uk strategic updatebfff.co.uk/wp-content/uploads/2017/11/james-walton-presentation.pdf ·...

UK strategic update The economy, shoppers and the elephant in the room

Presentation to the BFFF industry forum

© IGD 2017

22nd November 2017

Doubletree by Hilton, West End, London

The global economy is picking up, UK exports are growing

© IGD 2017 Sources: ONS, November 2017 Note: Codes refer to specific ONS measures

100

114

0

20

40

60

80

100

120

Oct 2015 - Sep 2016 Oct 2016 - Sep 2017

Valu

e (in

dex

Oct

15

– S

ep 1

6 =

100)

UK exports, all goods less oil (ELBM)

100

117

0

20

40

60

80

100

120

Oct 2015 - Sep 2016 Oct 2016 - Sep 2017Va

lue

(inde

x O

ct 1

5 –

Sep

16

= 10

0)

UK exports, food and beverages (BOGG + BQNB)

There are growing signs of economic weakness in the UK

© IGD 2017 Sources: GfK / Nationwide / ONS / SMMT, November 2017 Images: Thinkstockphotos

Overall economic growth slow

Shopper confidence weakening Car sales slowing, house prices sluggish

Concerns over household debt

Inflation heating up Real pay falling, esp in pub sector

Shopper confidence is dwindling

-15

-10

-5

0

5

10A

ug-1

4

Nov

-14

Feb-

15

May

-15

Aug

-15

Nov

-15

Feb-

16

May

-16

Aug

-16

Nov

-16

Feb-

17

May

-17

Aug

-17

Sho

pper

con

fiden

ce in

dex

(hig

her =

mor

e co

nfid

ent)

© IGD 2017 Sources: GfK, November 2017

Grocery volume sales are falling

© IGD 2017 Source: ONS, November 2017 Note: Codes refer to specific ONS measures

-2

0

2

4

6Ja

n-15

Jul-1

5

Jan-

16

Jul-1

6

Jan-

17

Jul-1

7

Gro

wth

, las

t 3m

on

sam

e 3m

yr a

go (%

)

Value sales (IEAU) Volume sales (IEFB)

Watch for new data 16th November 2017

Inflation is returning

© IGD 2017 Sources: ONS, November 2017 Note: Codes refer to specific ONS measures

-6

-4

-2

0

2

4

6

8

10

12

14Ja

n-00

Jan-

01

Jan-

02

Jan-

03

Jan-

04

Jan-

05

Jan-

06

Jan-

07

Jan-

08

Jan-

09

Jan-

10

Jan-

11

Jan-

12

Jan-

13

Jan-

14

Jan-

15

Jan-

16

Jan-

17

Ann

ual i

nfla

tion,

CP

I (%

)

All items (D7G7) Food & drink (D7G8)

Food prices have not yet regained previous levels

© IGD 2017 Sources: ONS, November 2017 Note: Code refers to specific ONS measure

10

20

30

40

50

60

70

80

90

100

110Ja

n-00

Jan-

01

Jan-

02

Jan-

03

Jan-

04

Jan-

05

Jan-

06

Jan-

07

Jan-

08

Jan-

09

Jan-

10

Jan-

11

Jan-

12

Jan-

13

Jan-

14

Jan-

15

Jan-

16

Jan-

17

Food

and

drin

k pr

ices

, CP

I (in

dex,

201

5 =

100)

Food & drink (D7BU)

Food prices peaked in Feb 2014

Prices are currently 3.7% below peak

Inflation is a critical determinant of worker prosperity

© IGD 2017 Source: ONS, November 2017

-6

-4

-2

0

2

4

6Ja

n-06

Jan-

07

Jan-

08

Jan-

09

Jan-

10

Jan-

11

Jan-

12

Jan-

13

Jan-

14

Jan-

15

Jan-

16

Jan-

17

Cha

nge,

last

3m

on

sam

e 3m

yea

r bef

ore

(%)

Av weekly earnings, nom Impact of CPI inflation Av weekly earnings, real

Shoppers seem focused on price change in food

© IGD 2017 Source: ShopperVista, IGD Research, November 2017 Base: 1,700 grocery shoppers Fieldwork: January 2017

0 20 40 60 80 100

Don't know

Other

None of these

House prices

Job security

Change in personal circumstances

Tax and benefit changes

Interest rates

No wage increase

Petrol prices

Energy bills

Food prices

Share of respondents (%)

Top personal economic concerns for the year ahead

A third of UK households have no cash in the bank

34

0

10

20

30

40

50

60

No

savi

ngs

< £1

,500

£1,5

00 -

£2,9

99

£3,0

00 -

£7,9

99

£8,0

00 -

£9,9

99

£10,

000

- £16

,000

£16,

000

- £19

,000

> £2

0,00

0

Sha

re o

f UK

hou

seho

lds

(%)

Value of savings and investments

© IGD 2017 Source: Family Resources Survey, DWP, March 2017

Seemingly well-off households can be vulnerable

15

0

10

20

30

40

50

60

< £1

00

£100

- £1

99

£200

- £2

99

£300

- £3

99

£400

- £4

99

£500

- £5

99

£600

- £6

99

£700

- £7

99

£800

- £8

99

£900

- £9

99

> £1

,000

All

hous

ehol

ds

Sha

re o

f hou

seho

lds

with

no

savi

ngs

(%)

Total weekly household income

© IGD 2017 Source: Family Resources Survey, DWP, March 2017

In future many shoppers could be open to switching

© IGD 2017 Image: Thinkstockphotos

Brexit introduces great business uncertainty

Labour availability and immigration policy

Supply chain friction and disruption; barriers to trade

Sterling performance, esp versus Euro

Food and farming policy, esp subsidy regime

Bank strategy and performance

Illegal migration – possible loss of food cargoes

IP protection and technical approvals

Credit cost and availability; monetary policy

© IGD 2017 Images: Thinkstockphotos

The grocery industry has many critics


Introducing the Brexit Workout


Team selection

© IGD 2017 Image: Thinkstockphotos Picture posed by models – your colleagues may be less glamorous


Agree a definition of “Brexit-readiness”

“Brexit-readiness” for grocery businesses: a suggestion

A supply chain able to provide food, drink and other essential goods

Which are healthy, safe and suitable for shopper needs

With options to suit shoppers at all income levels

During the Brexit period and the years beyond

Even if Brexit outcomes are not favourable to the UK

Without impacting business viability for any supply chain participants

Or the ability to respond to other possible shock events

© IGD 2017 Source: IGD Research, November 2017

3. Consult Work with supply chain participants to understand worst-case Brexit impacts

6. Evaluate Consider how representative your chosen product may be

of other items in the range

2. Itemise Break down all necessary inputs (not just ingredients)

5. Consider Explore possible actions that might mitigate Brexit risk (eg:

local production)

1. Identify Choose a product, perhaps your best-seller

4. Visualise Understand overall Brexit

risks / opportunities for your product

Get to work



Classifying Brexit risk, thematic approach

Cost / price

Product quality / integrity Supply / availability

New customs checks for imports = delays at UK border

Overseas suppliers less interested in

selling to the UK post-Brexit

Criminals target UK = more food fraud

Product reformulated =

change in taste

Sterling weakness = higher costs for imported ingredients

Tariffs on UK exports to Europe = exports less competitive



Classifying Brexit risk, Boston Box approach

Like

lihoo

d

Higher

Worse Potential impact

UK leaves EU trade deals with 3rd party

countries

New UK immigration rules create a sudden

shortage of labour

Brexit triggers deep recession and impacts

on share prices

UK strikes favourable new trade deals with

nations outside the EU

Source: IGD Research, November 2017

© IGD 2017

Lettuce, tomato • Origin: Spain (autumn and winter) • Brexit risk: illegal migrants, supplier dis-interest

Beef • Origin: Ireland • Brexit risks: food fraud, tariffs

Kitchen equipment • Origin: Germany, Switzerland • Brexit risk: engineering services, spares

Labour • Origin: 50% EU migrants • Brexit risk: migrants leave, locals uninterested

Let’s try it! Bun • Origin: UK (flour) • Brexit risks: structural change in UK farming

Images: Thinkstockphotos


Timescales for risks and solutions Day 1 Day 10 Day 100 Day 1,000

Labour Risk Morale for all

employees very brittle

EU employees begin leaving UK, labour shortages

Solution Communication / reassurance by management

Higher pay, to recruit UK-born staff

Investment in robotics to replace

humans

Lettuce Risk 10% tariffs on

imports from EU, delayed shipments

Solution Use stockpiled pre-Brexit lettuce

Import lettuce by air, paying extra tariff

Begin developing UK sources for

lettuce

Complete switch to UK lettuce

Kitchen equipment Risk

Breakdowns – spares hard to source from EU

Skilled engineers unwilling / unable to

work in UK

Solution Use stockpiled parts Begin training UK-

born staff as engineers

Use newly-qualified in-house engineers

Watch out for “wild card” effects

Illegal migration, leading to loss of food cargos

Capacity – what if multiple businesses do the same thing at the same time?

Panic buying by shoppers – or, indeed, businesses

Stockpiling and speculation in commodity markets

Constitutional change triggered by Brexit (eg: Scottish independence)

“Hidden” business inputs (eg: veterinary medicines)


Suggested stress tests for your Brexit plan

Dollar / Sterling parity

Euro / Sterling parity

EU-equivalent tariffs on imports to

UK

Implementation of “Real” Living

Wage1

Normal base-rate policy, ie: c.5%

Normal banking

conditions


Some questions for you

© IGD 2017

1. Are you making the most of export opportunities, even if they may prove temporary?

2. Do you have the opportunity to take share to compensates for static volumes?

3. What conversations should we be having with shoppers about prices, especially future prices?

4. Can you and your business partners gain market share if we have a period of economic turmoil?

5. What does Brexit-readiness mean to you?

6. How can you work with your business partners to develop Brexit-readiness?

7. Is it time to do the Brexit Workout?

8. Will you be a leader in the Brexit process?

9. What will you do about Brexit when you get back to the office?

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