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United Kingdom Food and Drink Report Q1 2012
Business Monitor International, Dec 2011, Pages: 127
United Kingdom Food and Drink Report provides industry professionals and strategists, corporate analysts, food and drink associations, government departments and regulatory bodies with independent forecasts and competitive intelligence on United Kingdom's food and drink industry.
The retail sector has had to face up to all sorts of issues in 2011 with low confidence, a rise in the VAT rate and high fuel prices making trading conditions particularly challenging. Indeed, Tesco's Chief Executive Philip Clarke has revealed that the current climate is the 'most challenging for a generation'. Tesco reported a decline in underlining sales in the six months to September 2011. Although Tesco's core food unit posted underlying growth, including non-food, Tesco reported its first like-for-like sales decline since 1991. In response to this, and the fact that value is such a key issue, Tesco recently announced a GBP500mn price cuts initiative. This has been imitated by other market participants and with even the upscale Waitrose pursuing value initiatives, a lot of the industry is having to work overtime to remain competitive.
Headline Industry Data (local currency)
- 2012 per capita food consumption = +1.4%; forecast to 2016 = +11.4%
- 2012 alcoholic drink sales = +3.1%; forecast to 2016 = +17.5%
- 2012 soft drink sales = +5.6% ; forecast to 2016 = +30.9%
- 2012 mass grocery retail sales = +3.5%; forecast to 2016 = +19.3%
Key Company Trends
Asda Looks To Be Lining Up Iceland Bid But May Fail To Match Valuation: In Septermber 2011, Reports emerged that UK grocery retailer Asda had secured backing from Barclays Capital should it choose to launch a bid for frozen food retailer Iceland. BMI has previously suggested that Asda was the only one of the big four UK retailers likely to make a substantive bid for the firm, and this report supports this view. Lacking a foothold on UK high streets, at a time when convenience retailing is in the ascendency, Asda has much to gain from securing the business. However, with the sale of Iceland proceeding through auction, Asda may be required to fork out a high price for the assets (valued at between GBP1bn and GBP2bn) given the interest of several other independent bidders.
Parliamentary Committee Recommends Mandatory Code Of Practice For Beleaguered Leased Pub Sector: In September 2011, a UK parliamentary committee recommended that a legally binding code of practice be introduced to manage the relationship between pub companies and their tenant landlords. The suggestion has been opposed by the British Beer & Pub Association, an industry group backed by multinational brewers and large pub operators. However, the move is likely to be supported by the Campaign for Real Ale (CAMRA) which has previously complained that the system is unfair to tenants and has resulted in higher prices for consumers, since it launched an initial public offering in July 2010. Investors remain split on whether the code has a long-term future in the face of growing competition from the UK's big four grocery retailers.
Key Risks To Outlook
Return To Recession: With the economic recovery still very weak, the government's plans for significant fiscal retrenchment, combined with weak demand in the eurozone, could be sufficient to tip the UK economy back into recession. Given that fiscal stimulus has been a key factor keeping the economy afloat during the global downturn, normalising the budget now could have a more detrimental impact on growth than BMI currently anticipates and, as such, this remains a downside risk to BMI's consumption forecasts.
Eurozone Debt Crisis: On the external front, the ongoing eurozone crisis poses a particular threat to investor confidence towards the UK. The risk of a major sovereign credit event on the continent would further damage confidence and put significant pressure on export demand and hence economic growth and consumption.
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