Scale, Disruption and Brexit

A new dawn for the UK food supply chains?

Contents
3 Executive summary

4 Part 1: Societal shifts in how, when and where we shop

8 Part 2: Consolidation is the name of the game

13 Part 3: The Brexit effect

23 Case studies
Groceries Code Adjudicator
Harvey and Brockless
SPAR

29 Checking out the shop landscape: Trends to watch

30 The tariff effect

31 Appendix

33 Further information

This report was researched, developed and produced by

Retail Economics in September 2018 for Barclays Corporate Banking.

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Executive summary
It’s a momentous time for the UK food and grocery sector. New technology, increased
consumer choice, fiercer competition and game-changing industry consolidation have
all led to a big shift in power between wholesalers, retailers and consumers.

Disruption is now the new normal across the sector. closer to home, buy produce from local suppliers and be For example, a hard or no-deal Brexit could mean:
To become more profitable and fit for the digital age, more ethical with what they put in their basket. They’re also
• New tariffs* of £9.3bn per year imposed on food
retailers have had to keep up with customer demands and looking for a wider, more pleasing shopping experience.
and drink imports from the EU
expectations. This has led to innovative strategic partnerships
that no one thought possible just a few years ago.
Playing out against the backdrop of these developments •  new average tariff of 27% for food and drink supply
A
is the UK’s future relationship with the EU. How will British chains compared to a 3– 4% non-food average tariff
businesses trade with the rest of the world and at what
Technological innovation is driving • Every consignment of goods from the EU will require a
cost? Companies need to be aware of how the challenges
customs declaration which starts at a minimum of £50
increased consumer choice. and opportunities for each scenario will impact on their
business and put contingency plans in place. • The average cost of complying with SPS (Sanitary and
The union of the UK’s largest retailer and wholesaler with Phytosanitary Rules) on imported food and drink from
Tesco’s £3.7bn acquisition of Booker started the ball rolling the EU could be equivalent to an additional 8% duty.
in 2017. There’s also a potential £7.2bn merger between
Sainsbury’s and Asda up for approval from the CMA
New tariffs* of No-one has a crystal ball when it comes to the future.
(Competition and Market Authority) though the CMA has
confirmed it requires further investigation. Add to the mix £9.3bn £ But looking at the history of the food and grocery sector,
it’s likely that it will continue to rise to the challenges of

per year
Amazon’s foray into the online food market, plus the rise of this fast-evolving landscape.
the discounters and it’s not surprising to see retailers taking
measures to adapt to these new market forces. At the time of
writing, the latest of these measures is Tesco’s launch of its new could be imposed on food and
discount fascia, Jack’s. As retailers and wholesalers continue to
form closer partnerships, it’s likely that consolidation, and the
drink imports from the EU
formation of strategic partnerships, will continue to ripple
In this report, we’ve included an overview of the food and
through the sector, including down the supply chain. Ian Gilmartin
grocery sector since the turn of the century in Part 1 and
Head of Retail and Wholesale
Technological innovation is also driving increased looked at current trends in Part 2. Part 3 focuses on the
Barclays Corporate Banking
consumer choice as takeaway and online options change different Brexit outcomes and what this is likely to mean
the way people buy and consume food. Environmental for the industry when it comes to costs and tariffs over *For details of individual product tariffs, and how this might affect your
considerations are also important as shoppers look to shop the five-year post-Brexit period. business or subsector, please see the appendices at the end of the report.

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Part 1: Societal shifts in how, when and where we shop
We have seen the shape of the grocery market shift considerably over the past 20 years,
matching the way we shop as consumers.

How did we get here? Figure 1

There was significant growth in the number of food stores throughout the UK
Since the early 2000s, the retail grocery market has been
dominated by the domestic expansion of the Big Four 10.0%
supermarkets – Tesco, Asda, Sainsbury’s and Morrisons.
Their market share increased from around two-thirds in 2000 8.0%

to three-quarters in 2007-2012. They also increased store

6.0%
numbers by around 60% from 2005 to 2012.1 Along with the

% change year-on-year
expansion of these large stores in out-of-town retail parks, 4.0%
the Big Four added more non-food products to their range,
such as clothing and electricals. They also branched out to 2.0%
banking, insurance and restaurant services. Thanks to digital
technology, retailers were able to offer customers more 0.0%

sophisticated shopping options, including online click and

-2.0%
collect and home delivery services. Source: Company reports
(Tesco, Sainsbury’s, Morrisons),
-4.0% Retail Economics analysis.
This growth was underpinned by substantial investment in
2007

2008

2009

2010

2011

2012

2013

2014

2015

2016

2017

2018
new stores and regional distribution centres, as well as the
IT infrastructure behind e-commerce and smarter logistics.
Despite modest sales volume growth across the food and What’s behind these changes?
In part, this rapid change in market structure was led by
grocery sector from 2007 to 2014, capacity across the Big
demand. Increasingly affluent consumers wanted more Many of the trends that emerged from 2004 to 2014 have
Four supermarkets is estimated to have gone up by 45%.
choice, convenience and shopping options. This in turn since been reversed. After the financial crisis, households
As a result, sales densities declined dramatically, falling in
changed how retailers served their customers. saw their disposable incomes go down.
real terms by around 32% over this period.
All of this led to fierce competition among the major And right when consumers started looking for cheaper
Meanwhile, discounters Aldi and Lidl have increased their
players for new sites, fuelling a sharp rise in the density of alternatives, new technology was enabling retailers to be
store base, built a stronger proposition and created a loyal
urban supermarkets. Indeed, the growth in supermarket more transparent around pricing, service and quality. This
customer base. As a result, their market share has increased
floor space outpaced sales for much of this period, gave discounters a much firmer foothold in the market.
from under 5% to over 7% during this period.
eating into sales densities and damaging productivity
for many years. 1
Company annual reports.

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Multiple choice Figure 2
Consumers tend to buy food more often, from a wider range Sales volumes per square foot of retail space
of outlets. Busier lifestyles, shifting preferences among
younger buyers, and the popularity of ‘en-route’ shopping
have seen a move away from supermarkets. From 2014 to
4.0%
2017, their share of the market fell from 62.9% to 55.4%.
2.0%

% change year-on-year
Instead, shoppers are embracing convenience, online and 0.0%
discount stores. The number of trips to bricks and mortar -2.0%
shops went up by 14.3% from 2013 to 2018. This came at -4.0%
the expense of the average spend, which fell by 8.5% in real
-6.0%
terms during this period.2 As households no longer needed Source: Company reports
-8.0%
to store a lot of food, food waste also fell by 12% between (Tesco, Sainsbury’s, Morrisons),
-10.0% Retail Economics analysis.
2015 and 2017.3

2007

2008

2009

2010

2011

2012

2013

2014

2015

2016

2017

2018
This has led to convenience stores becoming the fastest
growing physical channel within the traditional supermarket
channel. The convenience sector was estimated to be worth
£40bn in 2018, growing by 10% over the last four years,
compared to 7.1% for the overall industry.4 Figure 3
A reduction in real household disposable income growth put a sharp focus on value
Convenience stores have become the
fastest growing segment within the
10.0
3%
traditional supermarket channel.
8.0
Avg. real 
disposable income 0.4%
growth Avg. real 
Ease and convenience disposable income
6.0
% growth year-on-year

Two main digital shifts have emerged to affect the structural growth
composition of the sector. People are increasingly going 4.0

online to order staples, such as cereals and pasta, and more 2.0
bulky items before ‘topping up’ their shopping from
0.0
convenience stores. This is behind the fast-paced growth of
the online food market, which has increased by 12% on -2.0
average each year since 2010. Valued at £10bn, it is by far -4.0
the fastest growing channel for the major supermarkets,
-6.0
accounting for almost 7% of total food sales in 2017.5
1996

1997

1998

1999

2000

2001

2002

2003

2004

2005

2006

2007

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2009

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2015

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2017
2
Nielsen Homescan 3DEFRA. 4,5Retail Economics. Source: ONS.

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The popularity of casual dining platforms like Uber Eats, Figure 4
Deliveroo and Just Eat, has also led to a boom in the range, The move away from supermarkets has been fast
quality, convenience and competitiveness of takeaway food.
5.4% 6.4%
Estimated to be worth £10bn in 2017, the takeaway market 100%
90% 4.4% 5.6%
has grown by 34% since 2009, almost twice the rate of 6.2%
10.8%
80%
the retail food sector over this period.6 It now accounts for 70%
Other
21.0%
21.7% Online
around 5% of total spend on food and drink (including 60%
50% Discount
eating out), with a large part of this growth coming at the
40%
expense of the traditional grocery market. Convenience
30% 62.9% 55.4%
20% Supermarket
10%
Worth £10bn in 2017, the takeaway 0% Source: IGD.
2014 2017
market has grown by 34% since 2009.7
The sector has embraced new technologies such as online Figure 5
and smartphone apps. Investment in the development of More visits to the shop has reduced average basket values
ordering functionality on Facebook Messenger, Amazon Annual food shopping trips per buyer Average basket values per trip (£)
Alexa and Xbox, has also helped disrupt the food sector. 8.5%
reduction in average
basket volumes
More for less 2018 179
Given the pressure on household finances, consumers
£21.18 Source: Nielsen Homescan
have prioritised value-for-money over choice. This reduced £19.37 (2013 – 52 weeks to 4 January
loyalty to retailers and brands has led to a sharp rise in the
2013 157 +14.3% 2014 and 2018 – 52 weeks to
more shopping trips
11 August 2018). Includes grocery
discounter market share. As a result, the Big Four’s market multiples and discounters.
share declined to 68% in 2018 from its peak of just over 77% 130 140 150 160 170 180 190 2013 2018
in 2011.7 By contrast, Aldi and Lidl have more than doubled
their share of the market over the same period while being Figure 6
consistently more price-competitive than the Big Four. Online food sales have more than doubled from 2010 to 2017
It’s estimated that almost two-thirds of consumers visit Aldi 15,000 6.9% 8.0%
or Lidl as part of their overall shop.8 The combined market 13,000 7.0%
Online food sales (£m)

% of food sales online

share of the discounters is almost £1 for every £8 spent in 11,000
4.4%
6.0%
supermarkets, compared to £1 in every £25 just 10 years 9,000 3.5% 5.0%

ago.9 Offering value over range has resonated across all 7,000 4.0%
5,000 3.0%
social groups. It’s thought that a third of shoppers at the Online food (£m) LHS
3,000 2.0%
discounters come from the most affluent households.10 4,416 6,103 10,032 Penetration online food
1,000 1.0% (%) RHS
-1,000 0.0%
6
The Takeaway Economy Report 2017. 7,8,9Kantar World Panel. 10The Grocer. 2010 2013 2017 Source: Retail Economics.

6 of 33
 Healthier lifestyle choices Shopping as an experience
The growth in food volume is under pressure, as evidence on their health and the environment. Increased visibility The Retail Experience Economy touches all parts of the
suggests that people are consuming fewer calories than of nutrition and ‘traffic light’ labelling from supermarkets industry, from beautifully designed supermarkets that invite
they did in previous decades. Average calorie consumption and suppliers has also raised calorie consciousness. people to relax and socialise, to omnichannel services that
started declining in 2001 and has fallen by more than 8% offer same-day delivery on products they’ve ordered on
over the last 10 years.11 Another factor worth noting is that calorie consumption their phone or tablet.
falls as people get older. The median age in the UK was
37.6 years in 2000, which rose to 40.2 years in 2015.12 Meaningful experiences are becoming such an important
There’s growing evidence that consumers Meanwhile, the percentage of the population aged over deciding factor for consumers that, in some spheres, it
are more interested in what they eat, as 65 is expected to rise from 17.7% in 2014 to 23.3% within has led to a polarised market. At one end of the spectrum,
well as the impact this has on their health two decades. A reduction in calorie consumption also convenience and value have driven consumption of everyday
explains why food volume growth is failing to keep up with consumables. At the other, free coffee and sushi bars appeal
and the environment. to consumers who value the environmental, entertainment
population growth. If free movement were to end when
the UK leaves the EU, this would put further downward and educational side of their experiences.
This trend towards the consumption of fewer calories pressure on population growth in the coming years.
is likely to have been driven by the popularity of healthy Broadly, the proportion of household income spent on
living. There’s growing evidence that consumers are more recreation and culture, eating out, holidays and more general
interested in what they eat, as well as the impact this has 11
DEFRA. 12ONS. leisure pursuits has risen as consumers prioritise these activities.

Figure 7 Figure 8 Figure 9

Comparisons of market share shift – Big Four vs Discounters Average daily calorie intake is on the decline Food volume growth has not matched population growth

14 78 2450 0.80%
PER DAY
12 76 2400 0.60%

Average annual growth rate %

Market Share of discounts (%)

Market Share of Big Four (%)

Average calorie intake per day per capita

2350 0.40%
10 74 2,409
2300 kcal PER DAY 0.20%
8 72
2250 0.00%
6 70
2200 2,276 -0.20%
4 68 kcal PER DAY -0.40%
2150
2 66 -0.60%
2100

0 64
2,131 -0.80%
2050 kcal
2008

2009

2010

2011

2012

2013

2014

2015

2016

2017

2018

Avg. annual population growth (2005-2007)

2000
Avg. UK daily average calories consumed per capita (2005-2007)
Aldi and Lidl Big Four 1950
2001 2008 2017 Avg. annual UK food volume growth (2005-2007)

Source: Kantar Worldpanel. Source: DEFRA. Source: ONS, DEFRA, Retail Economics analysis.

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Part 2: Consolidation is the name of the game
The seismic shifts in the UK grocery landscape have had a profound impact on retailers and
their suppliers. A decade of rapid physical expansion and a shift in consumer preferences
have also led to a disconnect between business models and consumer needs.

Retailers have shifted their strategies to become more Figure 10

competitive and productive, and to secure future growth. Simplified food supply chain model
As a result, the line between wholesaler and retailer has 65.6 million people
become increasingly blurred. UK population

The flow chart shows a simplified food supply chain,

£220bn
highlighting the area under the greatest amount of Total consumer expenditure
on food, drink and catering
pressure for consolidation.
£96.2bn £124.2bn
Consumer expenditure Household expenditure
Rebalancing costs catering services food and drink
Operating costs for retailers rose by 2.9% in 2017, outpacing
industry sales growth and putting margins under intense
Caterers Food and drink retailers
pressure. Part of this rise was driven by the National (restaurants, cafes)
Living Wage, National Minimum Wage, business rates, the Gross Value Added – £32.4bn Gross Value Added – £29.8bn

Apprenticeship Levy, utilities and other central costs. From Employees – 1,680,000 Consolidation
Employees – 1,120,000

2008 to 2016, total employment costs rose by 30% for food Enterprises – 120,903 Enterprises – 53,233
Sites – 458,314 Sites – 86,332
wholesalers and 29% for retailers. And when import costs
went up in 2016 after the post-Brexit currency dip, so did
sourcing costs. Food and drink wholesalers

£12bn 230,000 15,938

Despite these pressures on operating margins, consumers Gross Value Added Employees Enterprises
haven’t been impacted too much. Historically, the extent to
which retailers have passed through costs is closely linked
Food and drink manufacturing
to loss of market share and share price drops. The last time
Includes everything from primary processing (milling, malting, slaughtering) to complex prepared foods
UK shoppers faced a 5% price rise in their food shopping
bills was in 2011. This marked the start of a five-year period £28.8bn 390,000 9,844 11,296
Gross Value Added Employees Enterprises Sites
where the Big Four grocers lost around five-percentage
points of their market share to discounters. Farmers and primary producers
Source: DEFRA.

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As a result, retailers have been forced to sacrifice margins Jack’s, Tesco’s answer to Aldi and Lidl, is expected to open over Labour cuts
and seek cost reductions in their own businesses and from 10 stores in a variety of locations, including underperforming Refocusing on the core food business has led to more
suppliers to remain price-competitive. In turn, suppliers have stores and new sites, by the second quarter of 2019. Like its streamlined management structures. This has meant
been under similar pressure to cut costs and become more competitors, it will offer both own-brand and familiar grocery fewer head office jobs, and a reduction in overall headcount,
efficient. Both retailers and wholesalers have reshaped their brands, with a range of general merchandise available on a which has lowered costs at store level. In essence, a simpler
operating cost base in three main areas: space reduction, ‘while stocks last’ basis. business model needs fewer people.
simplifying the product range and cutting staff numbers.
The unique mix of private label, premium quality and general Store wars
Space to fill merchandise products, typical of hard discounters, allows Achieving market growth for the Big Four has become a
Stores are reducing or simplifying space, or repurposing excess them to sell at low prices while maintaining high margins. zero-sum game, with one retailer’s market growth coming
capacity. The number of stores across the Big Four consistently at the direct expense of the others. Retailers have kept
fell between 2012 and 2016. Equally, the rapid expansion of Back to basics cutting prices to close the gap with their competitors,
discounters has also slowed as suitable locations become Retailers have also been simplifying their range by working while also investing in differentiating their brand and
harder to find. Since 2015, overall space has declined by 1.5%, more strategically with fewer suppliers over a longer period services to regain customer loyalty. While this might be
although Aldi and Lidl continue to expand, even if it’s at a of time. This has reduced the number of product lines, less destructive than an all-out price war with discounters,
slower rate. The German giants will have to continue adapting introduced clearer price architectures and cut the end-to-end it has led to increasingly smaller margins. When each
how they operate as they face more direct competition from cost of goods. Retailers are under pressure to simplify the retailer invests in lower prices to protect market share,
retailers like Tesco, which has already taken steps to regain offer for consumers, dedicating more shelf space to more profit margins go down for the whole sector.
market share. popular items.

Figure 11 Figure 12 Figure 13

Total employment costs facing food wholesalers Operating costs facing food retailers have risen Comparisons of net store changes across
and retailers have been closely aligned faster than sales growth discounters and supermarkets
135 3.0 350
298 2012 297
130 300
2.9%

233 233
2.5
Percentage point contribution

250

Net change in stores

125
200 162
2.0
120
150 100 91
84
115 1.5 100
Total operating cost

39
110 50 7 16
1.0 -8
0
105
0.5 -50
100

2012

2013

2014

2015

2016

2017
95 0.0
Big Four Discounters
Labour

Distribution

Advertising
and central
costs

Rent

and fuel

Rates

costs

Utilities
2008

2009

2010

2011

2012

2013

2014

2015

2016

Source: LDC. (Note discounters include Aldi, Lidl, Iceland, Poundland,

99p stores (sold in 2016 to Poundland), Poundstretcher, Poundworld,
Source: ONS. Food wholesale Food retail Source: Retail Economics analysis. Home Bargains, B&M Bargains and Farmfood).

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 With such big overlap between competitors, the Big Four They also supply restaurant chains such as Wagamama, If the CMA does approve the potential £7.2bn merger between
are fighting to maintain excess capacity despite diminishing Carluccio’s and Loch Fyne. The foodservice market was Sainsbury’s and Asda, the deal would create the largest
returns. In other words, retailers would rather keep a estimated to be worth £10bn in 2017, with Booker’s grocery retailer in the UK, with a combined market share of
marginally profitable store open because closing it would market share around 18%, despite being the market over 30%.13 In the quest for scale and enhanced profitability,
gift market share to competitors. leader. The vertical acquisition combines both the the deal would generate combined cost-saving synergies
largest retailer and wholesaler in the UK with synergies of at least £500m. These would be realised through shared
Store closures can also be incredibly expensive if leases are
between the two worth around £200m (0.3% of capabilities, supplier cost harmonisation and operational
long and inflexible. That means that marginal stores need
combined sales). efficiencies. Sainsbury’s has suggested that the merger could
to experience heavy losses before there’s a commercial
justification for closing them. Against this backdrop, grocers lower prices by around 10% across many core products,
The merger is likely to drive further revenue from existing further closing the gap between them and the discounters.
are turning to more innovative solutions such as acquisitions
Booker customers because of the enlarged distribution
and strategic partnerships to secure their future growth.
network, improved access to products, increased brand However, increased scale across the combined group would
Diversifying to grow recognition and competitive pricing. The deal has been almost certainly lead to pricing pressure on their suppliers.
When Tesco announced the £3.7bn acquisition of Booker the catalyst for further consolidation in the UK wholesale The 10% price reduction across core products depends on
in 2017, it set the tone for the scale of disruption facing the and symbol industry. Soon after the Tesco/Booker the harmonisation of sourcing costs between the two retailers.
industry. Booker owns the Premier, Londis and Budgens announcement, Sainsbury’s looked to acquire NISA but So, where there is a price difference from the same supplier,
brands, and is the main cash and carry wholesaler to didn’t go ahead. This cleared the way for the Co-op to the price would fall to the lowest common denominator –
hundreds of independent convenience grocery stores. acquire NISA in a £143m takeover in May 2018. or at least, that’s the basis of their calculation.

13
Figure 14 Figure 15 Kantar – August 2018.

Tesco, Sainsbury’s and Morrisons have reduced their workforce for the last three years Grocery market by channel

3.0% 100%
5.4% 6.4% 5.7%
90% 4.4% 5.6% 7.5%
6.2%
2.0% 10.8%
80% 14.1%
2.6% 21.0%
% change year-on-year

2.0% 2.0% 70%

1.0% 1.8% 1.8% 1.6% 21.7%
0.9% 22.1%
1.1% 60%

0.0% 50%

-0.4% 40%
-1.0% -0.5% 62.9%
30% 55.4% 50.5%
-2.4% 20%
-2.0%
10%
-3.0% 0%
2014 2017 2022F
2008

2009

2010

2011

2012

2013

2014

2015

2016

2017

2018

Source: Company reports, ONS, Retail Economics analysis. Source: IGD. Supermarket Convenience Discount Online Other

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Amazon: Hungry for more Figure 16 (CSG) network of 2,200 Costcutter, Mace, Simply Fresh,
Given their potential to disrupt the market, Amazon’s Average area per store – Big Four estimate Supershop and kwiksave convenience stores. The deal
acquisition of Whole Foods in 2017 has raised eyebrows. also gives CSG’s independent retailers the opportunity
105.0
Although the company’s UK market share for food remains to become Co-op franchises, although a bid by Co-op to
modest, it’s clear that they see the food sector as a significant 100.0 acquire Costcutter outright in 2018 was rejected.
opportunity. After all, Amazon has successfully transitioned

Index 2006=100
across numerous retail verticals; moving from books and
95.0 Supermarkets are also finding other ways to use excess
media to consumer electronics to household goods to capacity by forming tie-ups with other businesses, including
90.0
apparel. It’s likely that food and consumer packaged goods fashion retailers Next and Arcadia, Dixons Carphone, Holland
will experience further disruption as Amazon makes headway 85.0 and Barrett and food and beverage company Crussh.
into the market. The merger of Today’s Group and Landmark
80.0 These ‘store-in-store’ concepts offer an arrangement
to create Unitas Wholesale with a joint turnover of over £1bn

2006

2007

2008

2009

2010

2011

2012

2013

2014

2015

2016

2017

2018
that suits both sides. The supermarket can sweat their
is a sign of further consolidation in the wholesale sector. It
assets more effectively, while the partner typically benefits
will create a more sustainable wholesale business, driven by Source: Company reports, Retail Economics analysis.
from increased footfall and an improved network of
enhanced scale, relevance and capability.
click-and-collect destinations. This trend is expected
Overall, the relentless drive towards improving operational to continue. Across borders, the strategic relationship
Figure 17
efficiencies, particularly in logistics and improved buying announced in July 2018 by Tesco and the French retailer
The convenience market has become much more
capability, supports the rationale for further consolidation Carrefour highlights the opportunity to achieve scale
competitive as multiples grow market share
in both the retail and wholesale markets. without acquisition. While there are considerable
50,000 complexities with this approach, it won’t stop suppliers
All joined up 45,000 2,277 fearing a further erosion of their margins.
+11% 2,535
The lines between retailers, wholesalers and suppliers are 40,000
3,756 +32% 4,940
becoming increasingly blurred as retailers form partnerships +3% Behavioural shifts
35,000 8,377
which span sectors, transcend supply chains and cross 8,593 Changing consumer behaviour is behind the most
30,000
borders. Morrisons’ 2017 supply agreement with McColl’s -9%
disruptive industry changes as retailers prioritise their
25,000
Number of stores

opened the door for the supermarket to supply McColl’s 13,538 investment in convenience stores and online capabilities.
20,000 12,378
1,300 convenience stores and 350 newsagents. It has also
resurrected the Safeway brand as a wholesale label offered 45,000 The distribution of grocery sales by channel shows that
-7%
exclusively to McColl’s for a limited period. And Morrisons’ 15,000 supermarkets still account for the majority of sales.
high-profile agreement to supply Amazon, along with its 10,000 18,826
However, the rapid fall in supermarket sales is expected
17,816
tie-up with Rontec and Sandpiper, is expected to take the to further decline as online, convenience and discounters
5,000
company’s wholesale operations past £700m in 2018 with increase their share of the grocery market.
0
a target of £1bn by 2020. 2013 2018
As a result, the incumbent retailers are restructuring to
Independent Symbol Group Forecourt
In November 2017, following the administration of Palmer capture this shift in sales. While overall store numbers have
Multiple Co-Operative
and Harvey, the Co-operative Group became the exclusive plateaued across the Big Four, average store size has fallen
wholesale supplier to Costcutter Supermarkets Group’s Source: ACS, Retail Economics analysis. by over 15% since 2006.

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This suggests that retailers are downsizing fast. Additionally, offers an almost unlimited magnitude of stock-keeping Own-labels the key to boosting margins
Aldi and Lidl don’t offer full ecommerce propositions, units (SKUs), the real estate on desktop and mobile screens Given the intense pressure on profitability, retailers are likely to
and their operating model is unsuited to expand into the is limited. They might have more choice, but consumers will promote their own-brand products rather than branded goods.
convenience market. This gives the incumbent retailers still be viewing things through a narrow lens. This could have far-reaching consequences for the wholesale
a significant competitive advantage. and supplier markets. Exclusive, strong own-label and focused
We expect online will continue to support greater growth in premium brands not only stand out from the competition; they
With the convenience sector becoming a more important the takeaway market through increased use of aggregator also have higher margins. Retailers have also enhanced their value
route to market for retailers, competition within the channel platforms, such as Just Eat, and hard platforms such as range to compete with discounters. In some categories, own-label
has intensified. The look of this offering is changing too, Deliveroo and Uber Eats. Although still in their infancy, products now account for over 50%17 of the grocery market as
with many facias being retrofitted like mini-supermarkets. dark kitchens (purpose-built kitchens that house multiple they continue to be one of the fastest growth categories; their
As well as a range of chilled foods, fresh produce and eateries that are not open to the public) which purely growth outstripped that of branded products from May 2015 to
alcohol, these stores are increasingly selling ‘food-to-go’. service takeaway orders, have the potential to disrupt August 2018.18 In 2018, Tesco announced that they are about a
particularly the convenience sector. Restaurants don’t quarter of the way through launching 10,000 own brand products.
This has put independents and symbol groups (wholesaler need to use their high rent, customer-facing kitchens to They’re also cutting back on the number of suppliers they work
facias) under pressure. While the overall number of outlets prepare takeaway food; instead they can effectively use dark with to simplify the business, putting further pressure on suppliers.
has remained fairly static since 2013 (declining by 1.2%), kitchens. Deliveroo is pioneering this model in partnership
in 2018 the value of the sector went up from £36bn to over with Wagamama, one of 80 restaurants located across What’s next for the industry?
£40bn.14 A significant proportion of this growth has been 11 dark kitchen sites throughout the UK.
driven by the larger presence of the multiples. They increased The food and grocery sector is going through a period of painful
their store numbers by 32% from 2013 to 2018 while the readjustment. The relentless focus on structural transformation
Figure 18 through a programme of cost reduction has been central to
number of independent outlets and franchisees, for example
Spar, fell by 7% and 9% respectively during this period.
The penetration of own-label is the recovery of profitability, accompanied by improvements in

74%
significant across key categories industry-level productivity. The spotlight is now on the changing

67%
Moving online supply chain dynamics as consolidation and collaboration
Meanwhile, the online food market grew by over 17% in continues, driven by the need to scale. We expect to see more
55%

55%

55%
2017 compared with the previous year.15 By 2022, online conversations between retailers and wholesalers, wholesalers
45%

45%

45%
food sales are expected to rise by 48% as consumers and symbols groups, and even large-scale logistics companies.
continue to become more comfortable buying online.16
Overall, the industry has a renewed, laser-like focus on customer’s
33%
What’s more, Gen Z and millennials will also become

26%
needs in the context of wider market developments. Retailers are
more commercially important.
now more agile and fit-for-purpose than at any point over the last
Technological innovation will also accelerate transformational decade. With stronger balance sheets, renewed focus and firmer
change in the sector. Artificial intelligence will power the strategies in mind, the pace of structural change is likely to
uptake of subscription purchasing models and automated accelerate. Nevertheless, business investment is based on
ordering, and offer consumers more convenience. Customer certainty. And with Brexit looming, there may be reasons to
preference can also be more personalised online. But as a Chilled food Frozen food Dairy Canned food Ambient food
pause for thought before re-engaging in the battle.
higher proportion of food sales moves online, supply chains 14
ACS and Retail Economics. 15Retail Economics. 16IGD.
could narrow further. And while the online grocery model Source: The Grocer. Brands Own label 17
The Grocer. 18Kantar Worldpanel.

12 of 33
Part 3: The Brexit effect
In 2017, the UK imported £48bn worth of food and drink, approximately 40% of
the total UK market. Of these, 71% originating from within the EU entered the UK
free of customs duties and other trade costs.19

Following Brexit, food and drink supply chains could face an What would be the impact of a hard, or no-deal, Brexit? Meanwhile, discounters at the lower end of the market,
average tariff of 27%, significantly higher than the average trading in meat, dairy, cereals and wine, will experience a
non-food tariff of 3-4% in other sectors.20 While these new The outcome of a hard, or no-deal Brexit (where the UK and heavier tariff burden compared with companies operating
levies could be severely disruptive in terms of rising costs, EU apply their standard tariffs to each other’s trade) would at the upper end of the market. In essence, a large
there could be opportunities to reduce these tariff costs in a impose the highest quantum of new costs. Based on import proportion of the tariff burden is based on the weight
scenario that saw the UK outside the Customs Union. The statistics in the 12 months leading up to May 2018, this of the imported produce, meaning it does not discriminate
government could decide to reduce tariffs quickly, especially would amount to new tariffs of £9.3bn per year on food against quality.
across products where a tariff would serve no useful purpose. and drink imports from the EU.21
Our analysis shows evidence of ‘tariff escalation’ across
Either way, UK retailers and wholesalers are entering a period Food and drink tariff rates will be higher than those in food and drink product supply chains, with finished
of heightened uncertainty. Any outcome other than a full any other supply chain. All stages within the food supply products attracting a higher rate of duty than primary
Customs Union will see additional costs imposed on the overall chain will experience increased costs, with retailers hit and semi-processed goods. This will have a much bigger
food supply chain. However, the government has proposed disproportionately as processed goods attract higher duties impact on retailers than suppliers, and go further down
measures to minimise the worst effects of the new tariffs, some than raw materials and semi-processed goods. Wholesalers the supply chain.
of which could come into immediate effect when the UK leaves will also experience significant cost increases, but to a
the EU, scheduled, at the time of writing, for March 2019. lesser degree. 19,20,21
WTO, HMRC, Retail Economics analysis.

Figure 19
Average weighted tariff for food and drink is considerably higher than other industries

Food and drink tariff rates will be

4% 10% 11% 27% higher than those in any other
supply chain.

Non food Cars Apparel Food and drink

Source: WTO, HMRC, Retail Economics analysis.

13 of 33
These tariffs will apply to most oil seeds. They’re exempt Figure 20 Other costs on food and drink imports
of duty in their raw state, but attract a rate of up to 9.6% when Food and drink tariffs rise as they move further Under a hard Brexit, each and every consignment of goods
converted to usable oils. In specific cases, duty rates are higher down supply chain from the EU will need a customs declaration, which will cost
for goods that are packaged for retail than for bulk-packed at least £50.
35%
goods, for example milk, green tea, palm oil and tinned fruit.
Food and drink marketed within the EU must satisfy
Again, this imposes a higher tariff burden for retailers and 30%
stringent regulations designed to protect humans, animals
others operating at the end of the supply chain.

MFN as % of impact value

25% and plants in a country from risks associated with additives,
Higher costs for lower value products contaminants, toxins, pests and diseases. These are known
‘Specific duties’ is the term applied to food and drink tariffs 20% as SPS (Sanitary and Phytosanitary Rules). Under a hard
when expressed as a fixed amount of money per weight or Brexit, all products of animal origin will require veterinary
15%
volume of product. Nearly all meat products, dairy, cereals, checks at the border.
olive oil, wines and sugar-based foods would be subject to 10%
these specific duties. The UK imported £13.8bn worth
5%
of food and drink from outside the
A hard Brexit would add disproportionate 0%
EU in 2017.
Primary products/ Semi-processed Fully processed
cost pressures on discounters. raw materials food and drink food and drink

Source: WTO, HMRC, Retail Economics analysis.

Industry bodies, the Food & Drink Federation and the
By nature, specific duties impose a relatively heavier burden Agricultural and Horticultural Development Board, estimate
on lower value transactions. A hard Brexit outcome would that the average cost of complying with SPS rules on
Lower costs for some products
mean companies operating in supply chains with large imported food and drink from the EU would be equivalent
The government has announced that in the event of a
numbers of specific tariffs will find that when trading to paying an extra 8% in duty.
no-deal Brexit, the UK’s MFN tariff rates could differ from
with the EU, the lower the value of their goods, the higher the
rates imposed by the EU. Although this might simply be Imports from outside the EU
proportion of their overall tariff burden. Duties, particularly on
acknowledging that the UK will be free to set its own The UK imported £13.8bn worth of food and drink from
meat products, can be significant. For retailers, a hard Brexit
tariffs, it’s a departure from the previous narrative which outside the EU in 2017. The cost of sourcing may change for
would add disproportionate cost pressures on discounters
suggested the UK would mirror the EU’s MFN tariffs after those countries that currently enjoy lower tariffs as a result
and the value ranges, given the way duties are applied.
Brexit. This might not signal a wholesale change to tariff of lower bilateral trade deals that the EU has negotiated.
For instance, the products that will be hardest hit are likely rates, but suggests the government might take a more This would include South Korea, Mexico, Chile, South Africa
to be meat products, sugar, milk powder and cooked or targeted approach, focused on reducing high tariffs on and Canada. Tariff rates on food from existing MFN
preserved mushrooms. products where there is no domestic alternative. There are suppliers, for example the United States, Thailand, New
already a few examples of this with food and drink products Zealand, China and Brazil, are unlikely to change.
There is no broad-brush approach to tariff setting on food such as olive oil, citrus products and tuna.
and drink. Some products have a MFN (most favoured Meanwhile, tariffs on food from developing countries like
nation) tariff of 0%. This means that even in the case of a Outside of a Customs Union, the UK would be free, India will remain low, as the UK Government has already
hard Brexit, tariffs will not apply to these imports. This whenever it wishes, to reduce its MFN tariffs for products committed to continue a scheme of tariff preferences for
would include almost all spirits, beer, spices and oil seeds. where a tariff would serve no useful purpose. developing countries.

14 of 33
What will happen to Tariff Rate Quotas? Identifying what TRQs are available, and What would be the impact of a free
TRQs (Tariff Rate Quotas) are specified amounts of trade agreement?
particular products that can be imported into the EU at
understanding how they can be accessed,
a lower duty than the MFN rate. Vast amounts of TRQs will be crucial for companies trying to For ease and practicality, we’ve defined a free trade agreement
(FTA) as: ‘any agreement between separate customs territories
operate within the EU for different food and drink products minimise the burden of new tariff costs
and significant quantities of these are imported into the which grants preferential terms of access (lower/no tariffs)
post-Brexit. to each other’s market’. This definition takes in relatively
UK under the lower TRQ rates. Select TRQs are specific to
individual supplier countries, while others are available to restricted agreements, such as the one between the EU and
any supplier country.
What would a full customs union mean for Chile, as well as more sophisticated arrangements which
the industry? include co-operation in a wide range of non-trade areas,
It’s unclear what TRQs the UK would adopt post-Brexit. But like the EU’s EEA (European Economic Area) agreement
Although the government has ruled out a full customs
identifying what TRQs are available, and understanding how with Norway.
union between the UK and the EU, widespread support
they can be accessed, will be crucial for companies trying to
exists for this option within parliament and the business A UK-EU free trade agreement would avoid some, but not all,
minimise the burden of new tariff costs post-Brexit.
community. Because the EU has said that a customs of the costs that would arise from a hard Brexit. In particular,
union with the UK could be possible, looking at the effects an FTA could avoid all tariffs on trade between the UK and the EU.
of this outcome is essential for a thorough post-Brexit
Figure 21 However, it’s worth noting that:
trade assessment.
Evidence of tariff escalation on a sample of imports •  one of the EU’s existing free trade agreements remove
N
In terms of tariff and trade costs, a customs union is the all tariffs for food and drink. For example, the EU-Norway
Imports Total value MFN tariff as  ‘no change option’. A full customs union could avoid almost agreement excludes food and drink altogether, applying
f rom EU  of MFN tariff  percentage of all the costs associated with a hard Brexit including:
(£m) (£m) import value significant tariffs in both directions. It’s possible that any
• No tariffs on trade between the UK and the EU future UK-EU free trade agreement might still keep
some tariffs
Primary products/
• No change to tariffs on imports from outside
5,650 547 9.7% •  roducts, including food and drink, would need to
P
raw materials the EU
satisfy stringent rules of origin to benefit from lower
• Potentially no customs declarations for trade
tariffs. Non-compliance to these rules would lead to
with the EU
goods being subject to the MFN rate of duty
Semi-processed
6,523 1,922 29.5% • Continued access to EU-wide TRQs
food and drink • Customs declarations would be required for all consignments
However, a solitary customs union agreement would only •  ariffs might rise for imports from non-EU countries
T
cover customs regulations. There would still be SPS checks where the government hasn’t been able to extend
at the border unless the UK remains within the EU system existing free trade agreements
Fully-processed 
15,490 4,803 31.0% for SPS issues.
food and drink •  PS checks would apply at the border unless the UK
S
But remaining in a customs union would mean the UK remained within the EU SPS system
would be bound by EU trade policy and unable to strike •  UK-EU free trade agreement would allow the UK
A
Source: WTO, HMRC, Retail Economics analysis. preferential trade agreements with other countries. Government to strike deals with other countries.

15 of 33
What would be the impact of the What would Brexit mean for exports? UK food and drink exports to non-EU countries
Chequers plan? Brexit is unlikely to have an impact on tariff rates in most of
Food and drink exports form a critical part of the overall the UK’s Top 10 food and drink markets, seeing as they
In July 2018, the UK Government published a White Paper economic value of the UK’s food supply chain. For exports already trade with the UK on standard MFN terms. This won’t
(the ‘Chequers plan’) outlining its own proposals for a to the EU, actual costs would depend on the Brexit terms. change when the UK leaves the EU. MFN markets include the
post-Brexit trading relationship with the EU. The proposal A hard Brexit would lead to the UK facing new tariffs on US, China, Hong Kong, Australia, UAE and Taiwan, but the
appears fairly complex, but essentially it is a policy sales to the EU. At the other end of the spectrum, a agreements are slightly different for each country.
hybridisation – a Customs Union/Free Trade Agreement customs union with the EU would mean no new tariff
that’s aligned to SPS rules. costs. In other markets, leaving the EU might mean new The US
tariffs on UK exports, but what Brexit ends up looking like This is by far the largest export market for UK food and
The main features are: will have no bearing on the level of these tariffs. drink outside the EU, and alcoholic beverages dominate
• No tariffs on trade between the UK and EU the top 10 UK export categories. Whisky alone accounts
for 40% of UK food and drink exports to the US, along with
• No rules of origin on trade between the UK and In the event of a hard Brexit, restrictions significant amounts of gin, vodka, other spirits and beer.
the EU
on UK goods entering the EU would mirror The standard US MFN rate for all these products is 0%,
• No customs declarations meaning that well over half of UK food and drink exports
those for EU goods entering the UK.
• UK tariff levels set independently to the US will continue to enjoy duty free access to the US
regardless of Brexit.
•  K to operate a dual tariff system, collecting duties
U EU tariffs
at the UK rate (for goods destined for the UK) and 60% of UK exports go to the EU.22 In the event of a hard The US operates TRQs for some food and drink products
the EU rate (for goods destined for the EU) Brexit, these goods would face the EU’s standard MFN tariffs, but as none of these are specifically reserved for trade with
• UK alignment with EU SPS rules – avoiding SPS along with a need for customs declarations and veterinary the EU, the UK will be able to access these quotas as before.
checks at the border. checks at the border. So restrictions on UK goods entering
China
the EU would mirror those for EU goods entering the UK.
Salmon is the UK’s top export to China, closely followed by
The Chequers plan proposal appears Even with a hard Brexit outcome, some UK food and drink whisky. Other significant items include powdered milk and
fairly complex but essentially it is a products would avoid standard MFN tariffs by exporting pork products. Scotch whisky exports are set to benefit
through generally available Tariff Rate Quotas (TRQs) which regardless of Brexit – in 2017, China reduced its MFN rate on
policy hybridisation. offer lower duty rates. whisky from 10% to 5%.

Theoretically, the Chequers plan will provide two main Scotch whisky exports to the EU, valued at £1.38bn in China operates TRQs for some food and drink products, but
benefits: UK traders would avoid all new costs on trade 2017/18, (11.6% of the total UK food and drink sales to the as none of these are specifically reserved for trade with the
with the EU, and the UK would be able to pursue new trade EU) would be unaffected by tariffs in any event, as the EU’s EU, the UK will be able to access these quotas as before.
deals with other countries. However, the plan is seen by MFN rate of duty is already 0%.23 Zero tariffs would also
many commentators as highly unrealistic due to a number apply to other important beverage exports including
of factors. gin/genever and beer. 22,23
Source: WTO, HMRC, Retail Economics analysis.

16 of 33
Figure 22 Hong Kong and Singapore Taiwan
Top 10 export destinations for food and drink These free ports don’t levy tariffs on imports. So, Brexit will The average tariff for food and drink is 14.66% although
have no effect on the cost of UK food and drink exports to the MFN rate for whisky is only 5%. Taiwan has TRQs on

£11,830m these markets. Singapore acts as a hub for Scotch whisky

distribution throughout Asia. It imported £291m of Scotch
a number of categories of fish and agricultural products.
Most of these TRQs are available globally with none
whisky in 2017/18, accounting for 75% of total UK food reserved for the EU alone. The UK will still have access
and drink exports to the market. to these TRQs.

Australia Non-MFN markets

The country’s tariff rates on food and drink are generally South Korea and Canada have preferential trade deals with
lower than those applied by the EU, although the rate the EU. This means lower tariffs on goods from the UK at the
applied to whisky is relatively high, at 5% + AUS$60.92/litre moment. However, under all of the Brexit scenarios, UK food
of alcohol. and drink exporters will face standard MFN tariffs unless a
specific agreement is reached between the UK and the
Australia is at the early stages of negotiating a free trade countries in question.
agreement with the EU, but this will not be in place
before the UK leaves the EU. Australia has agreed to negotiate Canada
a trade agreement with the UK when it’s free to do so. The EU’s free trade agreement with Canada CETA
(Comprehensive Economic and Trade Agreement) will
UAE reduce Canadian tariffs on imports of food and drink from
There’s an across-the-board tariff of 5% on most products, the EU, excluding poultry and eggs. CETA removes all
although alcohol is subject to a 50% duty. In 2017/18, Scotch Canadian tariffs on seafood and reduces tariff rates on fruit
whisky sales were worth £130m, accounting for 38% of total and vegetables, and processed foods. A new dedicated TRQ
£2,182m food and drink exports to the UAE. for EU cheese will also be established.

£517m £455m £384m £342m £339m £305m £273m £203m

European Union United States China Hong Kong Singapore Australia UAE Canada South Korea Taiwan

Source: WTO, HMRC, Retail Economics analysis.

17 of 33
Failure to agree on an extension of CETA to the UK would This section outlines what we think the UK Government Potential candidates might include food and drink
mean that UK sales would revert back to MFN terms in could realistically achieve over a five-year period. These categories with high duties associated with insufficient
Canada. However, the UK’s main export categories, whisky, options are mainly focused on a hard Brexit outcome but domestic production, for instance, olive oil and citrus fruits.
gin and beer, all have zero-rated tariffs. could equally apply to a UK-EU free trade agreement. The UK Government could deliver these tariff reductions in
a number of ways, ranging from introducing permanent (or
South Korea Within one year time-limited) reductions to the MFN rate, to bringing in
Although the country has high MFN tariffs, averaging tariff rate quotas for specified amounts of certain products.
Unilateral tariff rate reductions
35% for agricultural products, the EU/Korea FTA will see
In any Brexit scenario, other than a customs union, the Any such unilateral reductions to tariff rates could be made
progressive reductions in these rates for EU goods. This
UK would be free to set its own tariff rates. To start with, available to imports from any source, not just the EU, and
includes the phased removal of the 20% tariff on whisky.
the Government says it would mirror the EU’s tariff rates, the government could put measures in place whenever it
The post-Brexit timeline although its customs and trade bills give it the power to wanted to.
permanently or temporarily vary tariff rates. As yet, there
Depending on the outcome, some changes to costs and are no details regarding functionality, but it’s likely that Within two years
tariffs will come into force immediately, while others might the Government would introduce a process whereby
take longer to implement. Lower tariffs on imports from larger developing countries
businesses could apply for tariff rate reductions.
After the UK leaves the EU, it will be free to set lower tariff rates
For instance, a hard Brexit will mean significant and for imports from developing countries. Under the EU’s existing
immediate additional costs for the food supply chain in the GSP (generalised system of preferences) programme, imports
form of new tariffs and non-tariff costs on EU trade. In Immediate period:

£
from larger developing countries, like India and Pakistan,
some cases, food and drink operators will be able to avoid Some changes to get only modest discounts to the standard rate of duties for
these new costs by switching to domestic or non-EU
costs and tariffs some food and drink imports. Post-Brexit, the UK Government
sourcing. However, this may not always be straightforward. has promised that it will provide at least the same level of
When it comes to UK sourcing, there will be capacity preference for imports from developing countries and improve
constraints in some sectors. access where possible. Relatively simple changes to the GSP
For example, the UK only produces approximately 10% of
the fruit it consumes. For non-EU sourcing, many supplier
£ Within one year:
scheme would allow some food and drink products to benefit
from lower duty rates, such as rice from India and Pakistan.
countries are subject to MFN rates and some of them won’t UK free to set its own More countries could sell food and drink to the UK
have SPS approval to sell their goods to the UK. tariff rates Before specific products, such as meat, can be legally
To give suppliers access to food and drink at competitive imported into the EU, they first need veterinary approval at
prices, the Government will want to agree to lower tariff a country level. For example, in the case of pig meat, only a
rates through new trade deals. In some cases, they might handful of countries have veterinary approval to sell to the EU.
Within two years:
even unilaterally reduce tariff rates. After a hard Brexit, even if the UK keeps the same SPS rules
Lower tariffs on
as the EU, it would be free to authorise other countries that
imports from larger also conform with those rules to sell to the UK. This would
developing countries widen the choice of supply.

18 of 33
Within three years Within five years (and beyond) Going for the Chequers plan
SPS rules could change New trade deals
The UK would be free to develop most of its trading
The UK Government has consistently committed itself to The government has identified the US, Australia and New
arrangements in the same ways it would after a hard Brexit,
maintaining the highest standards for animal welfare, Zealand as priorities for new free trade agreements (as an
including the freedom to vary its MFN tariff rates, establish
consumer protection, food and product safety. However, alternative to an agreement with these countries through
its own TRQs and strike trade deals with other countries.
it has not ruled out changing SPS rules to allow imports, CPATPP). All three are major suppliers of food and drink,
from a wider range of countries, of some products that are including beef and dairy, sheep meat, wine, fruit, vegetables Nevertheless, the Chequers plan would tie the UK to the
currently disqualified. and cereals. However, imports are currently subject to EU’s SPS rules and in all likelihood the EU’s system for
MFN tariffs. Striking trade agreements is a lengthy process, giving other countries approval to trade certain food
Terms with the EU’s existing FTA partners could improve so it’s highly unlikely that brand new deals with these products. This would mean that the UK wouldn’t be able
The UK Government already has an informal arrangement countries could be put in place in less than five years. to independently approve other countries for food and
with a number of countries to extend their existing deals drink exports to the UK, reducing the scope to diversify
with the EU to the UK after Brexit. However, some countries Staying in a customs union
its sources of animal products.
want to improve the terms of these agreements. Changes The UK would have to follow all EU tariff rates, and probably
to these FTAs could be secured relatively quickly, in less all SPS rules. This means it would have limited, or no scope, UK food and drink exports
than three years, as the bulk of the agreements are already to reach different trading arrangements with other countries
and wouldn’t be able to unilaterally reduce tariff rates. In general, these will face the same type of treatment
in place. Further reductions to food and drink tariffs will be
as goods from those countries we import from.
a priority for Canada and South Africa.
Nevertheless, it’s possible to anticipate some tariff rate The implications include:
Trade with a number of other countries could become easier changes for imports from non-EU countries as a result of
new trade agreements the EU is negotiating. These include: • In a hard Brexit scenario, UK food and drink exports to
This includes Canada, Mexico, Australia, New Zealand, Japan,
the EU will face the same tariff rates as imports of those
Korea, Vietnam and other Asian countries. Earlier this year, •  rogressive reduction in tariffs on imports of food and drink
P
same goods from the EU to the UK
a group of 11 countries with Pacific sea borders signed the from Vietnam. Tariffs on seafood, poultry meat and meat
CPATPP (Comprehensive and Progressive Agreement for preparations will be reduced to 0% over a period of three •  ariff rates for UK exports to markets where the UK
T
Trans-Pacific Partnership). This significantly reduces trade to seven years as a result of the new EU/Vietnam deal already trades on MFN terms will remain unchanged
barriers between the signatories. The US was party to this
•  ew trade agreements with New Zealand and Australia
N •  nder all Brexit scenarios, tariffs might increase for UK
U
agreement until President Trump decided to withdraw from
should lead to significantly lower tariffs on a wide food and drink exports to any market which has an FTA
the process. Amongst other things, CPATPP will abolish all
range of food and drink. As negotiations on the trade with the EU, and to countries where the UK Government
tariffs on wine, seafood and sheep meat between the
agreement are yet to start, it’s unlikely that any new is unable to secure an extension of that agreement
participating nations.
FTA will be operational before 2023 to the UK.
In the Chequers plan, the government stated that it would • In July 2018, the EU and US committed to working
explore the likelihood of joining the CPATPP. Although the together to lower trade barriers. It’s unclear what form
UK has no Pacific sea border, this doesn’t appear to be a any trade agreement may take, and there appears to be a
barrier. Joining CPATPP would be quicker than negotiating difference of opinion on whether any negotiations would
a new trade deal because the bulk of the deal has already include food and drink. The US is suggesting it should be
been agreed between the various countries. included, while the EU is suggesting it shouldn’t.

19 of 33
Trade wars and the food supply chain Figure 23
Impact of trade wars has cost UK £43m
The international trade dynamic
Protectionist US trade policies have significantly increased the
pace of change in trade regulation. This has led to widespread £121,942,226
international tariff increases, which have been put in place £30,485,557
very rapidly and are disrupting global supply chains.
£36,071,819
Since the beginning of 2017, President Trump has applied £9,017,955
penal tariffs to a range of imports from various countries.
On 1 June 2018, tariffs were extended to EU steel and
£13,123,074
aluminium imports, applying duties of 25% to steel and
£3,280,769
10% to aluminium. This has sparked several reactions. Most
US trading partners have retaliated by imposing tariffs on
US imports. The EU and other countries have retaliated on £3,303,004
steel and aluminium, but also on a range of other products, £825,751
including food and drink.
£1,171,233
The impact will be felt throughout the UK food supply chain £292,808
in three main areas; reduced trade flows, disrupted supply
chains, and the knock-on effect of higher import costs. £1,147,780
Crucially, the indirect impact through businesses on £286,945
Value of UK imports from
confidence and financial disruption could also have
the US (£)
consequences. £486,716
£121,679 Cost of new tariffs (£)
There are tentative signs that this increasingly hostile and
uncertain trade environment is already dampening activity.
Indeed, PMI data shows that global export orders and Total

products
/sweetcorn
Sweetcorn

juice
Orange
£177,245,852
products
Rice/rice

juice
Cranberry
butter
Peanut
Maize
whisky
Bourbon/

manufacturing output have fallen back from highs at the

beginning of this year, while growth in US and euro-area
£44,311,463
capital goods orders fell to zero in the first quarter.
Food and drink categories impacted by retaliatory policies

In part, this could be the result of anticipated ‘retaliatory’

These additional duties will remain until 23 March 2021 when they’ll be replaced by a shorter list:
measures from the EU implemented in June 2018. These
Value of UK imports from US (£) Cost of new tariffs (£)
included duties of 25% on a range of US imported goods,
which go far beyond steel and aluminium and include Cranberry preparations £9,182,027 £2,295,507

agricultural and food products including sweetcorn, rice, Bourbon/whisky £121,942,226 £30,485,557

orange juice, cranberry juice and Bourbon/whisky. Total £131,124,253 £32,781,063

20 of 33
 The impact of new trade war tariffs on the UK food
supply chain
The total value of UK food and drink imports concerning
products affected by EU retaliatory tariffs totalled £177.2m
in 2017. Based on current trade flows, the cost of new tariffs
to UK food and drink importers is £44.3m.

The potential impact on the UK food supply chain

These ‘trade wars’ affected just a fraction of the £2.2bn
worth of food imports from the US in 2017 and are highly
unpredictable. It’s possible that the scope of products
affected, along with the burden of additional costs, could
spiral. The disruption caused is partially due to the high
tariff rates, but also from the rapid spill-over into unrelated
supply chains.

Following the EU’s retaliatory measures, President Trump

threatened to impose an additional 25% tariff on US
imports of European cars. In 2017, EU passenger car sales to
the US were worth €34.7bn. The cost of new tariffs on this
trade would have amounted to around €10bn, which would
have triggered further retaliatory duties by the EU, almost
certainly drawing in food and drink categories.

The EU estimated that retaliatory duties could be applied on

up to US$300bn of US exports worldwide. Independently,
the Bank of England estimates that an increase in tariffs
of 10 percentage points between the US and its trading
partners could reduce US output by 2.5%, and global
output by 1%, through trade channels alone.

The overall shock from higher tariffs would undoubtedly

drag on levels of activity, but the short-term impact on the
UK food supply chain would be inflationary. Quantifying the
precise inflationary impact is impossible to predict given that
tariffs could fall across any number of food products. And
food inflation can be affected by a range of external variables,
from rising oil prices to poor harvests around the world.

21 of 33
That said, any significant rise in food tariffs would most Given the complexity of supply chains and the contractual On the other hand, disruptions to trade as the result of
likely be passed on to consumers given the short supply obligations in place, it will take some time for UK retailers new tariffs could also open up lucrative opportunities for
chains and the industry working on this margins. and suppliers to adjust their relationships as they try and UK retailers and suppliers. For example, the impact of new
mitigate the impact of rising sourcing costs. Chinese tariffs on US soya beans reduced their price on
Retailers and suppliers have four options to meet rising international markets, which in turn provided new lower
input costs: An immediate and unexpected rise in sourcing costs would
cost sourcing opportunities for UK processors.
almost certainly result in reduced margins throughout the
1 Pass the costs on to consumers and customers
supply chain, together with higher prices for consumers. Positive developments
2 Take a hit on profit margins The longer-term impact would depend on whether this is The threat of a trade war between the US and the EU
viewed as a ‘temporary conflict’ or the new normal. seems to be cooling. A truce was called in July 2018 when
3  itigate the impact through the supply chain
M
Productivity could also be hit along with other unanticipated Commission President Juncker and President Trump met in
and re-engineer products
consequences arising from disruptions to supply chains – Washington. They issued a joint statement announcing that
4 Cut costs elsewhere and absorb the price rise. such as the wholesale redundancy of capital equipment. the EU and US would co-operate in removing all industrial
tariffs (except automotive), non-tariff barriers and subsidies;
In reality, most retailers and suppliers will use a combination Meanwhile, potential reduction in trade could lead to a
and while negotiations continued, they would not apply
of all four options to remain competitive. Contracts with more fundamental restructuring in domestic relationships
new tariffs to each other.
suppliers could lessen the immediate impact of an increase throughout the supply chain. The knock-on effect could
in tariffs, depending on the terms. This could also allow mean tighter, home-produced food markets which could That being said, the terms of the joint statement are open to
retailers to consider their pricing strategies. add to domestic inflationary pressures. interpretation; there has already been some disagreement
around agriculture and food. In addition, the European
However, things get more complex when considering each
Parliament and Council have not yet given formal approval
sector, or even each retailer, in isolation. Factors such as
to the European Commission to strike a new trade deal with
market position, pricing power, demand, length of the With manufacturers’ the US. As a result, the scope of talks is limited.
supply chain and profit margins will determine how much
of these costs are passed on to consumers and how fast.
margins at
In summary, the accumulation of all the issues described
Grocery retailers, typically working with 3-5% profit
margins, will find it difficult to absorb these cost pressures,
despite the fiercely competitive environment.
20-30% leave this truce in a fragile state. Past behaviour indicates
that President Trump is willing to employ tariffs at short
notice, leaving other countries reluctant to back down
much of the tariff

pain
when threatened, only to respond with retaliatory tariffs
However, suppliers will be keen to maintain good
of their own, often including totally unrelated products.
relationships with their key clients and more willing to share will be on

suppliers
adverse tariff costs with them rather than lose their trade. Uncertainty might be causing a cloudy outlook, but as
Of course, not all retailers will have the same influence over long as retailers continue to prepare for every event – across
their suppliers. And with manufacturers’ margins ranging their business and their supply chain – they can stay the
from 20-30%, much of the tariff pain will be front-loaded on course, and stay ahead. They might even find lucrative
suppliers. Over the coming years, the full impact will ripple new opportunities.
through to consumers, as retailers and suppliers rebuild
their margins.

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A view from the Adjudicator
For industry insider Christine Tacon the decision to become the first UK Groceries
Code Adjudicator in 2013 arose from her experiences of the relationship between
retailers and suppliers and a desire to see major change.

As a production engineer by trade and head of the But investigations are long and time-consuming procedures
Co-operative Group’s farming business for over a decade, and I have deliberately adopted a collaborative approach to
I was frustrated by the inefficiencies in the supply chain The Groceries Supply Code of achieve reform. I do this by raising issues with the retailers
that stemmed from the unequal relationship between either individually or collectively and ask them to look into
retailers and suppliers. Too often retailers would say
Practice exists to make sure that
them – always protecting the confidentiality of the source.
“jump” and suppliers would simply ask “how high?”. retailers treat their direct suppliers They have to report back to me, making changes where
lawfully and fairly. necessary. I have found this is a swift way to make my
I took the role of UK Groceries Code Adjudicator in 2013 to position on an issue clear to the industry, secure progress
help level the playing field, overseeing the implementation
and on occasion see the retailer repaying suppliers who
of the Groceries Supply Code of Practice, which exists to
have been adversely affected.
make sure that retailers treat their direct suppliers lawfully
and fairly. Formal action is only taken if the practice continues or
I need to get to the bottom of an issue – as in the case of
A chance to get it right my current investigation into the Co-operative Group.
While retailers have had to comply with The Groceries Cracking the Code
(Supply Chain Practices) Market Investigation Order, which
contains the Code, since 2009, it was not until Parliament Over the past five years I’ve seen a phenomenal increase in
passed the Act to create the Adjudicator role that the industry compliance across the retailers. I measure this through my
took serious notice. The subsequent decision to give the annual survey. In 2014 the percentage of suppliers reported
Adjudicator the power to fine retailers up to 1% of turnover experiencing a Code-related issue was 79% – this year it
for breaching the Code has really concentrated minds. had dropped to 43%.

My year-long investigation into Tesco in 2015 was a Compliance has improved across the board – in the first
gamechanger in terms of highlighting the Adjudicator’s survey the lowest performing retailer scored 58% and the
statutory power to obtain information from retailers and best 90%; this year the highest score was 97% with only
suppliers, get to the bottom of a complex issue and two of the regulated retailers under 90% and the worst
report on it with binding recommendations that make performing at 84%. It proves that my practical, business-
a real difference. focused collaborative approach is working.

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The annual survey is also an important tool for change Industry trends Making more progress
as it identifies areas for further improvement. In 2014, for
example, 45% of suppliers flagged the aggressiveness of I currently regulate the 10 groceries retailers designated at While the number of retailers I regulate looks likely to
no win no fee forensic auditors as a major issue and the the start, as they had UK annual groceries turnover above increase, I do not see my remit extending in the near
practice of retailers of making an automatic deduction £1bn, but as the industry restructures and other retailers future to indirect suppliers for whom price transparency
from a supplier’s next payment where the auditors found are closing in on this threshold this group will likely expand. is a key issue, but which is not covered by the Code. The
The CMA (Competition and Markets Authority) is currently Government recently had a call for evidence in this area
discrepancies going back six years. This was a significant
examining this very issue. and decided not to make this change but did ask the CMA
concern for suppliers based in a fast-paced industry where
to look into whether more retailers should be regulated.
it is difficult to verify older information.
The Code has tremendous potential to make a real
I worked on this issue in two ways – first, I won a commit- Many of the improvements achieved – difference across the sector as it restructures, benefiting
ment from most of the retailers to time limit forensic audits
although they have been prompted by retailers, suppliers and customers. With the continued
to the current and previous two financial years – rather than
the statutory six years – and second, I set down clear rules suppliers’ concerns – also benefit the support and co-operation of a growing number of retailers,
I believe we can create a fairer and more sustainable future
following the Tesco investigation. Retailers now cannot retailers by making their processes more for the industry.
deduct anything from an invoice without first telling the efficient and this can save them money.
supplier and giving them 30 days to challenge it. If it is
challenged, then the retailer cannot deduct the amount
until reaching an agreement. My survey shows a completely More suppliers are also likely to come under my remit
different picture today with forensic auditing a concern for as major retailers, like Asda and Morrisons are moving Christine Tacon CBE
only 7% of suppliers. up supply chain and buying directly from the suppliers UK Groceries Code Adjudicator
rather than through the middle men. It means that apple
I have also worked closely with the retailers on the issue producers in South Africa selling directly to a UK retailer
of delay in payments which was raised by 35% of suppliers are covered by the Code. Overseas awareness of this is
in 2014. Back then there were examples of retailers taking generally poor, however, so one of my priorities is to make
up to a year to acknowledge a pricing error and pay the sure these suppliers know that there are regulations in
difference to their suppliers and there were concerns about place to protect them.
deductions from invoices for disputes over deliveries.
And as I visit events and meet suppliers I am seeing more
I have worked intensively with the retailers on these and more smaller companies – such as makers of energy
systemic challenges and I am seeing the ground shift. Delay and nutrition bars, baby food pouches and artisan gin –
in payments still remains a concern for suppliers, but at a becoming suppliers to the major supermarkets. For these
much lower level with fewer than one in five reporting it as suppliers it is so important that they learn about the Code
an issue. Many of the improvements achieved – although and get themselves trained so they know how to handle
they have been prompted by suppliers’ concerns – also any Code-related issues that arise. I publish a directory of
benefit the retailers by making their processes more those trainers I am aware of on my website:
efficient and this can save them money. www.gov.uk/gca

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Taking greater control of products
Speciality food producer and distributor, Harvey & Brockless, has witnessed
significant changes in the retail environment in recent years. Managing Director,
Nick Martin, explains how the business has adapted.

As a producer, wholesaler and distributor of speciality food, Taking control Strategically, producing our own brands has been another
we work with artisan food producers from around the world key decision for us in terms of building customer loyalty.
and sell to a wide range of customers, from small farm We’ve responded by taking more ownership of the products What we’ve also done is to look at adding value to our
shops to major restaurants, hotel chains and contract we supply and who we supply them to, which gives us a products, for example, not just manufacturing, but
greater share of the margin as we are both manufacturer processing the products in some way, such as packaging
caterers both here in the UK and overseas. Our focus is on
and distributor. Creating a manufacturing base to bring cheeses with biscuits and chutney on a cheese board,
quality, high-end food products, from fine cheeses to cured
production in-house has helped us achieve that control which can improve our margin.
meats, sauces and dips – and that focus is one of our key
over our products and how we price them. So, in addition to
differentiators.
our head office in London and distribution/stock centres in
Edinburgh, Manchester, Worcester and Exeter, we also have
Creating a manufacturing base to bring
Sector consolidation
manufacturing sites in London and Evesham. production in-house has helped us achieve
The distribution sector is polarised into those that deliver that greater control over our products,
large volume at low cost and niche suppliers. In recent
where they go and how we price them.
years, we’ve seen some big changes, especially amongst
our larger national customers. Customer preference has
Adopting a vertical growth strategy
very much switched from dealing with numerous small
suppliers, to wanting to rationalise and consolidate their At the moment, our business is 50% value-added and 50%
supply base to deal with one or two offering more of their non-value-added, but the success of that strategy of taking
products, and from direct distribution to one, centralised greater ownership of the products we supply means that
distribution hub. we certainly see further growth in our brand ownership and
the value-added side of our business over the next five
That trend has been driven by the desire to reduce both years. Our manufacturing site in Evesham is a key part of
distribution and administrative cost per unit by centralising that strategy. The development of sauces, dips and oils, not
volume with one distributor. At the same time, the costs of only helps us achieve better margins, but it also helps with
distribution are increasing as a result of wage inflation, customer retention as those sauces become an essential
stakeholder pensions, fuel prices, motor insurance and ingredient that our customers favour, for example. It moves
other overheads. The result has been that distribution the business away from being a commodity supplier, say of
margins are getting smaller and smaller. block cheddar, to a specialist supplier of a unique sauce.

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Monitoring uncertainty

Looking at the sector as a whole, I think further consolidation

is inevitable, with smaller distributors swallowed up by larger
groups. Rising costs and labour shortages will continue to
drive that, but we’re also keeping a watchful eye on the
impact that Brexit will have. We have a dedicated Brexit team,
but planning for the outcome remains difficult until we have
clearer sight of any deal.

We have a dedicated Brexit team, but

planning for the outcome remains difficult
until we have clearer sight of any deal.
That uncertainty is making planning very difficult. In our
situation, for example, UK suppliers don’t produce enough
milk to make enough cheese to meet current demand, but
farmers are reluctant to invest in increasing their dairy herds
until we have a clearer picture of what deal is on the table.
Meanwhile, in a no-deal scenario, tariffs on dairy could be
around 40-50% and with margins for wholesale products
already very tight, businesses will have to pass some of
these costs onto customers. Whether the market will bear
that or what the alternatives are, remains to be seen, but
with 40% of our products imported from Europe, we’re
clearly watching the situation closely.

Nick Martin
Managing Director
Harvey & Brockless

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How SPAR is thriving in a challenging market
Part of a global brand operating across 43 countries, SPAR has been a presence
in the UK retail market for over 60 years. Managing Director, Debbie Robinson,
shares her experience of how the brand has adapted to change in the sector.

Overall, the UK retail sector has faced a number of challenges It’s also an area of the market that’s attracting interest from
in recent years and we’ve seen significant structural changes the large multiples, but the challenges they face in terms of
as a result. Part of that is the enormous consolidation we’ve entering it successfully are numerous. These range from
seen over the past 12-18 months, with moves by the Big Four having to work with a third-party distributor to manage the
to seek growth in the face of decreased profitability by logistics of supplying local stores, which impacts on margins,
entering the wholesale market, for example, the Tesco- to understanding the needs of local communities. Those are
Booker tie-up and Morrisons’ relationship with McColl’s. areas where our business model is particularly strong.

At SPAR, we’ve actually prospered over the last few years

in a market that’s been in disarray. Why? Well, a lot of that Convenience is about being at the heart
success has to be down to our financial model and of a community and being flexible enough
operating structure.
to offer what that community needs and
Stability and agility that’s a key differentiator that helps us to
We’re actually a voluntary membership organisation working stay ahead of the competition.
with a large number of independent, entrepreneurial and
family businesses and larger multi-site retailers, who choose Ability to adapt to local needs
to operate under our brand. That partnership approach offers
them services and support across format, procurement and Working with independent stores means we can pay great
distribution and we both benefit from being able to adapt attention to local differences and community needs. That
to changing trends, local market conditions and more may mean that we encourage certain concessions within a
widespread issues that affect the sector, including seasonality. store, or support stores looking to procure a license for the
It’s a model that provides both stability and agility. on-trade sale of alcohol. We also work with local producers,
which means that goods are adapted to local tastes and
demand. For us, convenience is about being at the heart of
a community and being flexible enough to offer what that
community needs and that’s a key differentiator that helps
us to stay ahead of the competition.

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Technology-driven change

As well as consolidation, we’re also seeing the emergence of

new operators in the sector, from pure play operators such as
Amazon, whose acquisition of Wholefoods signalled a new
direction, to those that are taking ‘convenience’ to another
level – not just location driven or type of product, but to the Rather than being defined by
immediacy of delivery – such as Uber Eats and Deliveroo. the products you’re historically
These are approaching the sector with a completely different
associated with, it’s about
business model, which in terms of issues like not having to
pay business rates, overcomes some of the challenges that adapting to the changing needs
more traditional retailers face. of those communities.
Technology as a facilitator of many of these changes is
unstoppable. The impact of the technological revolution on
how we, as consumers, live and shop, will I think be as great
as that of the industrial revolution. Technology will transform
the way goods and services are produced, procured,
distributed and, ultimately, reach the consumer. In the future,
the rise of these pure play operators, the capability of AI and
robotics and the use of augmented reality will all have a Innovative, modern and relevant We’re agile enough, for example, to respond quickly to trends
bearing on the UK retail sector. How robust that effect is and – whether that’s for cauliflower rice or coconut water – but we
Other trends that we’re responding to, and which are likely can move out of them just as quickly when the trend evolves
how legislation evolves to manage that, remains to be seen,
to continue, include the focus on health and wellbeing. into something different. Maintaining that absolute customer-
but it’s certainly something we watch with interest.
We’ve removed hundreds of tonnes of sugar from our focus and taking decisions with a long-term perspective rather
Anticipating further change own-brand soft drinks, for example, whilst retaining the than meeting short-term shareholder considerations, will prove
flavour profile, which meets customer taste and means crucial in maintaining and extending market share in the face
Looking ahead, I think in the short to medium term, we avoid the sugar levy, keeping prices low. As a result, of new challenges and opportunities ahead.
consolidation will continue, before we’ll start to see companies we’ve seen an increase in sales. We’ve also reduced the
breaking away and returning to independence, bringing a salt content of many of our goods and we’re focused
wave of entrepreneurial thinking to the sector enabled by on improving the environmental credentials of our
technology. For many businesses, the Brexit effect will be a bottled water.
major consideration over the coming years. However, because Debbie Robinson
we’re part of a global organisation, with our head office in It’s part of an innovative approach that continues to make Managing Director
Amsterdam, we think we’re going to be better protected us modern and relevant for the communities we serve. SPAR UK
from some of the effects than others. Given the serious lack Rather than being defined by the products you’re historically
of clarity, we are working on a number of scenarios however. associated with, it’s about adapting to the changing needs
And we’re watching the current situation closely. of those communities.

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Checking out the shop landscape: Trends to watch
To help the UK food and grocery industry, Barclays conducted a thorough analysis
of the changing consumer landscape from both a buyer’s and seller’s point of view.

Consumers are shopping more often, but buying less – visits to the store went up by 14.3% from 2013 to 2018, according
to data from Nielsen Homescan. This could be an opportunity for retailers to attract more casual shoppers.

Demand for lower prices has led to less brand loyalty. As a result, the Big Four market share declined to 68% in 2018 from
its peak of just over 77% in 2011.24

Takeaway food platforms are taking off. The market has grown by 34% since 2009, almost twice the rate of the retail food
sector over this period.

Tighter margins and tougher competition are leading to some of the bigger brands joining forces. This includes Tesco’s
£3.7bn acquisition of Booker announced in 2017, and the Co-op’s £143m takeover of NISA a year later. The industry is also
getting creative with partnerships, looking both abroad – for example, Tesco and Carrefour’s 2018 partnership – and into
new sectors. And Amazon has entered the supermarket arena with its acquisition of Whole Foods in the US.

In general, the online food market has increased by 12% on average each year since 2010, and online food sales are expected
to rise by 48% between 2017 and 2022.

Shoppers expect retailers to do better, and be better. Convenience and good value is one way to attract customers, but a
delightful experience – with extras like free coffee and sushi bars – can have a big impact. Customers also want to shop at
places that care about the things they do, such as healthy living and sustainability.

24
Kantar World Panel.

29 of 33
 The tariff effect Primary food and drink
Tariff code Product Ad Valorem Equivalent (AVE)
020210 Frozen beef carcasses 297.5%
Our analysis shows precise calculations for food and 010594 Live poultry 129.7%
drink trade data, quantifying the impact of specific tariffs 020410 Lamb carcasses 82.3%
when expressed as a percentage of the value of trade 020421 Sheep carcasses 74.7%
(the conversion process ‘ad valorem25 equivalent (AVE)’ 070320 Fresh garlic 71.9%
has been applied). The tables to the right feature products 100191 Wheat grain 62.7%
attracting the highest ad valorem equivalent for primary, 080390 Bananas 62.3%
semi-processed and fully processed foods: 100199 Wheat grain 61%
100390 Barley 60%

Semi-processed/lightly processed food and drink

Tariff code Product Ad Valorem Equivalent (AVE)
020629 Frozen beef skirt 260.3%
020610 Fresh beef skirt 146.5%
020423 Boneless fresh lamb cuts 116.7%
170199 White sugar 104.2%
020230 Beef and veal cuts 100.8%
071151 Preserved mushrooms 97.7%
170112 Raw beet sugar 95%
020443 Frozen boneless lamb 94.4%
040291 Milk powder 90.5%

Fully processed food and drink

Tariff code Product Ad Valorem Equivalent (AVE)
200310 Cooked, preserved mushrooms 183.7%
200919 Orange juice 180.1%
160250 Cooked beef preparations 110.2%
160239 Processed chicken preparations 109.8%
160290 Offal and blood preparations 104.7%
160232 Processed chicken preparations 100.2%
040610 Pizza cheese 99.8%
040150 Cream 80.7%
25
A tariff that is not a percentage (eg, dollars per ton) can be estimated
as a percentage of the price – the ad valorem equivalent. 151000 Olive oil 75.6%

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Appendix
Annex 1
As a general rule, finished products attract a higher rate of duty than primary and semi-processed goods.
This is known as ‘tariff escalation’ and is evident in a number of food supply chains, for example:

Fish and seafood

Product Duty rate for fresh/ Duty rate for Duty rate for preparations Tariff escalation also applies to most oil seeds which are
chilled/frozen (%) smoked/dried (%) (e.g. tinned) (%) exempt of duty in their raw state, but attract a rate of up
to 9.6% when converted to usable oils.
Trout 8-12 14
Salmon 2-8 13-15 5.5 In specific cases, duty rates are higher for goods that are
Halibut 8-15 15-16 packaged for retail than for bulk-packed goods (e.g. milk,
Tuna 22 24
green tea, palm oil, tinned fruit). Again, this imposes a
higher tariff burden for retailers and others operating at
Herring/anchovy/mackerel/sardines 15 14 15-25
the end of the supply chain.
Cod 12 16-20 20
Haddock 7.5 14
Shrimps/prawns 12-18 20

Meat
Product Duty rate for Duty rate for Duty rate for
live animals unprocessed products processed products

Cattle/beef 10.2% + 931euro/tonne 12.8% + 1,410 euro/tonne 3,034 euro/tonne

(minimum)
Pigs/pig meat 412 euro/tonne 467-869 euro/tonne 857-1,568 euro/tonne
Sheep/lamb 805 euro/tonne 12.8% + 1,199 euro/tonne
(minimum)
Poultry/chicken 209 euro/tonne 262-1,024 euro/tonne 2,765 euro/tonne

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Annex 2
Hard Brexit estimated to cost UK retailers and wholesalers
£9.3bn for sourcing goods from EU.

Category Description Total arrivals (£) Total tariff Tariff as %

from EU to UK under WTO (£) of EU arrivals

01 Live animals 460,701,090 21,964,085 4.8%

02 Meat and edible meat offal 3,723,374,999 1,620,279,655 43.5%
03 Fish and crustaceans, molluscs and other aquatic invertebrates 690,545,985 49,024,371 7.1%
04 Dairy produce; birds’ eggs; natural honey; edible products of animal origin, not elsewhere specified or included 3,038,065,789 1,592,673,545 52.4%
05 Products of animal origin not elsewhere specified or included 82,971,170 361,142 0.4%
07 Edible vegetables and certain roots and tubers 2,488,416,577 186,803,338 7.5%
08 Edible fruit and nuts; peel of citrus fruits or melons 2,003,568,192 156,450,557 7.8%
09 Coffee, tea, mate and spices 559,589,422 32,247,514 5.8%
10 Cereals 611,423,222 150,181,886 24.6%
11 Products of the milling industry; malt; starches; inulin; wheat gluten 334,212,938 105,336,304 31.5%
12 Oil seeds and oleaginous fruits; miscellaneous grains, seeds and fruit; industrial or medical plants; straw and fodder 335,507,556 5,634,113 1.7%
15 Animal or vegetable fats and oils and their cleavage products; prepared edible fats; animal or vegetable waxes 1,108,872,909 183,104,539 16.5%
16 Preparations of meat, fish or crustaceans, molluscs or other aquatic invertebrates 2,238,073,113 1,237,989,167 55.3%
17 Sugars and sugar confectionery 817,122,676 422,089,535 51.7%
18 Cocoa and cocoa preparations 1,768,051,792 137,080,123 7.8%
19 Preparations of cereals, flour, starch or milk; pastrycooks’ products 2,921,745,458 679,211,921 23.2%
20 Preparations of vegetables, fruit, nuts or other parts of plants 2,465,655,740 831,497,711 33.7%
21 Miscellaneous edible preparations 2,527,730,388 408,554,177 16.2%
22 Beverages, spirits and vinegar 4,603,671,690 438,594,094 9.5%
23 Residues and waste from the food industries; prepared animal fodder 1,264,813,019 1,032,055,461 81.6%
Total 34,044,113,725 9,291,133,240 27.3%

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Further information
For further information and to find out how our sector specialist
teams can support your business, please contact Ian Gilmartin,
Head of Retail and Wholesale.

Ian Gilmartin
Head of Retail and Wholesale
Barclays Corporate Banking

Ian Gilmartin is Head of Industry for Retail and Wholesale at Barclays Corporate Banking
across the UK and Ireland, where Barclays has operated a sector specialism for almost 30 years.
He and his team of Relationship Directors are responsible for thousands of clients, ranging from
boutique fashion houses and high-street booksellers to department stores and listed companies.

Ian has over 20 years of corporate banking experience and has spent the last five years providing
specialist banking services to retailers and wholesalers as part of the leadership within Barclays
Retail and Wholesale team. Prior to that he was a Senior Relationship Director in the Technology,
Media and Telecoms team, and has experience of other sector verticals from his early career.
Since taking on his current role, Ian has become a regular commentator in the national, regional
and trade media on retail trends and industry issues, as well as retail sales figures.

M: 07788 873789*
ian.gilmartin@barclays.com

barclayscorporate.com

*Please note: this is a mobile phone number and calls will be charged in accordance with your mobile tariff.
Some of the views expressed in this report are the views of third parties, and do not necessarily reflect the views of Barclays Bank UK PLC nor should they be taken as statements of policy or intent of Barclays Bank UK PLC. Barclays Bank UK PLC takes no responsibility for the
veracity of information contained in third-party narrative and no warranties or undertakings of any kind, whether expressed or implied, regarding the accuracy or completeness of the information given. Barclays Bank UK PLC takes no liability for the impact of any decisions
made based on information contained and views expressed in any third-party guides or articles.
Barclays Bank PLC is registered in England (Company No. 1026167) with its registered office at 1 Churchill Place, London E14 5HP. Barclays Bank PLC is authorised by the Prudential Regulation Authority, and regulated by the Financial Conduct Authority (Financial Services
Register No. 122702) and the Prudential Regulation Authority. Barclays is a trading name and trademark of Barclays PLC and its subsidiaries.
September 2018. BD07643-01.

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