Covid-19 and Brexit are the backdrop for what looks set to be a challenging year for those operating in the UK. Andy Coyne reports.
Fairground crystal ball-gazers may suggest otherwise but predicting the future is a precarious business.
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By GlobalDataHaving said that, up until a couple of years ago, it was relatively straight-forward to suggest likely future behaviour in the UK food industry given on-going trends.
But then, as we all know, the world spun on its axis.
Brexit and the global threat that is Covid-19 have thrown everything into a state of flux.
This year, as in countries the world over, the virus has reshaped the UK food market, decimating the foodservice sector and driving up demand in the grocery retail channel, with all types of categories (think of the bumper sales of products in both health and indulgence) having a bumper year and some faring less well (food-to-go).
The pandemic has also given the online grocery market a boost. “It took 23 years [for e-commerce] to go from a standing start to 7% participation in the UK grocery market, one of the highest in the world. It took 23 weeks to go to 15%. That’s the magnitude of the change we’ve been through this year,” Clive Black, the head of research at UK stockbrokers Shore Capital and a long-standing analyst of the UK grocery market, reflects.
But how many of these changing consumer habits will stick around once the dust on Covid-19 settles down?
And, with, at the time of writing, still no free-trade agreement between the UK and the EU some 29 days before the “transition period” governing relations between the two elapses, food manufacturers operating in the UK face significant uncertainty as they head into 2021.
These macro factors are very much on the mind of market watchers.
As John Stapleton, a food business entrepreneur who built up and sold UK brands New Covent Garden Soup Co. and Little Dish, says: “Everything [next year] is a continuation of Covid but, from a UK and Ireland perspective, you also have to look at things from a Brexit perspective. These two external factors will have a huge influence and will queer the pitch.”
We are also in a period in which contradictory consumer behaviours are apparent.
The results of a consumer survey recently carried out by EIT Food, a food innovation initiative supported by the European Institute of Innovation and Technology (EIT), revealed UK consumers have shown polar opposite health and snacking trends during the pandemic.
Those consumers increased their consumption of fresh fruits and vegetables but they also purchased more convenience foods and “tasty treats”.
With such varying buying habits in mind, though, there do seem to be some trends, or continuation of existing trends, that are being tipped for 2021.
Despite there being a Covid-19 vaccine on the horizon, better-for-you products trumpeting their health-and-wellness benefits are likely to remain to the fore, experts say.
Hamish Renton, managing director at UK-based international food and drink consultancy HRA Global, says: “What continues is fermented stuff, gut stuff, anything that talks of natural and functional health.
“Immunity is off the charts. The word is used with everything. Fibre is a big one. Good bacteria likes a bit of fibre.
“Gut health generally is especially good as a cure for crappy diets. It helps with the waterworks and bowel movements.”
Change expected in plant-based
Renton also sees the growth of the plant-based category continuing but sees signs of the initial surge slowing down.
“Plant-based is normalising. It’s chugging through the population and everyone is having a dabble. We are now into the ‘long march’ stage with plant-based,” he says. New brands will pop up. I expect that pea protein and cashew nuts may be sweet spots.”
Oats will continue to prosper in plant-based dairy, Ranton continues. “I can see oat cheese, oat butter, oat yogurt. Oats and coconuts will be the winners in plant-based dairy and peas and cashews in other plant-based,” he argues. “Plant-based will be like free-from. There was a pivot away from free-from to full-of. That will happen with plant-based.”
Julian Mellentin, founder and director of food, beverage, health and nutrition consultancy New Nutrition Business, also sees change happening within the plant-based product area – and he’s sceptical about some of the growth forecasts attached to the category.
“The plant-based area is going on but it is subject to a lot of mythology,” he says. “A lot of companies are piling in because it is a category which is easy to enter but there have been problems with performance in term of trade and texture.
“And, during lockdown, meat massively outsold plant-based alternatives as people went towards products they know. It was a bit ‘back to the future’ as people went back to things that were seen as safe and reasonably-priced. Full-fat butter sales were up, for example.
“Plant-based food is not fantastic value for money. I don’t think this area will grow as quickly as people say.”
Mellentin argues the nature of plant-based products will change.
“The products can have a high sodium content and lack micro-nutrients,” he says. “Also some of it is based on an isolate like pea protein which is often made out to be real veg. Consumers want what are recognisable plants. Things like riced cauliflower could be an area that could grow.”
Like Renton, Mellentin sees fermented products continuing to prosper.
“People are experimenting a bit more with things like fermented veg. Kimchi will continue to progress. The back story on these products gives them credibility,” he says.
However, Mellentin feels the wider gut health/immunity category may have limitations.
“With things like probiotics, there is a limit to what you can say because of health-claim regulations and it is difficult to differentiate yourself,” he says. “You can add fibre to a product. People will think that is good but will it make them go out and buy it?”
D2C growth could continue – but not for all
Recent months have seen more packaged-food manufacturers invest in either expanding or launching direct-to-consumer services (and, in cases like Nestlé, buying up businesses). It’s widely agreed there are benefits to investing in D2C including getting more insight into consumer behaviour and habits – but there is also broad consensus selling directly to shoppers is not suitable for every category.
Stapleton says: “Covid and lockdown have added an anxiety effect to consumer behaviour. Much of this to do with the route to market rather than the products. We have to recognise that this is here to stay. We have now had two lockdowns and we are starting to see some stickability now in routes to market such as direct-to-consumer and home delivery. People don’t want to go into retail environments.”
Mellentin agrees, suggesting some D2C offerings could have a good year. “My impression is that people are shopping online more and I don’t see any reason why they would turn away from that. Brands that deliver direct to you, offering authentic and interesting products, are doing very well and I don’t see that going away,” he says.
Stapleton agrees. “You are going to end up with a lot of product experts cropping up. These will be little centres of excellence – discrete product groups providing specialisation in specific areas,” he says.
However, Mellentin is less certain about the future for meal kits. “They have had their attractions but the drawback is that you still have to cook them,” he says. “There is ceiling to this type of business and, in the US, retailers have worked out they can do it just as credibly and they can keep the costs down because of the volumes they deal in. Meal kits are very expensive.”
At Shore Capital, Black says he is “still reasonably sceptical about direct-to-consumer because that misses the point of why people go to supermarkets”, adding: “That’s because they don’t want approximately 90 vans turning up at the house every week.
“There’s undoubtedly an opportunity for higher-category specialist manufacturers and, indeed, Covid has been a bit of a revelation on that front. Speciality cheeses, speciality beer and the like I can kind of see. Why on earth would you have Kellogg‘s cornflakes delivered direct to your home? Or Heinz baked beans or whatever else?
“I’m a little bit more open minded to the idea of the factory kitchen, the extent to which we will procure actually prepared food just to heat up – but even there I still think it’s on the outer realms of the solar system in terms of shifting an awful lot of volume in.
“I know we’ve got HelloFresh and Gousto and one or two others but if you look at what they actually amount to within the context of the whole food system, the UK grocery market is GBP200bn. If you add on the food eaten in the out-of-home market you’re probably looking at somewhere around GBP350-400bn. These guys barely flash on the radar. You have to look at those guys in that totality.”
Price and availability
There appears to be consensus price is going to play a part in determining what food consumers buy in 2021.
Speaking at an event convened by UK trade body The Food & Drink Federation this week, Clodagh Sherrard, a director at UK food and drink consultancy Levercliff, said its research showed 70% of UK consumers are worried about their finances and 74% are worried about rising prices because of Brexit.
Analysts believe if the UK and EU fail to reach a trade deal there will be an impact on the price of food and its availability.
Stapleton says: “It has been taken for granted since the 1970 and 1980s that we will have a big range of immediately-available products. Brexit will accelerate the pressure on availability and choice. The whole food security/availability areas is an interesting point here.”
In terms of value, Stapleton points out: “The wealthy and the more informed consumers are not price-sensitive but the mass market is and the major retailers cater for that.
“There will be a cost implication but also supply base issues with delays at ports a likely problem. There might not be availability because some produce will perish.”
Ash Amirahmadi, the managing director of the UK operations Arla Foods, shares some of these concerns.
Speaking at the same FDF event as Sherrard, Amirahmadi said research Arla had commissioned from the London School of Economics revealed the UK imports 40% of the food it consumes.
“If you don’t have a free flow of goods into the UK, the ability to respond to demand spikes is not there,” he says.
Renton at HRA is sanguine about Brexit and trade.
“We will have some certainty on Brexit and it may not be a good deal but we will have some sort of deal,” he says.
“We will also have some shape of US trade deal. I think [the UK] government will go for a medium-weight deal with the controversial stuff off the table.”
The controversial stuff being the likes of chlorine-washed chicken and hormone-fed beef, rejected in the EU but allowed in the US.
“It’s clear there is a deep-seated distrust [in the UK] about genetically-modified or so called Frankenstein food,” Renton says. “We have got to remember that with different international standards it is hard to harmonise. We are happy to stuff our faces with sugar but anything that has the scent of a lab we are sniffy about.”
Retail pressure on SMEs
As ever, consumer attitudes will drive what happens in the food industry in 2021 and those attitudes look set to have been changed by Covid-19. The pandemic has proved particularly challenging for SMEs, with consumers across a number of categories returning to bigger brands, especially in the early months of the period.
Theadora Alexander, co-founder of London-based SMEs network and consultancy Young Foodies and small brands ‘supermarket’ Mighty Small, says: “I think 2021 is going to be a pretty transformational year for the food industry with big, big changes in the retailer landscape mainly.
“Everyone is focused on profitability. There is an intense focus on the bottom line. Retailers are trying to cut costs of their business and, with an impending recession, are focusing on having a profitable, lean business model.
“We work with hundreds of exciting challenger brands and we expect to see a bit of a crunch next year with retailers wanting to provide the local and innovative products that customer want on the one hand and focusing on working with their core ten suppliers on the other.
“Brands will need to be really clear about their value proposition. Why are you worth a supplier code?”
Mellentin also has some fears about the prospects for smaller food businesses.
“People are shifting a bit more towards larger pack sizes as they consume more at home. That is bad news for start-ups,” he says. “As is the fact that supermarkets are looking at slimming down their ranges and asking why certain brands are there.”
Alexander also suggests we could see a wider reconfiguring of supermarket shelves.
“It will be interesting to see what happens with food-to-go and convenience and how supermarkets allocate space to that,” she says. “If they move things around it could be a challenge for food-to-go brands.”
