United Kingdom Retail Food Sector 2009 - USDA FAS

United Kingdom Retail Food Sector 2009 - USDA FAS

In the UK the retail grocery industry is concentrated with seventy-five percent market share in the hands of just four supermarket chains. The remainder is scattered over hundreds of outlets. This report overviews the characteristics of UK retail outlets and how best to place U.S. products in the UK market.

Over the last 12 months, the UK food and drink industry has faced challenging trading conditions as shoppers, manufacturers and retailers have been impacted by a range of factors. Increased pressure on household budgets, unemployment, the banking crisis, and the availability of credit continues to impact consumer spending. Despite these challenges, the UK food and grocery market remains robust. While not recession proof, food and grocery is more resilient to the
current downturn in the economic market than other sectors. The UK grocery market was worth £141.7 billion ($226.7 billion) in 2008, this is an increase of 5.1 percent over 2007. Groceries account for 12.8 percent of total household spending in the UK, making it the third largest area of expenditure, following housing and transport. Food and grocery expenditures account for 49p in every £1.00 of retail spending (excluding restaurants). 20p in every £1.00 spent on food and grocery is spent in convenience stores.

There are 97,442 grocery stores in the UK. These are split into 4 sectors. Supermarket Chains: Supermarkets have a sales area of 3,000-25,000 square feet and sell a broad range of grocery items. Superstores are defined as stores that have a sales area above 25,000 square feet, selling a broad range of grocery and non-food items. Convenience Stores: These stores have sales areas of less than 3,000 square feet, are open for long hours, and sell products from at least 8 different grocery categories. Traditional Retail and Developing Convenience Stores: These stores have sales areas of less than 3,000 square feet, and include news stands, green-grocers, liquor stores and gas stations. Alternative Channels: This category includes a wide range of outlets such as internet or catalogue home shopping, farmers’ markets, and other produce markets and vending machines. Economic indications continue to point towards weakening consumer confidence, as household budgets come under pressure from increases in energy, transport and housing cost. However, the food and grocery market is relatively resilient and growth opportunities remain both at the value and premium ends of the sector. The Institute of Grocery Distribution (IGD) estimates that the UK retail grocery market will grow at an average annual rate of 2.9 percent over the next five years. It is expected to be worth ₤145 billion ($232 billion) by 2010, at current prices.

Advantages & Challenges to U.S. Products in the UK Retail Sector The UK is a sophisticated market that mirrors some trends in the U.S. retail sector. However, it can be surprisingly different from the United States and in-depth research and analysis should be carried out before attempting to export. U.S. products face fierce competition in the British market. Not only is UK food production advanced, but EU countries benefit from duty free access. However, there are opportunities for U.S. products in this competitive and challenging retail environment. The United States is the largest non-EU country supplier to the UK, but on average represents just 5-6 percent of food imports. Due to EU technical barriers, market access can sometimes prove a challenge for U.S. products.


SECTION II. MARKET SEGMENTS Supermarket Chains

This report gives a broad outline of the UK supermarket chains. A more detailed report entitled “UK Supermarket Chain Profiles” is available at http://www.fas.usda.gov/scriptsw/AttacheRep/default.asp. Four large supermarket chains dominate UK food retailing, and together they account for 75 percent of the market. Tesco is the market leader, by a sizeable margin. Tesco has 30.9 percent market share, followed by Asda/Wal-Mart (17.2 percent), Sainsbury’s (15.7 percent) and Morrison’s (11.5 percent). In the last year, the Cooperative purchased Somerfield. Therefore this group now has 8.1 percent of the market (Cooperative at 5.4 percent and Somerfield at 2.7 percent). Other UK supermarket chains include Waitrose, Iceland, Aldi, Budgens, Netto and Lidl. Discounters Discount retailing is the new boom in UK grocery sector. Aldi and Lidl are leading the pack in the UK. Both are German owned and both entered the UK market in the 1990’s. The main features of discount supermarket shopping are every day low cost; limited product ranges and a focus on price. Stores are also smaller and relatively uniform in size and layout. Stores range from 800sq m. (8,600 sq ft) to 1,500 sq.m. (16,000 sq ft.). They carry predominately private label products; however, these are exclusive labels rather than store name. The discounters now account for 5.4% share in grocery spending. This is higher than ever before. They are also the fastest growing sector of the market. While the discounters share in the UK has reached a new record, this is still low in comparison with the continent where discounters accounting for 11% of the market in France and 38% in Germany. In September 2008, Tesco unveiled its own discounter range with 350 discounter-style, branded products. The range now has 700 lines. Tesco announced that these products would provide better quality than its value range of basics and prices cheaper than the best know brands. Tesco’s aim is to become the UK’s biggest discounter.
Market Shares of the UK’s Supermarket Chains
Retailer Share %
Tesco 30.9
Asda/Wal-Mart 17.2
Sainsbury’s 15.7
Morrisons 11.5
Cooperative 5.4
Somerfield 2.7
Waitrose 4.0
Aldi 3.0
Lidl 2.4
Iceland 1.7
Netto 0.8

As a result of town planning regulations, supermarkets in the UK are smaller than their counterparts in Germany or France. For example, Tesco and Sainsbury’s stores are just 3,500m² (37,700 sq ft) on average. Planning restrictions have resulted in limited availability of suitable sites. This in turn has fueled a move back towards smaller stores by the large supermarket chains, and created a polarization between superstores and convenience stores formats. The major UK supermarket chains have also developed store formats that sit alongside gas stations. For example, Marks and Spencer with BP Connect, Tesco with Esso, and Sainsbury’s with Shell. The UK has one of the most advanced private label markets in the world (valued at around $100 billion). The UK's major supermarket chains dominate the private label market and on average 40-50 percent of products in their stores are private label. Originally, private label goods were a copy of a branded product, but today they are often innovative. They give UK retailers the opportunity to diversify their product ranges and develop new revenue streams. The extreme of UK private label grocery shopping can be seen by visiting a Marks and Spencer (M&S) food hall. Ninety nine percent of what M&S sells is own-label goods. Despite Marks and Spencer recently experiencing difficult trading conditions in their clothing departments, their food halls have continued to grow. Most M&S customers buy the majority of their food from other mainstream grocery retailers. They use M&S for special occasions, for convenience food such as ready-meals and as a top-up to their regular shop by buying a few luxury items. M&S consistently offer-innovative, high quality and rigorously checked food. In June 2007, the U.S. chain Whole Foods opened its flagship store in London’s High Street Kensington. Whole Foods has the largest food retail space in central London at 80,000 square feet. Partridges, part of the 9-store Shepherd Foods company, also deserves a mention for its continued dedication to stocking U.S. products. Partridges is essentially a large delicatessen celebrating both British and international foods.

Internet or Online Shopping


The internet and online grocery market in the UK is dominated by four of the UK’s major supermarket chains – Tesco, Sainsbury’s, Asda and Waitrose, which is partnered with Ocado. Outside of these suppliers, the market is mainly populated by a wide range of niche, specialized retailers, many of which offer products that are not always available in major supermarkets. Apart from the leading online suppliers, no other supermarket chains in the UK operate in the online grocery market. This is because the costs and complexity of establishing an online service appear to be too much of a risk. IGD, the grocery market research organization, predicts that sales of groceries online will reach £5 billion within the next five years. Although this number seems high, it is only 2 percent of total groceries sold in the UK. This is likely to rise to 3 percent by 2012. On-line shopping for food remains a niche market, but there is considerable potential for growth. It is most popular with the younger generation, families, and more affluent consumers. There is very low uptake among the over 45s. This is probably due to the acceptance and use of technology, along with a preference for well established routines. The majority of consumers (55%) are reluctant to even try shopping for food online. The highest number of users of internet shopping are in Scotland, followed by East Anglia and the Midlands. These are all more rural areas. Tesco is by far the largest online grocer in the UK, selling £1.23 billion groceries online. This is 3 ½ times more sales than it was achieving five years ago. Half of British adults now have internet access from home. This is up from only 7 percent in 2002. Internet connections have also become faster and retailers have made their sites easier to use and have improved delivery services