The Whole Story: Wholesale distribution, the high street, consumers and the national economy

Transcription

1 The Whole Story: Wholesale distribution, the high street, consumers and the national economy FEDERATION OF WHOLESALE DISTRIBUTORS

2 A report by Capital Economics for the Federation of Wholesale Distributors. Demonstrating the full contribution of the food and drink wholesale distribution industry. Foreword Introduction from James Bielby Chief Executive, The Federation of Wholesale Distributors Introduction from Mark Pragnell Head of Commisioned Projects, Capital Economics Contents: Foreword Key findings 3 1 Introduction 4 2 Direct impacts 5 3 Upstream impacts 11 4 Downstream impacts 16 5 Overall impact 21 About 23 Food and drink wholesale distributors play a vital role in the economic and social health of the United Kingdom, providing and supporting jobs in all regions of the nation, and ensuring that essential provisions are available to all. They supply and support more than 400,000 businesses and ensure the public has a choice of places to eat in their high street and vibrant, independently-owned shops in their neighbourhood. Members of our federation collectively turn over annual revenues of 30 billion, employ 66,000 people and generate 2.8 billion of gross value added annually. This ultimately leads to around 460 million in taxation to the exchequer each year. As responsible distributors of alcohol and tobacco products, they collect millions of pounds in duty on behalf of the Treasury. Our members make an essential contribution to the success of small businesses, the lifeblood of the United Kingdom economy. In a retail and catering sector where the largest players have historically had the loudest voice, this report redresses the imbalance by demonstrating the enormous value of wholesale distributors and their supply chain partners in improving consumer choice. I am grateful to Capital Economics for preparing this ground-breaking report into the unsung heroes of our United Kingdom supply chain, the wholesale distribution sector. We are delighted to present this report on the economic contribution of the food and drink wholesale distribution sector. While it is the large supermarkets that attract most of the attention, wholesale distributors provide a key link between large food and drink manufacturers and independent retailers and caterers which serve local communities across the country. Our report shows the full extent of the sector s value to the United Kingdom economy including the activities of wholesale distributors, the supply chain that they support and the hundreds of thousands of businesses which rely on their goods and services. Overall, over 1.1 million British jobs are supported by the food and drink wholesale distribution sector. Disclaimer: This report has been commissioned by the Federation of Wholesale Distributors from Capital Economics. While every effort has been made to ensure that the data quoted and used for the research behind this document is reliable, there is no guarantee that it is correct, and Capital Economics Limited and its subsidiaries can accept no liability whatsoever in respect of any errors or omissions. This document is a piece of economic research and is not intended to constitute investment advice, nor to solicit dealing in securities or investments. Capital Economics Limited,

3 Key Findings 1 Introduction Capital Economics has produced this report on the economic contribution of the food and drink wholesale distribution industry which supplies retail and catering/foodservice businesses via cash and carry, delivery and the internet. Capital Economics has been commissioned by the Federation of Wholesale Distributors to produce an independent report assessing the scale and significance of its members industry. Its members carry out the wholesale distribution of food, drink and other goods to retail and catering/food service businesses via cash and carry, delivery and the internet. For brevity, in this report, we refer to this sector as food and drink wholesale distribution. The key findings are: The industry turns over annual revenues of 30 billion, employs 66,000 people and generates 2.8 billion of gross value added annually Overall, including the whole value chain, the food and drink wholesale distribution sector supports 1.1 million jobs; nearly 2.5 times as many as Tesco and more than the next four largest supermarket chains combined The sector supports policymakers objective of rebalancing the economy; food and drink wholesale distribution activity is spread across the regions of the United Kingdom, with a higher than national share of employment in Scotland, the North West, Wales, the South West, the West Midlands and the North East In total, food and drink wholesale distributors supply up to 330,000 food service businesses and 72,000 retail grocery stores, supporting local high streets and small independent businesses across the United Kingdom There are two business models used: INDIVIDUAL WHOLESALERS AND BUYING GROUPS Individual wholesalers buy, sell and distribute goods as one entity. On the other hand, buying groups are membership organisations that negotiate purchases from manufacturers on behalf of all their members, which tend to be smaller wholesale operations; the members are responsible for selling and distributing the goods. Food and drink wholesale distributors spent around 26 billion on purchases from their suppliers in 2013, supporting 123,000 British jobs in businesses in the supply chain. Over 60 per cent of supply chain jobs supported are in manufacturing businesses, further reflecting rebalancing policy goals The employees of the food and drink wholesale distribution industry spend 1.1 billion each year in their local communities and elsewhere, supporting 22,000 British jobs and 900 million of gross value added Food and drink wholesale distributors pay around 460 million in taxation to the exchequer each year 1.1 What is wholesale distribution? Wholesaling is a huge industry in the United Kingdom, with annual turnover of nearly 900 billion and employing well over one million people. It involves the resale of new and used goods to retailers, businesses to business trade, and the resale of goods to other wholesalers. It also includes the activities of agents or brokers in buying merchandise for, or selling merchandise to, these businesses. The range of businesses supplied spans multi-national retailers, industrial manufacturers, construction companies and small specialised stores. This report is focussed on the food and drink wholesale distribution sector. The industry provides a link between large food and drink manufacturers and independent retailers and caterers. Often overlooked, it is a significant industry that supports high streets and local communities across the country. The role of food and drink wholesale distributors is to buy products in bulk, and sell and distribute them to smaller individual buyers at cheaper prices than the small independent buyer could negotiate. For the purposes of this report Capital Economics consider the food and drink wholesale distribution industry to be the fifteen members of the Federation of Wholesale Distributors. This includes a combination of buying groups and individual wholesalers. We include all of the wholesale operations of these businesses, including those of the members of the buying groups. 1.2 About the report In order to assess the scale and nature of the food and drink wholesale distribution industry we conducted an original survey of the members of the Federation of Wholesale Distributors. The results presented in this report are a combination of findings from our survey, official statistics and other publically available material. We start in chapter one by discussing the nature of the food and drink wholesale distribution industry. In chapter two we assess the scale of the direct activities of the food and drink wholesale distribution industry, including its contribution to employment and gross value added. Chapter three examines the impact that the industry has on economic activity through purchases from its supply chain and the spending of its employees. In chapter four we look at the scale and nature of the customers that depend on food and drink wholesale distributors and consider the wider economic and social benefits that they provide. Finally, chapter five summarises the overall economic contribution of food and drink wholesale distribution. There are two methods of distribution: DELIVERY, AND CASH AND CARRY Wholesalers often have their own transportation operations to deliver goods directly to their customers. Meanwhile, cash and carry sites are large depots where businesses can go to buy and collect their goods. Food and drink wholesale distributors will use one of, or a combination, of these methods. 3 4

4 2 Direct impacts In this chapter we examine the scale of the food and drink wholesale distribution industry in the United Kingdom. 2.1 Revenues, profits and taxation We estimate that the food and drink wholesale distribution industry turns over annual revenues of around 30 billion. Over half of the revenues are generated from sales to retail customers, while a further 44 per cent derives from foodservice and catering customers 2. (See Figure 1). Turnover ( m) Retail 16,150 Catering 1 4,640 Foodservice 1 8,820 Private business users Other 70 TOTAL 30,340 Figure 1: Revenue by type of customer, 2013 (current prices) Meanwhile, food and drink wholesale distributors make combined annual profits of around 860 million and pay around 460 million in taxation to the exchequer each year m The Whole Fact Food and drink wholesale distributors pay around 460 million in taxation to the exchequer each year. Wholesalers tax receipts are equivalent to: 19,728 Police Constables 21,507 Nurses 21,308 Teachers 15,332 Doctors 2.2 Employment Based on our survey, we estimate that the food and drink wholesale distribution industry employs 66,000 people in the United Kingdom. Accounting for part time workers, this is equivalent to around 51,000 full time jobs 5. This makes it a significant industry in its own right. Food and drink wholesale distribution is of a similar size to high profile industries such as creative industries and air travel. Meanwhile, more people are employed in food and drink wholesale distribution than in insurance, newspaper publishing or passenger rail transport. (See Figure 2). Industry Unlike other industries, such as car manufacturing or investment banking, the activity of food and drink wholesale distributors is widely spread throughout the United Kingdom. There are a significant number of wholesalers depots located in all twelve regions to distribute goods to independent retailers and caterers in local communities. Indeed, the geographical distribution of jobs shows that it is some of the less prosperous regions that benefit the most from the industry. Compared with the share of all jobs nationally, food and drink wholesale distribution is more concentrated in Scotland, the North West and Wales, and less represented in London and the South East. (See Figure 3). Employees Creative industries 76,885 Passenger air transport 72,567 Bread, fresh pastry and cakes 68,847 Food and drink wholesale distribution 65,680 Retail sale of sporting equipment 64,833 Insurance (excl. life insurance) 64,822 Architectural activities 58,173 Newspaper publishing 50,583 Film, video and television production 46,919 Construction of road and motorways 43,238 Figure 2: Number of employees in selected industries Source: Capital Economics survey of wholesale distributors. Notes: 1 Foodservice refers to goods delivered to customers on a contractual basis while catering refers to goods supplied to caterers on via cash and carry or ad-hoc delivery. 2 Customers that buy goods for personal or business use that are not intended to be sold on at a margin. 5 3 Based on average salaries at Source: Capital Economics survey of wholesale distributors and Business Register and Employment Survey Notes: 1) Food and drink wholesale distribution employee numbers are for 2013 while all other industries are for ) From top to bottom, the four digit industry codes from the Office for National Statistics Standard Industrial Classification 2007 are 9000, 4910, 1071, 4764, 6512, 7111, 5813, 5911, 4910 and

5 2 Direct impacts Figure 3: Employees by region, 2013 Scotland Depots 78 Employees (no.) 6,900 Employees (share) 10.5% Dif. of nat.average 2.0% Northern Ireland Depots 14 Employees (no.) 1,280 Employees (share) 2.0% Dif. of nat.average 0.0% Yorkshire and the Humber Depots 54 Employees (no.) 4,800 Employees (share) 7.3% Dif. of nat.average -0.6% North East Depots 31 Employees (no.) 2,640 Employees (share) 4.0% Dif. of nat.average 0.3% North West Depots 98 West Midlands Depots 68 Employees (no.) 6,130 Employees (share) 9.3% Dif. of nat.average 0.8% East Depots 61 Employees (no.) 5,490 Employees (share) 8.4% Dif. of nat.average -0.5% Employees (no.) 8,480 Employees (share) 12.9% Dif. of nat.average 2.0% Wales Depots 44 Employees (no.) 3,770 East Midlands Depots 47 Employees (no.) 4,340 Employees (share) 6.6% Dif. of nat.average -0.3% Employees (share) 5.7% Dif. of nat.average 1.4% South West Depots 69 Employees (no.) 6,130 Employees (share) 9.3% Dif. of nat.average 1.1% South East Depots 81 Employees (no.) 7,560 Employees (share) 11.5% Dif. of nat.average -2.3% London Depots 90 Employees (no.) 8,160 Employees (share) 12.4% Dif. of nat.average -3.9% 7 Employees (share) shows the share of food and drink wholesale employment in each region. For example, Scotland has 10.5 per cent of all food and drink wholesale employment in the United Kingdom. Dif of nat. average shows how that share is different from the national average. So, for example, Scotland has 10.5 per cent of food and drink wholesale employment compared to 8.5 per cent of all employment (two percentage point difference). Source: Capital Economics survey of wholesale distributors. 8

6 2 Direct impacts Figure 4: Number of employees by occupation, 2013 The United Kingdom has the greatest disparity between its most and least prosperous regions of any country in the European Union. However, food and drink wholesale distributors redress that balance with high employment in less prosperous regions. In the Coalition Government s Plan for Growth, published in 2011, they highlighted that growth was concentrated in a few sectors of the economy and in a few regions of the country, with others becoming increasingly reliant on the public sector. One of the key objectives was to address this by increasing private sector employment in regions outside London and the South East; food and drink wholesale distribution provides significant employment in these areas. Over 90 per cent of employees are based in the depots, which are predominantly comprised of warehouse operatives, sales and customer service representatives and transport workers. Headquarter operations provide the remaining ten per cent of jobs and are focussed on senior official roles, professional services and procurement (See Figure 4). The average wage for workers in the food and drink wholesale distribution sector is 22, ,000 directly employed 2.3 Economic activity Gross value added is a measure of the contribution made by a company or industry to overall economic activity. Based on our survey results, we estimate that the food and drink wholesale distribution industry generates 2.8 billion of gross value added annually, which is equivalent to 0.2 per cent of all economic activity. What s more, it has decent rates of productivity. Each worker generates over 42,000 of value added each year. This is almost 40 per cent above the average for wholesale and retail activities generally ( 30,400) and is also higher than the average for non-financial service industries ( 39,600). Employees (Number) Depot operations 59,320 Sales and customer services 29,010 Administrative and secretarial 22,210 Transport workers 4,890 Other 1,550 Warehouse operatives 1,510 Business development 80 Depot/warehouse managers 70 Headquarters operatives 6,370 Buying/procurement 1,740 Legal and accountancy 1,420 Sales and customer services 1,010 Other 770 Administrative and secretarial 450 Directors and senior officials 390 Human Resources 320 Business development 270 Total 65,680 Source: Capital Economics survey of wholesale distributors. Productivity Each worker generates over 42,000 of value added each year. This is almost 40 per cent above the average for wholesale and retail activities generally. 9 10

7 3 Upstream impacts In this chapter we look at the economic activity supported upstream of the food and drink wholesale distribution industry. This includes the knock-on impacts of both the spending of food and drink wholesale distributors on suppliers and the spending of those employed in the industry. 3.1 Wholesale distributors purchases from suppliers The direct activities of the food and drink wholesale distributors stimulate further economic activity in the supply chain that they support. Total ( m) Food 11,690 Fresh 4,940 Frozen 2,220 Snacks 1,180 Other 3,350 Tobacco 6,560 Drinks 5,520 Alcoholic 3,620 Non-alcoholic 1,900 Other 2,310 TOTAL 26,080 Figure 5: Food and drink wholesale distributors spending, 2013 (current prices) Employees Total 123.1k Gross Value added Total 6.7bn 700m 600m 200m 800m 200m In total, 26 billion is spent by food and drink wholesale distribution firms on purchasing goods from their suppliers. The vast majority is spent on food (45 per cent), tobacco (25 per cent) and drinks (21 per cent). The rest is made up of a mixture of household goods, clothing, toiletries and electronics. We calculate that the spending of food and drink wholesale distributors on their suppliers supported almost 125,000 jobs in the United Kingdom and 6.7 billion of gross value added. The benefit of this spending is felt in all regions of the United Kingdom. The biggest beneficiaries are the East Midlands and the North West in which the spending of the industry supports over 16,000 and 14,000 jobs respectively. (See Figure 6.) The majority of jobs supported in the supply chain are in manufacturing industries, which account for 75,000 of the 123,000 jobs. This makes the industry an important one if policymakers are to meet their objective of rebalancing the economy. 11.7k 3.4k 12.1k 14.3k 3.7k 16.2k 9.9k 10.8k 5.6k 13.0k 11.0k 11.6k 900m 500m 500m 300m 700m 600m 600m Figure 6: Economic activity supported by food and drink wholesale distributors purchases, Source: Capital Economics survey of wholesale distributors Source: Capital Economics survey of wholesale distributors and the Office for National Statistics. 12

8 3 Upstream impacts Figure 8: Economic activity supported by the spending of food and drink wholesale distribution employees by region, Employees and their spending In addition to the economic activity stimulated by purchases from their suppliers, food and drink wholesale distributors support the UK economy through their employees spending of their incomes in local shops, online, on their household bills. In 2013, employees of the industry spent an estimated total of 1.1 billion on goods and services, providing incomes for businesses across the country. As with the purchases from suppliers, the spending of employees has a multiplier effect as it is recycled through the value chain, which is known as the induced effect. Part of the 1.1 billion spent is used by businesses to employ staff, while some is used to either pay taxes or is retained as profit. The rest is spent on other businesses in their own supply chain, which then use that income in a similar way. This process continues until the recycled value reaches zero. In total, we estimate that the induced effect of employees spending supports 22,000 jobs and 860 million of value added across different regions and industries. (See Figure 9 and Figure 10.) Jobs Turnover Gross value added (Numbers) ( million) ( million) Food manufacture 49,300 12,600 2,400 Finance, professional and business service 18,600 2, Non-food manufacture 15,700 5, Primary industries 11,500 2, Transport 5, Manufacture of alcoholic beverages 4,400 3, Manufacture of non-alcoholic beverages 3,400 1, Property and facilities management 2, Hospitality and recreation 2, Manufacture of tobacco 2,400 5, Public sector 1, Utilities 1, Wholesale and retail 1, Construction 1, Other services Telecommunications TOTAL 123,100 35,100 6,700 Figure 7: Economic activity supported by food and drink wholesale distributors purchases, 2013 Employees Total 22.1k 2.2k 0.5k 1.6k 2.7k 0.9k 1.5k 2.0k 1.9k 1.1k 3.2k 1.9k 2.7k Gross Value added Total 860m 90m 60m 20m 100m 30m 60m 70m 70m 40m 130m 110m 70m 13 Source: Capital Economics survey of wholesale distributors and the Office for National Statistics. Source: Capital Economics survey of wholesale distributors and the Office for National Statistics 14

9 3 Upstream impacts 4 Downstream impacts Jobs Turnover Gross value added (Numbers) ( million) ( million) Wholesale and retail 10, Other services 3, Finance, professional and business service 2, Hospitality and recreation 2, Public Sector Transport Property and facilities management Non-food manufacture Construction Food manufacture Utilities Telecommunications Primary industries TOTAL 22,100 1, In this chapter we look at the downstream impacts of the food and drink wholesale distribution industry. We examine the scale and nature of activity that is supported by the goods and services that are provided by the industry. The downstream benefits stem from the economic activity that is dependent on the food and drink wholesale distribution industry. Independent retailers and caterers across the country rely on wholesale distributors to supply them with their goods. Figure 10: Number of food service customers by location and type, thousands The Whole Fact The industry has between 260,000 and 330,000 food service customers which include schools, hospitals and other public services, as well as restaurants, pubs, hotels and other hospitality based businesses. These are spread throughout the United Kingdom. (See Figure 10). Figure 9: Economic activity supported by the spending of food and drink wholesalers distribution employees by industry 2013 Restaurants Fast food/ takeaway Pubs Hotels Leisure Staff catering Health care Education Public services London South East South West East East West Yorkshire Midlands Midlands & Humber North West North East Wales Scotland Northern Ireland 15 Source: Capital Economics survey of wholesale distributors and the Office for National Statistics 16

10 4 Downstream impacts In total, we estimate that there are around 540,000 retail jobs and 350,000 food service/ catering jobs in businesses supplied with goods provided by the food and drink wholesale distribution industry. The nature of the retail businesses that are supplied highlights the further role that the industry has in supporting local high streets, which is high on policymakers agenda. (See Box 1). The retail customers are largely small independent businesses providing access to food, drink and other convenience items to all areas of the country. On average, there is one independent convenience store for every 1,700 people in the United Kingdom. This compares to one shop for every 11,200 people provided by the top five supermarket chains put together. The local nature of convenience stores is demonstrated by the distance that customers travel to the store. Around 80 per cent of customers travel less than one mile to their local convenience store, and nearly 60 per cent travel there on foot. This is in stark contrast to the trend of out of town supermarkets, which draw customers from much greater distances by car. There are around 72,000 retail grocery stores that are supplied by the food and drink wholesale distribution industry. These include independent convenience stores (37,000), around half of which will use a symbol group s branding, forecourt stores (5,000), small supermarkets (3,000) and a range of traditional and specialist retailers (27,000).* Box 1: Government policy on supporting local high streets Our high streets are home to entrepreneurs who are not just adding to the local economy but playing a part in local life. (David Cameron, 2011) Thriving local high streets are seen as a key part of the government s growth agenda, as well as important in providing social benefits; politicians are often heard highlighting their crucial role in society. As such, in 2011, the government commissioned Mary Portas to conduct an independent review into the future of Britain s high streets. The review set out 28 recommendations to revive high streets and ensure that they reversed the declining trend seen over recent years. Since 2011, the government has implemented a host of initiatives to try to support local high streets, including a 1 billion package of support introduced in This includes business rate concessions, changes to parking restrictions, local market campaigns and allowing landlords to make better use of their empty properties. Convenience store owner Nearly three quarters of convenience store owners are new entrepreneurs, with one in five having started their business in the last five years. The jobs that they create also provide opportunities for a variety of groups within society. Nearly two thirds of employees are female, over a quarter are under the age of 24 and just under ten per cent are over 60.* Employee What s more, the industry allows flexibility for those looking to join the workforce on a part time basis. Almost three quarters of employees in convenience stores work part time which engages people in the workforce who have other commitments. For example, over half of employees have care commitments for children of preschool or school age and around one fifth are studying.* 17 * Association of Convenience Stores, The Local Shop Report (Association of Convenience Stores, Farnborough),

11 Customer The food and drink wholesale distribution industry supports businesses that reach the more inaccessible sections of society. Nearly two fifths of all convenience stores are located in rural areas, while a quarter are in sub-urban locations. What s more the average age of customers is above national averages and over half of convenience store customers are in the lowest socio-economic groups.* Business The businesses downstream of the food and drink wholesale distributors are nearly always small or medium sized enterprises, which are another central focus of policymakers and a key plank of sustainable economic growth. (See Box 2). Box 2: Government policy on supporting entrepreneurship and small and medium sized enterprises The UK s 4.8 million small and medium sized businesses (SMEs), businesses with an annual turnover of up to 25 million, are vital to the economy. They account for half of all private sector output and almost 60 per cent of private sector jobs. (Department for Business Innovation and Skills, 2011) Encouraging entrepreneurship and supporting small businesses is a mainstay of the political agenda. In the government s 2011 Plan for Growth, one of the four key objectives set out was to make the United Kingdom one of the best places in Europe to start, finance and grow a business. They set out a raft of actions to stimulate entrepreneurship and support small businesses. Measures included minimising regulatory burdens, helping small businesses access finance, encouraging small businesses to export and making it easier for small businesses to access public sector procurement. Open 19 * Association of Convenience Stores, The Local Shop Report (Association of Convenience Stores, Farnborough), 2013

12 5 Overall impact In this chapter we summarise the overall economic contribution of the food and drink wholesale distribution industry. The food and drink wholesale distribution sector cannot be viewed in isolation. It is a key component of a chain which links large food and drink manufacturers with small independent businesses. On top of the direct economic activity of the industry, it supports further economic activity throughout its supply chain, by the spending of its employees and in the retail and food service providers that are its customers. The Whole Fact 30 billion In total, we estimate that the food and drink wholesale distribution industry supports over 1.1 million jobs and more than 30 billion of gross value added. That is equivalent to 4.0 per cent of all employees or 2.2 per cent of total output in the United Kingdom. Considering the entire value chain, including the direct jobs, supply chain jobs and the retail and service jobs supported, the food and drink wholesale distribution industry is nearly 2.5 times larger than Tesco and is bigger than Asda, Sainsburys, Waitrose and Morrisons combined. (See Figure 12). Food & drink wholesale distribution Tesco Asda Retail Fast service/ catering Wholesale Multiples Supply chain ,084 Employment Turnover Gross value added (Thousands) ( million) ( million) Direct 66 30,335 2,796 Upstream ,109 7,610 Indirect ,122 6,749 Induced 22 1, Downstream ,750 21,310 Retail ,376 14,678 Foodservice/catering ,374 6,632 TOTAL 1, ,193 31,717 Figure 11: Overall economic activity supported by the food and drink wholesale distribution industry, 2013 Sainsburys Morrisons Waitrose Figure 12: Total number of jobs supported, thousands, Source: Capital Economics survey of wholesale distributors. Source: Capital Economics survey, Office for National Statistics and individual company accounts. 22

13 About About the FWD The Federation of Wholesale Distributors is the member organisation for UK wholesalers operating in the grocery and foodservice markets supplying independent retailers and caterers. About Capital Economics Capital Economics is one of the leading independent macro-economic research companies in the world, providing research on the US, Canada, Europe, Africa, Asia and Australasia, Latin America, the Middle East and the UK, as well as analysis of financial markets, commodities and the consumer and property sectors. Founded in 1999, by the leading economist Roger Bootle, Capital Economics conduct research for companies, government agencies, and trade associations. 23

14 Contact Capital Economics Limited 150 Buckingham Palace Road London SW1W 9TR Federation of Wholesale Distributors 9a Gildredge Road Eastbourne East Sussex BN21 4RB