UNITED KINGDOM S ATTRACTIVENESS FOR SWEDISH FOOD SUPPLIERS JANUARY 2018

UNITED KINGDOM S ATTRACTIVENESS FOR SWEDISH FOOD SUPPLIERS JANUARY 2018

The UK offers a large market for food suppliers, with consumers demanding both quality and convenience. However, the retail landscape is challenging and highly competitive; hence it is important that companies looking to enter the market understand fully what it takes to succeed as a supplier in the UK. Over the years, Business Sweden has supported many Swedish food suppliers to enter and grow on the UK market, creating valuable knowledge and a network among key actors and stakeholders. The large market, with customers open to innovative and international products, is extremely interesting for food suppliers from all over the world. British consumers have become accustomed to a wide variety of product choices and increasing convenience in how to shop. Furthermore, because of London s role as a leading global city and cultural capital attracting visitors and investments from around the world, London and the UK make excellent places to build brand awareness for expansion to additional markets. This places increasing demand on both retailers and food suppliers, and further emphasises the importance of knowing how to attract the demanding and discerning UK consumer. Proper preparation and in-depth market insight are key to success in the UK s competitive retail environment. In this report, we provide an overview of the UK food retail market, exploring both the grocery and foodservice sectors. We analyse the market s challenges and opportunities in order to help Swedish food suppliers reach their full international potential on the UK market. 2

THE UK FOOD RETAIL MARKET IS COMPLEX, OFFERING BOTH OPPORTUNITIES AND CHALLENGES Large Retail Market Challenging Landscape Fragmented Foodservice Better Health, Less Waste 166 bn Market value forecast in 2020 vs. 87.2 bn Market value in 2016, with 3 years of steady growth However, stagnation due to challenges such as consumer selectivity, price-sensitivity, currency fluctuations and Brexit Four large retailers dominate, but are increasingly challenged by discount and online players 331,884 Total UK outlets, indicating significant fragmentation Four consumer trends affect the entire food retailing market, from grocery to foodservice Online = #1 Market Driver Private Label Success Strong Organic Segment An Insightful Approach 9 bn Food and drink e-commerce market value forecast in 2020 41% UK value share for private label, 3 rd highest in the world Organic segment shows strong growth, with supermarkets as the largest sales channel Several areas to focus on to be attractive to food retailers 7.5% e-commerce value share in 2017 (second only to South Korea) Expected to be major source of growth for UK grocery market Fresh produce and dairy anchor the organic market Food Business Days and Try Swedish provide insight and sales opportunities 3

THE UK GROCERY MARKET IS LARGE BUT STAGNATING THE MARKET IS AFFECTED BY A NUMBER OF CHALLENGES GROCERY MARKET CHALLENGES UK GROCERY RETAIL MARKET SIZE ( BN) The UK grocery market is growing, but has stagnated in recent years; by 2020, the market is expected to be worth 166bn Consumers remain price-sensitive and focus on seeking bargains, though they are increasingly selective in their choices Currency fluctuations are expected to put additional pressure on grocery retailers, with those retailers who primarily source goods from overseas possibly struggling to compete based on price Brexit, and the associated uncertainty, is likely to have a material impact on the sector 160 140 120 100 80 60 40 20 0 156,36 161,26 163,87 163,88 163,98 2012 2013 2014 2015 2016 Despite a stagnating overall market, Swedish grocery exports to the UK have grown on a yearly basis from 270M in 2011 to 510M in 2016 SOURCE: EUROMONITOR, KANTAR WORLD PANEL 4

THE BIG FOUR GROCERY RETAILERS DOMINATE THE MARKET REPRESENTING OVER 70% Tesco s mission: We make what matters better, together Market leader in UK grocery sector for over 25 years, with sales of 54.4 bn in 2015-16 and 310,000 employees in the UK Despite positioning itself to lower prices and a competitive agenda, Tesco was the first UK supermarket to develop an online shopping presence Over 38 million active members for its UK loyalty card program Co-op 6,1% Tesco 28,6% Sainsbury s mission: We will make customers' lives easier, offering great quality and service at fair prices, serving our customers whenever and wherever they want Sainsbury s has a middle-of-the-range positioning, offering a wide range of prices and products, from budget to premium, and aiming to attract consumers from all income groups Sells numerous organic and environmentally friendly products Aldi 6,3% Morrisons 11,1% Asda 15,9% Sainsbury's 16,8% Asda s mission: To be Britain s best retailer exceeding customer need everyday Asda s strap-line is everyday low price Asda has focused on large stores and is predominately based in the North and South East of England Morrison s mission: To be the consumer s first choice for food, delivering products of outstanding quality and great service at a competitive cost through working faster, simpler and together With stores located throughout the UK, a typical Morrison s store is aimed at the mid- to lower-end Approximately 55% of sales comes from private label range SOURCE: IBIS WORLD REPORT, KANTAR WORLD PANEL, COMPANY WEBSITES 5

PRICE HOWEVER, THE BIG FOUR FACE SIGNIFICANT COMPETITION FROM DISCOUNT AND ONLINE PLAYERS GROWTH IN THE COMPETITIVE LANDSCAPE 20% % YoY 12 Week Growth (May 2017) DIFFERING POSITIONS OF TOP GROCERY PLAYERS 18% 18,6% 16% 14% 12% 10% 8% 6% 12,0% 4% 2% 3,8% 2,7% 0% Overall Market The Big 4 Discounters Pure online QUALITY SOURCE: KANTAR WORLDPANEL, ANALYSIS 6

THE FOODSERVICE* MARKET IS HIGHLY COMPETITIVE AND COMPLEX, BUT GROWING STEADILY THE FOODSERVICE MARKET (IN BN), 2016 Contracted Industry & Public Sector 4,2 Retail,Travel & Leisure 19,9 FOODSERVICE AS AN INDUSTRY The foodservice industry has experienced 3 years of continuous and steady growth However, the industry remains highly fragmented, with a large number of companies operating across numerous subsectors Total Market 87.2bn Hotels, Pubs & Restaurants 63,0 167,480 101,164 63,200 hotel, pub and restaurant outlets retail, travel and leisure outlets contracted industry outlets Approximately 331,844 total outlets in the UK THE FOODSERVICE INDUSTRY IS SIGNIFICANTLY MORE FRAGMENTENTED THAN THE RETAIL GROCERY MARKET SOURCE: MCA 2016 REPORT *ENCOMPASSES ALL BUSINESSES RESPONSIBLE FOR MEALS PREPARED OUTSIDE OF THE HOME 7

Main Brands Sector 15 Sales* Company Rank OF EUROPE S TOP 10 FOODSERVICE GROUPS, 5 ORIGINATE FROM THE UK UNITED KINGDOM SWEDEN 2 7 8 9 10 18 5,590 mn** 2,136 mn 1,716 mn 1,693 mn 1,539 mn 885 mn** Contracted Pubs Pubs Quick Service Restaurant Pubs In-Store SOURCE: CAFE FUTURE 2016 EUROPEAN FOODSERVICE REPORT *USING 31 DEC 2017 EXCHANGE OF 1 EUR = 0.7375 GBP **TURNOVER ESTIMATED 8

HOWEVER, THE ENTIRE UK RETAIL FOOD MARKET SUPPLY CHAIN IS TAPPING INTO CONSUMER TRENDS Health awareness: British consumers health awareness continues to grow and the demand for organic, freefrom and trustworthy food and drink drives consumer preferences in both grocery and out-of-home dining choices Increased focus on transparency and products with fewer additives has lead to a high rise in new product development within organic and free from products Time saving: Shortened cooking times, faster deliveries, time saving purchases and night-time products all support today s busy lifestyle, especially for younger consumers seeking quality plus convenience Retailers and manufacturers focus on providing such innovations to their costumers to buy from a wider range of sources; online, mobile and delivery continue to grow into crucial sales channels across the food retail market Power to the plants: Natural, simple and flexible diets. Brits have aspirations for healthier and cleaner lifestyles, and 55% of UK adults include plenty of vegetables in meals while 24% incorporate superfood ingredients There is a move away from protein-only options, as more manufacturers release or promote formulations that centre on plants and the flavours, fortifications and functionalities they can add to food and drink products TEXT Waste not: The focus of sustainability zeros in on eliminating food waste. The UK is starting to use apps to sell food that would be thrown away at closing time and donating the supplies to charity Bread is one of the most wasted food items in the UK. Research finds that 56% of UK adults would be interested in bread or baked goods with packaging that keeps them fresher for longer OVERVIEW MARKET RETAILERS FOODSERVICE TRENDS ONLINE PRIVATE LABEL ORGANIC APPROACH 9

THE UK E-COMMERCE MARKET FOR GROCERIES IS ONE OF THE WORLD S LARGEST AND CONTINUES TO GROW E-commerce Value Share in 2017 1 South Korea (19.7%) FOOD AND DRINK* E-COMMERCE VALUE ( BN) 10 9 8 + 68% change in value 2 3 The UK (7.5%) Japan (7.2%) 7 6 5 4 3 The biggest challenge in the UK remains resolving tension between what connected consumers want and how retailers can deliver profitably 2 1 0 2011 2016 2021* SOURCE: KANTAR WORLDPANEL, IDG, MINTEL, EUROMONITOR, ANALYSIS *INCLUDES GROCERY AND ONLINE PLAYERS, DOES NOT INCLUDE FOODSERVICE 10

ONLINE IS THE MAIN DRIVER ON THE UK GROCERY RETAIL MARKET UK ONLINE GROCERY MARKET CHARACTERISTICS Largest players within online grocery in the UK are Tesco, Sainsbury s and pure player Ocado, seeing strong competition from newcomer Amazon Fresh The core online grocery buyers are younger consumers and consumers with high income The average spend per purchase remains higher online than offline; this high online spend is a combination of shoppers choosing online primarily for large stock up trips and retailers requiring a minimum spend UK online shoppers also buy more often than anywhere else, purchasing an average of 15.4 times a year in 2016, up from 14.1 in 2015 Consumers place increasing pressure on delivery times, which has become a competitive advantage among online retailers 50% of all Brits are current online grocery shoppers 1 in 10 Brits do all of their grocery shopping online 62.45 is the average UK online basket, making it the largest in the world 7bn is the value of the UK online grocery market (2016) SOURCE: EUROMONITOR, KANTAR WORLDPANEL, IDG 11

THE UK HAS REACHED THE POINT WHEN ALL RETAILERS FOCUS HEAVILY ON ONLINE SALES BECAUSE THEY HAVE TO, THEIR CUSTOMERS EXPECT THEM TO. RETAILERS IN THE UK RELY ON DIGITAL SOLUTIONS TO MAINTAIN MARKET SHARE. TIM BARRETT, SENIOR RESEARCH ANALYST RETAILING EUROMONITOR 12

DELIVERY WILL DRIVE GROWTH IN FOODSERVICE AS OPERATORS FACE CHANGING TECHNOLOGIES DELIVERY REACHES ALL MARKET PLAYERS While the foodservice industry as a whole is expected to continue growing, individual operators will face significant changes in terms of competition and industry roles Leading fast food brands face increasing competition from smaller boutique chains Operators struggle with how to best appeal to changing technologies and consumer trends affecting the entire supply chain Delivery has risen quickly to become a significant catalyst in the British foodservice industry, driving growth in foodservice visits year-on-year Rapid rate of expansion looks set to continue as companies like Just Eat, UberEATS and Deliveroo expand their reach across the country, encouraging more foodservice operators to adopt delivery as a route to market TOTAL FOODSERVICE VISITS AND YOY GROWTH 12 11,20 11,32 11,36 11,44 11,54 10 8 6 4 2 0 2015 2016 2017* 2018* 2019* Foodservice visits per year (billion) Growth in visits (year-on-year) 1,4 1,2 1 0,8 0,6 0,4 0,2 0 SOURCE: BHA MARKET REPORT 2016, NDA GROUP, THE CATERER *FORECASTED FIGURES 13

PRIVATE LABEL IS EXPECTED TO BE A MAJOR SOURCE OF GROWTH FOR THE UK GROCERY MARKET PRIVATE LABEL SHARE BY COUNTRY (2016) Spain Switzerland UK Germany Austria Belgium Portugal Hungary France Denmark Slovakia Finland Sweden 0% 10% 20% 30% 40% 50% 60% Volume Share 45,5% 41,4% Value Share PRIVATE LABEL GROWTH IN THE UK In 2016, private label made up 41.4% of UK value share, third highest in the world Over the past 5 years, total value market share has grown by approximately 0.6%, from 40.8% in 2012 to 41.4% in 2016. 60% of UK respondents believed that most private labels offer quality as good as brand names 70% of UK respondents believed private labels are usually extremely good value for money SOURCE: KANTAR WORLDPANEL, NIELSEN GLOBAL, PLMA YEARBOOK 14

A NUMBER OF PRIVATE LABEL CATEGORIES HAVE SHOWN STRONG GROWTH SINCE 2012 PRIVATE LABEL VALUE SHARE BY CATEGORY 90% +3.1% 80% 70% 60% 50% +2.4% +1.8% 0% 40% 30% -3.8% +1.7% -4.8% +1.1% 20% 10% 0% Delicatessen Bakery Dairy Frozen Non-alcoholic beverages Dry grocery Alcoholic beverages Confectionary 2012 2016 SOURCE: PLMA YEARBOOK 15

THE ORGANIC SEGMENT SHOWS STRONG GROWTH ACROSS THE UK FOOD RETAIL MARKET ORGANIC SALES ACROSS MARKET CHANNELS ( MN), 2015-2016 1 600 1 400 1 200 1 304 3.2% Growth 1 346 1 000 800 600 9.1% Growth 15.2% Growth 7.5% Growth 400 200 0 216 236 56 64 287 308 Supermarkets Box schemes and online Catering Other independent retailers SUPERMARKETS ARE THE LEADING CHANNEL FOR ORGANIC FOOD BUT GROWTH IS HIGHER IN OTHER CHANNELS SOURCE: SOIL ASSOCIATION ORGANIC MARKET REPORT 16

THE 4 LEADING ORGANIC RETAILERS ARE SAINSBURY'S, TESCO, WAITROSE AND OCADO Rank Retailer Grocery Market Share Organic Market Share (est.) Importance for Strategy PL Organic Brand Organic Range (2015) 1 Sainsbury s 16.8% 28% High SO Organic 709 product lines (300 SO Organic) 2 Tesco 28.6% 26% Medium Tesco Organic 742 product lines 3 Waitrose 5.4% 23% High Duchy 778 product lines (500 Duchy) 4 Ocado 0.5% 7% High 5 Asda 15.9% 4.5% Low Wholegood + Duchy ASDA Organic 3344 product lines 150 product lines 6 Morrisons 11.1% 4.5% Low M Organic SOURCE: KANTAR WORLDPANEL AND MARKET ESTIMATES 17

THREE WELL-KNOWN INDEPENDENTS FOCUS SOLELY ON ORGANIC FOOD IN THE UK GROCERY MARKET About: While Whole Foods is not exclusively organic, it has a strong loyalty to organic products within its range and stocks a majority of the main organic brands available elsewhere in the UK. Given that it is experienced in selling organic in the US and is a key player there, much of the future UK strategy will likely follow a similar approach. No of stores: 9 URL: wholefoodsmarket.com About: Planet Organic is an independent retailer in London with a young customer base. Planet Organic sells almost exclusively organic food and drinks, as well as many natural remedies and health and beauty products. Its newer stores focuses heavily on the food to go offer. No of stores: 7 URL: planetorganic.com About: as nature intended is a London-based, exclusively organic chain with stores in central locations. It focuses mainly on brands and offers a good springboard for smaller, innovative organic brands. It prides itself on working with passionate and knowledgeable suppliers with quality products. No of stores: 6 URL: asnatureintended.uk.com SOURCE: INTERVIEWS, COMPANY WEBSITES 18

THE UK ORGANIC MARKET IS FIRMLY ANCHORED WITHIN THE FRESH PRODUCE AND DAIRY SECTORS 2016 MARKET VALUES BY ORGANIC CATEGORY ( MN) 500 450 400 350 300 250 200 150 100 50 0 450 400 350 Dairy Produce Grocery Meat, Fish & Poultry Motivated by favourable media coverage on health benefits, the diary and produce sectors are typical entry points for new organic shoppers Much of the current growth in the wider sector is fuelled by successful organic brands who communicate clearly with consumers while also innovating at pace 180 170 Babyfood 45 Vegetarian and Chilled 32 26 14 Alcohol Bakery Frozen SOURCE: BORD BIA UK ORGANIC MARKET REPORT 2016 19

THERE ARE MANY POSSIBLE ROUTES TO MARKET FOR THE UK RETAIL MARKET AGENT / SALES REP DISTRIBUTOR PRODUCER / EXPORTER RETAILER END CUSTOMER WHOLESALER IMPORTER IT IS CRUCIAL TO HAVE KNOWLEDGE ABOUT THE MARKET IN ORDER TO CHOOSE THE MOST SUITABLE DISTRIBUTION MODEL 20

PRODUCER / EXPORTER RETAILER FOODSERVICE OPERATOR SIMILARLY, THERE ARE MANY POSSIBLE ENTRY ROUTES TO THE UK FOODSERVICE MARKET FOOD PURCHASED BY ROUTE TO MARKET 17% DISTRIBUTOR 11% 54% CASH AND CARRY 18% WHOLESALER Wholesaler Distributor Cash and Carry Other (including Retail) SOURCE: USDA 2016 FOOD SERVICE REPORT 21

WHAT DO COMPANIES THAT SUCCEED IN THE UK FOOD AND BEVERAGE SECTOR DO? SUCCESS FACTORS Carry out thorough market research beforehand in order to approach retailers with appropriate insights and understanding Make necessary adjustments to products and packaging, such as image and language, to suit the market Ensure a product has the necessary certifications, labelling and ingredient requirements Create a marketing plan and allocate the necessary budget to build your brand and consumer awareness of your product; allocate budget for tastings, product samples, advertisement, campaigns, etc. Understand your unique selling points, including what makes you different and how you add value, in order to tell a convincing story Set up the right logistics flow in order to be able to offer an attractive market price to your local partners and end consumers Understand what your target customers are looking for and how to reach them; similarly, understand what buyers selling to your customer group are looking for, and focus on the most promising segments and customers Be persistent and plan for the long-run: invest in and cooperate with local partners to show commitment to the market COMMON MISTAKES Believing the consumer immediately understands your products and offering Not making necessary adjustments to the market in terms of e.g. packaging, storytelling Being chosen by a retailer rather than choosing which retailer to work with Not allocating sufficient time and budget for the market Not setting up a proper logistical chain to reach an attractive price for the market Not setting proper pricing and margins when working with retailers and/or distributors 22

THERE ARE SEVERAL INTERESTING FOOD INDUSTRY EVENTS IN THE UK TO EVALUATE FOR 2018 Casual Dining Show Speciality & Fine Food Fair Food Matters Live Date: 21-22 Feb 2018 Location: London Website Register Date: 2-4 Sep 2018 Location: London Website Register Date: 20-22 Nov 2018 Location: London Website Register Jan Feb Mar Apr May Jun Jul Aug Sep Oct Nov Dec Natural & Organic Products Europe The Lunch Show London Food Tech Week Date: 22-23 Apr 2018 Location: London Website Register Date: 20-21 Sep 2018 Location: London Website Register Date: TBA for 2018 Location: London Website 23

THERE IS AN OPPORTUNITY FOR SWEDISH SUPPLIERS TO SELL AT THE TRY SWEDISH SHOP AT OCADO.COM THE TRY SWEDISH SHOP IS HIGHLY SUCCESSFULL AND CONTINUES TO GROW (SALES IN MN) THE OCADO DAY IS THE FIRST STEP TO BE A PART OF THE TRY SWEDISH SHOP 4 3,5 3 2,5 2 1,5 1 0,5 0 2013 2014 2015 2016 2017* Since 2012, Business Sweden has introduced Ocado to Swedish grocery suppliers that have been listed in the shop The close collaboration has resulted in the Try Swedish shop being one of the best performing among Ocado's international shops, with an increasing number of suppliers, products and sales figures each year The shop offers a unique opportunity to establish sales and distribution on the UK market, reaching 70% of British households Becoming a supplier to Ocado provides a shortcut to strategic expansion on the UK market The first step to becoming a supplier to the shop in 2018 is a prescreening by Business Sweden followed by a day at Ocado s HQ in London, including meet the buyer sessions and insightful workshops on how to sell online, optimising logistics, and using the tools provided to attract the UK s online consumers Date for Ocado Day is 23 January 2018 Interested in hearing more? Please contact: amanda.hallberg@business-sweden.se SOURCE: OCADO *FORECASTED FIGURES 24

A FOOD BUSINESS DAY WILL PROVIDE INSIGHTFUL INFORMATION AND STRENGTHEN THE LOCAL NETWORK FOOD BUSINESS DAY LONDON The UK provides a large market with consumers interested in trying new products and welcoming foreign cuisine The grocery market is large, but stagnating and highly competitive, placing pressure on food suppliers interested in growing in the UK Business Sweden has supported Swedish food suppliers in their internationalisation to the UK for many years, and will share its knowledge and network during a day in London Seminars, panel discussions and individual meetings will be held, focusing on how to increase brand awareness and grow sales on the UK retail market, covering questions such as: How to be attractive to different types of UK stakeholders How suppliers need to prepare to successfully grow What distributors expect from their suppliers What market trends are expected for 2018 and how Brexit might affect the UK grocery retail market Date for Food Business Day is 24 January 2018 Interested in hearing more? Please contact: amanda.hallberg@business-sweden.se 25

TEAM FOOD LONDON Amanda Hallberg Phone: +44 20 7258 5133 Email: amanda.hallberg@business-sweden.se Linda Fransson Phone: +44 20 7258 5143 Email: linda.fransson@business-sweden.se Edward Lindquist Phone: +44 20 7258 5145 Email: edward.lindquist@business-sweden.se For continuous updates, please follow us on: @BusinessSwedenUK http://www.business-sweden.se/storbritannien 26

ABOUT Business Sweden supports Swedish companies via its 50+ offices around the world, providing strategy and operations advisory services across industry sectors In-depth local knowledge and access to a global network of internal and external experts allow our 500+ professional consultants to help our clients reach their full international potential GROWING SWEDEN 27