Concerns about the potential impact on the UK’s food industry in 2017 over the impending “divorce” from the EU are looming large for suppliers, retailers and consumers alike. The formal two-year round of Brexit talks aimed at shaping future UK-EU relations, including in areas such as import and exports of food products, are scheduled to start in March. The UK government is under fire for being too secretive about what the post-Brexit trading environment with EU nations will look like. However, food industry analysts say consumers will expect to see exactly the opposite approach from manufacturers, with shoppers favouring products that demonstrate transparency and clearer origin labelling. Healthy and better-for-you brands are also expected to continue doing well in 2017, together with a continuing trend towards free-from foods. Younger consumers, in particular, are expected to drive these and other trends forward. John Shepherd reports.
The importance of consumers’ “beliefs”
UK consumers are likely to favour manufacturers and suppliers who go the extra mile by providing detailed information about the welfare of animals in the food chain and food production methods.
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Tom Vierhile, innovation insights director at Canadean, tells just-food: “Millennial consumers especially seem to be staging a bit of a Brexit of their own, by not going along with brands that their parents might have made icons, but are more inclined to seek out brands that resonate with them and their beliefs and are less inclined to follow their parents. Younger consumers are also more aware of where food and ingredients come from and are keenly interested in all that. It is almost like activist buying, where people try to make their money count in a socially-responsible way.”
International research by Canadean shows nearly 60% of 25-34 year-olds “want to buy food and drink products that reflect their attitudes and opinions on life”, Vierhile says. “Younger consumers are also more ready to try newer/younger brands. According to a 2015 consumer survey by Canadean, 25-34 year-olds tend to be among the first in families to try new and exciting foods and drinks, so if you are trying to appeal to those consumers it is difficult to do it with an existing brand.”
This approach will also favour what Vierhile calls “blank slate brands” – innovative brands that are created “from scratch”. He adds: “These will be companies promoting brands that have no baggage, meaning they can seek out demand in new areas where established brands would not go. UK retailers, too, will be more open to blank slate brands and the UK can expect to see more of this kind of innovation.”
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Full disclosure
Consumer demand for manufacturers to provide more information about how food is produced is a trend that has gathered pace over the past couple of years in the UK and is likely to step up a gear in 2017, analysts say.
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By GlobalDataMeanwhile, younger consumers in the UK, in common with counterparts in other countries, are expected to continue flexing their collective purchasing muscle this year in favour of products that reflect their desire for “healthy, better-for-you food options”, Vierhile says. “This will increase support for another trend that we see coming in the UK that we call ‘full disclosure’. This is about brands coming clean in more ways than one, telling you where their ingredients come from, what they are and putting much more of a focus on being transparent. Consumers want to know they are not being tricked in terms of ingredients used, and in knowing how the chickens that provide their eggs are treated, along with the treatment of pigs providing their bacon.”
Vierhile highlights the issue of the so-called “fake farms” that hit the headlines in the UK in 2016, when major retailers were criticised for the way in which they marketed some food products. The UK’s National Union of Farmers said last year the practice risked “misleading” shoppers. Vierhile says consumers “want more of a farm-to-fork experience today than maybe they have had in the past” and argues companies that understand that trend could expect to build stronger relationships with UK consumers in 2017.
Vierhile pinpoints one sector. “Consumers have more curiosity about where food such as fish come from and are asking more questions about how products are made. By providing consumers with more information and verification about how and where fish are caught can help earn consumer trust.”
The outlook for the free-from category
However, the UK can expect to see an increasing move away from meat and fish products towards vegan and vegetarianism, largely led by younger consumers, Vierhile says. “The UK is a potential market for things like that with younger consumers leading the way to pursue a plant-based diet. They are also more open to being vegan or vegetarian and pushing the market that way.”
According to Hamish Renton, managing director at UK food and drink consultants HRA, vegetarianism could well be overtaken in the popularity stakes in the UK over the coming year by veganism, promoted, he says, by “the ethical vegans who object to the practices of the food industry and the eco-conscious vegans who are concerned about the carbon footprint”.
Renton also predicts an increase in the trend in favour of lactose-free products. “Retailers are already looking at giving more space over to lactose-free,” he said. “Retailers are a mirror to consumer demand.”
He also says younger consumers becoming increasingly attracted to meat-free and gluten-free diets, which he said is becoming “more of a conscious choice and not necessarily for health”.
Robin Wyers, chief editor at researchers Innova Market Insights, is more cautious about the prospects for the growth of gluten-free in the UK. He argues data indicates a “tapering off” from the strong growth seen in the category.
“This is because only a few consumers actually need these products in the first place,” Wyers says. “I think many will see that as a bit of a triumph for marketing over substance. It is driven by an overarching suggestion that these are products are going to better for you, whether you need them or not.
An expected rise in ‘no added sugar’ products
Analysis by Innova suggests consumers’ “quest to balance taste and health” will drive “profound innovation” in new product development over the next year – and in the UK in particular this will pile the pressure on sugar, despite it still being “the key ingredient that delivers the sweetness and great taste that consumers are looking for”.
Wyers says UK efforts to reduce sugar consumption will continue to be a feature of the food market in 2017. The move follows moves such as last summer’s publication in the UK of a government plan to combat child obesity in England.
“I think the trend towards products with no added sugar will grow,” Wyers says. “The debate around the sugar tax in the UK will undoubtedly mean you see an awful lot of UK retailers switching over to lower-sugar content in brand portfolios to meet likely recommendations that will be brought forward in 2018.”
Retailers are anticipating this and manufacturers such as Tesco are already starting to trim down sugar content,” ahead of any future recommendations to industry, Wyers adds.
Wyers says Innova research shows “low sugar” is the fastest growing sugar claim worldwide, with an average annual increase in product launches of +32% from 2011 to 2015. Meanwhile, Stevia-sweetened products worldwide increased by a CAGR of +39% over this period.
The “blurring” of product boundaries and mealtimes
Innova highlights the UK as a good example of another trend set to continue through 2017 – “blurred boundaries”.
The consultants report: “The most innovative products are being observed at the crossroads of different categories. Boundaries are blurring as innovators continue to capitalise on the potential of hybrid innovation and fusion.” An example cited by Innova is last year’s launch of Crunch Corn, a “half-popped corn snack” by UK snack maker Propercorn.
“Popped claims and popcorn are moving beyond the popcorn category. The number has quadrupled in snacks (excluding popcorn) when comparing 2015 and 2011 launch numbers,” Innova says.
Meanwhile, what Vierhile calls “blurred meal boundaries” – where mealtimes become less rigid to cater for busy lifestyles – are also gaining in popularity, largely among younger shoppers.
“Consumers, especially younger ones, are more prone to eat when they feel like it with more snacking throughout the day. We did a global survey in 2016 which showed a big increase in snacking between breakfast and lunch. Between 2014 and 2016 snacking globally went up from 26% to 33% – about a quarter to a third increase in the number of consumers now snacking between breakfast and lunch.” Vierhile says that is the result of “more eating on-the-go… and companies focusing more on hand-help types of breakfast offerings and innovating in that area.”
However, Vierhile notes that while “anytime is snack time” is a trend that will continue through 2017, snacks involved “are not always attached to a better-for-you label”.
Kids remain “influential” in shaping adults’ purchasing
Children will also be an influential factor in foods sales in the UK and other countries as “pester power” continues to have an impact on adults’ purchases, Innova says.
“While pester power was behind typically less healthy shopping ten to 15 years ago, kids are now often setting the family dinner agenda themselves,” the company says. “With even cooking programmes existing that specifically target kids, today’s youngest generation is open to new things and influencing what their parents eat too. The days of neophobia are over and their role goes far beyond pester power.”
Wyers adds: “In the UK a key element is that kids are now more interested in foods than they were in the past and more open to new flavours, which has been helped by TV cookery programmes such as Junior Bake Off. And of course that will be welcomed by parents.”
According to Innova, food and beverage launches globally that targeted kids increased by 18% in 2015 over 2014. In dairy, children’s launches grew by 33% over the same period, Innova says. Wyers says the trend toward product tie-ups aimed at children through licensing was becoming “more prominent” every year, such as Crayola Crafty Cooks Rainbow Sprinkles Cupcake Kits sold in the UK.
The spectre of rising food inflation
Analysts at investment bank Sanford Bernstein forecast UK consumers should initially be able to ride out any pressure on food inflation as the pace towards Brexit quickens from the spring. According to Bernstein, food constitutes just 12% of disposable income in the UK, representing “an historic low after three years of food deflation”.
“As a result, we expect consumers to be able to absorb rises rather than dialling out the inflation by trading down,” Bernstein says. “If a post-Brexit downturn eventuates, consumers should initially trade up due to less eating out, but if the downturn deepens we would expect to see trading down, which will ultimately impact growth.”
The trend is pointing to rising prices. UK food deflation eased 30 basis points in November to -2.0%, compared to -2.3% in October and the highest food price inflation since May 2015, Bernstein says. “We consider inflation as measured by Kantar to be a better measure of the food deflation experienced by our coverage due to their much larger sample size. Most recent Kantar deflation, for the 12 weeks to 4 December, was improved 40bps to -0.1%. The rapid improvement implies that inflation is positive on a four-week basis, suggesting the end of food price deflation.”
Bernstein says the impact of the fall in sterling after the Brexit vote will take “six to nine months” to impact food prices as “most foreign sourcing” would have been hedged in advance for that period. “Hence most of the return to inflation we have seen so far reflects the FX move prior to Brexit and normalisation of the commodity markets,” the analysts say.
However, Bernstein says it expects the impact of the fall in the value of sterling “to push inflation up to above 3% over the rest of the year, possibly as high as 4% or 5% in the second half of the year”.
Mike Meek, the procurement director for UK-based food and catering supply chain management firm Allmanhall, says last year’s spat between Unilever and Tesco in the UK, when the consumer goods giant tried to push through price increases of popular brands such as Marmite, Magnum and Knorr, “could be a sign of things to come” in terms of pressures that may drive UK inflation upwards into 2017.
“Branded manufacturers appear to have adopted different strategies regarding their approach to obtaining significant cost increases,” Meek says. “From across-the-board increases, such as the reported 10% Unilever increase, to ‘shrinkflation’ adopted by Mars, Mondelez and Nestlé.”
Currency devaluation “is having a significant impact on rising food costs, though market uncertainty is not solely contained to ‘hard or soft Brexit’ sentiment”, Meek says. “In America, President-elect Trump has raised the prospect of a significant infrastructure stimulus plan; increasing the prospect of the Federal Reserve raising US rates. The OECD have highlighted that a consequence of higher US rates will be a stronger dollar, which with the accompanying fall in sterling, could also add to further inflationary pressure in the UK.”
Meek suggests other factors could add up to a “challenging” 2017 for the UK include falling unemployment, which, “combined with the seasonal nature of agricultural work, have resulted in farms, food manufacturers and other organisations in the agricultural supply chain becoming increasingly reliant on an ample supply of seasonal labour from across Europe”.
He estimates 65% of the UK’s agricultural workers are from other EU nations and says there is “a significant requirement to maintain this supply of labour in the coming years”.
This year, UK farmers are facing an unprecedented labour crisis with a 10% shortfall in the number of EU seasonal workers applying to come to Britain. Without this labour, less produce will be picked during the harvest season resulting in a reduced supply in the marketplace. This will inevitably lead to a rise in the price of food.”
