UK/IRELAND: BREXIT Stalls Market Stability

The full effects of UK’s vote to leave the EU will not become clear for some time, however the Sterling Pound has lost value against the Euro.

By Ann Marie Foley

This means that EU products sold into to the UK are more expensive and UK products exported to EU are cheaper.

“We are seeing currency effected straight away, which has meant that there is a chance we will begin to see inflation creeping back into the economy and there is also the chance that the economy will either slow or go into recession,” Brian Young, Director-General, British Frozen Food Federation (BFFF) told Frozen Food Europe (FFE).

The Kerry Group has more than 20 factories throughout the UK which primarily service the UK market. Some 28 further manufacturing facilities in Ireland and globally sell into more than 140 countries, so the spread is wide enough to neutralize the effects of Brexit.

“It is a very uncertain scenario due to the amount of time that the Brexit arrangements may take, in terms of withdrawal from the EU and the negotiations,” Frank Hayes, Director of Corporate Affairs told FFE. “That will inevitably lead to, and has led to uncertainty, particularly relation to sterling exchange rate. That will have a modest effect in translation of profits.”

Initially many have absorbed the cost of currency fluctuations.

“I just don’t think there is the scope in margins now for retailers not to pass on some of these cost increases,” said Brian Young, BFFF.

Ireland which sends 41% of its food and drink exports, valued at EUR4.4bn, to the UK has more than a passing interest in Brexit, as the UK’s departure from the EU has been called. David Ruby, London Office, Bord Bia (Irish Food Board), has stated that the Brexit vote could lead to “some significant changes in consumer buying behavior” in the grocery sector.

A recent consumer study by Nielsen states that 37% of respondents (UK consumers) plan on changing the place they buy most of their groceries. Discounters are expected to gain from this, while support for local producers is expected to increase with 31% with respondents planing on buying more British products. 67% of shoppers think Brexit will mean a rise in grocery prices, whilst only 2% think they will fall.

Sophie Jones, Nielsen’s Senior UK Shopper Research Manager, expects short term volatility in the retail market with shoppers keeping conservative spending habits of the recession.

Mintel on the other hand states that consumers in various EU countries are more concerned about Brexit than the British. In a report, which covers consumer products from cars to foods, half of Spanish respondents Brexit will negatively impact their own economy, compared to 39% of British people.

Toby Clark, Director of EMEA Research at Mintel, said: “The results show how widely the repercussions of the Brexit vote have spread and clearly highlight the risk that uncertainty and disruption have, as well as the potential to drag down consumer sentiment across the continent as a whole.”

Brexit effects on frozen food market

Brian Young, BFFF, says that in a perverse way Brexit is good for retail sales of frozen food in the UK, while foodservice sales might decline.

“As the economy does less well, people buy more frozen food. Any deterioration in the economy is likely to be good news for retail. The contrary is true as far as foodservice is concerned,” he said explaining that less people will eat out.

The UK imports a substantial amount of frozen foods like confectionery and desserts from Germany and chips from Belgium.

“In foodservice their biggest food contract every year is probably chips and right now there are a lot of nervous people around because they are trying to buy chips for the next season and currency has gone against them,” said Brian Young, BFFF. “A lot will face significant increases on chips and the crop is not good this year either.”

UK Frozen Food Market

According to BFFF and Kantar Worldpanel frozen food sales are steady. Luxury goods have done well, like confectionery /desserts with 7% retail sales (value) rise during the 52 weeks ending 19 June 2016, having grown every quarter since 2014 to GBP301million (m) in 2016.

This is attributed to the trend towards more aspirational products – more expensive frozen products still considered value for money, such as frozen salmon wellington or lobster, or award winning Luxury Crème Brulee and Salted Caramel. Another a very successful product launch in recent years by Iceland is the Slimming World range of ready meals.

Overall frozen food sales fell by 0.9% YOY to GBP5680m on year end 19 June 2016. In the context of difficult retail trading and price wars between various retailers this is a good result according to BFFF. Trading up to fresh products such as meat and poultry saw declines in sales of -3.6% to £547m. Fish held its own at 1.5% increase to £760m, as it is priced competitively compared to other proteins like meat and poultry which rose in price.

Frozen ready meals fell by -2.2% to GBP659m, because consumers traded up from frozen to a chilled product. The Pizza category fell -1.1% to £425m, but saw repackaging Goodfellas brand with strong stand out presence in the freezer to compete with products like Dr Otker and Chicagotown. Savoury foods fell by -2.1% to £1024m.

Irish Frozen Food Market

This market has been in slight decline according to the Kantar Worldpanel and Bord Bia which put the 12 weeks value share to 19th June 2016 at -0.3% – a decline while the overall grocery market grew by 2.5%. “The decline in frozen fish negated the growth in frozen confectionery and frozen prepared foods pulling the category back into a value decline,” stated Bord Bia. Frozen confectionery grew by 6.1% in the quarter and frozen prepared foods by 2.3%. Fish declined by 14.1%.

Euromonitor put the value (RSP) of the market at EUR625.3m up slightly from EUR614.8m in 2014. In 2015 ice cream and frozen desserts was the largest category at EUR162.1m. Frozen processed fruit and vegetables (including potatoes) were worth EUR139.4m. Frozen pizza was worth EUR104.4m. Frozen processed seafood was worth EUR94.7m. Processed red meat and poultry were worth EUR62.9m. Frozen ready meals were worth EUR35.8m.