Structure of the UK Food Industry: the Role Played by SMEs: Introduction and Key Findings
Introduction
In 2007, FDF commissioned a report called the 'Structure of the UK Food Industry: the Role Played by
SMEs' (pdf, 501kb). The findings, which include 28
tables of industry statistics, provide a
fascinating insight
into one of the
most important sectors in the UK and cover
market trends, issues surrounding food
and health and
the growth in organic
and
regional products. It focuses on the
significant role
played by small
to
medium-sized enterprises in a fiercely
competitive market as
they
define
their
unique selling points through the
promotion
of quality and
locally-sourced
products.
The analysis and statistics in this report are an excellent
starting point to
find out about an
industry
that plays a vital role in the UK
economy and
affects each and everyone of us. The report (based on desktop research)
was
prepared by ADAS UK Ltd.
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Key Findings
Food is essential and therefore may be considered a stable market. However,
certain segments within the food industry can and have seen major impacts as a
result
of disease. For example, BSE and foot and mouth dramatically affected the
meat
industry. There have been other wider ranging factors. In the early 1990s,
economic
downturn saw a likelihood of consumers to trade down from premium
foods
to value
brands.
The current market may be considered polarised with the emergence of the budget
retail outlets such as ALDI and Lidl and premium outlets such as Waitrose and
Marks and Spencer, specialising in premium and quality food products at premium
prices. Similarly the large grocery multiples accommodate both the budget
consumer
and the discerning 'foodie' with both the value range and premium branded
foods
(e.g. Tesco Finest), within their stores.
Market Trends
Fruit, Veg and Fish
In terms of trends within the industry, fruit and vegetables, fish and fish
products, have seen strong growth from 2001 to 2005, driven by factors such as
demand for convenience products and, at the same time, concerns about health,
with
an increasing desire by some to improve their diet.
Dairy, Eggs, Oil and Fat
Of all the sectors, expenditure on dairy products, eggs, oils and fats showed
the lowest rate of growth between 2001 and 2005. This may be due to the
commodity
nature of these products and also their often poor health image. Recently,
however, some manufacturers are attempting to differentiate their products and
brand
them.
Cereals
Cereal manufacturers have extended their brands with fruit and fibre
additions
and cereal bar versions of their products. These have been promoted as
healthy
products. As an example, in January 2006, Ryvita launched its Goodness
cereal
bar,
which it claims is healthier than rival products. Such products
are
clearly
marketed at health-conscious consumers, and the fact that they
often
command
a
premium
price is another positive factor for suppliers.
Organics
The organic sector is growing, with sales reaching around £1.3bn in 2005.
This
increase in demand is partly a result of the growth in use of farm
shops,
farmers' markets. These outlets have become more widely available to
satisfy
the
consumers' increasing demand for knowledge of the source of produce
and
to
buy
locally
in line with good environmental compliance. Organic
food
still
represents
a
tiny
proportion of total grocery sales.
Size of UK Food Industry
The food and drink industry is the largest of the manufacturing sectors
accounting for 15% of manufacturing overall, with a total turnover of £70bn.
The
industry
employs some 500,000 people, equating to 13% of the UK manufacturing
workforce.
Food and drink remains the biggest spending category. In 2005, consumer
spending
on food and drink was nearly £153.8bn, 20% of total UK consumer
expenditure.
Year on year UK consumer expenditure on food is increasing across all sectors.
Consumers appear to spend most on fruit and vegetables and meat and meat
products.
The food sector experiencing the largest growth in consumer expenditure is
fruit
and vegetables. The UK vegetable market tends to be dominated by national
and
regional firms, rather than multinationals.
The increasing variety of fruit available in supermarkets and the year-round
availability is likely to result in a continuing increase in the consumption of
fresh fruit. Consumption of fresh green vegetables, whilst increasing, is at a
much
slower rate than fruit and consumption of fresh potatoes is likely to
continue to
decline as people change to pasta and rice as an alternative.
Food and Health
Healthy Foods
Demand for healthy foods is having an increasing influence on the market for
dairy products, eggs, oils and fats. There is particularly strong demand, for
example, for functional products, such as pro-biotic drinks and yoghurts, and
cholesterol-reducing spreads and milk. Organic products are also buoyant, and
products
that link to particular health trends, such as milk with omega-3 oils,
are
benefiting in growth and increased sales.
Local Sourcing
As well as health concerns, consumers are apparently becoming more concerned
about the source of their food. This has resulted in the emergence of some
regional
brands, for example, Definitely Devon and Deliciously Yorkshire, or
regional
cheese products such as Cheshire and Wensleydale.
Sweets and Chocolate
The UK confectionery market is valued at an estimated £4.41bn in 2006,
although
growth is slowing as this sector is seen as unhealthy. A move to more
healthy
options has occurred amongst suppliers with sugar free versions as well
as
the
inclusion of additives such as vitamins.
In 2005/06 the most obvious trends in the chocolate market were the moves
towards darker and more expensive chocolate. The health benefits of cocoa were
one of
the reasons behind the move towards darker chocolates, which are also perceived
as
higher quality.
Condiments and Sauces
The market for condiments and sauces has seen only slow growth (of 1%) during
the twelve months to August 2005, making an overall market value of £687m
during
that same period. This slow growth is attributed to the downturn in sales of
barbeque and other thick sauces. Improved sales of mayonnaises and tomato
ketchup
have
contributed significantly. This has been partly due to the introduction of
squeezy formats in plastic bottles as opposed to traditional glass. It is
estimated
that there are less than fifty companies manufacturing in the UK with most
being in
London and South East or Northern England.
Soft Drinks and Hot Beverages
Soft Drinks
As a whole, the UK market for soft drinks is large and mature, and it is
estimated that it was worth £9.18bn at retail selling prices (rsp) in 2005, a
rise
of
3.1% on 2004. Within this market, carbonated soft drinks were worth an
estimated
£5.1bn at retail sales price (rsp). Concentrated soft drinks were worth
an
estimated £600m at rsp. Both of these types of soft drink have lost share of
the
total
market, in which fruit juices, fruit-based drinks and bottled water
have
shown the
strongest growth in recent years, due in large part to their
healthier
properties.
Coffee and Tea
The hot beverages' market is dominated by instant coffee and black leaf tea
in
bags, yet it is the more niche and premium segments within coffee and tea
that
have shown growth and have managed to prevent the total hot beverages'
market
from
undergoing greater decline.
Industry Overview
In summary, whilst the food industry is a stable market, sectors of it can be
subject to some dramatic changes and effects. The market for food has grown in
recent years and increasing globalisation has assisted with this growth.
The market is in continuous change and the current campaign of raising awareness
of food miles, locally sourced products, etc. reflects this. The information
sought, and demanded by the consumer is increasing and hence the emphasis upon
labelling has never been stronger.
In many of the sectors, there is a dominance of multinational companies, this is
particularly true amongst the soft drinks industry. SMEs competing in fierce
markets are defining themselves in niche markets and finding unique selling
points
through the promotion of quality and local supply.
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More Information
Download: full report 'Structure of the UK Food Industry: the Role Played by
SMEs', ADAS
UK Ltd
(pdf, 501kb)
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Last reviewed: 26 Nov 2007