Market Sector Analysis of the Food Sector in the UK - Report Example

Market sector analysis of the food sector in the UK Executive summary UK’s food sector is undergoing huge changes after the introduction of globalization and liberalization. Majority of the domestic food companies in the UK are currently struggling for survival because of the stiff competition from Italian, Indian and Chinese food companies. The popularity of Italian foods is skyrocketing in the UK, in recent times. In fact, Italian food companies are struggling to cater the needs of the British people. In other words, supply of Italian food products is inadequate, considering the huge demand for it in the UK. At the same time, Italian food items are costlier than Indian or Chinese food items. Therefore, it is necessary for Italian food companies, operating in the UK, to reduce the prices of their products, in order to compete effectively with Indian and Chinese companies. This report analyses the trends in the UK food market in recent times. Table of Contents Executive summary 2 Introduction 4 The current size and value of the food market in the UK 4 Growth or decline in the UK food market 5 Trends/developments in the food market of the UK 6 The main competitors in UK’s food market 7 Conclusions 10 References 11 Introduction According to Palmer (2012, p.5), “marketing is the activity, sets of institutions and processes for creating, communicating, delivering and exchanging offerings that have value for customers, clients, partners and society at large”. Identification of the customer needs is the first step in every marketing activity. No organization can survive in the heavily competitive market, without catering the needs of the customers. Because of globalization and liberalization, competition has been intensified in global market. UK is one country in which competition is getting intensified, virtually in all market sectors. Food industry is one among the most heavily competitive businesses in the UK at present. Companies from different parts of the world such as Italy, India and China are exploring their fortunes in UK’s food industry. This report conducts a market sector analysis of UK’s food industry. The current size and value of the food market in the UK UK’s food sector consists of beverages as well as agri-foods. The agri-food sector contributed £97.1 billion or 7.4% to national Gross Value Added in 2012, whereas Beverages contributed £5.3 billion to the GVA in 2012. Moreover, alcoholic beverages contributed £4.1 billion (77%) of the total beverages GVA in 2012 (Department for Environment Food and Rural affairs, 2013). Some of the other key features of UK’s food industry are given below; The food and drink manufacturing industry is the single largest manufacturing sector in the UK, accounting for 18% of the total manufacturing sector by turnover. The food and non-alcoholic drink sectors accounting for 15% of the total manufacturing sector by turnover (FDF, 2014) The prices of all commodities, including food items are increasing day by day in the UK. In other words, inflation rate in the UK is growing gradually. Perhaps, the recent financial crisis has caused more problems in the UK than in any other European countries. UK is still struggling to come out from the recession problems. Moreover, the Eurozone crisis has caused many problems in the UK’s industrial sector, especially in the food industry. As a result of the above mentioned factors, food prices in the UK are increasing gradually. “Food prices have risen 12% in real terms since 2007 taking us back to the late nineties in terms of cost of food relative to other goods” (Department for Environment Food and Rural affairs, 2013, p.8). Growth or decline in the UK food market Even though the recent economic problems have caused various types financial problems to the UK people, recent statistics have shown that the consumer expenditure on food products has not been affected by the recession. In fact, the consumer expenditure on food, drink and catering has continued to rise in recent years. The following statistics reveal the present business climate in UK’s food sector. There was a rise of 4.2% in 2013 to £196 billion in the food industry. In 2013 expenditure on food (including non-alcoholic drinks) showed the largest increase, up 5.1%, while spend on alcoholic drinks increased 3.7% and catering increased 2.9%. Spend on food shopping has increased 30% since 2007 and accounted for almost half of spend (49%) in the sector in 2013. Spend on catering accounted for 27% of sector spend in 2013 and has increased by 20% since 2007. Spend on all alcoholic drinks accounted for 24% of sector spend in 2013 and had the lowest overall increase since 2007 at 8.9%. (Department for Environment Food and Rural affairs, 2013, p.13) From the above statistics, it is evident that the opportunities in the UK’s food market are promising for food companies. However, the domestic food production in the UK is not enough to cater the needs of the people. In fact, a substantial portion of the UK public is expatriates. Their food needs are different from that of the locals. Moreover, locals also prefer foreign foods, especially, Italian, Chinese and Indian foods. As a result of that, foreign food companies have many opportunities in UK’s food industry. “In 2012, 24 countries together accounted for 90% of UK food supply. Just over half of this (53%) was supplied domestically from within the UK” (Department for Environment Food and Rural affairs, 2013, p.8) Trends/developments in the food market of the UK The food sector in the UK is one of the prominent employment sectors in the country. Around 400000 workers (16% of the overall manufacturing workforce in the UK) are working in UK’s food industry (FDF, 2014). It should be noted that unemployment is a big problem in the UK at present. Therefore, the contributions of food industry in employment generation are extremely important for UK. Any changes in UK’s food industry would affect the employment opportunities in one way or another. Moreover, UK’s food sector in one of the prominent trading partners of Europe. Every year, UK is exporting almost £19bn of food and drink products (76%) of UK’s food exports) to other European countries (FDF, 2014). In other words, the revenue earned by UK from food exports is significant. At the same time, UK is importing many food items from foreign countries in order to cater the food needs of its diverse population. The main competitors in UK’s food market As in the case of other markets, UK’s food market is highly competitive. Many local and international firms are fighting each other UK’s food industry in order to gain dominance. It appears that Italian food companies have some edge in UK’s food market because of the obsession possessed by the UK public towards Italian foods. Italian foods such as pasta and pizza are extremely popular in UK. In May 2013, “Prezzo posted profits of £17.3m; Glasgows Papa Tonys announced ambitious expansion plans; Carluccios, the definition of neatly repackaged rustic Italian chic, reported a 15% profits boost, and a further 10 openings this year” (Naylor, 2013). Italian foods and recipes are conquering the British food market in recent times. Tesco Real Food (2011) reported that the sales of Italian foods in the UK are growing by 42% in every year. Some of the interesting findings of the Tesco Real Food are given below; Antipasti and olives have become the fastest growing foods in UK market. Pizza has become the UK’s favorite Italian food with sales dwarfing those of former top seller curry by well over 2 to 1. Italian wine has grown in the UK by 15 per cent in 2013 (The Food & Drink Innovation Network, 2011) From the above statistics, it is evident that Italian foods and beverages are getting huge acceptance among UK’s population. At the same time, food companies from India and China are causing stiff challenges to Italian food companies operating in the UK. It would be suicidal for Italian food companies to neglect these threats from India and China. It is inevitable for a food company to know how well its competitors are able to satisfy buyer’s needs (Palmer, 2012, p.7). Based on this knowledge, the company should make changes in its business strategies. Indians are the largest ethnic minority group in Britain. It is believed that more than 10,000,000 Indians are staying in London alone. Moreover, there are thousands of Indian restaurants in the UK. Along with Indian foods, Chinese foods also are getting huge popularity in the UK. However, the popularity of Chinese foods in the UK is lesser than that of Indian foods since the number of Indians in the UK are extremely high compared to the number of Chinese people in the UK. “The overall ethnic foods market in the UK recorded a 24% increase in value sales between 2007 and 2011 to reach £1.4 billion, having grown by a solid 6.6% in 2011. Ready meals are fuelling the growth, supported by increased NPD and improved offerings from supermarket own-label, with Indian remaining the largest segment in the market, ahead of Chinese” (UK Ethnic Food Market - September 2012, 2012). “Companies strive to deliver to the customers something their competitors cannot or will not provide in order to gain and retain customers. It is important to remember that the environmental variables that are important to a company will also be important to its competitors” (Lancaster, 2009, p.92). Therefore, it is necessary for Italian food companies to keep a close eye on the operations of Indian and Chinese restaurants in the UK. It should be noted that India and China are two of the most rapidly emerging economies in the world at the moment. Moreover, these two countries are the most heavily populated countries in the world. As a result of that, manpower costs in these countries are extremely lower than that in, Europe or America. Therefore, it is possible for Indian and Chinese companies operating in UK’s food industries to sell their products at cheaper rates compared to the prices of the food products from Italian restaurants. Recession has already created problems to the British people. They have already started to reduce their expenditure on food items and other commodities. Therefore, it would be difficult for Italian food companies to excel in British food market, without reducing the prices of their products. According to Lancaster, (2009, p.124), “organizations do not operate in isolation, and inevitably their fortunes are affected by the behaviour and capabilities of their competitors. Proactive organizations or the organizations that are customer oriented and want to attain sustainable competitive advantage will collect information on a continuous basis”. Business activities are taking place in heavily globalized world at the moment. It is possible for companies to invest in any country irrespective of their country of origin, since most of the countries are welcoming foreign direct investments as much as possible. Even British local food makers may struggle in British market, if they failed to improve the quality and reduce the prices of their products. The passion for foreign foods is increasing everywhere in the world and the case of Britain is also not an exception. Under such circumstances, Italian Indian and Chinese foods have tremendous business potential in the UK market. The marketing elements contained in the micro level environment are; customers, suppliers, distributers, and competitors (Lancaster, 2009, p.90). Ultimately, the success and failures of a business is determined by its customers. This principle is true in the case of food business also. It is important for a food business company to keep service the existing customers properly, while searching for new customers. It should be noted that existing customers can help Food Company to spread mouth publicity. Viral marketing or the marketing with the help of Word of Mouth (WOM) is believed to be the most effective marketing channel in the modern era. Food companies are using social networks extensively to promote WOM. People on social networks usually express their views about the food items they have tasted recently. Such exchange of information through social media has the capability to affect the purchasing behaviours of the people. Therefore, it is necessary for the Italian food companies in the UK to enhance their social network marketing more effectively, in order to overcome the resistance offered by the Indian and Chinese food makers in the UK. Conclusions UK food market is highly dominated by Italian food companies. The passion for Italian foods is growing day by day in the UK. Even domestic food makers in the UK have struggled to compete effectively with the Italian food companies. At the same time, Indian and Chinese food companies in the UK are offering strong challenges to Italian food companies in the UK. These companies are capable of offering cheaper prices to their products compared to the prices of Italian food products. The recession hit UK public is keen on reducing their expenditure on food items even though they have passion towards expensive Italian foods. Therefore, Italian food companies should keep an eye on the strategies of Indian and Chinese food companies operating in the UK. They should make necessary changes in their strategies time to time, in order to sustain their dominance in the UK food market. References Department for Environment Food and Rural affairs. 2013. Food statistics pocket 2013. [Online] Available at: https://www.gov.uk/government/uploads/system/uploads/attachment_data/file/315418/foodpocketbook-2013update-29may14.pdf [Accessed 14 November 2014] FDF, 2014. Statistics at a Glance. [Online] Available at: http://www.fdf.org.uk/statsataglance.aspx [Accessed 14 November 2014] Lancaster, P. 2009. Understanding and Managing your Customer. London, Pearson Custom Publishing Naylor, T. 2013. Why is Britain obsessed with Italian restaurants?. The Guardian. 03 May 2013. Palmer, A. 2012. Introduction to marketing. 3rd ed. Oxford, Oxford University press. The Food & Drink Innovation Network, 2011. UK Demand For Italian Food Reaches All Time High. [Online] Available at: http://www.fdin.org.uk/2011/02/uk-demand-for-italian-food-reaches-all-time-high/ [Accessed 14 November 2014] UK Ethnic Food Market - September 2012, 2012. [Online] Available at: http://store.mintel.com/ethnic-foods-uk-september-2012?cookie_test=true [Accessed 14 November 2014] Read More