EXECUTIVE REPORTS

Food Market Reports

Executive Summary
Despite the falling birth rate, the UK market for baby milks and baby foods has maintained steady growth over the past 5 years (1999 to 2003). A number of factors are responsible for this, including socio-demographic trends, such as the trend for older motherhood and the high proportion of mothers of young children in full- or part-time employment. Innovation by manufacturers has also played an important part in the development of the market, with new products emphasising convenience and health advantages. The market has also benefited from the growth of organic baby foods, which command a price premium.

Convenience has been one of the main drivers of the market for prepared baby meals, prompted particularly by the growing number of working mothers. To counter this, there has been a trend - encouraged by government advice - towards introducing solid foods at a later age. Baby food in jars represent by far the largest segment of the baby meals sector, and have increased their share during the past 5 years. However, the potential food safety issues connected to food in glass jars - which received widespread coverage in October 2003 - may affect this balance, at least in the short term.

The overall market for baby milk has grown relatively slowly over the past 5 years. The development of added-value products, such as follow-on milks (FOMs) and ready-to-drink (RTD) formats, has been balanced by continuing price promotions within the sector.

The market for baby drinks is small, and has been declining since the mid-1990s, mainly due to controversy over sugar levels, and also because of the widespread availability of alternatives to baby drinks.

The baby finger foods sector, although small, is the most dynamic within the baby foods market. Rusks used to dominate the sector, but a wide range of both sweet and savoury products is now available. The rise of the sector mirrors the growing importance of snacking within the adult market. It has also been helped by the fact that parents are becoming more health-conscious on behalf of their babies; they are aware of the implications of feeding them adult 'junk food' and would rather give them specially-formulated finger foods.

According to Key Note's exclusive consumer research, parents are now showing greater acceptance of prepared baby meals than they were in 2001. The coverage of baby food jars seems to have had a relatively small effect on parents' views, with only a slight drop in the number that think that the quality of meals in jars is higher than that of dry baby food. There has been a slight increase in the proportion of parents that think manufactured baby milks should be as near as possible to natural breast milk - and no change in the percentage that assert that 'organic is best' for babies.

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Executive Summary

Despite continuing threats to the bakery market including market saturation, discounting and the current media fascination with low-carbohydrate diets, the UK market managed to hold its own during 2004, showing year-on-year growth of 2.1% to reach a total of £3.1bn.
Sales of white bread - which has traditionally been less likely to be viewed as healthy than brown and wholemeal varieties - have suffered more than other sectors from the current media focus on low-carbohydrate diets.
However, there has been continuing activity by manufacturers in terms of marketing and new product development (NPD). Much of this has had a health-related slant - for example, cholesterol-reducing loaves and products with added calcium or low carbohydrate levels.
The brown bread sub sector has suffered in the past from consumer resistance to the taste and texture of wholemeal bread, and sales have been declining for some years. However, the sales decrease slowed during 2004, helped both by NPD aimed at making brown bread more palatable to consumers, and by a renewed focus on the fibre content of bread. Paradoxically the sector may have been helped by publicity surrounding low-carbohydrate diets, some of which make a distinction between different types of bread.
Growth in the ethnic and speciality bread sub-sector is now somewhat slower than it was at the beginning of the decade. However, it has been maintained at a healthy level of just under 3%.
The emphasis within the bread market over the next few years is likely to be on premium, added-value products. In particular, there is likely to be a high level of NPD in the areas of health-related and/or indulgence premium bakery products.

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Executive Summary

This Key Note Market Report Plus focuses on the UK chilled prepared foods market, which comprises the following sectors: cheese, yogurts and chilled desserts, ready meals, delicatessen meats, yellow fats, pizzas, dressed salads, savoury pastry products, cream and other chilled prepared foods. Key Note estimates that, in 2004, the total UK chilled prepared foods market was worth £8.09bn at retail selling prices (rsp), a rise of 5.3% on 2003.
Growth in the chilled prepared foods market has been driven by a number of factors. A positive economic background - with an ongoing rise in personal disposable incomes from 2000 onwards - has manifested itself in the food market through greater demand for more convenient, better-quality foods. At the same time, interest in food of all kinds is stronger than ever, as a result of a rise in international travel, a thriving restaurant trade in international cuisines and strong media interest in cookery. This has encouraged the development of regional and speciality products. In addition, consumers are willing and able to pay for more convenient food options.
These trends have become apparent in the chilled prepared foods market with an ongoing programme of new product development (NPD), revamps and relaunches to engage consumer interest. Successful development of branding in areas such as healthy eating, premium, regional and other sectors has also played an important role. In particular, the growth of functional foods has driven development in chilled dairy products, including spreads, cheese and yogurt products. Organic and `free-from' ranges have also had an influence.
The chilled prepared foods market includes a number of the UK's largest food groups, such as Dairy Crest Group PLC, Unilever UK Foods Ltd, Uniq PLC, Northern Foods PLC and Nestlé UK Ltd. Many offer their own major brands, including Cathedral City, Flora and Ski. At the same time, retailer own-label brands are prominent in all sectors. Since the late 1990s, retailers have been successful in developing the quality image of their brands and adding to them with the introduction of sub-brands based on health, quality and other factors.
The chilled prepared foods market has been outperforming the food sector as a whole for a number of years. Consumers have viewed the chilled cabinet as a destination for convenience and quality, and suppliers have managed to generate and maintain interest through a developing and changing portfolio of products, as well as major brands. In addition, consumers are often willing to pay more for chilled products than for ambient or frozen versions of the same lines. As a result, in real terms, sales of chilled prepared products will continue to grow in the medium term.

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Executive Summary

The cooking sauces and food seasonings market in the UK has undergone a period of strong growth since the mid-1990s, although it has recently started to slowdown as the industry has begun to mature. In 2002, Key Note estimated that sales of cooking sauces and food seasonings increased in value by 4.4% on 2001, to stand at £614m.
The cooking sauces sector comprises prepared mixes and blends for cooking meat and ingredients, cook-in sauces and pour-over sauces. Since 1997, the best-performing products continue to be ethnic recipes and pasta sauces. The food seasonings sector includes salt, pepper, spices and herbs. Mixes are driving the limited growth that has taken place in this sector.
The cooking sauces sector is well placed to benefit from wider trends in the food market for more convenient foods. Wealthier consumers and those with busier lifestyles continue to pursue easy meal options that require minimal kitchen time. The expanding range of sauces available also cater for the increasingly adventurous tastes of consumers, who are influenced by the cookery and travel media, to widen their eating experiences.
While established brands and products continue to lead the market, consumers are increasingly looking for more authentic eating experiences. This has provided growth opportunities for premium brands, as well as more expensive ranges, which offer more specialist regional recipes for example. Newer cuisines are also coming through into the mainstream market, such as African and Jamaican recipes. Initial entry points tend to be among smaller brands; however, the uptake by mainstream labels will be the indicator of success.
Other areas of development have been shaped by trends in the wider food sector. For example, organic foods have been one of the fastest-growing parts of the food market, and organic cooking sauces have been introduced by brands such as Seeds of Change. Healthy eating and low-fat foods are also continuing to generate sales, with scope remaining for many standard sauces to become available in this format.
New developments in the market include the advent of meal kits offering consumers near complete meal solutions. More authentic ingredients and new recipes will continue to maintain interest in the market and also provide differentials in order to maintain and grow sales. As the trends towards more sophisticated convenience foods continue, Key Note forecasts further growth in the market for cooking sauces and food seasonings, albeit at a slowing pace.

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Executive Summary

This Market Review focuses on five key sectors of the UK food market: meat and meat products; fish and fish products; fruit and vegetables; dairy products, eggs, oils and fats; and bread, cakes, biscuits and cereals. A sixth category, miscellaneous foods, comprises a variety of food items that are not covered elsewhere in the Review. Both fresh and processed products are included, but confectionery, ice cream, alcoholic drinks, and hot and cold beverages (including fruit juices, tea and coffee) are excluded. The emphasis is on the retail market, rather than the wholesale or catering markets.
In 2003, consumer expenditure on the foods covered by this Review rose by 5.4%, to £51.85bn, mainly as a result of an increase in spending on meat and meat products. Spending on food as a proportion of total household expenditure is in long-term decline in the UK - a trend common to other advanced economies - and this trend continued between 1999 and 2002, with just a small blip in 2003, owing to higher sales of meat.
All the core sectors of the UK food market grew in value terms between 1999 and 2003. Sales of meat and meat products have enjoyed a renaissance since 2002, having encountered serious problems in the previous 10 years from a series of health and farming crises, including BSE (bovine spongiform encephalopathy), swine fever and foot-and-mouth disease. The value of the market for fish and fish products has been boosted by increasing shortages of fish around the world, which have forced up prices. The dairy products, eggs, oils and fats sector and the fruit and vegetables sector, however, have struggled to shake off their commodity images, and this is reflected in their slow growth rates over the review period.
The main trends affecting the UK food market are growing demand for convenience foods and increasing concern about the relationship between diet and health. Employment levels are rising, and people have increasingly busy social lives. Many consumers do not have the time to prepare a meal from scratch in the evening, so they use the microwave to heat a ready meal or other convenience food. At the same time, increased health awareness and government campaigns urging people to reduce their intake of sugar, salt and fat are driving demand for healthy products.
Key Note forecasts that the UK retail food market will grow roughly in line with inflation over the next 5 years. The sectors that are likely to experience the strongest growth are: fish and fish products, which should benefit from their healthy image; dairy products, eggs, oils and fats, where growth will occur mainly in the milk, cheese and eggs segments, driven by increased branding and the introduction of value-added products; and meat and meat products, as consumer confidence in the sector continues to recover. Slower growth is forecast for bread, cakes, biscuits and cereals, and for fruit and vegetables.

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Executive Summary

Retail sales of frozen food amounted to £5.32bn in 2003 or 8.6% of total consumer spending on food and drink products in the UK, a moderate growth of 1.5% from 2002. The market is broken down into ten sectors; meat and meat products, poultry and poultry products, ice cream, fish and fish products, ready meals, potato products, cakes and desserts, pizza, vegetables and fruit and vegetarian foods.
The market first took off in the UK in the 1960s when freezer ownership became increasingly widespread. It received a further boost in the 1980s with the introduction of the microwave and considerable new product development (NPD) in sectors such as pizzas and ready meals. The development of the industry has been heavily influenced by two of the key factors affecting food markets over the past 40 years - growing demand for convenience products and concerns about health. Frozen foods were one of the first beneficiaries of demand for convenience products; with the introduction of frozen peas in the 1960s, boil-in-the bag meals in the 1970s and ready meals in the 1980s helping to drive demand.
However, over the past 5 years growth has slowed sharply and the market now appears to have reached maturity. Ownership of freezers and microwaves is now ubiquitous, while the scope for further product development appears to be limited. Furthermore, the emergence of chilled produce represents a major challenge to frozen foods. The range of chilled produce has expanded dramatically in the UK in the past 5 years and it offers considerable advantages in terms of convenience over frozen alternatives. Furthermore, consumers believe chilled products are more flavoursome, natural and healthy than frozen alternatives. Retailers and suppliers have also concentrated their marketing and NPD activity on chilled produce, which offers higher margins than the frozen sector. Chilled produce is also far more attractively presented than its frozen alternative and is normally located close to the entrance of many stores, while the sterile-looking frozen food section is often at the end of the store.
Within the frozen food market, fish, poultry and ice cream probably have the greatest growth potential. Suppliers such as Young's are exploiting the positive health image surrounding fish with some success, while poultry is also regarded by consumers as being healthy. Ice cream is obviously greatly influenced by the weather, but faces no competition from chilled produce and growing demand for premium products is also boosting the overall value of the sector. The low-fat ice cream segment also appears to offer huge potential. The potato products and cakes and desserts sectors, by contrast, appear to be in decline.
However, frozen foods continue to offer advantages in term of convenience and bulk buying, and are a long-established item on consumers' shopping lists. They also offer benefits in terms of health - they do not contain the preservatives found in chilled produce - that have yet to be fully exploited by the industry. Thus, Key Note believes the market will continue to grow, albeit at a moderate rate, with the value of the market reaching around £5.63bn in 2008.

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Executive Summary

Key Note estimates that the UK market for ice cream and frozen desserts was worth £1.35bn in 2004. Between 2000 and 2003, the market showed steady growth year-on-year, but sales in 2004 were negatively affected by poor summer weather. Growth was driven by the ice cream sector, which is characterised by a high level of innovation and trading up, whereas sales of frozen desserts have been falling.
Following the poor summer of 2004, ice cream suppliers are now actively seeking ways to reduce the seasonal nature of sales and reposition ice creams as year-round products. To some extent, growth in the frozen desserts sector is also hampered by seasonality, with sales being heavily reliant on festive and other special occasions.
Take-home products account for the largest share of ice cream sales by value, with wrapped impulse and `other' (including scoop/soft mix) products making up the rest of the sector, with roughly equal shares. Both of these smaller subsectors suffered particularly badly from the poor weather in 2004 and experienced sharp declines in sales value. Premium take-home products have been a major source of growth, with much of the credit owed to the increased commitment by retailers to their own labels. Heavily promoted premium items were partly responsible for the trend away from luxury products during 2004. Innovation by confectionery brands continues to stimulate consumers' demand for ice cream - in particular, handheld items. Confectionery brands are now an important part of the ice cream sector, with seven of the 20 leading ice cream brands in 2004 bearing the names of well-known confectionery brands. Low-fat products have been another area of product innovation.
The frozen desserts sector has been faced with strong competition from fresh and chilled alternatives and by high levels of discounting. Nevertheless, a number of underlying factors continue to sustain demand for desserts that offer convenience and are easy to prepare. Products that are served cold, such as gateaux, continue to account for the majority of product sales in this sector.
The ice cream sector is highly concentrated, with sales in the take-home and impulse sectors being dominated by the two leading players - Unilever Ice Cream & Frozen Food and Richmond Foods. The supply of frozen desserts is also in the hands of only a small number of players.
Key Note forecasts year-on-year growth for the total ice cream and frozen desserts market between 2005 and 2009. Growth will continue to be driven by the ice cream sector, which will benefit from increased emphasis on premium products and the marketing muscle of some of the most powerful fast-moving consumer goods (FMCG) players. The development of niche segments, such as low-fat ice cream, will also provide additional opportunities for market expansion. Sales of frozen desserts are expected to stabilise, as new entrants fill the gap left by Hibernia Foods and manufacturers encourage consumers to trade up by placing greater emphasis on higher-priced ranges.

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Executive Summary

The total organic food and drink market increased in value at retail level by 10.1% in 2005. Within this, vegetables and fruit increased their share, while dairy and bakery products retained steady shares. The proportion held by meat (and, to a much smaller extent, fish) has grown, as has that accounted for by wines, fruit juices and hot beverages. However, baby foods and the range of other multi-ingredient items have lost share, although baby food sales have still increased. The overall market is now growing at a stable rate of around 10% per year, after much more substantial annual growth between 1996/1997 and 2000/2001.
The introduction of new `decoupled' government payments in 2005 to organic farmers and growers, no longer related to organic production, have created new interest in the market, with a doubling of requests for information received by the Organic Conversion Information Service (OCIS). Meanwhile, the Soil Association continues to promote the range of claimed health, environmental and animal welfare benefits of organic foods and drinks.
The total area of organically managed land in the UK peaked in 2001/2002 and 2002/2003, and steadied at a marginally lower level in 2003/2004 and 2004/2005, as the proportion `in conversion' had fallen to a low percentage. More than 50% of organic land is in Scotland, with less than 40% in England and the remainder in Wales and Northern Ireland. Overall, nearly 90% is grassland, with less than 10% being arable or used for horticulture. The number of organic primary food producers peaked in 2002/2003, whereas the number of processors and importers steadied to a small yearly increase (albeit following a decline in 2002/2003).
The organic food and drink market is characterised by large numbers of small producers, although there is now evidence of increases in size to challenge the remaining smaller companies. There is growing activity in primary producers operating as co-operatives, and the share of organic food sales through direct outlets, notably box schemes, has increased significantly. This has affected sales of organic produce through the dominant grocery multiples of Tesco, Sainsbury's and Waitrose. The higher prices charged for organic products are under pressure from grocery multiples' demands, from increasing economies of scale at producers and from any overcapacity situations resulting from supply temporarily exceeding demand.
A significant proportion of organic meat, vegetables and fruit is still imported, as are many bakery items, fruit juices, hot beverages, baby foods and some multi-ingredient products. The Soil Association continues to campaign against this on behalf of UK farmers and growers, citing the Government's target of only 30% of total organic produce imported by 2010.
The organic food and drink market is forecast to grow at a slowing rate in the future, although still at an annual growth rate exceeding that for non-organic foods for most of the period to 2009. However, Key Note does not predict any substantial increase in the numbers of heavy consumers of organic produce - the majority still buy only relatively small proportions of organic foods and drinks within their total grocery purchases.

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Executive Summary

Retail sales of snack foods were worth an estimated £2.35bn in 2004. For the purposes of this report, these products are defined as crisps, other savoury snacks, nuts, plain and savoury biscuits, and savoury snack biscuits. Requiring no preparation and on sale in a wide variety of retail outlets, these items are ideally placed to take advantage of the trend away from the traditional three meals a day. However, this trend has also led to the development of snack products by other food sectors, such as cheese and cereals, some of which are perceived as healthier than traditional savoury snacks.
The effect of diet on health is, of course, today's big story. In May 2004, reporting on what has been called an `obesity crisis', the Commons Health Select Committee said that Ministers must be prepared to intervene if voluntary agreements to reduce levels of salt, sugar and fat in foods, and to abolish `pester power' marketing techniques aimed at children, fail to deliver results. For their part, manufacturers may feel that they are being demonised when it is people's overall lifestyles that are to blame for rising obesity levels. However, there is no doubt that the future of the snack-foods industry is beset with potential obstacles to growth, including the cost of developing substitutes for fat, sugar and salt, moves to reduce the availability of snacks and a possible ban on advertising food to children.
Smaller UK operators may find it difficult to weather these problems in an industry dominated by Walkers Snack Foods, which is backed by the financial strength of PepsiCo and has benefited from highly successful advertising campaigns featuring the television presenter and former footballer Gary Lineker. Ongoing innovation in the industry is essential, whether it takes the form of new, ever more exotic flavours, improved packaging or gimmicks such as children's snacks that change the colour of the consumer's tongue.
Penetration of potato crisps and other potato snacks is high: BMRB International's 2004 Target Group Index (TGI) survey found that 88.8% of adults had eaten them in the preceding 12 months. Snack foods are generally more popular among young people than among their elders, so the fact that the UK has an ageing population might be expected to adversely affect future demand. However, the differences in eating habits between the age groups are likely to become less marked as the post-war generation, which grew up with crisps and similar products, reaches retirement age.
Ultimately, crisps and other savoury snacks are viewed by consumers as a treat, so although the public may be bombarded with advice about healthy eating, they are unlikely to deny themselves when it is time to choose their snacks. At the moment, reduced-fat and reduced-salt varieties are likely to be the choice of those who would not normally consider buying standard products. In the future, however, given the current pressure from health campaigners, it is possible that healthy products will be the only option.

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Executive Summary

The sweet and salty snacks market is defined in this report as encompassing chocolate countlines, chocolate biscuit bars, cereal bars and cake bars, potato crisps, other savoury snacks including snack biscuits and rice- or corn-based products, and snack nuts. 54.5% of this market by value is represented by salty snacks, and 45.5% by sweet products.
There is considerable new product development (NPD) activity in all sectors, owing to several factors. First, a significant proportion of snacks sales are made to children and teenagers, who constantly demand new products. Second, the nature of the snack foods market is one of frequent new offerings in order to achieve continuing sales. In support of this, manufacturers are also driving market growth through increased activity in products targeted at adults - notably via `hand-cooked' chips and spicy flavours within salty snacks, and premium chocolate countline variants and countline brand extensions into chocolate biscuit bars and cake bars.
Of significant importance, activity is also being stepped up in the production of products with lower salt, fat and sugar contents. Although sales of such snacks have been poor in the past relative to traditional recipes, manufacturers are under some pressure now to assist in efforts to address increasing heart problems and obesity levels in the population - attributed in large part to poor diet and unhealthy snacking.
Sales of sweet snacks fell by 1.9% in value terms in 2003/2004 (year to September). Despite large NPD programmes and significant advertising expenditure, sales of salty snacks fell by 1.6% in value terms in 2003/2004, compared with the previous equivalent 12 months. Gains and falls resulted in the overall market remaining almost static in value between 1999/2000 and 2003/2004. The most substantial recent falls in sales have been in chocolate biscuit bars and cake bars, with the relatively smaller subsectors of snack nuts and cereal bars being the only areas experiencing continued growth.
Although the growth aspects of the sweet and salty snacks market are a move towards products aimed at adults at a time when there is an ageing population profile, coupled with increased snacking levels as a result of busier lifestyles, it is likely that increased awareness of the health factor will have an overall adverse effect on sales of most sweet and salty snacks. However, this could continue to benefit sales of nuts and cereal bars, which are perceived to be more healthy. Many major manufacturers are now concentrating on entering the cereal bar subsector.
The three major chocolate manufacturers, Masterfoods, Cadbury Trebor Bassett and Nestlé Rowntree, dominate the chocolate countlines subsector, although only Nestlé has a comparably significant stake in chocolate biscuit bars. Kellogg's continues to be by far the largest company in cereal bars, although its share is being increasingly eroded by new entrants such as United Biscuits' McVitie's and Premier's Weetabix. RHM's Manor Bakeries leads in cake bars, although United Biscuits' McVitie's is gaining share.
PepsiCo's Walkers dominates the potato crisps and savoury snacks subsectors, with its major competitor, United Biscuits, being the only large company (through KP Foods and McVitie's) with a significant position in almost all of the snacks sectors in this report. KP is the brand leader in snack nuts.
Health aspects are anticipated to continue to weigh on the future of sweet and salty snacks, although the market is predicted to decline at slower rates in future than currently noted, owing to increased success in introducing ranges of healthier snacks.
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Retail Market Reports

Executive Summary

The market for coffee and sandwich shops continues to grow in the branded sector, in terms of both numbers of outlets and turnover at the major operators, despite the reported saturation within the market. However, growth of the branded shops is at the gradual expense of the small independents and minor multiples, as the majors expand outside London and the South East into high streets at popular historic, university and tourist towns. They are also taking new business at out-of-town shopping centres, concessions within other retailers' outlets, and travel-related locations such as railway stations, airports and motorway service stations. Profitability of the branded operators is assisted by the fact that outlets outside London, in particular, are likely to reach a level of profit more quickly than those in high-rental, prime central-London locations.
Growth is supported by the continued increase in the proportions of 45 to 54 year-olds within the total population, of ABs and of women in employment - all of whom are prime customers of coffee and sandwich shops. The preference for eating at these venues, rather than having lengthier and more expensive lunches at restaurants, is sustained by the continuing need for shorter lunches within a busier working life. In addition, many women choose to eat at coffee and sandwich shops, as they are perceived to offer a `lighter' and more friendly atmosphere.
The leaders in the branded coffee-shop segment are Starbucks, Costa and Caffè Nero, while their equivalents in the branded sandwich-shop segment are Subway, Pret A Manger, Bakers Oven, O'Briens and Benjys. These are gaining share within the total branded outlets sectors, particularly through their offering of a wider range of food and drink products. These are often higher-margin items, improving profitability, with this tactic blurring the distinction between coffee and sandwich shops in general.
The `top ten' branded coffee-shop operators are estimated to now represent 59.3% of the total branded sector in terms of outlet numbers and 70.6% by turnover. All branded coffee shops are estimated to account for 31% of the total coffee-shop market by outlet numbers, and 34% by turnover.
The sandwich-shop sector is more complex, with one estimate putting the total number of cafés and takeaway food shops at around 30,000. The more major branded sandwich shops represent only a very small share of this total, although Subway, Pret A Manger and Bakers Oven account for an estimated 72.2% of the `top 11' branded shops by outlet numbers, and 79.1% by turnover.
Despite growing competition from other retailers - such as grocery multiples and department or variety stores - the branded coffee- and sandwich-shop sectors are predicted to grow at a rate of between 7% and 11.8% per year in value terms over the period from 2005 to 2009. The total coffee-shop sector is estimated to grow at a rate of between 3.9% and 5.3% per year, reflecting anticipated gains in share by the branded coffee-shop operators.

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Executive Summary

The UK fast-food/takeaway and home delivery market was valued at an estimated £8.38bn in 2004 at retail selling prices (rsp), representing a sales growth of 3.9% over the previous year. The pace of growth in the market quickened in 2004 following a sales increase of just 3% in 2003.
More consumers are looking for convenience in their food purchases, while busier working lives have also benefited fast-food sales. The opportunities to purchase fast food are also extending, with a wider range of outlets now serving sandwiches, snacks and hot food. Traditional high-street sites have been joined by more outlets in transport terminals, by the roadside, in leisure venues and shopping centres. Standalone sites from the global fast-food brands are also facing growing competition from sales in supermarkets, high-street stores, convenience stores and petrol forecourts. Major obstacles to sales growth during 2004 have been growing concerns about obesity and the negative media coverage of the fast-food industry.
Sandwiches form the largest market segment contributing 36.5% of all sales in 2004. Sandwich sales have benefited from the trends towards shorter lunch breaks and the corresponding demands for light lunches and snacks. Rapid expansion of chains such as Subway and Benjys have also helped sales, along with more variety in the fillings and bread types available.
The second-largest segment is burgers, which is recovering after a year of poor sales in 2001. Menu diversification means that traditional burgers now take a smaller share of sales. Burger outlets, in particular, have tried to counteract the negative publicity associated with obesity by introducing healthier foods such as salads, fruits, more vegetarian options and healthier breakfasts. The strongest growth in 2004 occurred in the pizza market driven by increased sales in the home delivery category. New product developments (NPDs) have also helped sales. The sales performance of the chicken sector was weaker in 2004 than in 2003, but outlets continue to gain from some customers switching from burger restaurants. Sales growth in the fish and chips sector remains limited.
The other fast-food and takeaway sector includes a variety of outlets, such as coffee shops, Indian and Chinese outlets, sushi and noodle bars, soup bars, salad bars, organic food outlets, and doughnut and muffin shops. Traditional market segments, such as Chinese and Indian, are mature sectors experiencing little growth, but the coffee shop segment continues to exhibit healthy growth. Several menus in coffee shops are diversifying.
Over 54% of all adults have used a fast-food outlet in the year 2003/2004 so penetration is relatively high.
Sales growth in the period 2005 to 2009 is forecast to be less than the previous 5 years, partly due to concerns over healthy eating issues, increased competition from other outlets and saturation in some market segments.

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Executive Summary

With a 38.5% value share of grocery sales in 2002, the UK own-label market is the most developed in Europe. One reason for this is the particularly high level of retailer concentration in the UK compared with other European countries. This concentration has enabled retailers to harness the economies of scale that are so important in successfully developing own labels.
Since the late 1990s, there has been a much greater emphasis on premium-quality own labels. The creation of premium own-label sub-brands - e.g. Tesco's `Finest' and Sainsbury's `Taste the Difference' - is symptomatic of the extent to which retailers are seeking to enhance their brand identity and exploit sales opportunities to different target groups. Increased levels of disposable income and strong consumer demand (despite a weakening of other sections of the economy) have also been factors behind the greater focus of retailers on quality and premium own-label ranges. Creating a quality image is, therefore, an important element in encouraging own-label sales.
Price is an important weapon in what is now an extremely competitive retail environment in the UK. A number of the key grocery multiples have reduced their prices, including steep cuts in own labels, in efforts to attract customers. Own-label prices are easier to cut than brands - as the supermarkets own their brands, they therefore have larger profit margins on them.
Retailers' commitment to own labels is seen by the close relationships they have with their suppliers. Some companies are almost solely reliant on the manufacture of own labels. Moreover, major branded suppliers have also become increasingly involved in manufacturing own brands. However, this close relationship will be tested as competitive pressures and substantial investments by the retailers put pressure on suppliers to reduce their prices.
Retailers and suppliers have worked particularly closely in product areas such as chilled ready meals. This sector is probably the best example of the extent to which own labels have sought to exploit sales opportunities to various customer target groups. Consumers' desire for convenience products of a high quality, combined with their ability to afford such products and increased appreciation of different cuisines, lay behind the development of the sector, where growth has been spearheaded by retailer own labels.
At the same time, own labels also have a substantial share within commodity-type product sectors, such as frozen and canned foods. In other sectors - for example, yoghurt and chilled desserts - own labels have come under growing pressure as a result of increased polarisation between premium and value brands. This is especially applicable to the yoghurts sector, where the combined share of retailer own labels has declined.
While impulse outlets have been seriously challenged in sectors such as bagged snacks and ice cream, thereby favouring the grocery multiples and own labels, the major supermarket chains are nevertheless keen to extend the reach of their food by acquiring or developing a wider variety of outlets, be they neighbourhood, high-street or petrol station-type outlets; for example, Tesco Express outlets. Key to Marks and Spencer's growth strategy is the development of the Simply Food network of stores, which are smaller units of around 3,000 square feet, located in high-traffic areas where customers live and work. These stores stock around a third of Marks & Spencer's food range, with the emphasis on meal solutions, whether this be a cup of coffee and croissant in the morning, a sandwich at lunch or an Indian meal and bottle of wine bought on the way home.
Key Note forecasts that the overall share of own labels within the UK grocery market will increase slightly and settle at around 39% by 2007. This growth assumes an increased share for higher-priced/premium ranges and continued commitment to value-added sectors such as ready meal and snacking products. The forecast also takes into account some ambitious targets in terms of the opening of smaller, convenience-type outlets by some retailers between 2003 and 2005. Involvement in fresh foods will also help boost own-label sales, as will relative stability in macro-economic factors.

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