range. Mattessons has also countered possible consumer concerns by highlighting the high meat content of the product.
  112. 112. Innovation examples: prepared meals Product name Innocent Veg Pot Company Innocent Price (£) 3.99 Size 390g Product description A hearty stew of sweet potatoes, beans, red peppers and smoky paprika. It's a delicious meal of fresh veg, tasty sauce, rice and herbs - giving you 3 portions of veg in every pot. With no colourings, flavourings or nasty things you wouldn't add yourself. Positioning claims 5-a-day, natural product, convenience, recyclable materials Ingredients Cooked Brown Rice (17%) [Water, Brown Rice], Tomato, Water, Carrot, Pinto Beans, Red Kidney Beans, Onion, Sweet Potato (5%), Potato, Red Pepper (4%), Sweetcorn, Spinach, Vegetable Oil, Red Chilli (0.8%), Cornflour, Lemon Juice, Garlic, Sea Salt, Cajun Seasoning [Spices, Herbs, Mustard Seed, Salt, Sugar], Smoked Paprika (0.2%), Green Chilli Purée, Coriander, Black Pepper. Analysis Innocent are a well known and loved juice brand in the UK and have diversified by launching ‘veg pots’ – a prepared vegetable meal which can be paired with meat or fish (or eaten on its own) with a range of flavours. The product embodies several trends including; natural, healthy, 5-a-day message, convenience, recyclable materials.
  113. 113. Product name Charlie Bighams Cottage Pie Company Charlie Bigham Price (£) 7.00 Size 650g Product description Tender pieces of British beef slow cooked with red wine and fresh thyme then topped with our handmade creamy mashed potato Positioning claims Premium, convenience, provenance Ingredients Cottage Pie Filling (53%), Creamy Mashed Potatoes, Cheese and Herb Topping, Cottage Pie Filling is made from: Fresh Beef (39%), Fresh Onions, Fresh Carrots, Fresh Celery, Red Wine, Beef Stock, Worcestershire Sauce, Wheat Flour, Sunflower Oil, Molasses, Tomato Purée, Fresh Garlic Purée, Fresh Thyme, Salt, Fresh Bay Leaf, Black Pepper, Ground Star Anise, Ground Cloves, Creamy Mashed Potatoes are made from: Potato, Single Cream, Butter, Free Range Pasteurised Egg Yolk, Salt, Cheese and Herb Topping is made from: Cheddar Cheese, Fresh Parsley, Black Pepper, Fresh Thyme, Beef Stock is made from: Beef Bones and Meat, Water, Salt, Worcestershire Sauce is made from: Malt Vinegar (from Barley), Spirit Vinegar, Molasses, Sugar, Salt, Anchovies, Tamarind Extract, Onions, Garlic, Spices, Flavouring. Innovation examples: prepared meals Analysis Charlie Bighams meals retail at a significantly higher price point than other prepared meals (circa £7 compared to circa. £5) yet continue to perform well in the market because of the clear positioning and high quality.
  114. 114. Innovation examples: prepared vegetables Product name Sainsbury's Ready To Roast Mediterranean Vegetables Drizzled With Olive Oil 400g Company J Sainsbury’s Price (£) 2.00 Size 400g Product description A mix of red onion, courgette, peppers, tomatoes, olive oil, garlic and basil Positioning claims Convenience, fresh Ingredients Red Onion (29%); Courgette (20%); Red Pepper (19%); Yellow Pepper (18%); Cherry Tomatoes (11%); Olive Oil (2%); Garlic Purée (1%); Basil. Analysis Basic processing of vegetables provides consumers with instant meal options that require very little preparation in the home. The variety of vegetables per portion is a key selling point as consumers would otherwise have to purchase a larger number of individual items if they were to prepare it themselves which potentially increases costs and waste.
  115. 115. Innovation examples: prepared fruit Product name Sainsburys Classic Fruit Salad Company J Sainsbury’s Price (£) 2.00 Size 320g Product description Prepared and ready to eat pineapple, Apple, Orange, Strawberry & Grape Positioning claims Convenience, fresh Ingredients Pineapple (29%); Apples (27%); Oranges (21%); Strawberry (13%); Grape (11%). Analysis Prepared fruit is increasingly popular as a snacking item and/or meal portion (e.g. as a lunch time item). Convenience and variety is a key selling point to consumers. Such products tend to retail at a relatively high price point (e.g. £2+).
  116. 116. Innovation examples: prepared salad Product name Sainsbury's Pomodorino Tomato Side Salad Bowl, Taste the Difference Company J Sainsbury’s Price (£) 2.50 Size 175g Product description Mix of baby salad leaves and salad vegetables with baby pomodorino tomatoes, a sachet of balsamic dressing and a sachet of Parmigiano Reggiano Positioning claims Convenience, premium, fresh Ingredients Pomodorino Baby Plum Tomato (31%); Salad Leaves; Cucumber; Balsamic Dressing (11%); Parmigiano Reggiano Cheese (from Cows' Milk) (6%); Chive; Parsley.Salad Leaves contains: Green Batavia, Red Cos Lettuce, Wild Rocket.Balsamic Dressing contains: Balsamic Vinegar (30%) (Wine Vinegar, Grape Must), Water, Extra Virgin Olive Oil (16%), Sugar, Rapeseed Oil, Dijon Mustard (Water, Mustard Seed, Spirit Vinegar, Salt), Molasses, Cornflour, Salt, Black Pepper Analysis Prepared salads offer similar benefits to consumers as prepared vegetables and fruit; namely variety, low wastage, convenience. Products typically contain a dressing either in a sachet or small plastic tub.
  117. 117. The importance of innovation • Continual innovation is extremely important in the UK market. • Circa 12,000 food and drink products are launched every year in the UK including: – New products – New varieties – Line extensions – New packaging types / materials – Promotional / seasonal (short life) products • In particular retail buyers are looking to source products that are different and add value to the category and that continue to innovate once in the market. • Innovation is relevant throughout the entire value chain; and could include for example: – New consumer products and concepts (e.g. Dutch speciality cheeses / meats etc) – New sustainable packaging solutions – Production solutions that improve quality, adds variety, reduces waste, improves sustainability, reduces cost and so on – Technical manufacturing solutions that help to reduce or remove, for example, salt, fat and sugar, artificial additives and ingredients or add functional health benefits. • Products that are genuinely innovative are much more likely to succeed in the UK. 117
  118. 118. Trends – online shopping • Internet access in the UK is around 85%, this is lower than the Netherlands where it is 94%, but still higher than many other European countries. • Shoppers are now accessing the internet on a much more frequent basis, and through many different forms of technology. In terms of what consumers are buying when using the internet, grocery and food shopping is ranked 8th. • On-line grocery shopping in the UK was worth £5.9 billion in 2011, it is forecast to be worth £11.2 billion by 2016 (an increase of 89%). On-line retailing is the fastest growing type of grocery retailing in the UK, e.g. ahead of hypermarkets and discounters. • 17% of people in the UK use the internet to purchase groceries, a figure that is expected to rise to 44% by 2016. • The average frequency of on-line shopping is 1.4 times per month. The number of customers using in every fortnight or more, currently stands at around 29%, this is down from 36% in 2009. Shoppers are using on-line grocery shopping for special occasions, with 35% using it every 2-3 months. 118

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