1. Recession Proofing your NPD

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

3. Recession Proofing your NPD www.rts-resource.com Tel +44 (0)1902 422282 | Programme 1. The UK food and drink market 2. Market pressures 3. Consumer vulnerability 4. Product vulnerability 5. The vulnerability map

4. Recession Proofing your NPD www.rts-resource.com Tel +44 (0)1902 422282 | 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

5. Recession Proofing your NPD www.rts-resource.com Tel +44 (0)1902 422282 | Section 1 The UK market for food & drink

6. Recession Proofing your NPD www.rts-resource.com Tel +44 (0)1902 422282 | Consumer Trends KEY DRIVERS POPULATION ￭ AFFLUENCE Lifestyles Food choices: convenience, wellness, eating out, etc...

7. Recession Proofing your NPD www.rts-resource.com Tel +44 (0)1902 422282 | UK: Population Growth 1995 to 2010, millions of people Source: Eurostat, Government projections.

8. Recession Proofing your NPD www.rts-resource.com Tel +44 (0)1902 422282 | UK: Population by Age Group 1995 to 2010, number of people (000 people) Source: Eurostat, Government projections.

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

10. Recession Proofing your NPD www.rts-resource.com Tel +44 (0)1902 422282 | UK: The Market for Food and Drink VOLUME CONSUMPTION, 2002 - 2007 m tonnes/bn litres20022007 p Growth Food43.844.40.2% Drink20.122.42.2% Total63.966.70.9% 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.

11. Recession Proofing your NPD www.rts-resource.com Tel +44 (0)1902 422282 | UK: The Market for Food and Drink CONSUMER VALUES, 2002 - 2007 £bn20022007 p Growth Food£81.8£99.54.0% Drink£38.9£47.34.0% Total£120.7£146.74.0% 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.

12. Recession Proofing your NPD www.rts-resource.com Tel +44 (0)1902 422282 | Volume versus Value Growth BY SELECTED SECTOR, 2002 - 2007 Source: RTS database.

13. Recession Proofing your NPD www.rts-resource.com Tel +44 (0)1902 422282 | 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

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

15. ￭ Incomes up ￭ Food prices down

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

17. Recession Proofing your NPD www.rts-resource.com Tel +44 (0)1902 422282 | Section 2 Market Pressures

18. Recession Proofing your NPD www.rts-resource.com Tel +44 (0)1902 422282 | Internal Pressures ￭ Within this relatively static volume market, rising values have given us the ability to continue to develop.

19. Recession Proofing your NPD www.rts-resource.com Tel +44 (0)1902 422282 | Internal Pressures ￭ This, in turn, has enabled the sales of:  Organics  Fairtrade  Free-range  Wellness  Snacking  Ready Meals  Convenience  Indulgence  etc., etc.

20. Recession Proofing your NPD www.rts-resource.com Tel +44 (0)1902 422282 | Trends v Other VOLUME MODEL Pressure build-up here has dissipated into value-added

21. Recession Proofing your NPD www.rts-resource.com Tel +44 (0)1902 422282 | 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)

22. Recession Proofing your NPD www.rts-resource.com Tel +44 (0)1902 422282 | Market Vulnerability Low volume growth Reducing value growth Consumer cost cutting Retailer price controls Rising prices Soft drinks slowing Increasing elderly Immigration Clean labels

23. External Pressures

24. Recession Proofing your NPD www.rts-resource.com Tel +44 (0)1902 422282 | External Pressures ￭ Increasing energy costs ￭ Rising inflation ￭ Downturn in the housing market ￭ Low income growth ￭ Growing unemployment ￭ Higher interest rates ￭ Slowing economic growth

25. Recession Proofing your NPD www.rts-resource.com Tel +44 (0)1902 422282 | 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

26. Recession Proofing your NPD www.rts-resource.com Tel +44 (0)1902 422282 | External Pressures EFFECTS ￭ Cutting down on travel ￭ Focus on wastage  Using up food  ‘Careful’ purchasing

27. Recession Proofing your NPD www.rts-resource.com Tel +44 (0)1902 422282 | External Pressures Food & Drink Spend £ Low income growth Increasing energy costs Downturn in the housing market Rising inflation Higher interest rates Growing unemployment

28. Recession Proofing your NPD www.rts-resource.com Tel +44 (0)1902 422282 | = 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

29. Recession Proofing your NPD www.rts-resource.com Tel +44 (0)1902 422282 | Section 3 Consumer Vulnerability

30. Recession Proofing your NPD www.rts-resource.com Tel +44 (0)1902 422282 | Consumer Vulnerability ￭ Volumes ￭ Values

31. Recession Proofing your NPD www.rts-resource.com Tel +44 (0)1902 422282 | Volume WILL CONTINUE TO GROW... ￭ Total volumes should continue to grow roughly in line with predicted population growth @ 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.

32. Recession Proofing your NPD www.rts-resource.com Tel +44 (0)1902 422282 |...as Value COMES UNDER PRESSURE ￭ Values (expenditure), on the other hand, will come under pressure.

33. Recession Proofing your NPD www.rts-resource.com Tel +44 (0)1902 422282 | 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

34. Recession Proofing your NPD www.rts-resource.com Tel +44 (0)1902 422282 | 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...

35. Recession Proofing your NPD www.rts-resource.com Tel +44 (0)1902 422282 | 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

36. Recession Proofing your NPD www.rts-resource.com Tel +44 (0)1902 422282 | Seriously Affected ￭ Senior Citizens ￭ Producers ￭ Hard-pressed Families ￭ Have-nots

37. Recession Proofing your NPD www.rts-resource.com Tel +44 (0)1902 422282 | Affected ￭ Settled Suburbans ￭ Nest Builders ￭ Urban Adventures ￭ Country Life

38. Recession Proofing your NPD www.rts-resource.com Tel +44 (0)1902 422282 | Relatively Unaffected ￭ Affluent Achievers ￭ Thriving Greys

39. Recession Proofing your NPD www.rts-resource.com Tel +44 (0)1902 422282 | Section 4 Product Vulnerability

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

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

42. Recession Proofing your NPD www.rts-resource.com Tel +44 (0)1902 422282 | 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.

43. Recession Proofing your NPD www.rts-resource.com Tel +44 (0)1902 422282 | 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

44. Recession Proofing your NPD www.rts-resource.com Tel +44 (0)1902 422282 | The Vulnerability Map ￭ The RTS vulnerability map has been designed to start the thought processes accordingly....

45. Recession Proofing your NPD www.rts-resource.com Tel +44 (0)1902 422282 | Section 5 Vulnerability Map

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

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

48. Recession Proofing your NPD www.rts-resource.com Tel +44 (0)1902 422282 | Market ReportsCustom Research or visit our new website @ www.rts-resource.com ✓ Market analysis ✓ Forecasts ✓ Ingredient usage ✓ Flavour trends ✓ Competitor analysis

49. Recession Proofing your NPD