The Next Five Years

In our interviews with food industry executives we asked about the likely strength of these trends over the next five years and their impact on the food industry. The interviews were semi-structured; concerning future trends, they focused on health, the environment and the general economy and trade, and explored the strength of the drivers, the timing of likely change, the types of firms and sectors that would benefit, threats and constraints facing the UK food industry and how they could be overcome by Government and industry.

Health – A Dominant Trend

In 2006, 23.3% of new product claims were health related – see box 2 (download full report to view box 2 [pdf, 2.92Mb]). Senior executives we spoke to see this trend continuing and manifesting itself in product reformulation to improve nutritional profiles and continuing development of foods with functional properties. With respect to the latter, the new EU Nutrition and Health Claims Regulation was viewed positively as it provides clear rules for the types of products and claims that can be made.

However, the regulatory situation in the UK with respect to nutrition was felt to be muddled. As regards labelling, the Food Standards Agency (FSA) is encouraging a scheme that many executives feel to be non-scientific (the traffic light system); they feel that further consultation could have avoided the confusing situation where multiple front-of-pack labelling systems are on display.

Many executives also believe that recent restrictions on advertising to children lack a scientific evidence base and could have unintended consequences such as a reduction of competition.

The trend towards 'healthy products' offers opportunities for companies of all sizes. Larger companies will rely more on technology to produce functional foods and reformulations (removal of trans fats, lowering of salt, saturated fats and sugar). However companies recognise that taste remains king and reformulation cannot affect the emotional bond between consumers and trusted brands [20]. Smaller companies will find health niches which are less technology dependent. Naturalness, often confused with healthiness by consumers, is one such opportunity.

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The Environment – Emerging Trend

It is not yet clear how the trend to environmental consciousness will manifest itself in the market, though box 2 (download full report to view box 2) suggests that there has already been rapid expansion in new products making environmental claims in the past five years, albeit from a small base.

Executives consider that although the environment is not strongly driving food manufacturing at this time, it will begin to affect innovation over the next 5 years, more in terms of packaging and reducing energy usage and waste from production and distribution.

Being at an earlier stage than health, there is time to avoid a confusing regulatory situation, and clarify debates such as whether food miles are a measure of environmental impact (the industry and Defra recognise that they are not, but farmers' markets and regional food labelling in supermarkets have been significant responses to consumers' perceptions).

Executives are aware that carbon labelling is a possibility, but want to see a Government-led standard for measuring carbon footprint to avoid consumer confusion.

There is also real concern among most executives that the demand for bio-fuels will force up the price of agricultural raw materials for the food industry, at a time when other factors are having a big impact.

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Convenience, Premium and Price Continue to be Important Drivers

It is all too easy to think the market will be entirely driven by health and the environment, but the demand for convenience is seemingly inexorable.

As part of the continuing convenience trend, executives expect that eating out will further grow its share of food expenditure and this is an opportunity for manufacturers.

The strength of demand for 'indulgence' products should also not be under-rated, with one key attribute being provenance (natural, traceable, geographic indication). It is expected that there will be a continuing trend for consumers to trade up to more premium products, but despite all this, price will continue to be an important driver, as indicated by the data in box 3 (download full report to view box 3).

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M&A, Offshoring, Foreign Investment, Private Equity – More of the Same

Restructuring is inevitable in a successful and dynamic industry and food is no exception; it has seen its share of mergers, half of them in the last 10 years by foreign companies, and the industry has itself invested heavily abroad. Executives expect globalisation to be a continuing force, driven in part by anticipated global retailer consolidation and in part by faster growth prospects for processed foods in emerging economies [21]. Executives expect offshoring of production will continue, primarily as a way of maximising efficiencies, though bulkier products will always be immune to this trend as transport costs are too high.

Private equity has been active in the sector and some major manufacturers are owned by private equity firms. But this is not perceived as a disturbing development by most of the executives we interviewed and no-one thought it would have a major negative impact on employment. In any case, it is probable that the rising cost of borrowing will slow the growth of private equity[22].

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Retailer Power is a Fact of Life

Retailing in the UK is one of the most advanced sectors in the world and more concentrated than in many countries of comparable size – as shown in box 4 (download full report to view box 4), the top three UK retailers now account for two-thirds of grocery sales.

The executives we interviewed expect that retailers will continue to exert pressure on manufacturers' margins and felt that retailer-induced rationalisation of supply chains would continue to drive structural change in food manufacturing. But they also believe there will be a position in the market for the small niche player supplying a premium product for a local distribution chain alongside the huge multinational which bases its competitiveness on brand identity and product innovation and/or production efficiency and process innovation.

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20 See UBS Risk of Reformulations, October 2005.

21 UBS Investment Research, Packaged Foods, December 2006.

22 The Economist, July 7 2007.

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More Information

The information in this section is taken from Working for the UK: our contribution to the economy (pdf, 2.92Mb) full report, published by FDF in October 2007. The report includes over 20 tables of statisitcs.


Last reviewed: 15 Feb 2008