Research into UK Food & Drink Manufacturing – Final Report … · 2007-09-05 · As a whole, the UK market for soft drinks is large and mature, and it is estimated that it was worth

Research into UK Food & Drink Manufacturing – Final Report (Desk Research) Prepared by: ADAS UK Ltd

Woodthorne Wergs Road Wolverhampton WV6 8TQ

David Boothby Suzanne Clark Stuart Attwood Bingül Augustin

Date: August 2007

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Executive Summary 1. Introduction

This report provides an overview of food and drink manufacturing in the UK (number of companies, size of sector in turnover, employment terms, geographic spread etc). Desk top research has been used to source this information.

2. 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.1

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.

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.1

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.

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.1 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.

The organic sector is growing, with sales reaching around £1.3bn in 2005.1 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.1

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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.

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.

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.

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. 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. 14

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.

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.

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Synopsis

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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Contents 1. Introduction................................................................................................................ 6

1.1 Introduction................................................................................................................................6

2. Key Findings .............................................................................................................. 7

2.1 Overview of Food and Drink Industry.........................................................................................7 2.2 Organic Products.......................................................................................................................8 2.3 Size of UK Food Industry...........................................................................................................8 2.4 Exports ....................................................................................................................................13 2.5 Breakdown of the Food and Drink Industry by SIC code .........................................................13

Appendix 1: Summary Table showing comparison of Market Segments within Food and Drink

Manufacturing and Processing 2005 .......................................................................................32 Appendix 2: Bibliography of publications and sources used in Desk Research ......................................33

List of tables Table 1: UK Consumer Expenditure on Food by Sector at Current Prices (£m at rsp), 2001-2005 ..........9 Table 2: Total Household Expenditure and the Share Taken by Expenditure on Food at Current

Prices (£m at rsp), 2001-2005 ...................................................................................................9 Table 3: Key Financial Ratios for UK Manufacturers of Food Products and Beverages† (£000, %

and £), 2004/2005 ...................................................................................................................10 Table 4: Number of UK VAT-Based Enterprises in the Food-Manufacturing Industry, 2001-2005..........10 Table 5: Number of UK VAT-Based Enterprises in the Food-Manufacturing Industry by Turnover

Sizeband (£000, number and %), 2005 ...................................................................................11 Table 6: Number of Employee Jobs in the UK Agriculture, Fishing and Food-Manufacturing

Sectors (000), June 2001-2005 ...............................................................................................11 Table 7: Divisions 15/16 Food products; beverages & tobacco ..............................................................12 Table 8: UK Consumer Expenditure on Meat and Meat Products at Current Prices (£m at rsp),

2001-2005 ...............................................................................................................................14 Table 9: Number of UK VAT-Based Enterprises Engaged in the Production, Preservation and

Processing of Meat or Meat Products by Turnover Size band (£000, number and %), 2005 ........................................................................................................................................14

Table 10: Number of UK VAT-Based Local Units Engaged in the Production, Preservation and Processing of Meat or Meat Products by Employment Size Band (number and %), 2005 ......15

Table 11: UK Consumer Expenditure on Fish and Fish Products at Current Prices (£m at rsp), 2001-2005 ...............................................................................................................................16

Table 12: Number of UK VAT-Based Enterprises Engaged in Fishing and in the Operation of Hatcheries and Fish Farms by Turnover Size Band (£000, number and %), 2005 ..................17

Table 13: Number of UK VAT-Based Local Units Engaged in Fishing, in the Operation of Hatcheries and Fish Farms, and in the Processing and Preserving of Fish by Employment Size Band (number), 2005 ..................................................................................17

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Table 14: UK Consumer Expenditure on Dairy Products, Eggs, Oils and Fats by Sector at Current Prices (£m at rsp), 2001-2005 .................................................................................................20

Table 15: Number of UK VAT-Based Local Units Engaged in the Manufacture of Dairy Products by Employment Size Band (number and %), 2005 ..................................................................20

Table 16: UK Consumer Expenditure on Bread, Cakes, Biscuits and Cereals† at Current Prices (£m at rsp), 2001-2005 ............................................................................................................21

Table 17: Number of UK VAT-Based Enterprises Engaged in the Manufacture of Bread, Fresh Pastry Goods and Cakes by Turnover Size Band (£000, number and %), 2005 .....................21

Table 18: Number of UK VAT-Based Local Units Engaged in the Manufacture of Bread, Fresh Pastry Goods and Cakes by Employment Size band (number and %), 2005..........................22

Table 19: Number of UK VAT-Based Enterprises Engaged in the Manufacture of Rusks and Biscuits, Preserved Pastry Goods and Cakes by Turnover Size band (£000, number and %), 2005 ...........................................................................................................................22

Table 20: Number of UK VAT-Based Local Units Engaged in the Manufacture of Rusks and Biscuits, Preserved Pastry Goods and Cakes by Employment Size Band (number and %), 2005 ..................................................................................................................................23

Table 21: Number of UK VAT-Based Enterprises Engaged in the Manufacture of Breakfast Cereals and Cereal-Based Foods by Turnover Size Band (£000, number and %), 2005........23

Table 22: Number of UK VAT-Based Local Units Engaged in the Manufacture of Breakfast Cereals and Cereal-Based Foods by Employment Size Band (number and %), 2005 ............24

Table 23: The Total UK Confectionery Market by Sector by Value (£m at rsp), 2002-2006....................24 Table 24: Number of UK VAT-Based Enterprises Engaged in the Manufacture of Cocoa,

Chocolate and Sugar Confectionery Employment Size Band (number and %), 2006 .............25 Table 25: The total UK Soft Drinks Market by Value at Existing Prices (£m at rsp), 2001-2005 .............27 Table 26: Number of UK VAT-Based Enterprises Engaged in the Manufacture of Mineral Waters

and Soft Drinks by Size Band (number and %) 2000, 2003 and 2005.....................................28 Table 27: Number of UK VAT Based Local Units* Engaged in the Manufacture of mineral Waters

and Soft Drinks by Employment Size Band, 2005 ...................................................................28 Table 28: The Hot Beverages Market in Great Britain by Sector by Value (£m at rsp), 2002-2006 ........29

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1. Introduction

1.1 Introduction This report provides a general overview about food and drink manufacturing in the UK (number of companies, size of sector in turnover, employment terms, geographic spread etc). It is based on a desk top research exercise, where existing data were collected and reported. An overview of the structure of the UK food and drink manufacturing industry is given as follows:

Size (No. of businesses, employees, turnover) by region and total UK Composition (by business sector and business size) by region and total UK Any trends/changes in the above Selected Market leaders, with major players within each segment listed separately The role of branding and private label goods within segments UK exporting activity

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2. Key Findings The information within the desk study sections of this report was obtained from a variety of published reports, the Office of National Statistics and Food from Britain. Some additional comments and contributions are added from within ADAS’ own sources. A bibliography of the sources of information is given in Appendix 2.

The specific markets covered in this report are:

Meat and meat products

Fish and fish products

Fruit and vegetables (processed only)

Dairy products, eggs, oils and fats

Bread, cakes, biscuits and cereals

Confectionery

Sauces and condiments

Soft drinks and hot beverages.

The report entitled ‘‘Food & Drink Federation Research into SME Food & Drink Manufacturers – (Main Report)”, also contains details of the pet food and alcoholic markets.

The information sources used for this report have focused on the retail market for food, rather than on the wholesale or catering markets. A summary table of the segments within this report by size is given in Appendix 1.

2.1 Overview of Food and Drink Industry Social trends, such as people marrying later, smaller family sizes and increased divorces have resulted in more households containing single people or couples. Similarly women taking an increasingly prominent role in the workforce have seen an impact upon the way people eat in the UK.1 There is a move away from traditional family meals and cooked breakfasts, for example, to more convenience food and ready prepared meals. In addition, more apparent affluence within the population has seen a tendency to eat out more frequently, enjoyment of a wider range of cuisine15

and to purchase premium products and branded goods.

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. Sales of meat and meat products have recovered since these incidents, as consumers have regained their confidence in meat and meat products. In the early 1990s, economic downturn saw a likelihood of consumers to trade down from premium foods to value brands.1 The market may be considered polarised with the emergence of the budget retail outlets for example 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.

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.1 The role of the cookery programmes and “celebrity chefs” have also contributed to this.

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Expenditure on dairy products, eggs, oils and fats showed the lowest rate of growth between 2001 and 2005.1 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. Milk for example is increasingly being promoted as a branded product.

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. In January 2006, Ryvita launched its Goodness cereal bar, which it claims is healthier than rival products.1 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.

2.2 Organic Products The organic sector is growing, with sales reaching around £1.3bn in 2005.1 This increase in demand is partly a result of the growth in use of farm shops, farmers’ markets. Such outlets have become more available as a result of 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. All the major multiples now supply organic products, organic meals represent more than half the UK market for baby food, with a sales value of £51m (compared with £49m for non-organic meals). Sales of organic food are also rising among lower-income customers: more than half of those in the lower income groups now say that they buy some organic products.1

As the major supermarkets mainly source their produce from around the world, foods that were once available only on a seasonal basis are now sold all year round. There is an emerging turnaround in this however, with some of the major and premium grocery outlets promoting that they now source their products locally (Waitrose for example). For these supermarkets, they are seen as promoting healthy products and being concerned for the environment, whilst satisfying their customers in the knowledge of the source of their foods.

2.3 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, 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.1

The following tables show various trends, indicators and characteristics of the sector.

Table 1 shows UK consumer expenditure on food across all sectors. Year on year overall spending on food is increasing. 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.

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Table 1: UK Consumer Expenditure on Food by Sector at Current Prices (£m at rsp), 2001-2005

2001 2002 2003 2004 2005 Meat and meat products 12,384 12,689 13,145 13,502 13,657

Fish and fish products 2,298 2,405 2,366 2,427 2,571

Fruit and vegetables 12,660 12,962 13,230 13,601 14,503

Dairy products, eggs, oils and fats 8,701 8,729 8,864 9,133 9,533

Bread, cakes, biscuits and cereals 8,702 9,066 9,139 9,410 9,687

Other foods 1,405 1,463 1,484 1,606 1,599

Total 46,150 47,314 48,228 49,679 51,550

% change year-on-year - 2.5 1.9 3.0 3.8

rsp — retail selling prices Note: excludes alcoholic drinks, all hot and cold beverages, and ‘sugar and sweet products’, defined by National Statistics as covering sugar, jams, marmalades, chocolate and confectionery. Source: Consumer Trends, National Statistics website via Keynote 2006.

Table 2 shows the increase in expenditure per household against the increase in expenditure on food, year on year. The table shows that the increase in expenditure on food as a proportion of the total household expenditure has declined slightly.

Table 2: Total Household Expenditure and the Share Taken by Expenditure on Food at Current Prices (£m at rsp), 2001-2005

2001 2002 2003 2004 2005 Total household expenditure† (£m at rsp) 635,651 667,361 697,764 731,859 761,865

Expenditure on food‡ (£m at rsp) 46,150 47,314 48,228 49,679 51,550

Share taken by expenditure on food (%) 7.26 7.09 6.91 6.79 6.77

rsp — retail selling prices † — final consumption expenditure in the UK by resident and non-resident households ‡ — as defined in this Review e — Key Note estimates, based on statistics for the first three quarters of the year Source: Consumer Trends, National Statistics website via Keynote 2006. Structure of Food Manufacturing Industry Table 3 demonstrates key financial ratios for lower, medium and upper sized manufacturers of Food Products and Beverages.

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Table 3: Key Financial Ratios for UK Manufacturers of Food Products and Beverages† (£000, % and £), 2004/2005

Lower Median Upper Turnover (£000) 311 7,091 30,460

Pre-tax profit (£000) -8 65 658

Pre-tax profit margin (%) -0.86 2.38 7.51

Turnover per employee (£) 65,669 121,704 220,426

Average remuneration per employee (£) 14,170 18,098 23,194

Working capital/turnover (%) 11.40 0.44 -7.83

Turnover/fixed assets (%) 2.79 4.39 7.28

Total debt/net worth (%) 171.43 62.67 14.32

Current ratio 0.60 1.00 1.66

† — based on 5,833 companies Source: ICC Plum database via Keynote 2006. Table 4 shows the number of UK VAT based businesses in food manufacturing in the UK. From 2001 to 2005 the number of businesses has decreased by 10%.

Table 4: Number of UK VAT-Based Enterprises in the Food-Manufacturing Industry, 2001-2005

Year No. of businesses 2001 7,015

2002 6,765

2003 6,695

2004 6,350

2005 6,310

Note: includes all companies manufacturing food, beverages or tobacco products. Source: Business Monitor PA1003 — Size Analysis of UK Businesses/UK Business: Activity, Size and Location, National Statistics website. Table 5 shows the number of UK VAT based businesses in food manufacturing by turnover size band. The largest turnover size band is £100k - £249k who account for 20.6% of the market. The turnover bands can be grouped into small companies (£1k - £249k), medium companies (£250k - £999k) and large companies (over £1 million). Small companies make up 42.8% of the market, medium sized companies make up 23.4%, while large companies make up 33.7%.

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Table 5: Number of UK VAT-Based Enterprises in the Food-Manufacturing Industry by Turnover Sizeband (£000, number and %), 2005

Turnover (£000) Number of enterprises

2005* % of Total

1-49 600 9.5

50-99 800 12.7

100-249 1,300 20.6

250-499 840 13.3

500-999 640 10.1

1,000-4,999 1,125 17.8

5,000+ 1,005 15.9

Total 6,310 100.0†

† — does not sum due to rounding Note: includes all companies manufacturing food, beverages or tobacco products. Source: UK Business: Activity, Size and Location 2005, National Statistics website via Keynote 2006 Table 6 shows the number of jobs that are available in the manufacturing of food, beverages and tobacco compared to the agriculture and fishing industry between 2001 and 2005. During this period, for agriculture and fishing the number of jobs has reduced by 12% since 2001, while in food/beverage/tobacco manufacture jobs have decreased by 10% since 2001.

Table 6: Number of Employee Jobs in the UK Agriculture, Fishing and Food-Manufacturing Sectors (000), June 2001-2005

2001 2002 2003 2004 2005 Agriculture and fishing† 272 251 224 224 239

Manufacture of food, beverages and tobacco 482 466 458 446 435

Total 754 717 682 670 674

† — seasonally adjusted Source: Labour Market Trends, February 2006, National Statistics website via Keynote 2006

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Table 7 shows the distribution of food, beverage and tobacco manufacturers by region according to employment size band.

Table 7: Divisions 15/16 Food products; beverages & tobacco

Distribution of Local units by region and employee Size Band 2006

Employment Size band Region

0-4 5-9 10-19 20-49 50-99 100-249 250-499 500+ Total

North East 90 125 50 45 15 25 10 5 370

North West 390 310 180 130 70 80 35 25 1,225

Yorkshire & Humber 285 245 175 105 70 85 30 25 1,015

East Midlands 215 115 85 85 40 50 25 35 645

West Midlands 265 105 75 80 30 30 20 15 625

East 250 110 110 95 40 50 30 10 700

London 330 155 100 70 45 30 15 10 755

South East 300 145 100 100 50 40 10 5 750

South West 350 185 125 110 50 50 15 15 905

Wales 210 110 65 50 20 35 15 10 515

Scotland 360 260 185 180 85 75 20 15 1,185

Northern Ireland 150 125 95 70 30 20 15 5 505

Total 3195 1,995 1,345 1,120 540 580 245 175 9,195

Source: Office of National Statistics8

Food & Drink Federation – Research into Food and Drink SME Manufacturers

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2.4 Exports Total UK food and drink exports for the period January to September 2006 were valued at £7,4bn, up 4% on the same period in 2005.9

Exports of food and drink to the EU from UK were valued at $4.9bn in the period January to September 2006, a 5% increase on the same period the previous year.9

The fastest growing segment for exports was soft drinks (up 17%, wine (up 38%) and tea (up 22%) in 2006 compared with 2005.9

Ireland is the top UK export market, worth £1.4bn in the period January to September 2006, which is an increase of 10% on the previous year. Particularly successful exports here have been soft drinks, chocolate confectionery and breakfast cereals.9

2.5 Breakdown of the Food and Drink Industry by SIC code 2.5.1 Meat and Meat Products (15.1)

The UK retail market for meat and meat products includes primary meat and processed meat. The key segments covered in this report are:

carcass meat

offal

bacon and ham

poultry and game — dominated by chicken and turkey, but also including other products, such as duck

other meat and meat products — based around processed and added-value products such as sausages, meat pies and pasties, cooked meats, frozen meats and canned meats.

The meat industry has been affected by a number of adverse developments over the past 10 or 15 years, including the BSE (bovine spongiform encephalopathy) crisis in the 1990s and the outbreak of foot-and-mouth disease in 2001. Since 2002, the industry has shown signs of recovery, and consumption has increased in both value and volume terms. Confidence in beef appears to have been fully restored and sales are growing in most sectors of the meat market, supported by the increasing popularity of barbecues. The growing availability of added-value products (such as rotisserie chickens and spare ribs in barbecue sauce) from the chilled cabinet and supermarket takeaway counters is also helping to drive sales. The trend towards healthy eating has had a mixed influence on the market. Suppliers are increasingly focusing on low-fat products, such as lean bacon, and poultry has benefited enormously from its image as a low-fat and relatively healthy product. However, the bacon and ham sector is facing a challenge as a result of the Food Standards Agency’s (FSA) drive to reduce salt consumption, since salt is the key ingredient used to preserve the product. In autumn 2005, the FSA issued suggested voluntary targets for salt levels, proposing a maximum of 3.5 grams (g) of salt per 100g of bacon. The industry has asked that 3.5g is accepted as an average, rather than a maximum, because salt is not always distributed evenly in bacon.1

The following tables show the composition and key indicators of the meat and meat products sector.

Table 8 shows that consumer expenditure on meat and meat products between 2001 and 2005, increased year on year at an average rate of 2.5%.


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Table 8: UK Consumer Expenditure on Meat and Meat Products at Current Prices (£m at rsp), 2001-2005

2001 2002 2003 2004 2005 Expenditure (£m at rsp) 12,384 12,689 13,145 13,502 13,657

% change year-on-year 2.5 3.6 2.7 1.1

rsp — retail selling prices Source: Key Note 20061

Structure of Meat Manufacturing Industry When applying the same turnover bands as before to represent small, medium and large companies, 51.9% of companies within the meat or meat products sector are large organisations (turnover over £1 million). 22.9% are medium sized companies (turnover between £250k and £999k) while 27.3% are small sized companies (turnover up to £249k).

Table 9: Number of UK VAT-Based Enterprises Engaged in the Production, Preservation and Processing of Meat or Meat Products by Turnover Size band (£000, number and %), 2005


% of Total

1-49 65 7.1

50-99 65 7.1

100-249 120 13.1

250-499 100 10.9

500-999 110 12.0

1,000-4,999 240 26.2

5,000+ 235 25.7

Total 915 100.0

Note: totals do not sum due to rounding (the source rounds to the nearest five). Source: UK Business: Activity, Size and Location 2005, National Statistics website via Keynote 2006

Employment in this sector is falling as the industry becomes increasingly mechanised and as production is moved overseas. 1 Table 10 indicates that the majority (60.4%) of UK VAT-registered local units in the sector employed fewer than 20 people in 2005.


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Table 10: Number of UK VAT-Based Local Units Engaged in the Production, Preservation and Processing of Meat or Meat Products by Employment Size Band (number and %), 2005

Number of employees

Number of local units

% of Total

0-4 270 29.7

5-9 155 17.0

10-19 125 13.7

20-49 165 18.1

50-99 70 7.7

100-249 65 7.1

250+ 65 7.1

Total 910 100.0


The UK meat-processing industry is continuing to consolidate: the total number of VAT-registered enterprises in this sector fell to 915 in 2005, from 1,505 in 2000. Businesses in the sector are also becoming larger as more vertically integrated operations are created. In 2005, 51.9% of UK VAT-registered meat-processing enterprises achieved a turnover of £1m or more, compared with 49.7% in 2003. According to the FSA there remain over one thousand licensed and approved abattoirs and cutting plants in the UK, but it is believed that many of these are not actively operational. The grocery multiples dominate the sale of fresh and frozen meat, accounting for around 82% of sales in 2005. Butchers now take around 13% of sales, with freezer centres, independent grocers, farm shops and farmers’ markets accounting for the remainder. The catering industry has also become a major market for meat, driven by the increased popularity of cooking again from the many celebrity chefs. The catering industry accounted for approximately 30% of total UK consumption in 2005. Home-produced meat accounts for a varying proportion of UK domestic supplies, depending on the type of meat1. In 2004, for example, home production accounted for 90% of new domestic supplies of poultry meat, but only 40% of bacon and ham supplies came from the UK. UK farmers are losing market share in all areas as they struggle to compete with lower-cost imports. Indeed, it increasingly appears that UK farmers can only hope to compete on quality, rather than price.


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2.5.2 Fish and Fish Products (15.2)1

The market for fish and fish products includes the following sectors:

Fresh and chilled fish — whole fish, fish cuts, and whole and peeled shellfish

Frozen fish — unprocessed fish fillets, smoked fillets, natural steaks, and processed products such as fish fingers, fish cakes, battered/breaded fish and fish ready meals

Canned fish — primarily tuna and salmon, but also including other fish, such as sardines, pilchards and crab.

Other markets not covered in detail, but included in the total market size, include speciality fish, pickled fish and other preserved fish.

The BSE (bovine spongiform encephalopathy) and foot-and-mouth scares benefited the fish market, because consumers switched from meat to fish, which is perceived as a healthier alternative. Although those scares have now faded from the public consciousness, fish has continued to benefit from positive publicity. The Food Standards Agency (FSA), for example, says that people should eat at least two portions of fish a week, and that one of these should be oily fish, which contains omega-3 fatty acids and is believed to reduce the risk of death from heart disease. On average, UK citizens eat only a third of a portion of oily fish a week, and seven out of ten do not eat any at all, according to the FSA. Omega-3 fatty acids are also found in certain vegetable oils, but they differ from those found in fish. Indeed, according to the FSA, “recent evidence suggests that the type of fatty acids found in vegetable sources may not have the same benefits as those in fish”. However, the publicity surrounding the fish industry has not been entirely positive. In June 2004, the FSA was forced to issue advice on fish consumption, following reports that the food could contain high levels of chemicals such as dioxins and polychlorinated biphenyls (PCBs). Dioxins and PCBs are environmental pollutants and are accumulated in the body through the consumption of foods containing fat, such as milk, meat, fish and eggs. The FSA issued advice that limited the number of portions which should be eaten per week.

The following tables show the composition and key indicators of the fish and fish products sector.

Table 11 shows expenditure levels on fish and fish products from 2001 to 2003. The average increase over this period of time is 2.9% per year.

Table 11: UK Consumer Expenditure on Fish and Fish Products at Current Prices (£m at rsp), 2001-2005


% change year-on-year - 4.7 -1.6 2.6 5.9

rsp — retail selling prices Source: Consumer Trends, National Statistics website via Keynote 20061

Structure of Fish Processing Industry Small companies (turnover up to £249k) account for 27.5% of companies engaged in fishing. 26% of companies are medium sized (turnover between £250k and £999k), while 46.4% are large companies (turnover over £1 million).


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Table 12: Number of UK VAT-Based Enterprises Engaged in Fishing and in the Operation of Hatcheries and Fish Farms by Turnover Size Band (£000, number and %), 2005


% of Total

1-49 20 5.8

50-99 25 7.2

100-249 50 14.5

250-499 45 13.0

500-999 45 13.0

1,000-4,999 100 29.0

5,000+ 60 17.4

Total 345 †100.0

† — does not sum due to rounding Source: UK Business: Activity, Size and Location 2005, National Statistics website via Keynote 2006. 1

Table 13 indicates that all fishing companies, 95% of hatcheries and fish farms and 62% of fish processors and preservers employ less than 20 employees.

Table 13: Number of UK VAT-Based Local Units Engaged in Fishing, in the Operation of Hatcheries and Fish Farms, and in the Processing and Preserving of Fish by Employment Size Band (number), 2005

Number of employees Fishing Hatcheries and

fish farms Processing and

preserving 0-4 2,970 245 115

5-9 200 80 60

10-19 35 20 40

20-49 0 10 55

50-99 0 0 35

100-249 0 0 25

250+ 0 5 10

Total 3,210 365 345



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2.5.3 Fruit and Vegetables (15.3)1 The UK fruit market is dominated by multinational companies that source their supplies from across the globe and are involved in all aspects of the industry, from growing to distribution. The leading companies include Fyffes PLC, Geest Ltd, Capespan International PLC and Del Monte Fresh Produce (UK) Ltd. These firms tend to supply produce in various formats (e.g. canned as well as fresh produce). Several of them also supply vegetables, although 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 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. Whilst vegetables are considered healthy they often require some preparation and cooking are therefore less popular and possibly less convenient than fruit. In addition, there is very little brand presence in the vegetable sector, and the sector has received much less marketing support than fruit. The trend towards premium products (including peeled and washed fruit, prepared salads, etc.) will help to drive value growth in both the fresh-fruit and fresh-vegetable sectors. This is, however driven by the weather; sunny weather can result in huge increases in sales of prepared salads, for example. Supermarkets demand that suppliers must be flexible enough to meet these demand change requirements.

The market for processed fruit and vegetables is forecast to grow at a slower rate than the market for fresh fruit and vegetables as they are seen as less healthy. Frozen vegetables are largely commoditised although accounting for 95% of sales in the processed-vegetable segment.

2.5.4 Dairy, Eggs, Oils and Fats (15.4 & 15.5)1 The dairy products, eggs, oils and fats market is a mixture of commodity products and heavily branded products. Liquid milk, eggs and cheese in blocks are generally commodity products, whereas yoghurts, dairy desserts and low-fat/dairy spreads are usually heavily branded.

The main segments covered in this report are:

Liquid milk — available in three main processed types: whole milk, semi-skimmed milk and skimmed milk (although new varieties, such as vitamin-enriched milk, are emerging)

Cheese — available in processed and natural form

Yoghurt and chilled desserts — including natural, fruit, low-fat, diet, children’s, long-life and French-style yoghurts, plus fromage frais

Cream — including pouring/whipping cream and aerosol products

Eggs

Oils — olive oil, sunflower oil and other oils for use in cooking or on salads

Yellow fats — encompassing butter, margarine, dairy spreads and low-fat spreads.

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


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health trends, such as milk with omega-3 oils, are benefiting in growth and increased sales.

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.

In a highly competitive and traditionally commoditised market, branding has helped to distinguish certain products by guaranteeing quality or value for money, or added health benefits. Robert Wiseman Dairies led the way in 2004 with the launch of The One, and other suppliers have been quick to follow suit. Dairy Crest’s omega-3-enhanced St Ivel Advance milk, launched in April 2005, has been one of the most successful new brands.

Cheese is one of the largest individual sectors of the UK food market with pre-packed varieties being the biggest growth area. UK customers are also buying more continental cheeses — particularly Feta, Brie and Mozzarella. However, Cheddar remains the most popular in Britain, accounting for around half of all sales by value. Branded mature Cheddars are the primary drivers of growth, with Pilgrims Choice and Cathedral City, which remains the number-one Cheddar brand. Regional cheeses are also outperforming the market: Double Gloucester, Lancashire, White Stilton and Caerphilly are all performing well. Sales of processed cheese, which has a relatively high salt content, are in decline. However, ’healthy’ cheeses, such as organic, low-fat and cottage cheese, are growing strongly. Suppliers are also exploiting health concerns by launching products such as Lescol, from Wyke Farms, which is said to have 90% less cholesterol than Cheddar.

The market for yoghurts and chilled desserts is growing robustly. Danone has been propelled to the top of the functional dairy market with its probiotic yoghurt drink, Actimel, which contains a bacterium said to help digestion. Other players include Nestlé with Sveltesse Optimise, a probiotic dairy drink and Unilever (with the Flora “pro-activ” range. A major challenge facing the industry is regulation. Any claims made for a functional dairy product i.e. a product which claims to have health benefits, for example, reducing blood pressure, have to be backed by scientific evidence and receive a gold-standard sign-off from the Joint Health Claims Initiative, an independent organisation consisting of representatives from consumer protection groups, food law enforcers and the industry.

Growth in the oils sector is largely being driven by the trend for consumers to switch from standard cooking oils to healthier olive oils — olive oil now represents nearly 50% of the oils market by value, having overtaken standard cooking oils in 2004. Butter suppliers have sought to counter concerns about the product’s inherently high fat content by stressing the ’naturalness’ of butter. In 2005, for example, Arla Foods UK sought to promote it’s Anchor Spreadable butter by comparing it with rival spreads, which it said contained assorted E-numbers and hydrogenated vegetable oils — ingredients targeted by health campaigners. According to The Grocer (10th September 2005), Kerrygold also believes that scares about additives, processing methods and pesticides have left consumers ’hungry for foods that have nothing unknown added and with labels clearly identifying what they are, what they contain and where they come from’. Convenience is also driving the market. As a result, “spreadables” (generally butter softened with vegetable oil, but with few other additives) are continuing to attract former users of block butter as well as those switching from dairy and low-fat spreads. Lurpak Spreadable is the biggest-selling brand, its nearest rival being Clover. However, block butter remains the largest sub-sector, accounting for around a quarter of all sales.


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Distribution Supermarkets now dominate the market as a result of the trend towards ‘one-stop shopping’. These outlets offer lower prices and a huge choice of products. In addition, doorstep deliveries are often not suited to modern lifestyles, since customers are not always able to predict their daily needs and many are away from home during the day. The supermarkets also account for the overwhelming majority of sales of other items in this sector, such as chilled desserts, cheese, eggs and oils. All these products are staple grocery items and are typically purchased as part of the regular supermarket visit.

The following tables show various characteristics of the dairy sector. Table 14 indicates that expenditure upon dairy products increased year on year between 2001 and 2005.

Table 14: UK Consumer Expenditure on Dairy Products, Eggs, Oils and Fats by Sector at Current Prices (£m at rsp), 2001-2005

2001 2002 2003 2004 2005 Milk, cheese and eggs 7,480 7,522 7,667 7,936 8,283

Oils and fats 1,221 1,207 1,197 1,197 1,250

Total 8,701 8,729 8,864 9,133 9,533


rsp — retail selling prices Source: Consumer Trends, National Statistics website via Keynote 2006.1

Table 15 shows that around half (48.3%) of units engaged in the manufacture of dairy products have less than five employees.

Table 15: Number of UK VAT-Based Local Units Engaged in the Manufacture of Dairy Products by Employment Size Band (number and %), 2005

Number of employees


% of Total

0-4 145 48.3

5-9 55 18.3

10-19 25 8.3

20-49 40 13.3

50-99 20 6.7

100-249 10 3.3

250+ 5 1.7

Total 300 †100.0 † — does not sum due to rounding Source: UK Business: Activity, Size and Location 2005, National Statistics website via Keynote 2006.1


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2.5.5 Bread, Cakes and Cereals (15.6 & 15.81 & 15.82)1

Table 16 below shows that the total market for bread, cake and biscuits and cereals grew by 11.3% between 2001 and 2005 to a value of £9.69bn. The bread market has seen growth in 2005, mainly in wholemeal and brown bread varieties. Health is the main influencer here, as even cakes are seen as a healthier alternative to confectionery. Convenience foods and “snacks-on-the-go” have seen diversification of traditional breakfast cereals into breakfast bar varieties. These now represent 16% of sales in 2005. Instant porridge was also responsible for some of the growth seen in 2005, as well as marketing campaigns promoting the eating of cereals as snacks and not just at breakfast time.

Rice and pasta are also seen as healthy and there has been significant growth in the fresh and premium product ranges including ethnic flavours and microwaveable products.

Table 16: UK Consumer Expenditure on Bread, Cakes, Biscuits and Cereals† at Current Prices (£m at rsp), 2001-2005



† — defined as rice, bread, pasta, pastry-cook products and other cereal products rsp — retail selling prices Source: Consumer Trends, National Statistics website via Keynote 2006.

The table below shows that around half (54.5%) of units engaged in the manufacture of bread, fresh pastry goods and cakes have a turnover of less than £250k.

Table 17: Number of UK VAT-Based Enterprises Engaged in the Manufacture of Bread, Fresh Pastry Goods and Cakes by Turnover Size Band (£000, number and %), 2005


% of Total

1-49 115 7.5

50-99 250 16.2

100-249 475 30.8

250-499 270 17.5

500-999 145 9.4

1,000-4,999 185 12.0

5,000+ 95 6.2

Total 1,540 100.0 Note: totals do not sum due to rounding (the source rounds to the nearest five). Source: UK Business: Activity, Size and Location 2005, National Statistics website via Keynote 2006.1


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The table below shows that around a third (35.1%) of units engaged in the manufacture of bread, fresh pastry goods and cakes have less than five employees.

Table 18: Number of UK VAT-Based Local Units Engaged in the Manufacture of Bread, Fresh Pastry Goods and Cakes by Employment Size band (number and %), 2005

Number of employees


% of Total

0-4 540 35.1

5-9 345 22.4

10-19 265 17.2

20-49 205 13.3

50-99 80 5.2

100-249 55 3.6

250+ 45 2.9

Total 1,540 100.0

Note: totals do not sum due to rounding (the source rounds to the nearest five). Source: UK Business: Activity, Size and Location 2005, National Statistics website via Keynote 2006.1 Table 19 below shows that a third (32.6%) of units engaged in the manufacture of rusks, perserved pastry goods and cakes have a turnover of less than £250k. This being lower than that for manufacturers of bread, fresh pastry goods and cakes.

Table 19: Number of UK VAT-Based Enterprises Engaged in the Manufacture of Rusks and Biscuits, Preserved Pastry Goods and Cakes by Turnover Size band (£000, number and %), 2005


% of Total

1-49 10 4.7

50-99 20 9.3

100-249 40 18.6

250-499 25 11.6

500-999 25 11.6

1,000-4,999 60 27.9

5,000+ 35 16.3

Total 215 100.0

Source: UK Business: Activity, Size and Location 2005, National Statistics website via Keynote 2006.1

The proportion of units according to number of employees is shown in the table below. It can be seen that, in 2005, over a quarter (27.9%) had less than five employees.


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Table 20: Number of UK VAT-Based Local Units Engaged in the Manufacture of Rusks and Biscuits, Preserved Pastry Goods and Cakes by Employment Size Band (number and %), 2005

Number of employees


% of Total

0-4 60 27.9

5-9 25 11.6

10-19 25 11.6

20-49 45 20.9

50-99 20 9.3

100-249 20 9.3

250+ 15 7.0

Total 215 100.0

Note: totals do not sum due to rounding (the source rounds to the nearest five). Source: UK Business: Activity, Size and Location 2005, National Statistics website via Keynote 2006.1

The accompanying table below shows that around a quarter (22.7%) of units engaged in the manufacture of breakfast cereals and cereal based foods has a turnover of less than £250k.

Table 21: Number of UK VAT-Based Enterprises Engaged in the Manufacture of Breakfast Cereals and Cereal-Based Foods by Turnover Size Band (£000, number and %), 2005

Turnover (£000) Number of enterprises % of Total

1-49 10 9.1

50-99 10 9.1

100-249 5 4.5

250-499 5 4.5

500-999 5 4.5

1,000-4,999 25 22.7

5,000+ 50 45.5

Total 110 †100.0

† — does not sum due to rounding Source: UK Business: Activity, Size and Location 2005, National Statistic website via Keynote 2006.1 The accompanying table shows that, in 2005, around a quarter (26.1%) of units engaged in the manufacture of breakfast cereals and cereal based foods had less than five employees.


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Table 22: Number of UK VAT-Based Local Units Engaged in the Manufacture of Breakfast Cereals and Cereal-Based Foods by Employment Size Band (number and %), 2005

Number of employees


% of Total

0-4 30 26.1

5-9 10 8.7

10-19 10 8.7

20-49 25 21.7

50-99 15 13.0

100-249 15 13.0

250+ 10 8.7

Total 115 †100.0

† — does not sum due to rounding Source: UK Business: Activity, Size and Location 2005, National Statistic website via Keynote 2006.1

2.5.6 Confectionery (15.84)7

The UK confectionery market was valued at an estimated £4.41bn in 2006, although growth is slowing as this sector is seen as unhealthy. This is shown in the table below. A move to more healthy options has occurred by suppliers with sugar free versions as well as additives for example vitamins. The UK market remains dominated by Cadbury, Mars and Nestlé, and new product development (NPD) is firmly centred on brand extension rather than bringing new names to the consumer. The KitKat brand has been foremost in this type of activity, with the launch of products such as Chunky, KitKat Kubes and Editions in recent years. In 2005/2006 the most cited 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.

Table 23: The Total UK Confectionery Market by Sector by Value (£m at rsp), 2002-2006

2002 2003 2004 2005 e2006 Chocolate confectionery 2,975 3,051 3,147 3,173 3,190

Sugar confectionery 1,131 1,150 1,214 1,218 1,220

Total 4,106 4,201 4,361 4,391 4,410


rsp — retail selling prices Source: Consumer Trends, National Statistics website via Keynote 2007.7 e estimates


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The table below shows that in 2006 around a third (36.7%) of units engaged in the manufacture of cocoa, chocolate and sugar confectionery had less than five employees.

Table 24: Number of UK VAT-Based Enterprises Engaged in the Manufacture of Cocoa, Chocolate and Sugar Confectionery Employment Size Band (number and %), 2006

Number of employees


% of Total

0-4 90 36.7

5-9 55 22.4

10-19 30 12.2

20-49 25 10.2

50-99 15 6.1

100-249 15 6.1

250+ 10 4.1

Total 115 †100.0

† — does not sum due to rounding Source: UK Business: Activity, Size and Location 2005, National Statistic website via Keynote 2007.7

This sector can be further divided on the basis of product types and in terms of packs, into the following subsectors: Chocolate confectionery, which comprises;

Countlines — chocolate-covered bars and single service products e.g. Snickers and packets of Revels

Blocks/moulded chocolate — also known as slabs, products are now available in a range of sizes, e.g. Cadbury’s Dairy Milk and Galaxy

Boxed chocolates including twist-wrapped chocolates, e.g. Dairy Box and Miniature Heroes

Others chocolate confectionery — includes seasonal products and novelties, e.g. Lindt Gold Reindeer and Cadbury’s Creme Egg.

Sugar confectionery which encompasses the non-cocoa sector of the sweet confectionery market including:

Fruits — including chews, gums and jellies, e.g. Fruit Pastilles and Starburst

Mints — including hard, soft or chewy mint-flavoured confections,

Chewing gum

Other sugar confectionery — including sugar candy, traditional sweets and toffees, e.g. Werther’s Original and Chocolate Eclairs.


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The UK is largely self-sufficient in terms of confectionery. Trade that does take place is mainly with other EC countries, with major importing countries led by Belgium and Germany, particularly for chocolate confectionery. Outside the EC, Switzerland is the major source of chocolate products, while the US leads for sugar confectionery, particularly chewing gum. Exports are outweighed by imports and again the major trading countries are within the EC. As with so many UK food products, the Republic of Ireland is the main destination. The UK confectionery market continues to be dominated by Cadbury Trebor Bassett, Nestlé Rowntree and Mars/Masterfoods. These groups hold most of the major brands across the market sectors and have considerable brand power, making it hard for new entrants to achieve market penetration. The sugar confectionery sector generally tends to be more fragmented than the chocolate confectionery sector. This is because branding is of less importance in the sugar confectionery sector, with traditional sweets, toffees and caramels, for example, being purchased on the basis of product rather than brand appeal. Werthers has used extensive advertising to counter this however. Wide scale distribution is difficult for smaller suppliers and in many cases they tend to restrict themselves to a narrow product range or specific geographical regions. The retail distribution of confectionery is now primarily through the grocery retail channel, although impulse outlets (convenience stores and petrol stations) continue to account for more than 40% of sales. Beneath the three giants in this sector of Cadbury, Nestle and Mars, a tier of large companies operate, which also supply nationally recognised brands, although their portfolio is less wide. In 2006, Cadbury continued to claim leadership in the UK confectionery market, stating its share of total confectionery was 30.7% compared with Mars and Nestlé, with 19.7% and 12.9%, respectively, (www.thegrocer.co.uk, 4th November 2006).

2.5.7 Condiments and Sauces (15.87)6 This market, covering thick and thin sauces, marinades, salad accompaniments and pickles and chutneys 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. Overall, thick and thin table sauces, salad accompaniments and pickles and chutneys account for 74.7% of the value share for the total market in 2004/5. 9.3% held by dish specific sauces, 3.2% by salt and 4.4% pepper and marinades only 1%. The household penetration level for condiments and sauces is widely quoted at 98% so further growth can only come from innovation or brand extensions for current lines.

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. 14

2.5.8 Soft Drinks (15.9) In the soft drinks market, there appears no overall agreed value for the size of the market. There are a number of sources of information though and ADAS has used Key Note Ltd which has produced statistics for the market as shown in table 25 below. The two main outlets for soft drinks, vary considerably in the mark-up of prices for these products; with the on-trade and catering establishments increasing the price up to five


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times that which a consumer would pay for the same product in a grocery multiple outlet, for example.5 In the drive for healthier diet though, carbonated and bottled take home drinks appear to be loosing out and declining in comparison with chilled fruit juices and flavoured milk, which is showing growth in the past year.16

Soft drinks are mostly made and bottled in the UK, except bottled waters form a source which is branded and citrus concentrates which are imported from Europe. 5 The market is dominated by global manufacturers, although there is some scope for niche markets and thus smaller companies (Innocent Smoothies, for example). In 2005, Britvic was floated on the stock exchange, ending its rather complex history of ownership between Whitbread, Intercontinental Hotels (formerly part of Bass) and Pernod Ricard. Britvic was the distributor for Pepsi in UK. 10

Other changes which can be identified in this market include

The shift in distribution from on-trade (licensed premises) to off-trade (take home), although the pub remains the main outlet for beer sales

Increasing consumer preference for branded products

Diversity of substitutes to beer from soft drinks, ready to drink and cider.5

Table 25: The total UK Soft Drinks Market by Value at Existing Prices (£m at rsp), 2001-2005

2001 2002 2003 2004 2005 % Change 2001-2005

Carbonates 4,550 4,750 5,000 5,100 5,100 12.1

% change year on year 4.4 5.3 2.0 0.0

Concentrates 595 600 625 600 600 0.8


Fruit juice 1,025 1,050 1,150 1,200 1,300 26.8


Bottled water 625 715 825 875 975 56.0


Fruit drinks and others@

755 810 1,000 1,125 1,200 58.9


rsp = retail selling prices. Source: Consumer trends/monthly digest, National Statistics Website via Keynote 5,9,10.

*between 2002 and 2005 @ includes still, ready to drink (RTD) brand extensions of squash (e.g. Robinsons) and non-carbonated adult/herbal drinks


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The table below shows that, in 2005, over a third (39.1%) of companies manufacturing mineral waters or soft drinks had a turnover of more than £500k.

Table 26: Number of UK VAT-Based Enterprises Engaged in the Manufacture of Mineral Waters and Soft Drinks by Size Band (number and %) 2000, 2003 and 2005

Turnover (£000) 2000 2003 2005 % of Total 2005

0-99 55 65 70 30.4

100-499 60 65 70 30.4

500-999 20 20 25 10.9

1,000-4,999 35 40 30 13.0

5,000+ 35 35 35 15.2

Total 205 225 230 *100.0

Source: Key Note 200610

* does not sum due to rounding to nearest five enterprises by source.

The table below shows that, in 2005, for those engaged in the manufacture of mineral waters and soft drinks, the proportion of units with less than ten employees was around half (55.4%).

Table 27: Number of UK VAT Based Local Units* Engaged in the Manufacture of mineral Waters and Soft Drinks by Employment Size Band, 2005

No. Employees Number of local units % Total

<10 180 55.4

10-19 45 13.8

20-99 65 20.0

100+ 35 10.8

Total 325 100.0

Source: UK Business Activity via Key Note 2006

* number of local units (i.e. factories) which is greater than the number of companies owning them.

Hot Beverages4 The hot beverages market comprises instant and ground coffees, black and green leaf teas, fruit and herb teas, and chocolate and malted drinks. The 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.


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Table 28: The Hot Beverages Market in Great Britain by Sector by Value (£m at rsp), 2002-2006

2002 *2002/3 *2003/4 2005 2006

Coffee 625 627 647.5 654.2 649.3

Tea 559 537 521 494.3 497.5

Chocolate/malted drinks 105 107.2 115.4 115 115


Fruit and Herb Teas 27 30.5 33 34.1 38.1

Total 1,316 1,301 1,316 1,297 1,299

rsp = retail selling prices. Source: IRI via Key Note Ltd 2007.4

*years to 6th September 2003 and 4th September 2004 In general, the mainstream instant coffee and bagged leaf tea sectors continue to fall in value, but some segments have undergone growth, for example Fairtrade and speciality instant coffees and green teas. The speciality instant coffee market has grown with the proliferation of coffee bars, while the Fairtrade element has received substantial publicity. There also continues to be significant growth in the fruit and herb teas market. The chocolate and malted drinks sector remained static in 2006. Growth in the hot chocolate drinks segment was more than offset by declines in malted and chocolate malted drinks. An important and growing new sector, from the success of coffee bars, has been café-style speciality instant espresso coffees. Nestlé is the brand leader with Nescafé sachets of cappuccino, latte and mocha varieties. Kraft has introduced Kenco Cappio. In addition, pre-measured coffee pods, for use with specially developed coffee machines, are claimed to have become a successful market. Douwe Egberts’ Senseo system and Kraft’s Tassimo have received strong promotion. Greater awareness and promotion of healthy eating and drinking is likely to continue to move some consumers towards fruit juices and mineral waters. The issue of attracting new consumers is being addressed by hot beverages producers through the development and promotion of products that are perceived to be ’healthier’, such as decaffeinated coffees and teas, green teas, speciality teas, fruit and herb teas, and low-calorie chocolate and malted drinks. Increasing sales of premium-priced ’indulgence’ products — such as the café-style espresso instant coffees — are also boosting the market in value terms, and there has been some claimed initial success in sales of home coffee-making machines and the accompanying coffee pods. The size and importance of the tea, coffee and chocolate and malted drinks brands are significant to the major players within these segments; Nestlé, Kraft, Unilever, Tetley and Associated British Foods continually re-launch existing products, create new brand extensions and develop new products, especially organic ranges, including Nestlé’s Nescafé and Kraft’s Kenco Purely Organic. Other players include Taylors of Harrogate coffees, Douwe Egberts ground and instant coffee, and Fairtrade coffees from Cafédirect, Clipper and Percol. Organic tea brand variants include Tetley tea bags, Taylors of Harrogate teas, Associated British Foods’ Jacksons of Piccadilly and Twinings teas, and Fairtrade teas from Clipper Teas. In addition, chocolate manufacturer Green & Black’s (now owned by Cadbury Schweppes) offers organic hot chocolate and cocoa.


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Green (unfermented) teas, which are claimed to have extra health properties over black teas, have proved a substantial growth sector and one of development interest for several producers. Products from Twinings and Jacksons of Piccadilly lead the market, with strong competition from Clipper Teas. Tetley also offers green teas, while Clipper Teas has green and white tea (it is claimed that white tea has three times the antioxidant content of green teas). Decaffeinated coffees and teas, promoted on health grounds, have become an important sector of the market. Decaffeinated coffee sales showed substantial growth until 2005, and included the launch of flavoured decaffeinated coffee varieties (caramel, hazelnut, vanilla or cappuccino), but the market has slowed since then. Cafédirect and Percol offer decaffeinated Fairtrade organic coffees, and Kenco decaffeinated is sold in instant and ground forms. Nestlé produces Nescafé and Gold Blend decaffeinated and Half Caff instant coffees, while Douwe Egberts has launched Continental Gold, Medium roast and Select roast decaffeinated ground coffees. Within teas, Unilever’s PG Tips dcaff was launched in 2004, and Clipper Teas offers decaffeinated Earl Grey and green teas. Apeejay Surrendra’s Typhoo and Twinings offer decaffeinated teas. In 2006, Fairtrade coffees accounted for an estimated 25.5% value share of the UK ground coffee market and 3.1% of the instant coffee market. In February 2007, Sainsbury’s, which claims to be the largest retailer of all Fairtrade products, announced that it will only sell Fairtrade coffee, tea and hot chocolate in it’s in-store restaurants. In 1997, several companies in the tea trade were responsible for setting up the Tea Sourcing Partnership, which recognises and addresses the problems of poor working conditions in important source countries for teas. These countries represent around 80% of the UK’s tea imports. The market leaders in coffee bars are the US-owned Starbucks, Whitbread subsidiary Costa Coffee, and Caffè Nero. At the beginning of 2007, Starbucks has nearly 530 UK outlets, Costa 520 outlets and Caffè Nero 305 outlets Coffee (and tea) bars offer several valuable advantages to the hot beverages market. First, they promote the products to a younger audience, with hot beverages otherwise tending to be drunk by older persons. There are also a number of other tea shops around the UK, some of which are operated by tea manufacturers. The first Gaffers tea folk-themed café was opened by Tetley in Manchester in 1998 and was followed by others, and in mid-1999, Unilever opened its first Lipton ch’a tea house in Brighton. Independent tea blender Taylors of Harrogate now operates six Betty’s Café Tea Rooms in Yorkshire. In 1998, specialist tea and coffee retailer Whittard of Chelsea opened its first T-bar in London, and the company now operates more than 120 tea shops in towns across Great Britain. Three companies largely control the chocolate and malted drinks market. Cadbury Trebor Bassett leads the hot chocolate drinks market with its Cadbury’s products, although its share has declined in recent years. Associated British Foods leads the chocolate malted drinks sector with Ovaltine and GlaxoSmithKline is the major force in the malted drinks market with Horlicks. Cadbury Trebor Bassett holds an estimated 33% value share overall of the chocolate and malted drinks market, followed by GlaxoSmithKline with 31% and Associated British Foods with 21%. The mainstream tea bags market is dominated by Unilever, with PG Tips, and Tata Teas with Tetley. Both brands held a market share of 31% by value in 2006, with much of the


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balance (18%) held by own-label products. Taylors of Harrogate’s Yorkshire Tea and Apeejay Surrendra’s Typhoo brands remain important in the market. The Associated British Foods subsidiaries Twinings and Jacksons of Piccadilly are the major players in speciality teas and green teas, while Clipper Teas and Teadirect (part of afédirect) virtually have an equal share of the Fairtrade teas segment. Clipper Teas is also a major player in green teas. In 2006, Twinings had a 33% market share in green teas, compared with a 30% share in 2005. Clipper had the second-largest share in 2006, with Jacksons of Piccadilly in third place. The chocolate drinks sector is still led by Cadbury Trebor Bassett’s products; Cadbury’s Hot Chocolate Drinking Chocolate, Cadbury’s Instant Break and Cadbury’s Highlights. However, there has been growing competition from others, such as Associated British Foods with its Options range within chocolate low calorie, Masterfoods with Maltesers and Galaxy within instant and GlaxoSmithKline with Horlicks


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Appendix 1: Summary Table showing comparison of Market Segments within Food and Drink Manufacturing and Processing 2005

No UK based Enterprises by turnover (£000) Number of UK based Enterprises by employee sizebands Segment

Market size by Value (£m at rsp) <£999 £1-£4999 >£5m <9 10-49 50-99 100-249 >250

Meat and meat products 13,657 460 240 235 425 290 70 65 65

Fish and fish Products 2,751

Fruit and Vegetables processed 5,450

Dairy products and eggs 8,283 175 45 85 200 65 20 10 5

Oils anf fats 1,250 5 10 15 10 5

Bread, cakes, cereals, pastry good, biscuits 9,687

Bread,cakes and fresh pastry goods 1,250 185 95 895 470 80 55 45

Rusks,biscuits, Preserved pastry goods and cakes

120 60 35 85 70 20 20 15

Breakfast cereals and Cereal-based foods 35 25 50 40 35 15 15 10

Confectionery 4,410 165 40 35 145 55 15 15 10

Sauces and condiments 687

Soft drinks 9,175 165 30 35 180 45@ 65@ 35#

Hot beverages 1,297

@ size categories actually 10-19 and 20-99

# Size category is actually 100+


Page 33

Appendix 2: Bibliography of publications and sources used in Desk Research

Publications 1) Dominic Fenn (Ed.) (2006) Market Review – Food Industry Seventeenth Edition, Key Note Ltd. ISBN 1-84168-976-9.

2) Hollis et al (2003) Market Research Report on Quality Regional Food Businesses (unpublished). ADAS Consulting Ltd for DEFRA.

3) Emma Wiggin (Ed.) (2007) Market Assessment 2007 – Hot Beverages. Fourth Edition. Key Note Ltd. ISBN 978-1-84729-146-2.

4) Jane Griffiths (Ed.) (2006). Market Assessment 2006 Condiments and Sauces. Fourth Edition. Key Note Ltd. ISBN 1-84168-906-8.

5) Samantha Kidd (Ed.) (2007). Market Report Plus 2007 – Confectionery. 25th Edition. Key Note Ltd. ISBN 978-1-84729-081-6.

6) Anon, Statistical Framework Division. UK Business Activity, Size and Location -2006 (September 2006). Office for National Statistics, HMSO. .ISBN 1745-218.

7) Isla Gower (Ed.) (2006) Market Report 2006 Soft Drinks (Carbonated & Concentrated). Sixteenth Edition. ISBN 1-84168-969-6.

Websites 1) Food From Britain. Website www.foodfrombritain.com

2) Food Standards Agency. Website www.food.gov.uk

3) Office for National Statistics Website. www.statistics.gov.uk

Bulletins and Speeches 1) Michael Thompson, Head of Communications and External Affairs, the Portman Group. Speech to The Duncan Society, Wednesday 4th July, 2007.

2) Anon. News Release.18th August 2006) Spending on eating out overtakes meals at home. National Statistics, UK Input-Output Analyses, 2006 Edition. ISSN 174107155

3) Market Watch by tns TM Retail Share Track. June 2007.

Documents

Research into UK Food & Drink Manufacturing – Final Report … · 2007-09-05 · As a whole, the UK market for soft drinks is large and mature, and it is estimated that it was worth