United Kingdom packaged foods market: Sluggish growth recorded in 2012

Press Release   •   Feb 19, 2013 17:04 GMT

In 2012, the United Kingdom packaged food market grew just enough to stop itself from standing still, as consumers shifted their priorities in terms of food to save money. This had been coming for a while, with packaged food recording a number of years of sluggish growth, and 2012 was no exception. Much of the marketing and product innovation of recent years disappeared, as companies started to contract in the face of the economic downturn, leaving consumers with little to be excited about.

The return of the UK to recession (so-called "double-dip") in 2012 dealt a significant blow to consumer and company confidence all over the country. Consumers started to save obsessively, leading sales to fall across all categories. Packaged food, as an essential, saw mixed results, with growth continuing, in line with population growth. However, there were significant changes within packaged food, with familiar comfort choices, such as economy frozen food and ready meals, benefiting at the expense of some of more premium products.

As is to be expected in a time of economic turmoil, there has been significant consolidation towards the major players, which are in a stronger position to withstand the pressures of the recession. There was significant mergers and acquisitions activity in the review period, and a significant restructuring of shelf-space, particularly in the major retailers. Much of this also benefited private label manufacturers, which are clearly able to compete much more strongly on price.

The supermarkets are clearly in the strongest position to gain from an economic downturn, as they are able to use their superior capital position to bolster sales where necessary, and to take on other retailers through aggressive price-cutting. Aware that consumers were prioritising lower prices, they did this in abundance, at the same time promoting their own private label products, which only served to ultimately increase their power in the market. This had adverse consequences, however, in the case of key staples such as bread and milk, which continued to be sold at a price considerably below the market price of these products.

The forecast average growth for the packaged food market remains below inflation for the next five years, leading to an a low yet positive performance. There are many current uncertainties which could impact the market dramatically; chief among them is the currently unresolved Eurozone crisis, which in a worst case scenario could have catastrophic consequences on the domestic economy, as well as on packaged food. There is also the potential for chronic food shortages and a spike in food prices in the coming years, following an extreme summer all over the world in 2012. All of this will drive the UK market into somewhat uncharted territory in the next few years.

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