20th Edition January 2010 Edited by Sophie Worth ISBN 978-1-84729-564-4
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Contents
Executive Summary
1
1. Market Definition
3
REPORT COVERAGE
...3MARKET SECTORS
...3MARKET TRENDS
...3Health Issues
...3Flavours
...4‘Do us a Flavour’
...5ECONOMIC TRENDS
...5Population
...5Table 1.1: UK Resident Population Estimates by Sex (000), Mid-Years 2004-2008
...5Gross Domestic Product
...5Table 1.2: UK Gross Domestic Product at Current and Annual Chain-Linked Prices
(£m), 2004-2008
...6Inflation
...6Table 1.3: UK Rate of Inflation (%), 2004-2008
...7Unemployment
...7Table 1.4: Actual Number of Unemployed Persons in the UK (million), 2004-2008
...7Household Disposable Income
...8Table 1.5: UK Household Disposable Income Per Capita (£), 2004-2008
...8MARKET POSITION
...8The UK
...8Table 1.6: Consumer Expenditure on Food and Non-Alcoholic Drink (£m),
2004-2008
...9Europe
...92. Market Size
11
THE TOTAL MARKET
...11Manufacturers’ Sales
...11Table 2.1: UK Manufacturers’ Sales of Prepared or Preserved Potatoes Including
Crisps (£000), 2004-2007
...11Table 2.2: Net Supply of Prepared or Preserved Potatoes Including Crisps in the UK
(£000), 2004-2007
...12Retailers’ Sales
...12Table 2.3: The Total UK Snack Foods Market by Sector by Value at Current Prices
(£m at rsp), 2005-2009
...12Figure 2.1: The Total UK Snack Foods Market by Sector by Value at Current Prices
(£m at rsp), 2005-2009
...13BY MARKET SECTOR
...13Figure 2.2: The Total UK Snack Foods Market by Sector by Value at Current Prices
(%), 2009
...14Potato Crisps
...14Table 2.4: The UK Potato Crisps Sector by Value
at Current Prices (£m at rsp and %), 2005-2009
...15Figure 2.3: The UK Potato Crisps Sector by Value
at Current Prices (£m at rsp), 2005-2009
...15Other Savoury Snacks
...16Table 2.5: The UK Other Savoury Snacks Sector by Value
at Current Prices (£m at rsp and %), 2005-2009
...16Figure 2.4: The UK Other Savoury Snacks Sector
by Value at Current Prices (£m at rsp), 2005-2009
...17Snack Nuts
...17Table 2.6: The UK Snack Nuts Sector by Value
at Current Prices (£m at rsp and %), 2005-2009
...18Figure 2.5: The UK Snack Nuts Sector by Value
at Current Prices (£m at rsp), 2005-2009
...18OVERSEAS TRADE
...19General Overview
...19Table 2.7: UK Manufacturers’ Imports and Exports of Prepared
or Preserved Potatoes Including Crisps (£000), 2004-2007
...19Imports
...19Table 2.8: UK Manufacturers’ Imports of Prepared or Preserved Potatoes Including
Crisps (£000), 2004-2007
...20Exports
...20Table 2.9: UK Manufacturers’ Exports of Prepared or Preserved Potatoes Including
Crisps (£000), 2004-2007
...203. Industry Background
23
RECENT HISTORY
...23NUMBER OF COMPANIES
...23Table 3.1: Number of UK VAT- and/or PAYE-Based Enterprises Engaged
in the Processing and Preserving of Potatoes by Turnover Sizeband
(£000, number and %), 2009
...23EMPLOYMENT
...24Table 3.2: Number of UK VAT- and/or PAYE-Based Enterprises Engaged
in the Processing and Preserving of Potatoes by Employment Sizeband
(number and %), 2009
...24REGIONAL VARIATIONS IN THE MARKETPLACE
...25DISTRIBUTION
...26HOW ROBUST IS THE MARKET?
...26LEGISLATION
...26KEY TRADE ASSOCIATIONS
...27European Snacks Association
...27Snack Food Association
...27Snack, Nut and Crisp Manufacturers Association
...27ADVISORY AND INFORMATION SERVICES
...27The Food Commission (UK) Ltd
...27Food and Drink Federation
...27Food Standards Agency
...284. Competitor Analysis
29
THE MARKETPLACE
...29MARKET LEADERS
...29Intersnack Ltd
...29Seabrook Crisps Ltd
...30Tayto (NI) Ltd
...30United Biscuits Topco Ltd
...31Walkers Snack Foods Ltd
...32OUTSIDE SUPPLIERS
...32Raw Materials
...32Snack Processing Equipment
...34Packaging
...34MARKETING ACTIVITY
...35Table 4.2: Main Media Advertising Expenditure on Potato Crisps and Snacks
(£000), Year Ending September 2009
...36Table 4.3: Main Media Advertising Expenditure on Crispbreads and Crackers
(£000), Year Ending September 2009
...37Recent Promotions
...38Other Marketing Activities
...39Exhibitions
...395. Brand Strategy
41
RESEARCH FINDINGS
...41Table 5.1: Popularity of Selected Snack Food Brands
(% of respondents), 2008 and 2009
...41By Sex
...42Table 5.2: Popularity of Selected Snack Food Brands
by Sex (% of respondents), 2009
...43By Age
...44Table 5.3: Popularity of Selected Snack Food Brands
by Age (% of respondents), 2009
...44By Social Grade
...45Table 5.4 Popularity of Selected Snack Food Brands
by Social Grade (% of respondents), 2009
...46By Region
...47Table 5.5: Popularity of Selected Snack Food Brands
by Region (% of respondents), 2009
...48Table 5.6: Popularity of Selected Snack Food Brands
by Remaining Regions (% of respondents), 2009
...49COMPANIES’ BRANDS
...50Intersnack
...50Largo Food Exports
...50Tayto (NI)
...50Tyrrells Potato Chips
...50United Biscuits
...51Walkers Snack Foods
...51TOP BRANDS
...51The Guild of Fine Food Great Taste Awards
...51Table 5.7: Winners of The Guild of Fine Food Great Taste Awards, 2009
...52THREATS
...547. Buying Behaviour
55
HOUSEHOLD EXPENDITURE ON FOOD AND DRINK
...55CONSUMER PENETRATION
...55Potato Crisps, Tortilla and Corn Snacks
...55Table 7.1: Penetration of Potato Crisps, Tortilla and Corn Snacks in the Past
12 Months by Frequency (% of adults), 2009
...55Nuts and Dried Fruit
...56Table 7.2: Penetration of Nuts and Dried Fruit in the Past
12 Months by Frequency (% of adults), 2009
...56Other Savoury Snacks
...57Table 7.3: Penetration of Other Savoury Snacks in the Past
12 Months by Frequency (% of adults), 2009
...578. Current Issues
59
CLOSURES, MERGERS AND ACQUISITIONS
...59MBMG
...59Tyrrells Potato Chips
...59BOARD AND SENIOR MANAGEMENT CHANGES
...59PepsiCo UK and Ireland
...59NEW PRODUCT DEVELOPMENT
...59McCoy’s
...59Penn State
...60Pringles
...60Tyrrells
...60Walkers
...609. The Global Market
61
EUROPE
...61THE US
...61ASIA PACIFIC
...62SELECTED GLOBAL COMPETITORS
...62Calbee Foods
...62Intersnack Knabber-Gebäck
...62ITC
...63Lorenz Snack-World
...64PepsiCo
...64Procter & Gamble
...64Snack Foods
...65Snyder’s of Hanover
...6510. Forecasts
67
INTRODUCTION
...67The Economy
...67Population
...67Table 10.1: Forecast UK Resident Population by Sex (000), Mid-Years 2009-2013
...67Gross Domestic Product
...68Table 10.2: Forecast UK Growth in Gross Domestic Product
in Real Terms (%), 2009-2013
...68Inflation
...68Table 10.3: Forecast UK Rate of Inflation (%), 2009-2013
...69Unemployment
...69Table 10.4: Forecast Actual Number of Unemployed Persons
in the UK (million), 2009-2013
...69FORECASTS 2010 TO 2014
...70Table 10.5: The Forecast UK Snack Foods Market by Sector
by Value at Current Prices (£m at rsp), 2010-2014
...70Figure 10.1: The Forecast UK Snack Foods Market by Sector
by Value at Current Prices (£m at rsp), 2010-2014
...71MARKET GROWTH
...71Figure 10.2: Growth in the UK Snack Foods Market
by Value at Current Prices (£m at rsp), 2005-2014
...72FUTURE TRENDS
...72Industry Consolidation
...72Overseas Markets
...73Health Issues
...7311. Company Profiles
75
INTERSNACK LTD
...76SEABROOK CRISPS LTD
...78TAYTO (NI) LTD
...8012. Company Financials
87
13. Further Sources
89
Associations
...89General Sources
...90Government Sources
...91Other Sources
...92Key Note Sources
...92Understanding TGI Data
95
Number, Profile, Penetration
...95Social Grade
...96Standard Region
...96Key Note Research
97
• “Our taste buds are changing and
developing as new flavours and foods
become readily available in the UK
and Ireland. Everyone has their
favourite flavours, but lately people
are becoming keen to experiment
and try new foods.”
Heston Blumenthal, celebrity chef and chief judge in Walkers’ ‘Do us a Flavour’ competition
(www.fmb.org.uk)
• “Innovative flavour additions are key
for snacks as our extensive research has
shown that approximately 30% of all
category growth in the latest 52 weeks
has come from new flavours being
added to existing brands.”
Paul Lettice, Trade Communications Officer of Procter & Gamble (www.talkingretail.com, 2nd February 2009)
• “When Jamie Oliver said that because
there are a few fat children nobody
should be eating crisps, it crucified
our business. Schools were banned
from stocking crisps and our turnover
plummeted from £15m to £12m
almost overnight.”
Ken Brook-Chrispin, Chairman and Chief Executive of Seabrook Crisps (www.ft.com, 5 May 2009)
Executive Summary
This Key Note Market Report Plus examines the UK snack foods market, which comprises potato crisps, other savoury snacks (including tortilla chips, baked snack biscuits and rice- and corn-based snacks) and snack nuts.
It excludes sweet snack items, such as chocolate, which are covered in Key Note’s Confectionery Market Report Plus and the Sweet & Salty Snacks Market Assessment. Key Note estimates that, in terms of retail sales, the total value of the market increased by 12% between 2005 and 2009 to reach £2.39bn. An especially strong growth of 8.4% was seen between 2008 and 2009 as manufacturers passed on steep rises in commodity costs for items such as potatoes, sunflower oil and nuts.
Manufacturers of snack foods continued to respond to health issues in 2008/2009, reducing salt and fat content in their foods through the introduction of ‘light’ and low-fat variants. Emphasis has been placed on the use of more ‘natural’ ingredients, as well as on baked, rather than fried, goods. Seabrook Crisps has admitted that when celebrity chef Jamie Oliver advised people against eating crisps because of their fat and salt content, it decimated its sales ‘almost overnight’. However, despite most snack foods being relatively low in nutritional value, consumption of them on a regular basis is very high. A Target Group Index (TGI) survey carried out by BMRB International Ltd found that 84.1% of respondents had consumed potato crisps, tortilla or corn snacks in the 12 months ending March 2009, indicating that consumers look upon such foods as indulgent treats.
As well as being indulgent, savoury snack foods such as crisps are also an affordable treat. Even at the premium end of the market, products are cheap in comparison to other food treats, such as premium chocolate. In fact, the current recession has helped demand for upmarket products, as there has been an increase in consumers staying in rather than going out and replacing luxuries such as eating out in restaurants with eating snack foods at home. This has also led to retailers giving more shelf space to snack foods, particularly large sharing packs.
The hike in commodity costs in 2008/2009 led to hefty price rises in the industry, and there have been corporate casualties as a result. For example, Natural Crisps Ltd was close to administration when it was bought by Tayto Crisps of Northern Ireland in a ‘distress deal’ completed in a week over Christmas 2008. The deal was Tayto’s fourth acquisition in 3 years, following its purchases of Golden Wonder in 2006, Real Crisps in 2007 and Red Mill Snack Foods in 2008. Germany’s Intersnack purchased a 15% stake in Largo Foods (the owner of the Tayto brand in the Republic of Ireland), and is thought to be considering making more acquisitions in the UK market. Further consolidation in an industry currently dominated by Walkers Snack Foods seems likely in the future, especially as the recession continues and companies struggle to survive. Key Note forecasts that the retail sales value of the UK snacks market will increase by 3.6% to £2.48bn in 2010, and will grow by an overall 5.3% between
1. Market Definition
REPORT COVERAGE
Snacks can be defined as food consumed at times other than breakfast, lunch and dinner, or as a selection of small items eaten to replace traditional meals. However, for the purpose of this Key Note Market Report Plus, such items are confined to bagged savoury snacks, and the report excludes sweet items, such as sweet biscuits, sugar and chocolate. These items are covered in Key Note’s
Confectionery Market Report Plus and Sweet & Salty Snacks Market
Assessment.
In addition to retail outlets, sales of savoury snacks are made through
foodservice outlets, such as coffee shops, public houses (‘pubs’) and canteens. These outlets are not included in this report, but would add considerably to the total value of the market.
MARKET SECTORS
Within this report, the snack foods market is divided into three principle sectors, as follows:
• potato crisps
• other savoury snacks, including tortilla chips, baked snack biscuits and rice- and corn-based snacks
• snack nuts.
MARKET TRENDS
Health Issues
Healthier formulations continue to be a major concern within the food market, particularly for savoury snacks marketed to children. The relatively high fat, salt and sugar content of processed foods, together with the sedentary lifestyle of many consumers, has led to an increasing proportion of overweight and obese people in the Western world. Data from the Department of Health’s
Health Survey for England (HSE) shows that, in 2007, 60.8% of adults (aged
16 or over) in England were overweight and, of these, 24% were obese. This represented a slight fall in the proportion of overweight adults (61.6% in 2006); however, the data also showed that obesity had increased in children. In 2007, 28.6% of children (aged between 2 and 10) in England were
In contrast, a survey conducted by the Stroke Association in September 2009 found that, perhaps surprisingly, consumers under the age of 18 were more conscientious than other age groups when it came to checking the salt content of foods before purchasing (21% compared with the national average of less than 10%), but that a high salt content did not deter them from buying products.
The Department for Business, Innovation and Skills’ (BIS’) Foresight Tackling
Obesities: Future Choices project — the findings of which were published in
October 2007 — predicts that, if no action is taken, 60% of men, 50% of women and 25% of children will be obese by 2050. With the threat of possible legal action ever present in today’s litigious society, food manufacturers have responded by offering reduced-fat and -salt alternatives in most categories, including potato crisps and other bagged savoury snacks. However,
reformulation of products has closed the gap between ‘healthy’ and regular crisps, as manufacturers reduce the calorie count by introducing different cooking oils and recipe changes. According to Nielsen, in the year ending April 2009, there was a 2.3% drop in the sales value of Walkers Baked (the healthy option) as sales of its core brand rose after it began using healthier cooking oil. Other measures to make savoury products more healthy include the removal of monosodium glutamate and artificial flavourings (see Flavours section below) and colourings.
In July 2008, a joint initiative between the UK Government, food
manufacturers and advertising agencies was announced to tackle obesity by encouraging the public to eat healthily and take more physical exercise. The £75m Change4Life campaign was 4 years in the making and has the support of an industry consortium, including Tesco, PepsiCo and Kraft. In July 2008, a coalition of companies — including BSkyB, ITV, Tesco, Coca-Cola, Cadbury and AOL — pledged the equivalent of more than £200m in advertising space and services to support the initiative in the run-up to the 2012 Olympic Games (London 2012).
Flavours
As palates have become more adventurous, novel new flavours have been introduced to snack foods, often based on ethnic tastes and spicy flavours. There is even a campaign on the social networking website Facebook to bring back the hedgehog-flavoured crisps that were introduced as a joke but enjoyed surprising success in the 1980s. Flavoured with pork fat, the
hedgehog-flavoured crisps inevitably led to a charge brought by the Office of Fair Trading (OFT) for false advertising. In another instance, the European Commission attempted to ban Prawn Cocktail- and Smokey Bacon-flavoured snacks on the grounds that they contained artificial sweeteners or other harmful additives.
However, according to a survey undertaken by Kettle Chips in 2009, nearly half of the UK adults surveyed voted the classic Cheese & Onion as their favourite
‘Do us a Flavour’
In 2008, Walkers Snack Foods ran a competition on its website entitled ‘Do us a Flavour’, inviting the public to suggest a new flavour for its crisps. The company then manufactured the six finalist flavours — Cajun Squirrel; Crispy Duck and Hoisin; Builder’s Breakfast; Onion Bhaji; Fish and Chips; and Chilli and Chocolate — for the public to vote on. In May 2009, the Builder’s Breakfast flavour (which was said to be flavoured with egg, bacon, sausage and beans) was announced as the winner.
ECONOMIC TRENDS
Population
In 2008, the population of the UK was estimated at 61.4 million — an increase of 0.7% compared with the previous year and 2.6% higher than the 2004 level of 59.8 million. Any rise in population is of benefit to demand for consumer goods as it increases the customer base. However, the fact that the UK has an ageing population will dampen the demand for children’s snack products. The population increase will largely be as a result of immigration, and this may strengthen demand for snacks influenced by cuisines from around the world.
Table 1.1: UK Resident Population Estimates by Sex
(000), Mid-Years 2004-2008
2004 2005 2006 2007 2008 Female 30,568 30,741 30,893 31,059 31,232 Male 29,278 29,497 29,694 29,916 30,151 Total 59,846 60,238 60,587 60,975 61,383 % change year-on-year - 0.7 0.6 0.6 0.7 Source: Monthly Digest of Statistics, November 2009, National Statistics website © Crown copyright material is reproduced with the permission of the Controller of HMSO (and the Queen’s Printer for Scotland)Gross Domestic Product
Gross domestic product (GDP) rose by 3.5% at current prices in 2008, compared with 5.5% in 2007. Figures published by National Statistics in late November 2009 showed that GDP contracted by 0.3% in the third quarter of 2009, revised
Table 1.2: UK Gross Domestic Product at Current
and Annual Chain-Linked Prices (£m), 2004-2008
2004 2005 2006 2007 2008 Current prices 1,202,956 1,254,058 1,325,795 1,398,882 1,448,054 % change year-on-year - 4.2 5.7 5.5 3.5 Annual chain-linked GDP 1,227,387 1,254,058 1,289,833 1,322,842 1,330,118 % change year-on-year - 2.2 2.9 2.6 0.6
GDP — gross domestic product
Source: Economic & Labour Market Review, November 2009, National Statistics website © Crown copyright material is reproduced with the permission
of the Controller of HMSO (and the Queen’s Printer for Scotland)
Inflation
As is evident in Table 1.3, inflation fell slightly in 2008, having increased the previous 2 years. Figures published in November 2009 showed that Consumer Price Index (CPI) annual inflation — the Government’s target measure — was 1.5% in October, up from 1.1% in September 2009. As an internationally comparable measure of inflation, the CPI shows that the UK inflation rate in September 2009, at 1.1%, was above the provisional figure for the EU as a whole (0.3%). Retail Price Index (RPI) inflation, which includes housing costs, fell by 0.8% in the year ending October 2009, compared with a fall of 1.4% in September.
Table 1.3: UK Rate of Inflation (%), 2004-2008
2004 2005 2006 2007 2008
Inflation (%) 3.0 2.8 3.2 4.3 4.0
Percentage point
change year-on-year - -0.2 0.4 1.1 -0.3
Note: inflation is at retail price index (RPI).
Source: Monthly Digest of Statistics, November 2009, National Statistics website © Crown copyright material is reproduced with the permission of the Controller of HMSO (and the Queen’s Printer for Scotland)
Unemployment
The latest annual figures released by National Statistics in November 2009 show that the unemployment rate rose to 910,000 in 2008 — a 5.8% increase compared with 2008. This worsened considerably in 2009 as a direct result of the recession, and the latest quarterly figures from National Statistics reveal that the number of people out of work increased by 21,000 to 2.49 million between August and October (not tabulated). However, this was the smallest increase seen since the March-to-May period in 2008, indicating that the worst is over and employers are beginning to hire again.
Unemployment is always a lagging factor in a recession, as many businesses cease trading during the economic difficulties, and employers tend to remain cautious for some time after the economy has recovered. However, with savoury snacks being a relatively cheap purchase, unemployment figures are not likely to have as much impact as in other consumer goods sectors.
Table 1.4: Actual Number of Unemployed Persons
in the UK (million), 2004-2008
2004 2005 2006 2007 2008
Actual number of
claimants (million) 0.85 0.86 0.95 0.86 0.91
% change year-on-year - 1.2 10.5 -9.5 5.8 Source: Monthly Digest of Statistics, November 2009, National Statistics website © Crown copyright material is reproduced with the permission of the Controller of HMSO (and the Queen’s Printer for Scotland)
Household Disposable Income
Bank interest rates are at an all-time low and, in a further attempt to kick-start consumer spending, the standard rate of VAT was reduced to 15% on
1st December 2008. However, it will revert to 17.5% on 1st January 2010 in a move that could curtail any growth in consumer spending on high-priced items, but will not be expected to make any difference to demand for
low-ticket snacks.
The latest Retail Sales Monitor from the British Retail Consortium (BRC) shows that UK retail sales values for October 2009 rose by 3.8% on a like-for-like basis from October 2008, when sales had fallen 2.2%. However, food sales growth slowed further, largely reflecting lower food price inflation. Nevertheless, any indication of a return in consumer confidence will be encouraging for the snack food industry, where Christmas sales of premium indulgent snacks are so important.
According to the latest figures from National Statistics, UK household
disposable income increased by 4.1% to £14,921 in 2008 (compared with 2007), and rose by an overall 14.1% over the 5-year review period.
Table 1.5: UK Household Disposable Income
Per Capita (£), 2004-2008
2004 2005 2006 2007 2008
Household disposable
income (£) 13,078 13,572 13,952 14,331 14,921
% change year-on-year - 3.8 2.8 2.7 4.1 Source: Economic & Labour Market Review, November 2009, National Statistics website © Crown copyright material is reproduced with the permission
of the Controller of HMSO (and the Queen’s Printer for Scotland)
MARKET POSITION
The UK
Consumer expenditure on food and non-alcoholic drink rose by 8.8% in 2008, compared with the previous year — a much sharper increase than has been recorded in recent years. Expenditure on savoury snacks as considered in this report is estimated to have amounted to 2.8% of total expenditure on food and non-alcoholic drink in 2008 (not tabulated).
Table 1.6: Consumer Expenditure on Food
and Non-Alcoholic Drink (£m), 2004-2008
2004 2005 2006 2007 2008
Expenditure (£m) 65,156 67,138 69,510 72,313 78,680
% change year-on-year - 3.0 3.5 4.0 8.8 Source: Consumer Trends, Quarter 2 2009, National Statistics © Crown copyright material is reproduced with the permission of the Controller of HMSO (and the Queen’s Printer for Scotland)
The latest figures available for the first half of 2009 show that expenditure on food and non-alcoholic drink continued to rise and was 4.8% higher in the first 6 months of 2009 than in the comparable period in 2008.
Europe
Overall, the EU savoury snacks market is estimated by Key Note to have increased by 4% to €11.3bn in 2008. The latest detailed figures from the European Snacks Association (ESA) related to 2007, when potato chips (crisps) accounted for more than a third (34.3%) of the total value of savoury snacks and nuts.
The snack nuts sector has seen significant growth in some Western EU markets, but declines in the Eastern EU have reduced the sector’s overall growth. In 2005 (the latest figures available), the UK accounted for around 21% of the total value of the EU savoury snacks market, with Germany representing 13%; Spain 10% to 11%; France and Italy 8% to 9% each; Scandinavia (excluding Norway) 6%; and Belgium and the Republic of Ireland 3% each. The market leader in savoury snacks across Western Europe is PepsiCo, which owns the Frito-Lay and Walkers brands.
2. Market Size
THE TOTAL MARKET
Manufacturers’ Sales
Unlike other sectors of UK manufacturing, manufacturers’ sales of ‘prepared or preserved potatoes, including crisps’ have risen in value over recent years. According to National Statistics’ Products of the European Community (PRODCOM) publication, sales increased by an overall 8.5% — from £827.2m to £897.7m — between 2004 and 2007 (the latest years for which figures are available).
Table 2.1: UK Manufacturers’ Sales of Prepared or Preserved
Potatoes Including Crisps (£000), 2004-2007
2004 2005 2006 2007
Value (£000) 827,192 841,446 892,378 897,689
% change year on year - 1.7 6.1 0.6
Source: PRODCOM, PRA15310, National Statistics © Crown copyright material is reproduced with the permission of the Controller of HMSO (and the Queen’s Printer for Scotland)
PRODCOM also provides import and export statistics for prepared or preserved potatoes, including crisps. By adding the total value of UK imports to the value of domestic manufacturers’ sales and deducting the total value of UK exports, figures are arrived at showing the value of the UK’s net supply of these products, as shown in Table 2.2.
Table 2.2: Net Supply of Prepared or Preserved Potatoes
Including Crisps in the UK (£000), 2004-2007
2004 2005 2006 2007
Value (£000) 837,303 844,635 891,159 888,235
% change year-on-year - 0.9 5.5 -0.3
Source: PRODCOM, PRA15310, National Statistics © Crown copyright material is reproduced with the permission of the Controller of HMSO (and the Queen’s Printer for Scotland)
Retailers’ Sales
Key Note estimates that UK retail sales of snack foods were worth £2.39bn in 2009 — an increase of 8.4% compared with the previous year (as a result of manufacturers passing on steep rises in commodity costs) and a rise of 12% on the 2005 total of £2.13bn. The strongest growth was seen in the potato crisps sector, the value of which increased by 14.6% between 2005 and 2009.
Table 2.3: The Total UK Snack Foods Market by Sector
by Value at Current Prices (£m at rsp), 2005-2009
2005 2006 2007 2008 2009
Potato crisps 938.0 942.0 944.0 980.0 1,075.0
Other savoury snacks 1,005.0 1,010.0 1,015.0 1,022.0 1,110.0
Snack nuts 190.5 192.0 194.5 203.0 205.0
Total 2,133.5 2,144.0 2,153.5 2,205.0 2,390.0
% change year-on-year - 0.5 0.4 2.4 8.4
rsp — retail selling prices
In recent years, the ‘better-for-you’ healthier sector has driven growth, but the gap between regular products and healthier products has narrowed as manufacturers have begun to reformulate their standard products
(i.e. through the use of ‘lighter’ cooking oils). Manufacturers’ concentration on premium sharing snacks has also contributed towards growth, as staying in has become ‘the new going out’ as a result of the recession. However, the recession has also driven many consumers to the value end of the market, so demand has remained fairly buoyant across the board.
Figure 2.1: The Total UK Snack Foods Market by Sector
by Value at Current Prices (£m at rsp), 2005-2009
Potato crisps Other savoury snacks Snack nuts 2005 2006 2007 2008 2009 0 250 500 750 1,000 1,250 1,500 1,750 2,000 2,250 2,500
rsp — retail selling prices
Source: Key Note
BY MARKET SECTOR
Figure 2.2 illustrates the market share held by each sector of the snack foods market in 2009. Other savoury snacks represented the largest proportion of the market (46.4%), mainly because this category incorporates various different types of products, such as tortilla chips, baked snack biscuits, and rice- and corn-based snacks. Potato crisps was the second-largest sector of the market, with 45% in 2009, followed by the nuts category with 8.6%.
Figure 2.2: The Total UK Snack Foods Market
by Sector by Value at Current Prices (%), 2009
Snack nuts 8.6% Other savoury snacks 46.4% Potato crisps 45.0%
Source: Key Note
Potato Crisps
In 2007, Europe’s potato prices more than doubled after the previous year’s hot summer saw production slumping by up to 15% in key producing countries such as Germany, the Netherlands and Great Britain. On the whole, crisp manufacturers in the UK absorbed the additional costs. The wet summer of 2008 pushed prices of potatoes up again, and this was coupled with a steep rise in the price of sunflower oil. Manufacturers absorbed some of the increases, but had no alternative but to increase retail prices, resulting in a sharp rise in shelf prices in 2008 and 2009. Less was seen of discount offers such as ‘buy one, get one free’ (BOGOF), which had been a characteristic of the market before.
Traditional potato crisps remain the single largest product category of the snack foods market as defined in this report, accounting for a 45% share in 2009. Key Note estimates that the retail sales value of potato crisps increased by 9.7% to £1.08bn in 2009, and grew by 14.6% over the 5-year review period.
Table 2.4: The UK Potato Crisps Sector by Value
at Current Prices (£m at rsp and %), 2005-2009
2005 2006 2007 2008 2009
Value (£m) 938 942 944 980 1,075
% change year-on-year - 0.4 0.2 3.8 9.7
% share of total market 45.0 43.9 43.8 44.4 45.0
rsp — retail selling prices
Source: Key Note
Cheese and Onion-flavoured crisps are said to be the nation’s favourite flavour, having overtaken Ready Salted, and sales of the former are valued at more than £250m. However, Salt and Vinegar-flavoured crisps have declined in popularity in recent years. Manufacturers are concentrating on relaunching and/or promoting retro brands, since it is cheaper than launching a new product, and benefits from the fact that brands such as Hula Hoops and Monster Munch will already have a fan base as many consumers will remember them nostalgically from their own childhoods.
Figure 2.3: The UK Potato Crisps Sector by Value
at Current Prices (£m at rsp), 2005-2009
2005 2006 2007 2008 2009 900 925 950 975 1,000 1,025 1,050 1,075 1,100rsp — retail selling prices
Other Savoury Snacks
Other savoury snacks are those that are not wholly or exclusively made from potatoes, potato flour or potato starch, but can be, for example, dough-, wheat-, starch- or rice flour-based. Products include traditional extruded and pelleted snacks (such as Procter & Gamble’s Pringles range, which are made from reconstituted potato), tortilla products (i.e. Walkers Doritos), baked snacks (such as Mini Cheddars and Twiglets) and rice- and corn-based snacks (i.e. Quaker’s Snack-a-Jacks).
Like potato crisps, other savoury snacks suffered a decline in sales values earlier in the decade in the backlash against unhealthy products, but sales have since recovered due to manufacturers’ new product development (NPD) of healthier options, as well as the trend towards sharing packs of premium snacks. Key Note estimates that the combined retail sales value of the products included in the other savoury snacks sector accounted for 46.4% of the total market in 2009, and that retail sales of other savoury snacks increased by 10.4% between 2005 and 2009 to reach a value of £1.11bn.
Table 2.5: The UK Other Savoury Snacks Sector by Value
at Current Prices (£m at rsp and %), 2005-2009
2005 2006 2007 2008 2009
Value (£m) 1,005 1,010 1,015 1,022 1,110
% change year-on-year - 0.5 0.5 0.7 8.6
% share of total market 47.1 47.1 47.1 46.3 46.4
rsp — retail selling prices
Figure 2.4: The UK Other Savoury Snacks Sector
by Value at Current Prices (£m at rsp), 2005-2009
2005 2006 2007 2008 2009 980 990 1,000 1,010 1,020 1,030 1,040 1,050 1,060 1,070 1,080 1,090 1,100 1,110 1,120 1,130
rsp — retail selling prices
Source: Key Note
Snack Nuts
Nuts are perceived as a healthier alternative to other savoury snacks, and the category has grown in value and volume in the past, at the expense of other products in the market. However, the sector is susceptible to supply disruptions, as crops can be in short supply due to factors outside of manufacturers’ control, such as frost damage to crops and farmers’ price hikes. UK buyers of peanuts have also been hit by the low value of sterling as peanuts — which have escalated in price anyway — are sold in US dollars. Peanuts now account for an estimated, and declining, 40% share of the snack nuts sector by value. Own-label products are significant in the sector, and their value now accounts for more than two-thirds of the total. However, sales of all nuts are highly seasonal, and around 30% of the sector’s retail sales value for any year is earned in the final quarter in the run-up to Christmas.
Key Note estimates that retail sales of snack nuts increased by an overall 7.6% between 2005 and 2009, to reach a value of £205m. However, sales are estimated to have increased by just 1% between 2008 and 2009, when the sector’s market share dropped to a 5-year low of 8.6%
Table 2.6: The UK Snack Nuts Sector by Value
at Current Prices (£m at rsp and %), 2005-2009
2005 2006 2007 2008 2009
Value (£m) 190.5 192.0 194.5 203.0 205.0
% change year-on-year - 0.8 1.3 4.4 1.0
% share of total market 8.9 9.0 9.0 9.2 8.6
rsp — retail selling prices
Source: Key Note
A recent lack of innovation and NPD in the snack nuts sector has caused it to stagnate a little, and manufacturers are seeking to re-energise the category with introductions of sweet nut lines (such as peanut clusters), which fall outside the scope of this report. Moreover, some brands of nuts are largely or exclusively sold through foodservice outlets — such as public houses (‘pubs’), hotels, coffee shops, cafés and canteens — sales from which would significantly increase the overall value of the sector.
Figure 2.5: The UK Snack Nuts Sector by Value
at Current Prices (£m at rsp), 2005-2009
2005 2006 2007 2008 2009 185.0 187.5 190.0 192.5 195.0 197.5 200.0 202.5 205.0 207.5 210.0rsp — retail selling prices
OVERSEAS TRADE
General Overview
The value of UK imports of prepared or preserved potatoes, including crisps, decreased between 2004 and 2007, while that of exports showed year-on-year increases. This resulted in the trade deficit seen in 2004 and 2005 changing to a surplus in 2006 and 2007, and one which increased by £8.2m between 2006 and 2007.
Table 2.7: UK Manufacturers’ Imports and Exports of Prepared
or Preserved Potatoes Including Crisps (£000), 2004-2007
Imports Exports Balance of Trade
2004 50,815 40,704 -10,111
2005 48,512 45,323 -3,189
2006 49,921 51,140 1,219
2007 49,197 58,651 9,454
Source: PRODCOM, PRA15310, National Statistics © Crown copyright material is reproduced with the permission of the Controller of HMSO (and the Queen’s Printer for Scotland)
Imports
Imports from countries outside of the EU are fairly insignificant in value, and accounted for just 0.9% of the total in 2007. Between 2004 and 2007, the UK’s imports of prepared or preserved potatoes were greater than its exports to EU markets.
Table 2.8: UK Manufacturers’ Imports of Prepared or Preserved
Potatoes Including Crisps (£000), 2004-2007
Intra-EU Imports Extra-EU Imports Total
2004 49,861 954 50,815
2005 47,843 669 48,512
2006 49,558 363 49,921
2007 48,774 423 49,197
Source: PRODCOM, PRA15310, National Statistics © Crown copyright material is reproduced with the permission of the Controller of HMSO (and the Queen’s Printer for Scotland)
Exports
Although most export trade is with EU countries, non-EU markets are becoming increasingly important to UK manufacturers of prepared or preserved potatoes. For example, the value of such exports rose by 66.5% between 2004 and 2007, while the value of exports to EU countries increased by 37.3% over the same period.
Table 2.9: UK Manufacturers’ Exports of Prepared or Preserved
Potatoes Including Crisps (£000), 2004-2007
Intra-EU Exports Extra-EU Exports Total
2004 31,274 9,430 40,704
2005 33,234 12,089 45,323
2006 37,453 13,687 51,140
2007 42,950 15,701 58,651
Source: PRODCOM, PRA15310, National Statistics © Crown copyright material is reproduced with the permission of the Controller of HMSO (and the Queen’s Printer for Scotland)
Leatherhead Food International Ltd Export Figures
According to research carried out for the Food and Drink Federation (FDF) by Leatherhead Food International Ltd in June 2009, UK exports of crisps — a more limited category than the ‘prepared or preserved potatoes, including crisps’ classification seen in the National Statistics figures previously — increased in value by 26.4% to £47.5m between 2007 and 2008, continuing several years of high growth. The largest market was the Republic of Ireland, exports to which were worth £25.8m in 2008, representing an increase of 23.9% compared with 2007. However, it was the export markets of Italy and Germany that recorded the highest growth rates between 2007 and 2008, at 84.4% and 41.5%, respectively. More recent figures published by Leatherhead Food Research (the trading name of Leatherhead Food International)
in October 2009 showed that UK exports of crisps had risen in value by 13.7% to £27.3m in the first 6 months of 2009, compared with the same period in 2008. The Republic of Ireland remained the largest market — to which exports of crisps rose in value by 35.5%, compared with the first half of 2008 — while exports to Denmark showed a growth rate of 200.7% over the same period.
3. Industry Background
RECENT HISTORY
Potato crisps were invented in 1853 by an exasperated American-Indian hotel chef in Saratoga Springs, New York, who responded to repeated complaints from a customer that his chips were too thick by cutting the potatoes wafer thin. The guest was said to be very enthusiastic about the crisp, paper-thin potatoes, and they soon became a staple of American menus. The first British potato crisps were manufactured by a Mr Carter in 1913, but were first mass produced when Frank Smith of Cricklewood formed the Smith’s Potato Crisps Company Ltd in 1920 — the company that would eventually become part of Walkers Snack Foods.
Potato crisps are manufactured from thinly sliced fresh potatoes (or
occasionally other vegetables) that are lightly fried in oil or oven-baked and then sprinkled with flavourings. Different types of oils and flavourings have been introduced over the years, and many products have been reformulated to make them healthier. The 1970s saw the introduction of extruded products whereby, for example, ground corn is squeezed through a small shaped opening, expanding as it heats up into soft, light pieces that are then baked in an oven to make them crisp.
NUMBER OF COMPANIES
According to National Statistics’ UK Business: Activity, Size and Location publication, there were 60 UK VAT- and/or pay-as-you-earn (PAYE)-based enterprises engaged in the processing and preserving of potatoes in 2009. Of these, 41.7% had a turnover in excess of £1m, and a quarter reported a revenue of more than £5m — an unusually high proportion.
Table 3.1: Number of UK VAT- and/or PAYE-Based Enterprises
Engaged in the Processing and Preserving of Potatoes
by Turnover Sizeband (£000, number and %), 2009
Number of Enterprises % of Total
Turnover Sizeband (£000)
0-49 10 16.7
50-99 5 8.3
100-249 10 16.7
Table 3.1: Number of UK VAT- and/or PAYE-Based Enterprises
Engaged in the Processing and Preserving of Potatoes
by Turnover Sizeband (£000, number and %), 2009
...table continuedNumber of Enterprises % of Total
Turnover Sizeband (£000)
500-999 5 8.3
1,000-4,999 10 16.7
5,000+ 15 25.0
Total 60 100.0
Source: UK Business: Activity, Size and Location 2009, National Statistics © Crown copyright material is reproduced with the permission of the Controller of HMSO (and the Queen’s Printer for Scotland)
EMPLOYMENT
Of the 60 UK VAT- and/or PAYE-based enterprises engaged in the processing and preserving of potatoes in 2009, exactly half employed fewer than ten people. At the other end of the scale, a third of the enterprises were large companies with 100 or more employees.
Table 3.2: Number of UK VAT- and/or PAYE-Based Enterprises
Engaged in the Processing and Preserving of Potatoes
by Employment Sizeband (number and %), 2009
Number of Enterprises % of Total
Number of Employees 0-4 25 41.7 5-9 5 8.3 10-19 5 8.3 20-49 5 8.3 50-99 0 0.0 Table continues...
Table 3.2: Number of UK VAT- and/or PAYE-Based Enterprises
Engaged in the Processing and Preserving of Potatoes
by Employment Sizeband (number and %), 2009
...table continuedNumber of Enterprises % of Total
Number of Employees
100-249 10 16.7
250+ 10 16.7
Total 60 100.0
Source: UK Business: Activity, Size and Location 2009, National Statistics © Crown copyright material is reproduced with the permission of the Controller of HMSO (and the Queen’s Printer for Scotland)
REGIONAL VARIATIONS IN THE MARKETPLACE
There are thousands of different types of potatoes grown around the world. Around 80 different varieties of potatoes are grown commercially in the UK in principal growing areas that include Yorkshire, Lincolnshire, Norfolk, the East Midlands, Shropshire, Devon and Cornwall. Varieties commonly used in the manufacturing of crisps include Hermes, Saturna and Rosetta. According to National Statistics’ 2009 UK Business: Activity, Size and Location report, the highest concentration of companies involved in the processing and preserving of potatoes were to be found in Northern Ireland (33.3%) and the East Midlands (16.7%).
Peanuts are widely grown in India, the People’s Republic of China (PRC), the US, Argentina and West and South Africa. India also grows significant crops of cashew nuts, while pistachios commonly come from Iran, the US and Turkey. As for consumption of savoury snacks, according to a NEMS Market Research survey conducted in November 2009 (see Chapter 5 — Brand Strategy), respondents living in the West Midlands proved to be the most avid regular buyers of savoury snacks.
DISTRIBUTION
Key Note estimates that the major grocery multiples account for around two-thirds of the value of retail sales of potato crisps, snack nuts and other bagged savoury snacks, while the ongoing recession has seen discounters, such as Aldi and Lidl, taking market share from the more upmarket chains.
A high level of discounting generally hinders potential growth in the value of sales, but the snacks category does benefit from impulse buying, particularly when crisps, etc. are placed alongside sandwiches and other lunch items by the front entrance of the store. Supermarkets are also encroaching on the
convenience market by opening smaller town-centre stores.
A wide range of other outlets are important in the market as there is a high degree of impulse buying. These include: confectioners, tobacconists and newsagents (CTNs); kiosks; and garage forecourts. Such outlets frequently charge more than the supermarket chains for snack products.
HOW ROBUST IS THE MARKET?
The recession may have increased demand for savoury snacks at the value end of the market, but the premium end survives well as consumers consider snacks an affordable treat. In fact, the market for savoury snacks is likely to benefit from a recession as people cut back on going out and begin entertaining at home more frequently, which may encourage them to purchase snack foods for sharing. Consumers may also indulge in comfort eating when times are hard, and begin making packed lunches for work or school, of which savoury snacks are often a part.
However, certain measures — such as an advertising ban on ‘junk food’ to children and the restrictions on crisps and snacks in schools — have had an adverse effect on demand for children’s snack products.
LEGISLATION
Legislation relating to the production and selling of foodstuffs aims to protect human life and health, and protect consumers’ interests, with due regard for the protection of animal health and welfare, plant health and the
environment. Principal legislation involving food production and processing includes the Food Safety Act 1990, Food Safety Regulations 1995, the Price Marking Order 1999 and the Food Labelling Regulations 1996. As well as adhering to the UK’s own laws, food suppliers must conform to precise rules at the European Community level.
KEY TRADE ASSOCIATIONS
European Snacks Association
The European Snacks Association (ESA) was founded in 1956 and is Europe’s only trade organisation dedicated to the advancement of the savoury snacks industry on behalf of its members at national, European and international levels. The ESA’s official journal, The Snacks Magazine, is published quarterly, and the Association also organises SNACKEX — Europe’s largest snacks trade show.
Snack Food Association
Founded in 1937, the US-based Snack Food Association (SFA) is the
international trade association of the snack food industry, representing more than 400 companies worldwide involved in the manufacture and supply of snacks. The SFA also organises the SNAXPO exhibition.
Snack, Nut and Crisp Manufacturers Association
Based in London, the Snack, Nut and Crisp Manufacturers Association (SNACMA) represents the interests of the savoury snack industry in the UK. Its members are responsible for more than 90% of all savoury snacks produced and sold, including branded and own-label products. The Association is controlled by a Board of Directors, comprising the Chief Executive Officers (CEOs) and Managing Directors (MDs) of each operating member company, which include Walkers, Kettle Crisps, Tayto, Procter & Gamble and United Biscuits.
ADVISORY AND INFORMATION SERVICES
The Food Commission (UK) Ltd
The Food Commission (UK) Ltd is the UK’s leading independent watchdog on food issues. The Commission has been campaigning for healthier and safer food for more than 10 years, and is largely funded by public subscriptions and donations.
Food and Drink Federation
The Food and Drink Federation (FDF) promotes the food and drink manufacturing industry’s views, and works to build consumer confidence in the food chain as a whole.
Food Standards Agency
The Food Standards Agency (FSA), which became operational in April 2000, aims to keep professionals and the public fully informed about nutritional issues and food hygiene, and to maintain public confidence in the food industry, from which it is independent. One of the Agency’s initiatives is the operation of a cooking bus, which travels to schools and holiday clubs
throughout the UK. On the bus, fully qualified teachers teach children about healthy eating and food safety, and children can join in cooking sessions. The concept was developed in partnership with Focus on Food, which was formed to promote and strengthen the status of practical food education in primary and secondary schools.
4. Competitor Analysis
THE MARKETPLACE
The UK snack foods industry is highly concentrated and is dominated by PepsiCo’s Frito-Lay subsidiary, which owns Walkers Snack Foods Ltd in the UK. Procter & Gamble is another strong player, with its one snack brand of Pringles generating annual revenues in excess of $1bn. However, there are numerous smaller companies, such as Burts Potato Chips and Tyrrells Potato Chips, that have established a firm position in the premium market, and hand-cooked upmarket products are pioneered and led by Kettle Chips.
MARKET LEADERS
Intersnack Ltd
Company Structure
Intersnack Ltd is a part of Germany-based Intersnack Knabber-Gebäck GmbH, which has had a presence in the UK since 1990. In January 2007, Intersnack acquired Union Snack Ltd — makers of the leading pretzel brand, Penn State — for an undisclosed sum and, in November 2008, it was reported that the company was interested in buying a larger stake in Largo Food Exports (which owns the Tayto name in the Republic of Ireland) to add to its existing holding.
Current and Future Developments
In addition to its leading Penn State brand, Intersnack supplies own-brand snacks to Marks & Spencer, Sainsbury’s, Tesco and Waitrose, as well as to airlines and train companies. Its Pom-Bear extruded snack is popular for its lack of wheat, gluten, artificial colours, flavours and preservatives. In June 2009, Intersnack Knabber-Gebäck acquired Percy Dalton’s Famous Peanut Co Ltd — a Haverhill-based producer of nut, seed and dried fruit products.
Financial Results
In the year ending 31st December 2008, Intersnack Ltd increased its turnover to £24.9m, compared with £22.8m in the previous year. However, a pre-tax loss of £565,000 was incurred in 2008, compared with a pre-tax profit of £668,000 in 2007.
Seabrook Crisps Ltd
Company Structure
The family-owned business of Seabrook Crisps Ltd has been producing crisps in the north of England since 1945. The brand now outsells all others, excepting Walkers, in this area of the country.
Current and Future Developments
Despite the recession, Seabrook Crisps has reported ongoing record sales figures, with volumes up by 66% following the addition of 5,000 national stockists (including 50 Waitrose stores in the south of England) and an
investment of £4m in new production lines. The company employs more than 100 people and is forecasting further growth throughout 2010, with annual sales expected to rise from 170 million bags to 233 million by October 2010. This will be partly due to ASDA’s decision to stock Seabrook brands in 292 of its stores after finding that it was outperforming Walkers in some Yorkshire branches.
Seabrook Crisps has been the Official Crisp of the Yorkshire County Cricket Club (YCCC) since 2008. Seabrook has also benefited from a product placement campaign, as the crisps are served in the public houses (‘pubs’) in the ITV soap operas Coronation Street and Emmerdale, exposing the brand to consumers outside the north of England.
Financial Results
In the year ending 30th September 2008, Seabrook Crisps Ltd reported a turnover of £15.4m (compared with just under £13m in 2007) and a pre-tax profit of £750,000 (compared with a pre-tax loss of £1.9m in the previous year).
Tayto (NI) Ltd
Company Structure
Tayto (NI) Ltd is the long-established market leader in the snacks industry in Northern Ireland. The family-owned business, which is based in Tandragee in County Armagh, was founded by Thomas Hutchinson in 1956. With its string of recent acquisitions, Tayto is now among the largest crisp and snack
manufacturers in the UK.
Current and Future Developments
In January 2009, the Tayto group acquired Jonathan Crisp — the
Staffordshire-based supplier of hand-fried crisps — for undisclosed terms. Jonathan Crisp is the trading name of Natural Crisps Ltd, and promotes its
Tayto plans to close its Red Mill snack foods factory in Wednesbury in the West Midlands by the end of 2011, which will lead to the loss of 300 jobs. The closure is part of the company’s plans to transfer production to its Corby site, partly due to the loss of a lucrative contract to produce Procter & Gamble’s Pringles Minis, which had been carried out by Tayto since its acquisition of Golden Wonder. The long-term future of the Corby plant had been unclear; however, in October 2008, it was announced that further jobs were to be created at the site.
Financial Results
In the 53-week period ending 5th July 2008, Tayto (NI) Ltd recorded a turnover of £26.2m and a pre-tax profit of £371,000. This compared to a turnover of just under £24m and a pre-tax loss of £143,000 in the preceding 52 weeks.
United Biscuits Topco Ltd
Company Structure
United Biscuits was founded in 1948 and now employs approximately 8,500 people worldwide. In October 2006, the company agreed a £1.6bn takeover deal with Paribas Affaires Industrielles (PAI) and US-based equity-investment firm Blackstone Group. (United Biscuits TopCo Ltd is the name of the company that comprises the Board of the controlling shareholders of the United Biscuits group.)
Current and Future Developments
United Biscuits has 15 factories in the UK, France, Belgium and the Netherlands, and it also sells its products in North America, the Middle East, Africa and Australia. The company has reported being adversely affected by
a shift to private-label food products in the markets of Northern Europe. In its interim statement for the first half of 2009, United Biscuits reported double-digit sales growth in its international markets, with particularly strong performances being seen in West Africa, Australia and the Middle East. The company also acquired a manufacturing facility in India, in anticipation of a market launch there; however, it is said to be considering plans to outsource up to 125 of the 750 jobs at its Aintree factory to India.
Financial Results
In the 53-week period ending 3rd January 2009, United Biscuits Topco Ltd reported a turnover of just over £1.2bn, compared with £1.14bn in the previous 52 weeks. The company suffered a pre-tax loss of £16.6m in 2008, compared with a loss of £11.2m in 2007.
Walkers Snack Foods Ltd
Company Structure
Walkers Snack Foods Ltd traces its origins to a pork butchery business founded in Leicester in the 1880s that diversified into making potato crisps when meat was in short supply after the Second World War. Walkers merged with its rival Smiths in 1979, before PepsiCo Inc of the US acquired both companies in 1989. Walkers is now the UK’s leading manufacturer of savoury snacks, claiming a 60% share of the market, with around 11 million people eating its products that are manufactured at 15 sites across the UK.
Current and Future Developments
In July 2009, Walkers Snack Foods announced the creation of 50 jobs at its crisps factory in Leicester, following a £2m investment in new equipment. It has said that it is committed to continuing investment in its site in Beaumont Leys, Leicester, which is its largest UK site, employing nearly 2,000 people.
Walkers Snack Foods has added its Builder’s Breakfast variant as a permanent flavour. The product, which is intended to taste like egg, sausage, bacon and beans, won the public vote in the company’s ‘Do us a Flavour’ competition (see Marketing Activity section later in this chapter).
Financial Results
In the year ending 27th December 2008, Walkers Snack Foods Ltd reported a turnover of £223.5m and a pre-tax profit of £31.1m. In the previous year, the company had a turnover of £196.9m and a pre-tax profit of just over £30m.
OUTSIDE SUPPLIERS
Raw Materials
Potatoes
Approximately four tonnes of potatoes are required to make one tonne of potato crisps, and, every year, UK farmers grow 6.5 million tonnes of potatoes, of which around 550,000 tonnes are used in the manufacture of potato crisps. Additionally, 150,000 tonnes of potatoes are imported for this purpose from the rest of Europe, especially from Spain, France and Italy. The price and supply of potatoes is quickly affected by conditions outside of the industry’s control, such as droughts or heatwaves. For example, the wet summer of 2008 pushed potato prices up. Quality control and wastage are key issues for potato industries across the five Northwest European Potato Grower
Among the suppliers of potatoes to the UK’s retail, catering and processing sectors is Greenvale AP, which has sites in the major potato growing areas of Shropshire, Berwickshire and Cambridgeshire. Another is QV Foods, which is a wholly owned subsidiary of AH Worth & Co Ltd — a family business based in Lincolnshire. In February 2009, QV Foods took over the management of the Cambridgeshire site of MBM Produce Ltd, and the remaining of the latter’s business went into administration in July 2009 (see Chapter 8 — Current Issues). RS Cockerill (York) Ltd claims to be one of the UK’s largest suppliers of potatoes to the processing industry, supplying in excess of 100,000 tonnes to crisp manufacturers each year, which equates to one in six packets of potato crisps sold in the UK.
Nuts
Peanuts used in savoury snacks are primarily sourced from India and the People’s Republic of China (PRC), which together account for more than half of the world’s production. Other major peanut growing countries include the US, Senegal, Sudan, Brazil, Argentina, South Africa, Malawi and Nigeria. Usually, snack peanuts are shelled, roasted (sometimes in oil), blanched and salted. Iran, the US and Turkey are among the principal suppliers of pistachio nuts, while cashews are native to Brazil, but are now produced in more than 30 countries, including Vietnam, Nigeria and India. UK Snacks Ltd (trading as Nageena) and Puyang Tianli Nuts Co Ltd are among the companies supplying to the global snack nuts industry.
Corn and Wheat
The French company Groupe Limagrain is one of the world’s leading producers of seeds, especially in Europe, where the group is the top producer of corn, wheat and other seeds. The company has also extended its reach by supplying flour and other bakery ingredients through its subsidiary, Limagrain Céréales Ingrédients.
For extruded products, ingredients are blended together and passed through a cooking extruder where they are cooked and formed into a dense pellet. Following extrusion, cooking and forming, the pellets are dried and distributed to a snack processor where they are expanded or puffed by immersion in hot oil or other heating methods. The snacks manufacturer then seasons, packs and sells the ready-to-eat snack to retailers.
Oils and Fats
Vegetable oils are almost always used for savoury snacks and are usually derived from soya, sunflower, rapeseed, groundnut and palm oil. South American countries, Malaysia and Indonesia are among the regions exporting oils. New British Palm Oil has struck a 2-year deal to supply United Biscuits with palm oil from sustainable sources. United Biscuits hopes to obtain all the oil it uses from sustainable sources by the end of 2011, and this new deal means that it will be two-thirds of the way towards hitting that target by mid-2010.
Flavours and Seasonings
Seasonings are specially blended from a variety of ingredients to provide the flavours for savoury snacks, which are passed through a rotating flavour drum to be evenly sprinkled with salt or other flavours. Kerry Group PLC is a major supplier of flavourings, seasonings and coating systems to snack
manufacturers, and it operates manufacturing, sales and technical centres across Europe, North and South America, Australia, New Zealand and Asia. It employs more than 20,000 people and supplies 15,000 food produsts, food ingredients and flavour products to customers in more than 140 countries worldwide.
Other suppliers include the Swiss Group Givaudan SA, which acquired the UK flavour and fragrance business of Quest International from ICI PLC in March 2007, and Savoury Flavours Ltd, which acquired fellow UK flavouring company Imarco Food Ingredients in July 2007. The US company McCormick and
Company Inc was established in 1889 and supplies liquid, paste and powder flavourings. Its sales revenue in the year ending 30th November 2008 reached $3.18bn — the first time it had topped $3bn, representing an increase of 8.9% compared with the previous year.
Snack Processing Equipment
Savoury snacks are fed from a conveyor belt into a hopper and automatically weighed into portions. They are then dropped into packets or other such containers, which are then sealed.
Suppliers of processing equipment to the snack foods industry include Baker Perkins Ltd, FMC Food Tech (now part of the Chicago-based JBT Corporation), Flo-Mech Ltd and Extrusion-Link Ltd. In May 2008,
Middlesex-based Wright Machinery Ltd merged with the US company PPM Technologies, and the new company is known as PPM/Wright Machinery Ltd. Other suppliers of processing equipment to the savoury snacks industry include the German Hastamat GmbH, Lalesse Extrusion BV of the Netherlands, and the US Heat & Control Inc, which has a UK operation in West Lothian, Scotland.
Packaging
Bristol-based Kliklok-Woodman is a leading international packaging
machinery supplier and a part of the US Klikwood Corporation. The business traces its origins to the 1940s when it worked closely with Herman Lay (founder of HW Lay Co [forerunner of Frito-Lay]) to develop the first automated potato chip packaging system. Other suppliers of packaging and weighing equipment include Flo-Mech Ltd, Hastamat GmbH, PPM/Wright Machinery and Blueprint Automation Ltd, which has a European headquarters in the Netherlands and a sales office in Lincolnshire.
MARKETING ACTIVITY
Main Media Advertising Expenditure
According to Nielsen Media Research (NMR), main media advertising on all food amounted to £507.4m in the year ending September 2009, compared with £554.3m in the previous year. Expenditure on foodstuffs of relevance to this report accounted for 5.5% of this total and, at £27.7m, represented an increase of 35.3% compared with the £20.5m seen in the previous year.
NMR divides the savoury snack foods market into three categories, as specified in Table 4.1. In the year ending September 2009, the potato crisps and snacks sector had by far the largest share of advertising expenditure (£21.3m), followed by the crispbreads and crackers category, which spent £6.4m on its advertising over the same period. Advertising on dips and dipper snacks had a value of £51,000 in 2009, but this category recorded no above-the-line main media advertising expenditure in the previous year.
Table 4.1: Main Media Advertising Expenditure on Savoury
Snacks (£000), Years Ending September 2008 and 2009
2008 2009
Potato crisps and snacks 16,267 21,251
Crispbreads and crackers 4,197 6,377
Dips and dipper snacks - 51
Total 20,464 27,679
Source: Nielsen Media Research
Potato Crisps and Snacks
Potato crisps and snacks is the category benefiting from the most main media advertising expenditure, accounting for more than three-quarters (76.8%) of the total in the year ending September 2009. Market leader, Walkers, is by far the biggest spender in this category, with its above-the-line spending alone accounting for 41% of the total expenditure. Other brands supported by advertising budgets of significance were Pringles (£3.2m), Phileas Fogg (£1.9m) and KP (£1.6m). The low level of sub-threshold spending reflects the
Table 4.2: Main Media Advertising Expenditure on Potato Crisps
and Snacks (£000), Year Ending September 2009
Walkers
Crisps 4,110
Red Sky Crisps 2,147
Sensations 1,159
Doritos Corn Chips and Dips 741
Doritos 452 Snack foods 114 Total Walkers 8,723 Pringles Crisps 1,772 Select range 1,379 Total Pringles 3,151
Phileas Fogg snack product range 1,935
KP
McCoys 831
Hula Hoops 797
Total KP 1,628
Kettle Foods Kettle Chips 1,296
Ryvita Limbos Range 1,159
McVities
Mini Cheddars 490
Go Ahead! snack range 375
Total McVities 865
