Food and beverage to the United Kingdom

(Last updated: 16 Jul 2007)

Trends and opportunities

The market

The food and beverage manufacturing industry is the single largest manufacturing sector in the UK. The total sector value is around A$230 billion. Value growth over the last few years has slowed due to price stability – food inflation is minus 0.3 per cent while the retail prices index is three per cent. The British Government encourages the development of this industry within World Trade Organisization guidelines. Projects are run by the Department of Trade and Industry.

Over the last two years, the UK food industry has suffered from overcapacity. This has lead to consolidation, both in the structure of the industry and the behaviour of the major customers; the supermarkets.

Oversupply has strengthened the supermarkets’ position in the supply chain. Supermarket leaders Tesco and Sainsburys have adopted ‘factory gate pricing’, which is essentially a shortening of the distribution system – Tesco’s lorries collect direct from the manufacturer, cutting out the need for the wholesaler. So far the retailers have concentrated on frozen food and fresh produce, but the initiative is certain to impact on all sectors in the future.

The overcapacity in the industry has lead to a decline in the number of participating companies, through mergers or industry exit. Companies that have survived have tended to become more vertically integrated – becoming more involved in the whole growing, manufacturing and marketing process. This is particularly the case for the meat industry which suffered badly under the food and mouth epidemic.

Consumers are now spending less in real terms than 10 years ago. This is due mainly to competition between the supermarkets that dominate UK retailing and seek to gain market share through price promotions. Also, UK consumers have a healthy scepticism, and consumer-rights groups are vociferous in exposing so-called ‘fat cats’. This concentration on price obviously affects the margins available to all suppliers in the chain.

The UK now has the widest range of population in employment, and the longest working hours in Europe (approximately 43 hours a week mean average). This means that eating patterns have undergone a revolution, with consumers becoming more educated in both expectations and palate. Only 15 per cent of households sit down together for a meal every day. Twenty per cent only eat together once a year, and 25 per cent only once a month. Coupled with the lack of cooking classes in schools, many younger people now lack the skills to cook a meal from scratch. This has fuelled the market for prepared, ready-to-cook and ready-to-eat products.

The UK grocery sector has similar product offerings to Australia, although packaging and presentation is more important. The key difference is that private label products take up 50 per cent of the sector value. Private label is differentiated into:

• High-end, gourmet ranges, such as Tesco’s ‘Finest’ range
• Mid range ‘brand-copier’ type products
• Budget ranges at rock bottom prices

Beverages

The factors affecting the UK drinks industry are mainly social, rather than regulatory. These include:

• more entertaining at home
• greater interest in healthy living
• interest in novel and innovative products
• tougher drink-driving laws
• increasing range of products available through supermarkets

The Institute for Grocery Distribution (IGD) and the Food and Drink Federation (FDF) both provide detailed analysis of consumption patterns in the UK, and the factors affecting sales.

Wine - Australia has a 14.5 per cent share of the UK wine market, second only to France. Australia’s exports continue to grow strongly and is gaining popularity, particularly amongst women and the 20–35 age group. Consumers are becoming more adventurous in terms of new labels and higher-priced wines. Fruit wines have limited popularity and local brands seem to sell best in the area of their production.

Beer - Beer is the largest sector of the UK drinks market. The total value of the beer market continues to increase, while consumption has started to decline after years of non-growth. Sales of lighter lager-style beers and premium bottled beers drive the sector. The take-home or ‘off-trade’ from supermarkets is fast becoming the most dominant point of sale, though ‘on-trade’ sales in pubs and bars is still a major outlet.

Spirits and pre-mixed alcoholic drinks - Spirits is a mature and conservative sector and it is hard to drive change. There has been little overall growth in value or volume. Clear spirits remain more popular than coloured, especially with younger drinkers. The success story is pre-mixed cocktails and alcopops. Investment in new products and marketing is high, and the sector is highly competitive and fashion-driven. However, the attractiveness of these sweeter drinks to under-age drinkers has incurred increased regulation.

Soft drinks - Soft drink consumption continues to grow at five per cent by value and three per cent by volume. This is driven by consumer interest in healthy options and significant investment in innovation. Carbonated drinks continue to dominate the sector, but fruit juices are seeing growth at six per cent, fruit based drinks at 12 per cent and bottled water at 30 per cent.

Hot beverages - Hot drinks have lost market share to soft drinks, but the UK’s changeable weather also affects sales - which are down by nine per cent. Product innovations include herbal infusions, flavoured coffees, green tea and new packaging options.

Opportunities

Opportunity areas include:

• Grocery products (branded and private label) – pasta, breakfast cereal, biscuits, snacks, condiments, sauces, confectionery, healthy foods, home baking
• Gourmet products – Australian specialities, luxury foods, special occasion foods
• Fruit and vegetables – premium apple varieties, cherries, nectarines, plums, citrus, mangoes, pineapples and tropical fruits. Some opportunity for vegetables
• Seafood – white fleshed reef and farmed fish, shellfish, crustaceans
• Meat – premium beef, lamb and possibly game meat (note that meats are affected by quota)
• Organic food – fruits and vegetables, groceries and snacks
• Beverages – wine, beers (premium or boutique bottle), spirits and liqueurs (particularly pre-mixed cocktails), hot drinks (herbal teas, caffeine-free beverages) and soft drinks (sports and energy drinks, adult dilutables and mixers)

Competitive environment

The UK is a highly competitive drinks market, requiring high levels of investment in marketing and promotion to succeed. Australian-made products must compete with locally produced drinks that incur no import duty and low freight costs. Competition comes from within UK, mainland Europe, USA, Canada, and other Southern Hemisphere suppliers.

Tariffs, regulations and customs

Food imports are highly regulated for hygiene and quality reasons and the following issues should be considered. It is worth getting confirmation from the authorities before shipping.

The way products are packaged, sold and or produced, whether they are fresh, frozen or chilled will dictate the tariff(s) that apply. UK is part of the harmonised trade system of the European Union (EU). Common Customs Tariff (CCT) is applicable to goods from non-EU countries, including Australia. Most duties are ad valorem (per cent), based on the GATT Valuation Code (approximate CIF value).

If you are shipping any goods to Europe, you should obtain a written customs duty ruling, known as Binding Tariff Information (BTI). Getting a BTI is free and will prevent any conflict over customs or excise duty. A BTI is valid for six years.

Generally there is no Value Added Tax (VAT) on food, but some ingredients and snacks and all alcoholic drinks will attract VAT at 17.5 per cent.

The beverages industry is self-regulating with codes of practice for the marketing of borderline drinks like alcopops. The Portman Group is the main voice of the industry.

HM Customs and Excise
Tariff Classification
2nd Floor South West
Alexander House
21 Victoria Avenue
Southend-on-Sea
Essex SS99 1AA
Tel: +44 (0)1702 366077

Licenses

Agricultural products are protected by quota, managed by a licensing system. Import of specified products without a quota license is prohibited. Products include:

• cereals
• rice
• beef and veal
• sugar
• isoglucose
• oils and fats
• seeds
• milk and milk products
• wine
• processed fruit and vegetables
• sheep meat
• buffalo meat
• goat meat

More information can be obtained from the Rural Payments Agency.

For beverages:

• The UK Intervention Board issues quota licenses for wine imports as exporting wine to the UK without a quota license is prohibited
• Dairy-based drinks need a special license, which AQIS can provide futher advice on
• Dairy-based and some other drinks will require a health certificate (issued by AQIS), which must accompany the shipment
• Some drinks will require an import license issued by the UK Department of Trade and Industry (DTI) - get your importer to check if this applies to you

Food products of animal origin, including fish and honey, must be produced in an EU approved establishment. The Australian Quarantine and Inspection Service (AQIS) will carry out the inspection and approval process on behalf of the EU. The establishment number must be quoted on the health certificate.

Meat & Livestock Australia (MLA) can also provide advice to meat exporters. A health certificate must accompany food products from Australia.

Some foods will require an import license. Get your importer to check with the DTI in the UK. Most food products will also require an export certificate issued by AQIS before leaving Australia.

Legislation

EU and UK legislation covers almost every aspect of food production and sale including:

• ingredients
• label design and content
• jar or pack size
• additives
• need for a UK or EU address
• product descriptions and names
• products of animal origin
• packaging materials
• claims made for the product

Industry standards

The manufacture, import and selling of food for humans is highly regulated in the UK. British consumers have been scared by food crises such as BSE and are now more aware of their rights and the legislation that protects them.

The Food Standards Agency is the UK Government department in charge of standards, regulations, quality, health and consumer protection. Standards required by UK retailers vary from self regulatory to legally enforced. These include:

• EUREPGAP
• Hazard Analysis Critical Control Point (HACCP)
• Produce marketing standards

Marketing your products and services

Market entry

UK retailers rarely buy direct from overseas companies because they employ category management techniques, and get their suppliers to handle the distribution issues. Some methods recommended for selling to UK retailers include:

• Appointing a distribution partner to handle importing and customer liaison
• Managing the customer base from Australia and finding a fulfilment company to warehouse and ship to the customers
• Setting up an office in the UK
• Sending one of your Australian staff to the UK as a representative
• Sharing distribution with another Australian company with a synergistic product range
• Have your product manufactured in Europe, under licence

Of these options, the most effective is probably appointing a distribution partner.  A UK company will understand how to best present your products, comment on changes to your packaging and will understand how to place the product in the market. These skills take time to acquire and demand long-term exposure to the market. UK based companies expect to have long-term relationships with their suppliers, working together to achieve sales targets. This means that Australian exporters should consider the UK as a long-term strategic market.

Smaller distribution partners often specialise in a particular product sector and may service customers on a regional basis or may supply only certain types of retailer. This means that Australian producers may require more than one UK distribution partner in order to access the entire market.

UK consumers are interested in:

• Convenience – packaged, ready-to-eat
• Time and labour saving – prepared, ready-to-cook
• Novelty – unique, innovative
• Quality – appearance, taste

UK consumers are very discerning when it comes to packaging and presentation of the product. It is best to work with a UK-based specialist to develop packaging or branding suitable for the market, and a distributor should be able to help. The wrong packaging or marketing will mean that the product won’t get listed with any larger stores, and that sales are likely to be restricted.

You will need to tailor your presentation for each retailer in order to be successful. Visit as many stores as possible to build up a picture of the retailer’s consumer base and consider how your product fits their needs and aspirations. Research the market and your potential competitors thoroughly before making contact with customers. When presenting your product to a UK retailer, either direct or via your UK distributor, you will need to consider the following:

• What the value to the retailer is of listing your product
• How your product ‘fits’ in the current product offering
• Who the target buyers are
• Projected level of sales
• What the retail price will be
• What margins the retailer and distributor expect
• How you are going to promote the product
• If you are you willing to change the product ingredients or packaging to suit the retailer
• If an exclusivity deal is appropriate
• If you are ready to provide product samples

When presenting to a retail or wholesale buyer, try to provide as much information as possible in brochure format. Although the majority of UK companies are online, a proper brochure and letter has an immediate impact. Try to provide:

• A history of your company and of the product range
• Detailed information about the product, its ingredients and packaging
• Information about your export experience or customers in Australia
• Recipes or meal ideas if the product has unusual ingredients
• Pricing in UK pounds or Australian dollars with a current exchange rate
• Landed costs are generally preferred buy buyers to ex-factory or FOB

There are some e-tailers and e-markets online, but like much of the food industry, these tend to be localised.  

Distribution channels

The main distribution channels for food in the UK are:

1. retail
2. food service
3. food processing

The percentage breakdown varies from sector to sector.

Retail

The major supermarkets dominate food and drink retailing. Eighty-four per cent of food sales go through the following companies:

• Tesco
• Sainsbury's
• ASDA
• Morrisons
• Waitrose
• Somerfield

Supermarkets tend to build a category using branded products, and then when it gains critical mass, supplement the brands with their own private label products. Most UK stores have both high-end gourmet and budget private label ranges. Penetration of private label is 50 per cent across the board, with some sectors such as groceries having high penetration and confectionery being predominantly branded. Private label can be a good option to consider, but the margins are often tight.

Supermarkets and independent stores buy both fresh and grocery products from specialist distribution companies, rather than direct from the producer. In order to save costs and streamline ordering, stores have been reducing the numbers of favoured suppliers. This further restricts distribution opportunities for smaller companies.

Selling through the biggest supermarkets is often not the most desirable route for Australian producers, particularly smaller companies or new exporters. Large volumes, price commitments and regulations can make this an unprofitable option. A better option is to access the independent and specialist retail sector in partnership with a UK distributor. This lets you build export sales more gradually, allowing management of supply and marketing issues. They may also provide a better level of margin, as smaller retailers usually sell to consumers at higher prices. Good examples of this type of retailer are:

• Selfridges
• Harvey Nichols
• Booths
• Planet Organic
• Holland and Barrett

Food service

Like the retail sector, food service is also experiencing consolidation, with some very big companies dominating. Despite this, small companies continue to hold niches, and it is possible to find both small and large customers.  Some larger companies active in food service include:

• White Star Line
• Compass Group
• Pret a Manger
• Thistle Hotels
• Scottish and Newcastle

Also like retail, few food service outlets will buy direct. There are a multitude of specialist wholesalers working in this sector. Some are very specialist, providing premium fish to London restaurants for instance, others bulk service.

Food processing

There are opportunities for supply of raw materials and ingredients to the UK processing and food manufacturing sector. This area is very driven by price, and competitors from mainland Europe and the USA may well have a cost advantage. If you are interested in this sector, it is worth contacting the processors and manufacturers direct, as they all have different buying processes and requirements. They may or may not buy direct, but they will usually be able to recommend a preferred supplier.

Links and industry contacts

Food and beverage-related resources

British Food and Drink Companies - www.britishcompanies.co.uk/food.htm
The Department for Environment, Food and Rural Affairs (DEFRA) – www.defra.gov.uk
Food and Drink Federation - www.fdf.org.uk/industrystats.html
Food from Britain – www.foodfrombritain.com
Food Industry Associations - www.fdf.org.uk/links/linksfood.html
Food Standards Agency – www.foodstandards.gov.uk
Institute of Food Research - www.ifr.bbsrc.ac.uk
Institute of Grocery Distribution – www.igd.com
International Food Exhibition – www.ife.co.uk
Sea Fish Industry Authority - www.seafish.co.uk

Beverages

British Soft Drinks Association - www.britishsoftdrinks.com/htm/index1.htm
Scottish Food and Drink Association - www.scottishfoodanddrink.com
Gin and Vodka Association - www.ginvodka.org
Scotch Whisky Association - www.scotch-whisky.org.uk

Government, business and trade resources for the United Kingdom

British Standards Institute – www.bsi-global.com
Department of Trade and Industry – www.dti.gov.uk/sectors/clothing.htm
European Union Agriculture Department - http://europa.eu.int/comm/agriculture/index_en.htm
European Union Customs – http://europa.eu.int/comm/taxation_customs/customs/index_en.htm
European Union Portal – http://europa.eu.int/index-en.htm
HM Customs & Excise – www.hmrc.gov.uk/home.htm
Trading Standards – www.tradingstandards.gov.uk
UK Government Portal – www.ukonline.gov.uk
UK Statistics – www.statistics.gov.uk
UK Trade and Investment - www.uktradeinvest.gov.uk

Media

Organic Food e-zine - www.organicfood.co.uk
Fresh Info subscription e-zine - www.freshinfo.com
Fresh Produce Journal - www.fruitnet.com
Just Drinks e-zine – www.just-drinks.com
Just Food e-zine - www.just-food.com/index.asp
Grocer subscription e-zine - www.grocertoday.co.uk

Australian resources

Australian Food Associations - www.ausfoodnews.com.au

Contact details

The Australian Trade Commission (Austrade) is the Australian Government’s trade and investment development agency, operating as a statutory agency within the Foreign Affairs and Trade portfolio.

Austrade assists Australian businesses contribute to national prosperity by succeeding in trade and investment, internationally, and promoting and supporting productive foreign investment into Australia.

Austrade:

• Delivers services that assist Australian businesses initiate, sustain and grow trade and outward investment.
• Promotes Australia as an inward investment destination and, with the States and Territories, supports the inflow of productive foreign direct investment.
• Administers the Export Market Development Grants scheme.
• Undertakes initiatives designed to improve community awareness of, and commitment to, international trade and investment.
• Provides advice to the Australian Government on its trade and investment development activities.
• Delivers consular, passport and other government services in designated overseas locations.

A list of Austrade offices (in alphabetical order of country) is available.

More information

For further information please contact Austrade on 13 28 78 or email info@austrade.gov.au

Share this content