As a nation, the UK is a net importer of food and that statistic, combined with the daily challenge of doing business in an extremely challenging domestic market, can take time and money away from seriously looking at building a presence overseas.
However, it is the challenging conditions in the UK – and there are growing signs the trading environment will remain tough in the months ahead – that make it vital local food companies look to build on any presence overseas, or start to export if they have not already.
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The UK grocery market is currently in decline, according to the latest data from Kantar Worldpanel. Sales dipped 0.2% year-on-year in the 12 weeks to 9 November, the first decline since Kantar started measuring the sector in 1994.
The fall in sales came on the back of a 0.4% drop in prices as the UK’s Big Four supermarket chains – Tesco, Asda, Sainsbury’s and Morrisons – try desperately to compete with German discounters Aldi and Lidl, which are continuing to win over shoppers and increase their market share.
Deflation is welcome news for consumers but not for manufacturers.
Add to the mix analysis from Goldman Sachs on the profitability of the UK’s leading grocers. Analysts at the investment bank last week said supermarket should shut 20% of their stores in order to get their profits growing again.
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By GlobalDataSome are already indicating they will take action. Sainsbury’s has already announced it will lower its capital expenditure over the next three years, following similar moves from Tesco and Morrisons.
However, the call from Goldman Sachs went further and, even if it goes unheeded or not fully heeded, all the signs are UK food companies are facing an overhaul of in the landscape of their domestic market. Aldi may have recently announced ambitious store opening plans but, in the round, that reduces the value of an average shopping basket in the UK.
Of course, it is not as simple as switching your attention to export markets, picking up your phone to retailers in Stockholm or Shanghai and securing listings. Building a successful export business takes time, specialist knowledge and money.
However, looking overseas has perhaps never been so important for UK food companies, with domestic conditions tough and a growing appetite for British food overseas.
At the Food Matters Live conference in London last week, UK industry association The Food and Drink Federation called on manufacturers to export.
“The domestic market is undergoing a huge structural shift,” Steve Barnes, director for economics and commercial services at the FDF, said. “The UK market is not what it once was. It’s not a guaranteed growth market. We’re seeing volume and value decline. To grow, it’s important to start looking internationally to see where those opportunities might be. We genuinely believe British products are the best in the world in terms of how they are rated, safety, quality, reputation provenance – all these things are absolutley vital to international buyers and are delivered by British food and drink.”
Embarking on an export drive, particularly for smaller companies, is difficult to do alone. Despite recent efforts by UK government agency UK Trade & Investment, there are still question marks over the support given to current or potential exporters, especially when compared to the country’s rivals in Europe. As has been written on these pages before, the disbanding of Food From Britain in 2008 did not help matters, while recently there have been concerns among existing exporters that UKTI grants, amid pressure on public finances, could be partly rescinded.
“I don’t necessarily think it’s all about the money, although UKTI did receive a huge slab of additional funding – admittedly they’ve just cut the trade show programme by a million pounds which is unhelpful – the reality for me is the money is there but why is it so difficult to unlock? Why is it unlocked at such short notice?” Barnes said as he addressed a seminar audience at Food Matters Live. “It’s a crazy system where the money is there but it’s released at such short notice. The support is there but, as a nation, we must be better organised.”
In a statement to just-food, UKTI said: “UKTI has substantially increased the budget and range of support it allocates to its trade show, events and missions programmes since this Government came to power, and this year we will support over 50,000 companies at international events and trade shows.
“As part of our standard review process, we have decided to make a very slight reduction to this year’s tradeshow access programme budget. This is a fraction of the total UKTI spend on events and missions. Grants that have already been awarded are unaffected and we are in discussion with accredited trade organisations to ensure British businesses continue to be well supported on the international stage.”
At Food Matters Live, Barnes pointed to the support manufacturers in Europe get from their governments and highlighed the inroads the likes of Germany are making in some of the world’s most attractive markets. “If you look at value-added products where the British are traditionally strong – we’ve got some of the strongest brands in the world – we export to the BRICs a total of GBP37m in value-added products. The Germans do GBP368m,” he said. “They are exporting ten times the volume and value of products we are and yet we’ve got some of the most iconic food and drink brands in the world. We invented the branded food and drink but we’re not making the most of that opportunity.”
Some UK manufacturers may bridle at the accusation they are not doing enough on exports when they facing some significant challenges at home. And there is some merit to that argument.
However, domestic challenges and concerns over government support should not always be used as excuses. Trading conditions in the UK make it imperative more manufacturers take the bit between the teeth and look more seriously at exports.
In a number of categories in a number of markets, UK food companies lag far behind rivals on the Continent. The gap could only grow larger.
In two weeks, just-food will be attending the UK Food and Drink Export Association’s annual forum where a number of the country’s exporters will look to outline the challenges and opportunities they have faced abroad.
It is, for myriad reasons, becoming a pressing issue for more of the UK’s food businesses.
