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Structural changes in food
and grocery market and the
potential impact of Brexit
Richard Lim, CEO, Retail Economics
There was significant growth in the number of food
stores throughout the UK…
Source: Retail Economics, Company reports
3.8%
5.4% 5.0%
9.2%
7.6%
9.2%
6.4%
9.0%
5.4%
-2.3%
0.1% 0.3%
-4.0%
-2.0%
0.0%
2.0%
4.0%
6.0%
8.0%
10.0%
20
07
20
08
20
09
20
10
20
11
20
12
20
13
20
14
20
15
20
16
20
17
20
18
% c
han
ge y
ear-
on
-yea
r
A reduction in household disposable income
put a focus on value…
Source: Company reports
-6.0
-4.0
-2.0
0.0
2.0
4.0
6.0
8.0
10.0
19
96
19
97
19
98
19
99
20
00
20
01
20
02
20
03
20
04
20
05
20
06
20
07
20
08
20
09
20
10
20
11
20
12
20
13
20
14
20
15
20
16
20
17
% g
row
th -
year
-on
-ye
ar
Consumer-driven structural changes
Structural Change
Physical channel
shift
Digital channel
shift
DiscountersLifestyle
Experience economy
Physical channel shift
62.9%55.4%
21.0%
21.7%
6.2%10.8%
4.4% 5.6%
5.4% 6.4%
0%
10%
20%
30%
40%
50%
60%
70%
80%
90%
100%
2014 2017
Supermarket Convenience Discount Online Other
Source: IGD
Higher frequency of shopping has reduced
average basket values…
Source: Nielsen Homescan
157
179
130
140
150
160
170
180
190
2013 2018
Annual food shopping trips per buyer
£21.18
£19.45
£18.00
£19.00
£20.00
£21.00
£22.00
2013 2018
Average basket value (£ - volumes)
-8.2% average
basket value
+14.3% more shopping trips
Online food sales have more than doubled
from 2010 to 2017…
Source: Retail Economics
4,416
6,103
10,032
3.5%
4.4%
6.9%
0.0%
1.0%
2.0%
3.0%
4.0%
5.0%
6.0%
7.0%
8.0%
-1,000
1,000
3,000
5,000
7,000
9,000
11,000
13,000
15,000
2010 2013 2017
% o
f fo
od
sal
es o
nlin
e
On
line
foo
d s
ales
(£
m)
Online Food (£m) LHS Penetration online food (%) RHS
Comparisons of market share shift –
Big Four versus Discounters
Source: Kantar Worldpanel
64
66
68
70
72
74
76
78
0
2
4
6
8
10
12
14
2008 2009 2010 2011 2012 2013 2014 2015 2016 2017 2018
Mar
ket
Shar
e o
f B
ig F
ou
r (%
)
Mar
ket
Shar
e o
f d
isco
un
ters
(%
)
Aldi and Lidl Big Four
A period of strategic transformation..
Strategic transformation
Reshaping cost base
New markets and new strategic
partnerships
Accelerating convenience
and ecommerce
Differentiated proposition
The convenience market has become much more
competitive as multiples grow market share...
Source: Retail Economics, ACS
18,826 17,816
13,53812,378
8,377
8,593
3,7564,940
2,277 2,535
0
5,000
10,000
15,000
20,000
25,000
30,000
35,000
40,000
45,000
50,000
2013 2018
Nu
mb
er o
f st
ore
s
Independent Symbol Group Forecourt Multiple Co-Operative
-7%
-9%
+3%
+32%
+11%
32%
Own-label versus brands…
Source: The Grocer
55%45% 45%
33%26%
45%55% 55%
67%74%
0%
10%
20%
30%
40%
50%
60%
70%
80%
90%
100%
Chilled food Frozen food Dairy Canned food Ambient food
Own label Brands
Tesco, Sainsbury’s and Morrisons have reduced their
workforce for the last three years…
Source: Company reports, Retail Economics analysis
2.6%
2.0%1.8%
1.8%1.6%
2.0%
1.1%0.9%
-0.4%-0.5%
-2.4%
-3.0%
-2.0%
-1.0%
0.0%
1.0%
2.0%
3.0%
20
08
20
09
20
10
20
11
20
12
20
13
20
14
20
15
20
16
20
17
20
18
% c
han
ge y
ear-
on
-yea
r
Driven by concerns over Brexit…
Source: Retail Economics
6%
6%
5%
14%
8%
12%
49%
6%
4%
6%
9%
11%
16%
49%
Rising inflation
Rising interest rates
Weaker job security
Weaker economy
Repayment of debts and loans
Lack of savings
Brexit
April 2019
January 2019
Food and drink imports into the UK…
Source: Retail Economics
£48 billion
Most food imports are from the EU…
£34 billion
EU
£14 billion
Non-EU
EU is by far the largest import market for the UK…
Top 10 Worldwide Markets
US3%
South Africa2%
Thailand2%
New Zealand2%
China1%
Brazil1%
Chile1% India
1%Rest of World
15%
Netherlands12%
France10%
Germany10%
Irish Republic9%
Spain7%
Italy6%
Belgium5%Poland
4%Denmark
3%
Other EU5%
EU72%
UK food retailers will face the highest new tariffs from
the EU…
4%
10%11%
27%
0%
5%
10%
15%
20%
25%
30%
Non-Food Cars Apparel Food and Drink
Ave
rage
wei
ghte
d t
arif
f
Cost of sourcing food from EU in event of no-deal rises by:
Source: Retail Economics
£9.3 billion
Hard Brexit would have a significant impact
on the UK economy…
Unemployment forecast Inflation forecast
Source: Bank of England
Cost of sourcing food from EU in event of no-deal rises by…
Source: Retail Economics
£1 billion
UK no-deal tariff rates and TRQs
UK no-deal tariff rates and TRQs for selected items
Tariff code Product EU MFN rate UK MFN rate UK TRQ
02012020 Fresh beef quarters 12.8% +
176euro/tonne
6.8% + 93 euro/tonne 125,000 tonnes (for all
fresh/ chilled beef
products
04051011 Naturel butter in packs 189.6 euro/100kg 60.5 euro/100kg
N/A
04069021 Cheddar cheese 167.1 euro/100kg 22.1 euro/100kg N/A
What should we focus on…
1. Tariffs rates need to change following a ‘no-deal’ Brexit to combat price rises [Bank of England projections]
2. The government is proposing to scrap most tariffs at least for a temporary period
3. Tariff reductions will reduce the cost of importing from outside the EU
4. Large non-EU agricultural producers will benefit from significant reductions in food and drink tariffs
5. EU meat and dairy suppliers will face new duties
Are retailers prepared for
a no-deal scenario?
Are retailers prepared?...
36%
Little to no
preparation
Very under
prepared
Retailers’ biggest concerns are…
64%
56%52%
44%
Supply chain management Labour (availability andcost)
Tariff costs Continuity of supply
Final thoughts…
• Outcome of Brexit remains uncertain but retailers’ attentions focused on their core business
• Priorities are on:o Fewer stores and repurposing spaceo Driving efficiency through simpler business modelso Scale though partnerships and acquisition (maybe?) o Store-in-store concept to drive footfallo Fewer workers and utilising technology o Driving online convenience – Uber Eats, Deliveroo, Just Eat
• Pivoting business models to more sustainable footing
