Investigate, Outline and Analyze UK Food Industry - Essay Example

Investigate, Outline and Analyze UK Food Industry Table of Contents Investigate, Outline and Analyze UK Food Industry Table of Contents 2 Executive Summary 3 Introduction 3 Food Industry Statistics & Financials 3 Leading Companies of Food Industry 5 Trends in the Industry 6 Macroeconomic Indicators 6 PESTEL Analysis 10 Conclusion 12 Reference 13 Bibliography 14 Executive Summary The food industry of UK comprises of an effective supply chain system. As the market is a free one, the entry barriers are lower and for that there are new companies that want to enter the market. As the competition is increasing, the companies have mainly focussed on innovation. From the research it has been found that in UK manufacturing economy, food sector represents over 15% of the economy. Tesco has the largest share in the food industry of UK followed by ASDA. The supermarket chain also has its presence online stores. The other big players in the markets are Tesco, Sainsbury, Morrisons etc. It has been found that the expenditures of the households have increased from the previous year. The spending has been found to be 11.2%, greater than previous year’s spending on food. It is also found that the exports of food from the domestic companies are increasing. Companies like Tesco and Sainsbury are increasing their international presence, which is also good for the economy. The Food Standards Agency is the regulator of UK’s food industry and it is a department of the government of United Kingdom, but not headed by any minister (Food Standards Agency, 2011, pp. 5-10). The government body has recommended that the companies should disclose the components of food so that consumers can make food choices according to their health. Introduction In the modern world of globalisation, the economy of one country is related to that of another. Under such a scenario, free markets exist where the governments do not regulate the prices rather the prices are fixed by the demand and supply system. Therefore, an industry not only depends on the products offered by the domestic companies, but also in this era of globalization and free market, on the competitors in the industry. With the presence of many competitors in the market, people get the high quality products at lower prices. In UK, the government’s liberalization of the economy from the 1980s has led to increased market competition in all the industries. The researcher has chosen the food industry of UK for the analysis. Food Industry Statistics & Financials The food industry in UK is ruled by supermarkets and retailers that have an effective supply chain system. The process starts from the cultivation of food in the farm land. The farmers produce the food and the retailers buy the raw materials from them. The retailers then pack the food and bring it to the customers. There are many players in the industry and so the competition is intense. As the market is a free one, so the entry barriers are lower and for that there are new companies who want to enter the market. From the research it has been found that in UK manufacturing economy, food sector represents over 15% of the economy (Tiffin et al, 2011, pp. 8-10). It means that the employment level is also high in this sector. The domestic and the foreign players have provided employment opportunities, which in turn have helped the economy to grow. With increasing competition, the companies are mainly focusing on innovation. The food sector accounts for 4% of the total research and development expenses. As the families spend more on food, the companies get the chance to expand their market- share and for the competition, the companies mainly depend on the innovative products. As per the recently published data, it has been found that over 1500 products were introduced by the companies in each quarter. Therefore, the sector is good for the economy of UK (University of Cambridge, 2010, pp.7-11). The sector is relatively good for job seekers as it offers relatively long term employment to the employees than other industries. The sector also provides above average pay to the employees than the other industries. The companies take strong care of the environmental issues. The foreign companies also have to abide by the environmental rules set by the government. For economy’s growth, the food sector can contribute in an effective way. As the food industry is growing and employment conditions are better here, the industry can take a leading role towards the growth of UK’s economy. Leading Companies of Food Industry Figure 1: 2009 Grocery Market Shares in UK Source: (Living costs and Food Survey, 2009 cited in DEFRA, 2011, p.19) There are many players in the food industry. Both domestic and foreign companies can be found to be competing in this sector. Tesco has the largest share in grocery market (25%) while Wal-Mart is the second largest food retailer of the UK (figure 1). It operates in UK under the name of ASDA (14%). The supermarket chain also has presence in online retail. The other big players in the market are Sainsbury, Morrisons etc. Through the online stores, the customers can order their food over internet and get it delivered at home (Government Office for Science, 2011, pp.10-13). The competitors have taken steps to improve their customer services by implementing innovative ideas. They provide fresh food products with highest quality and lowest price. The companies have also started policies like the loyalty cards, through which they try to retain their customers and increase their customer base. It has been found that the per capita food consumption of the UK has increased by 1.4% in the last year. The gross retail sale of the country has also increased by 3.5% than the previous year (Food Standards Agency, 2012). These data show that the food industry is growing gradually. The forecast also shows that the market will grow in the future as well. Therefore, from the view of the companies it can be said that there is the chance to make larger their base as the report shows that the industry will grow further, means that the customer will consume more food. The companies like Tesco and Sainsbury are looking forward to increase their presence in the rural areas of the UK as well as trying to provide the food as per the customers’ needs. It can be said that the companies like ASDA, Sainsbury, Tesco, who are the top players of the food industry, are understanding the customer taste and also looking towards expansion in the foreign countries. There are many players in the fast food industry as well. The keys players in this industry are McDonalds, Subway, KFC and Pizza Hut. Although some of these companies do not have their origin in UK, they are making their presence felt in the country. The fast food market of the country is growing as is the competition. Trends in the Industry From the published report of the government of the United Kingdom, it can be derived that the food industry of the country is growing gradually. The data has been collected by the researchers by selecting the samples from the households. The researchers have collected the data about the consumption of food in the period of two-weeks. It has found that the spending of the households have increased from the previous year. The spending has been 11.2%, which is greater than the spending on food done in the previous years (Hollins, 2008, pp.8-9). It has also found that the export of the food from the domestic companies is increasing. The companies like Tesco, Sainsbury are increasing their international presence, which is also good for the country’s economy. It has found the agri-food sector accounted for 7.1% of the market sector of the country as a whole. The food prices have risen around 26% from the year 2007 to the year 2011 (DEFRA, 2011, pp. 20-25). It has also found that the food prices in the European Union have increased less than the prices increased in UK. The income of the households of UK has also increased from the year 1998 to 2009 and the increment is about 22% (DEFRA, 2012). But the fact is that the food price of UK has increased 3 times more than France and 2.7 times than Germany, which are its neighbouring countries. Macroeconomic Indicators GDP GDP, as forecasted in figure 2 seems to increase in subsequent years while dropping in 2016. The figures are independent average of forecasts provided by the financial institutions in UK. Figure 2: Medium term Forecasts of GDP Source: (HM Treasury, 2012, p.23) Inflation The inflation is expected to be dropped in 2013 while increasing slowly till 2016. Figure 3 Source: (HM Treasury, 2012, p.29) Food Output and Input Prices Figures 4 and 5 show the contribution of food products and food input materials towards the output and input prices rise in 2012 from previous year. Food products have contributed by 0.72% towards the total 4.1% increase in output prices whereas the food materials (domestic and imported) have contributed by 0.52% to the total change of 7.3% in input prices in 2011-12. Figure 4: Contribution of Industries to Percentage Change in Output Prices in 2011-12 Source: (Office for National Statistics, 2012) Figure 5: Contribution of Industries to Changes in Input Prices in 2012 Source: (Office for National Statistics, 2012) Also the annual rate of growth of food products in UK is 4.5% while the annual growth rate of domestic food input prices is 3.1% (up from last month) and of imported food input prices is 3.8% (down from last month). This means the input prices have risen in domestic markets. Current Account Deficit The current account deficit is expected to reduce by 2014 and remain stable after that time. Figure 6: Current Account Deficit Forecasts Source: (HM Treasury, 2012, p.30) PESTEL Analysis PESTLE analysis describes the macro environmental factors of an industry. By doing the PESTLE analysis, the researchers come to know about the factors that affected the operations of the company. The PESTLE analysis of UK food industry is as follows Political The political factors are the rules and regulations which affect a business. In this case, the researcher would analyze the factors like the trade restrictions, taxation policy and other regulations, which affect the food industry as a whole. The Food Standards Agency is the regulator of UK’s food industry and it is a department of the government of United Kingdom, but not headed by any minister. The government body has recommended that the companies should disclose the components of food so that the consumers can make the choice keeping in mind their health condition. The players of the food industry cannot represent wrong information on the front of pack. If they represent wrong information on the food pack, their reputation gets hampered and people then definitely look towards some alternative producer (Government of United Kingdom, 2010, pp. 1-2). Economic The economic factor means the effect of the macroeconomic factors on the sector. The researcher would also analyze the effect of the sector on the economy. It has found that during the time of the recession, the productivity of all the sectors were down, but the productivity of the food sector was fine, and it helps the economy to become improved. The macro-economic indicators and forecasts above explain UK’s economic condition. Social The players of the market produce food as per the demand of the customers and the pricing system is also good, as the free market economy exists. The companies take care for the social factors as providing convenience to the customers. Technological The food industry has used many technological tools for serving the customers. The companies use the websites, which make the products convenient for the customers. The companies are also using the software like SAP, which makes the supply chain process effective. In UK, FPFP (Food Processing Faraday Partnership) operates the network of food processing knowledge transfer on behalf of DEFRA and Technology Strategy Board. Legal The government of UK has made several laws that assure the safety of the customers. The companies are obliged to maintain the law, as per the rule of the government. The processing, production, distribution, packaging, labelling and retail of food items in UK are governed by a number of regulations, laws, guidance and practice codes such as Food Standards Act 1999, Food Safety Act 1990, General Food Regulations 2004, Codex Alimentarius, Hygiene legislation and Whistle-blowing policy (Food Standards Agency, n.d.). These regulations and guidelines are issued and governed by Food Standards Agency. Environmental The companies in the industry used to maintain the environment. Their manufacturing process should not affect the environment as per the law of the government. UK companies have to report greenhouse gas emissions under section 85 of Climate Change Act (2008) requirement of regulating such reporting by the boards of the companies (DEFRA-a, 2012). The companies are also governed by the Flood & Water Management Act (2010) where the provisions of the Act are being implemented phase-wise. Conclusion The modern world is the era of globalization, when the economies of the countries are connected with one another. In UK, the government has liberalized the economy in the decade of 1980. After that, the competition has increased in all the industries of UK. There are many players in the industry and so the competition is intense. As the market is a free one, so the entry barriers are lower and for that there are new companies who want to enter the market. The sector is relatively good for the earning population as it offers relatively long term employment to the employee than the other industries. The sector also provides above average pay to the employees than the other industries. It implicates that the sector plays the major role for the economy. The food industry is a growing sector. The companies like Tesco and Sainsbury are increasing their international presence, which is also good for the economy. There are also many players in the fast food industry. The players in the industry comprises of McDonalds, Subway, KFC, Pizza Hut. These companies are from UK as well as some are from foreign countries. The Food Standards Agency is the regulator of UK’s food industry and it is the department of the government of United Kingdom, but not headed by any minister. The government body has recommended that the companies should disclose the components of food so that the consumers can make the choice, which is suitable for their health. Reference DEFRA, 2011. Food Statistics Pocketbook 2011. [Pdf]. Available at: http://www.defra.gov.uk/statistics/files/defra-stats-foodfarm-food-pocketbook-2011-120216.pdf [Accessed March 23, 2012]. DEFRA, 2012. Family Food. [Online]. Available at: http://www.defra.gov.uk/statistics/foodfarm/food/familyfood/. [Accessed March 23, 2012]. DEFRA-a, 2012. Company reporting of greenhouse gas emissions « Defra publications. [Online] Available at: http://www.defra.gov.uk/publications/2012/03/27/pb13718-company-reporting-ghg-emissions/ [Accessed 28 March 2012]. Food Standards Agency, 2011. HOME SLAUGHTER OF LIVESTOCK: A GUIDE TO THE LAW IN ENGLAND. [Pdf]. Available at: http://www.food.gov.uk/foodindustry/guidancenotes/meatregsguid/livestockguidance/homekillguide.pdf. [Accessed March 23, 2012]. Food Standards Agency, 2012. General Food Law. [Online]. Available at: http://www.food.gov.uk/foodindustry/regulation/foodlaw/. [Accessed March 23, 2012]. Food Standards Agency, No date. Food Standards Agency - Regulation and legislation. [Online] Available at: http://www.food.gov.uk/foodindustry/regulation/ [Accessed 28 March 2012]. Government of United Kingdom, 2010. FRONT OF PACK (FOP) NUTRITION LABELLING. [Pdf]. Available at: http://www.food.gov.uk/multimedia/pdfs/board/fsa100307.pdf. [Accessed: March 23, 2012]. Government Office for Science, 2011. The Future of Food and Farming: Challenges and choices for global sustainability. [Pdf]. Available at: http://www.bis.gov.uk/assets/foresight/docs/food-and-farming/11-546-future-of-food-and-farming-report.pdf. [Accessed March 23, 2012]. Hollins, O, 2008. Mapping Waste in the Food Industry. [Pdf]. Available at: http://www.fdf.org.uk/publicgeneral/mapping_waste_in_the_food_industry.pdf. [Accessed March 23, 2012]. Office for National Statistics, 2012. Publication- Producer Price Index- February 2012. [Online] Available at: http://www.ons.gov.uk/ons/rel/ppi2/producer-price-index/february-2012/stb-producer-price-index---february-2012.html?format=print [Accessed 28 March 2012]. Tiffin, R. et al, 2011. Estimating Food and Drink Elasticities. [Pdf]. Available at: http://www.defra.gov.uk/statistics/files/defra-stats-foodfarm-food-price-elasticities-120208.pdf. [Accessed March 23, 2012]. University of Cambridge, 2010. Value of Food and Drink Manufacturing to the UK. [Pdf]. Available at: http://www.ifm.eng.cam.ac.uk/free/100705_food_drink.pdf. [Accessed March 23, 2012]. Bibliography Haberberg, A., and Rieple, A. 2008. Strategic Management: Theory and Application. Great Britain: Oxford University Press. Allen, M., 2006. Analysing the Organisational Environment. United States of America: Select Knowledge Limited. Read More