Recession Proofing your NPD

Research Presentation Recession Proofing your NPD Food and Drink Innovation Network June 2008

Recession Proofing your NPD Tel +44 (0) | Programme 1. The UK food and drink market 2. Market pressures 3. Consumer vulnerability 4. Product vulnerability 5. The vulnerability map

Recession Proofing your NPD Tel +44 (0) | Who Are We? ￭ RTS Resource ￭ International food industry ￭ Measure, analyse and forecast the market for food, ingredients and packaging ￭ Help companies grow and develop business ￭ RTS = Research To Strategy ￭ Established over 20 years

Recession Proofing your NPD Tel +44 (0) | Section 1 The UK market for food & drink

Recession Proofing your NPD Tel +44 (0) | Consumer Trends KEY DRIVERS POPULATION ￭ AFFLUENCE Lifestyles Food choices: convenience, wellness, eating out, etc...

Recession Proofing your NPD Tel +44 (0) | UK: Population Growth 1995 to 2010, millions of people Source: Eurostat, Government projections.

Recession Proofing your NPD Tel +44 (0) | UK: Population by Age Group 1995 to 2010, number of people (000 people) Source: Eurostat, Government projections.

Population SUMMARY ￭ Population drives (volume) food consumption ￭ Low birth rates ￭ Increasing longevity ￭ Immigration ￭ Smaller households ￭ Total growth +0.4% per year

Recession Proofing your NPD Tel +44 (0) | UK: The Market for Food and Drink VOLUME CONSUMPTION, m tonnes/bn litres p Growth Food % Drink % Total % Source: RTS Resource from trade statistics and estimates. Notes: p = provisional based on latest available data. Includes retail and foodservice. Volumes as purchased. Numbers rounded. Growth = calculated annual growth rate.

Recession Proofing your NPD Tel +44 (0) | UK: The Market for Food and Drink CONSUMER VALUES, £bn p Growth Food£81.8£ % Drink£38.9£ % Total£120.7£ % Source: RTS Resource from trade statistics and estimates. Notes: p = provisional based on latest available data. Includes retail and foodservice. Values at consumer level. Numbers rounded. Growth = calculated annual growth rate.

Recession Proofing your NPD Tel +44 (0) | Volume versus Value Growth BY SELECTED SECTOR, Source: RTS database.

Recession Proofing your NPD Tel +44 (0) | Market Fuelled by Affluence ￭ Proportion of disposable income spent on food declining (>30% in 1960, 15% today). ￭ Affluence has brought demands over and above basic nutrition:  Convenience  Safety  Environmental  Ethical  Health and well-being ￭ = adding value

￭ For 50 years we have been spending a lower proportion of disposable income on food.

￭ Incomes up ￭ Food prices down

￭ This situation is now likely to change... ￭...IS CHANGING!

Recession Proofing your NPD Tel +44 (0) | Section 2 Market Pressures

Recession Proofing your NPD Tel +44 (0) | Internal Pressures ￭ Within this relatively static volume market, rising values have given us the ability to continue to develop.

Recession Proofing your NPD Tel +44 (0) | Internal Pressures ￭ This, in turn, has enabled the sales of:  Organics  Fairtrade  Free-range  Wellness  Snacking  Ready Meals  Convenience  Indulgence  etc., etc.

Recession Proofing your NPD Tel +44 (0) | Trends v Other VOLUME MODEL Pressure build-up here has dissipated into value-added

Recession Proofing your NPD Tel +44 (0) | Internal Pressures ￭ Internal market pressures now being felt come under the main headings of:  low market volume growth  increasing costs  drives to cut costs  efforts to reduce spending (by many)

Recession Proofing your NPD Tel +44 (0) | Market Vulnerability Low volume growth Reducing value growth Consumer cost cutting Retailer price controls Rising prices Soft drinks slowing Increasing elderly Immigration Clean labels

External Pressures

Recession Proofing your NPD Tel +44 (0) | External Pressures ￭ Increasing energy costs ￭ Rising inflation ￭ Downturn in the housing market ￭ Low income growth ￭ Growing unemployment ￭ Higher interest rates ￭ Slowing economic growth

Recession Proofing your NPD Tel +44 (0) | External Pressures EFFECTS ￭ Families cutting down on eating out, going to the theatre, buying clothes and updating household appliances and furniture. ￭ Lowest income groups are feeling the pressure most because a greater proportion of their cash goes on food. ￭ Some households are switching from the four big supermarket chains to discount stores such as Aldi and Lidl. ￭ However, upmarket chains such as Waitrose and Marks & Spencer are continuing to enjoy robust sales. (At the moment!). Source: Verdict Research

Recession Proofing your NPD Tel +44 (0) | External Pressures EFFECTS ￭ Cutting down on travel ￭ Focus on wastage  Using up food  ‘Careful’ purchasing

Recession Proofing your NPD Tel +44 (0) | External Pressures Food & Drink Spend £ Low income growth Increasing energy costs Downturn in the housing market Rising inflation Higher interest rates Growing unemployment

Recession Proofing your NPD Tel +44 (0) | = a market UNDER PRESSURE! Low volume growth Reducing value growth Consumer cost cutting Retailer price controls Rising prices Soft drinks slowing Increasing elderly Immigration Clean labels Low income growth Increasing energy costs Downturn in the housing market Rising inflation Higher interest rates Growing unemployment

Recession Proofing your NPD Tel +44 (0) | Section 3 Consumer Vulnerability

Recession Proofing your NPD Tel +44 (0) | Consumer Vulnerability ￭ Volumes ￭ Values

Recession Proofing your NPD Tel +44 (0) | Volume WILL CONTINUE TO GROW... ￭ Total volumes should continue to grow roughly in line with predicted population 0.4% per year. ￭ The key issue will be how that total volume will be derived. ￭ We will eat the same amounts, (more or less) but differently.

Recession Proofing your NPD Tel +44 (0) |...as Value COMES UNDER PRESSURE ￭ Values (expenditure), on the other hand, will come under pressure.

Recession Proofing your NPD Tel +44 (0) | Changing Habits ￭ Raw potatoes instead of chips ￭ Bulk rice rather than Basmati or microwave ￭ Bread and fillings instead of prepared sandwiches ￭ Organics or Fairtrade may be sacrificed ￭ Chicken breasts and sauce instead of a ready meal ￭ Eat out less often ￭ Raw potatoes instead of chips ￭ Bulk rice rather than Basmati or microwave ￭ Bread and fillings instead of prepared sandwiches ￭ Organics or Fairtrade may be sacrificed ￭ Chicken breasts and sauce instead of a ready meal ￭ Eat out less often

Recession Proofing your NPD Tel +44 (0) | Changing Habits ￭ Volume of food consumption is maintained ￭ There is no apparent sacrifice in food quality ￭ But, consumer expenditure will come under pressure as habits change ￭ These trends will not be evenly spread...

Recession Proofing your NPD Tel +44 (0) | Vulnerability by Consumer Type ￭ A - Affluent Achievers ￭ B - Thriving Greys ￭ C - Settled Suburbans ￭ D - Nest Builders ￭ E - Urban Ventures NRS Super Profiles Classifications courtesy of National Readership Survey F - Country Life G - Senior Citizens H - Producers I - Hard-pressed Families J - Have-nots

Recession Proofing your NPD Tel +44 (0) | Seriously Affected ￭ Senior Citizens ￭ Producers ￭ Hard-pressed Families ￭ Have-nots

Recession Proofing your NPD Tel +44 (0) | Affected ￭ Settled Suburbans ￭ Nest Builders ￭ Urban Adventures ￭ Country Life

Recession Proofing your NPD Tel +44 (0) | Relatively Unaffected ￭ Affluent Achievers ￭ Thriving Greys

Recession Proofing your NPD Tel +44 (0) | Section 4 Product Vulnerability

￭ Fairtrade ￭ Organics ￭ Ready meals ￭ Sandwiches (RTE) VULNERABLE PRODUCTS

￭ Eggs ￭ Sausages ￭ Burgers ￭ Meat cuts ￭ Cooking sauces WINNERS ￭ Pizzas ￭ Canned fish ￭ Pies/pasties ￭ Biscuits

Recession Proofing your NPD Tel +44 (0) | Product Vulnerability ￭ Unlike previous recessions, we think it would be wrong this time to all make a mad dash to cut costs (supermarket price war). ￭ The average British diet has plenty of “padding” and will be relatively easy this time to save money without sacrificing quality. ￭ Therefore, the thoughtful consumer is much more likely to choose alternative products, rather than just cheaper versions.

Recession Proofing your NPD Tel +44 (0) | NPD Considerations 1. Don’t just reduce quality 2. Assess where your product sits 3. Rate product vulnerability 4. Re-evaluate NPD  To meet lower value growth and changing consumer needs 5. Focus NPD on taking market share from competitors

Recession Proofing your NPD Tel +44 (0) | The Vulnerability Map ￭ The RTS vulnerability map has been designed to start the thought processes accordingly....

Recession Proofing your NPD Tel +44 (0) | Section 5 Vulnerability Map

Volume Value Declining Volume/ Declining Value Increasing Volume/ Increasing Value (C) Copyright RTS Resource 2008

Volume Value Declining Volume/ Declining Value Increasing Volume/ Increasing Value (C) Copyright RTS Resource 2008

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Recession Proofing your NPD