UKGroceryFoodserviceWholesaling2017

UK grocery & foodservice wholesaling 2017 Sector performance & statistics February 17 © IGD 2017 Page 1

Introduction This insight report was prepared by: Patrick Mitchell-Fox Patrick supports IGD UK’s research Senior Business Analyst, IGD outputs across a wide range of [email protected] subjects. He has developed a particular focus on wholesaling, helping to develop IGD expertise and insight on ‘route to market’ channels globally. The presence of major national supermarkets as the leading players in the UK grocery retail market means that the largest part of FMCG volumes are purchased directly from the supplier base, with no need for intermediaries. Nevertheless, wholesalers retain a critical role in the UK, providing a route to market both in smaller scale, and independent, retail, but moreover in the foodservice channel supplying the needs of all types of out-of-home businesses. This report presents our latest annual statistical review of performance in the UK grocery and foodservice wholesaling sector. Providing data for the calendar year 2016, the analysis splits the market both in terms of the differentiated types of operators that characterise the sector, and in terms of the key customer groups served by them. © IGD 2017 Source: IGD Research Page 2

Sector overview 2016 Total market value reached £29,975m, a marginal wholesaling increase on 2015, against a background of 2016 – the market growth uncertain economic outlook with ongoing price headlines was +0.3% deflation. However, within the market there were notably divergent outcomes between retail and The foodservice foodservice focused business. channel lead growth, up by The delivered foodservice segment of operators 1.9% performed strongest in 2016, with sales increasing by 2.1%, reflecting the buoyancy of a dynamic out- Retail channel of-home customer base. However, cash & carry sales were saw a recovery versus 2015, achieving an uplift of weaker, falling 1.5%. by 0.6% As well as facing headwinds from market-wide Growth in PBU product price deflation, retail channel sales were sales is driven impacted by falling tobacco sales in particular. As by Costco the largest single sector category, decline here expanding continues to have a disproportionate effect. Delivered operators fared better than cash & carry. Chilled & fresh grew in both For most cash & carry operators non-trade foodservice and customers are a tertiary group, but are a primary retail channels focus for Costco. With a unique mix of value and quality, on non-food and food, Costco is rolling out The market is depots to new catchments, successfully growing forecast to grow customer numbers with each opening. at +0.9% annually to 2021 With many categories having mixed fortunes, and some in general decline, chilled & fresh is a key area of growth for wholesalers in both channels. With increased demand for fresh, healthy and natural products in all areas, wholesalers are focused on growing capability to serve this. Looking forward the outlook for the out-of-home customer sector remains good, with consumer demand for eating out growing, and creating increased opportunities for wholesalers servicing the foodservice channel. However, growth in the retail channel is expected to remain restrained despite returning inflation. © IGD 2017 Source: IGD Research Page 3

Sector overview Notes: *Includes £80m supplied from delivered wholesalers to foodservice, catering and hospitality A £30bn market: **Includes £108m supplied from delivered foodservice into retailers wholesale and ***PBUs = professional business users customer map, 2016 Routes to market Delivered grocery Primarily cash & carry Delivered foodservice wholesalers £11,486m wholesalers £11,287m* £7,202m** £2,878m £8,329m £6,876m £1,586m £3,024m £7,094m Other retail Independent & PBUs*** Foodservice, catering and £2,878m convenience retail £1,586m hospitality £10,198m* £15,313m** Customer channels © IGD 2017 Source: IGD Research & Horizons Page 4

Sector overview Wholesaling Sector definitions performance, 2016 The IGD wholesale market comprises operators servicing business customers, primarily in retail and foodservice trade, with food and drink as a major component of the sales mix. The market is divided into segments defined by the wholesale operating format (i.e. delivered or cash & carry), and /or the primary customer channel served. Please note that all sales from cash & carry depots (including those delivered to customers) are included in ‘primarily cash & carry’. Total growth in the IGD wholesale market in Route to market 2015 2016 % Change 2016 was only marginally positive on +0.3%. Across the routes to market, delivered Delivered grocery £11,298m £11,287m -0.1 foodservice was the sole contributor to this uplift, significantly outperforming the average Primarily cash & £11,540m £11,486m -0.5 on +2.1%. carry 2.1 £7,051m £7,202m 0.3 Boosted by continued growth in the UK’s out- Delivered of-home eating market, delivered foodservice foodservice £29,889m £29,975m operators are benefiting from a dynamic and expanding corporate sector in areas like Total sales casual dining, pub dining, coffee shops and food-to-go. With a growing number of customer sites and increased demand for specialist food products, above all delivered foodservice operators are able to provide the key capabilities and expertise to support these needs. In contrast, though elements of the wholesale retail customer base remain buoyant, overall it is declining in numbers. Over 2016 sales into the channel were also impacted by grocery sector-wide price deflation and the ongoing decline of the tobacco, which is a disproportionate element of the wholesale sales mix. © IGD 2017 Source: IGD Research & Horizons Page 5

Sector overview Market outlook: forecasts to 2021 Over the next five years … Route to market 2016 2021 % CAGR £11,287m £11,588m 0.5 Overall market growth is expected to remain Delivered grocery £11,486m £11,531m 0.1 low in the coming years, in spite of the 2.5 potential return of inflation. Primarily cash & £7,202m £8,152m 0.9 carry Above all this outlook is being restrained by Delivered £29,975m £31,271m sales in the channel to independent and foodservice convenience retail (key to delivered grocery Total sales and primarily cash & carry) where, despite some limited areas of growth, forecast progression is expected to be only fractional year-on-year. Increased regulation on tobacco will notably impact this key category. Against this background, driving competitiveness and efficiency, while focusing increasingly on customer loyalty and retention, will become ever more important keys to success for wholesalers. In contrast more buoyant growth in the out- of-home channel, will offer significantly greater opportunity to delivered foodservice operators able to meet the needs of a fast evolving customer base. © IGD 2017 Source: IGD Research & Horizons Page 6

Customer channels Retail Independent & Customers comprise … convenience retail summary, Primarily independent retailers in convenience, CTN and off licence formats. This includes 2016 both unaffiliated retailers but also significant numbers of symbol retailers, covering all the key symbol groups such as SPAR, Premier, Londis, Budgens, Costcutter and Nisa. In addition delivered operators such as Palmer & Harvey and Nisa, also supply networks of multiple stores in both the convenience and forecourt retailing sectors. 2016 was another year of marginal decline Routes to market 2015 2016 % Change for wholesale sales into the independent & £6,996m £6,876m -1.7 convenience retail customer segment. Primarily cash & 0.3 carry £8,304m £8,329m -0.6 As well as the grocery sector-wide factors Delivered grocery slowing growth, such as deflation, and £15,299m £15,205m increasing competition, wholesale has also Total sales been impacted by the progressive decline in demand for tobacco. This has a disproportionate impact on the channel owing to the extensive exposure to the category. However, there was some element of divergence in the fortunes between the two routes to market, with cash & carry slowing markedly, while delivered operators achieved some marginal growth. This represents a modest recovery over 2015, with a number of delivered businesses returned to a more stable state after a period of corporate disruption and retrenchment. The decline of cash & carry again reflects the overall decline of the small store customer base in the UK, with the unaffiliated independents most susceptible. © IGD 2017 Source: IGD Research Page 7

Customer channels Retail Sales to retailers, growth by category, 2016 Primarily cash & carry sales to retailers Delivered grocery sales to retailers 6 3.9 12 9.8 4 2.8 10 2 0.9 8 6.6 0 6 4.7 % -1.4 %4 1.5 0.3 -2 -2.7 2 -4 -2.1 -2.2 -1.7 0 -6 -2 -4 -2.8 -8 -6.4 -1.5 -1.7 -1.6 The overall negative trend was driven by declining sales in While sales fell in a number of big categories for the segment, tobacco, where -2.7% represents a fall of over £100m in cash including tobacco and ambient food, overall sales were kept terms. Other significant categories, such as ambient food also marginally positive by growth primarily in BWS and chilled & contributed to falling sales, however, this was offset in some fresh food. Growth in chilled & fresh remains an opportunity for measure by a marginal uplift in BWS, and more notable gains in these wholesalers, and the category is the focus of ongoing soft drinks. Both BWS, and especially soft drinks, benefited development to expand ranges and increase capability in this from prolonged hot weather in the summer, helping to drive area, with investment in increased flexibility in service with impulse demand in small stores. Frozen food (though only multi-temperature vehicles. Though growth was higher still in small in cash terms) may also have benefited from good frozen food and non-food durables, this trend is off a notably weather, boosting ice cream sales. lower base. © IGD 2017 Source: IGD Research Page 8

Customer channels Retail Estimated operator shares, retail customer group, 2016 Still a broad-based competitor set Costco Others 2% 9% Following its acquisition of the Musgrave GB Parfetts Booker operation in September 2015, Booker has 3% 22% become the clear overall leader in the customer channel to independent and Conviviality convenience retail. With its significantly 3% enhanced capability in delivered service and expanded symbol group portfolio, it is now Blakemore W/S able to provide an unrivalled multi-platform 4% offer to meet needs of widely varying types of retail customer, from sole trader CTNs to Dhamecha growing multi-site operators. 5% The three largest operators in the channel Nisa P&H now account for some 53% of total sales. 9% 16% However, it remains a market with a considerable number of smaller players that SPAR Bestway are still able to compete effectively with the 12% 15% national operators. While remaining separate corporate entities, the collaboration of these regional, and even local, businesses within a number of major buying and marketing groups is key to their viability. © IGD 2017 Source: IGD Research Page 9

Customer channels Foodservice, catering & hospitality Foodservice, Customers comprise … catering & hospitality All types of catering and hospitality business servicing the out-of-home market. This summary, 2016 includes both independent and corporate operators of all types from fast food, food-to-go and pubs to casual and fine dining, as well as institutional and public sector catering (schools and hospitals etc). The foodservice customer channel saw solid Routes to market 2015 2016 % Change growth across both the routes to market, £6,946m £7,094m 2.1 though delivered foodservice operators saw Delivered £2,979m £3,024m 1.5 the strongest uplifts. foodservice £9,925m £10,118m 1.9 Primarily cash & With their expertise both in product and carry service, and a focus on innovation to support Total sales the leading trends in the out-of-home sector, delivered foodservice operators have continued to benefit from the growing demand for eating-out, and the expanding sectors of business developing to serve it. Cash & carry operators have also been targeting this customer channel successfully, building capability to meet more needs, more effectively. However, its key customer base amongst independent operators is facing more mixed fortunes, such as the decline experienced in the tenanted and ‘free trade’ pubs. While deflation has been a restraining factor for all, intensifying price competition, delivered foodservice wholesalers have continued to focus on narrowing the price/value gap with cash & carry, helping switch customers back to that segment. © IGD 2017 Source: IGD Research & Horizons Page 10

Customer channels Foodservice, catering & hospitality Sales to FC&H, growth by category, 2016 Delivered foodservice wholesale Primarily cash & carry, sales to caterers 7.1 5 3.9 8 4 3.0 6 4 3.7 3 1.7 1.8 2.1 2 1.5 2.7 2 0.6 % %1 0.8 0 1.1 1.5 0.0 -2 -4 0 -6 -1 -2.0 -3.3 -2 -3 -2.6 -5.2 Growth in this segment was supported by solid uplifts in all its The uplifts across all the food categories show that cash & key categories, and in chilled & fresh food above all. As the carry wholesalers are successfully meeting a growing range of biggest single category, the cash contribution of chilled & fresh needs for food in the out-of-home sector. The high growth in to growth was over £80m, illustrating the growing importance to frozen, though off a lower base, shows the benefit of improving foodservice customers of having fresh and natural products at and expanding ranges that offer a cost effective, low wastage, the core of their menus. However, while processed products entry-level option for those aiming to extend their food menus. have not seen the same level of growth, the steady uplifts achieved by these categories indicates they remain critical to The key drag on performance came from falling BWS sales, the out-of-home sector, providing important store cupboard where the declining number of pubs may be impacting on a ingredients and convenient solutions for customers. major customer group for the segment. © IGD 2017 Source: IGD Research & Horizons Page 11

Customer channels Foodservice, catering & hospitality Estimated operator shares, FC&H customer group, 2016 Leaders consolidating share The merger with Fresh Direct in 2015, Brakes consolidated Brakes’ position as the largest 18% wholesaler in the foodservice channel. Now part of the US giant Sysco, it will be expected Others that further acquisition may add further scale 31% going forward, though its share remained stable in 2016. Booker 16% Meanwhile Bidvest (renamed Bidfood as of April 2017) has been boosted by a number of JJ Bidvest strategic acquisitions to increase its regional 2% 15% presence. The latest (of Caterfood in south- west England) helped push its share to an Costco Country Range Fairway estimated 15% in 2016, narrowing the gap to 2% 4% 6% its larger competitors. Reynolds Booker for its part continues to develop its 2% unique multi-platform capability. This includes its specialist delivery service, Chef Caterforce Direct, enabling it to target corporate 4% customers alongside its core cash & carry network, with its extensive customer base amongst independent operators. © IGD 2017 Source: IGD Research & Horizons Page 12

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