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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
Page 1
The global economy is picking up, UK exports are growing
© IGD 2017 Sources: ONS, November 2017 Note: Codes refer to specific ONS measures Page 2
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 Page 3
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 Page 4
Grocery volume sales are falling
© IGD 2017 Source: ONS, November 2017 Note: Codes refer to specific ONS measures Page 5
-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 Page 6
-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 Page 7
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 Page 8
-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 Page 9
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 Page 10
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 Page 11
In future many shoppers could be open to switching
© IGD 2017 Image: Thinkstockphotos Page 12
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 Page 13
The grocery industry has many critics
© IGD 2017 Image: Thinkstockphotos Page 14
Introducing the Brexit Workout
© IGD 2017 Image: Thinkstockphotos Page 15
Team selection
© IGD 2017 Image: Thinkstockphotos Picture posed by models – your colleagues may be less glamorous Page 16
© IGD 2017 Image: Thinkstockphotos
Agree a definition of “Brexit-readiness”
Page 17
“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 Page 18 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
© IGD 2017 Page 19 Source: IGD Research, November 2017
© IGD 2017 Source: IGD Research, November 2017
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
© IGD 2017 Page 20 Source: IGD Research, November 2017
© IGD 2017 Source: IGD Research, November 2017
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
Page 21 Source: IGD Research, November 2017
© IGD 2017 Images: Thinkstockphotos (photo manipulation: M Flowerdew-Clark)
Classifying Brexit risk, time-led approach
Page 22
© 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
Page 23 Images: Thinkstockphotos
© IGD 2017 Source: IGD Research, November 2017
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
Page 24
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)
© IGD 2017 Page 25 Images: Thinkstockphotos
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
© IGD 2017 Page 26 Images: Thinkstockphotos
Some questions for you
© IGD 2017 Page 27
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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