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Pricing and Promotions in Food - UK - May 2011

This report focuses on the UK retail market for food and non-alcoholic beverages.

It excludes home delivery of food and take-away food bought from food service outlets as well as other food service categories such as restaurants and pubs.

"The shopper mentality in the UK is that no matter what the recommended retail price, we expect Tesco or Asda to cut it in half to guarantee our business. The problems with food shortages are long-term; there is a rapidly growing global population outside the UK with competing demand for the products we want to buy. It seems therefore that there will be a pain threshold as we come to terms with rising prices but the outcome could be a more educated shopper and a more balanced retail environment. One thing is for sure there will be casualties along the way."

– Ben Perkins, Head of UK Food and Drink, Mintel

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Table of contents

  1. Introduction

      • Definition
        • Abbreviations
        • Executive Summary

            • Food inflation in context
              • Figure 1: Consumer Price Index comparison of the 12 month percentage change to January 2010 and to January 2011
              • Figure 2: Indexed inflation trends, Jan-April 2011
            • Factors causing inflation
              • Market factors
                • Global commodities fluctuate
                  • Companies, brands and innovation
                    • Discounting and private-label portfolios are key selling points for retailers
                      • Figure 3: Trends in premium and economy claims as a proportion of total new product launches, private-label and branded, January 2007-May 2011
                    • Managing cost increases
                      • The consumer
                        • Figure 4: Level of concern regarding the impact of selected issues on my finances in the coming year, March 2011
                      • High level of awareness that food prices have risen
                        • Figure 5: Perception and level of concern regarding changing food prices, over the last year, March 2011
                      • Reactions to rising prices
                        • Figure 6: Reactions to a rise in the cost of the weekly shop, March 2011
                      • What we think
                      • Issues in the Market

                          • How worried should consumers be about rising food costs?
                            • Is rising global demand the key determinant in food price rises?
                              • How vulnerable are brands to consumer down-trading due to rising costs?
                                • To what extent are supermarket promotions shielding consumers from rising food costs?
                                • Future Opportunities

                                    • Carnivore, herbivore…locavore
                                      • Retired for Hire
                                      • Rise of the Bargain-Hunter

                                        • Key points
                                          • Families in the firing line
                                            • Figure 7: Trends in agreement with selected lifestyle statements, according to % point change, 2006-10
                                            • Figure 8: Emotional response to brands, February 2011
                                          • Bargain-hunting encourages brand promiscuity
                                              • Figure 9: Trends in attitudes towards brand trust and loyalty, 2006-10
                                            • Weighing costs vs social benefits
                                              • Figure 10: Trends in agreement with selected lifestyle statements, 2007-10
                                            • Organic sales down
                                              • Sustainable seafood out-performs other green goods
                                                • Fairtrade flourishes under fire
                                                • Food Inflation in Context

                                                  • Key points
                                                    • Britain enters a new phase of austerity
                                                      • Career prospects take a dive
                                                        • Figure 11: Number of unemployed, January 2008-January 2010
                                                      • Consumer sentiment
                                                          • Figure 12: Change in financial situation over the last year, December 2010
                                                        • Rising energy and food prices are the main source of inflation
                                                          • Figure 13: Retail Price Index and Average Earnings Index, March 2007-July 2010
                                                          • Figure 14: Consumer Price Index comparison of the 12 month percentage change to January 2010 and to January 2011
                                                        • Household expenditure on food
                                                          • Figure 15: Increase of household expenditure, per week, on food and drink, UK, 2005-09
                                                        • Energy prices reach new highs
                                                            • Figure 16: Monthly UK petrol diesel and oil price trends, Indexed (Jan 09 = 100), Jan 2009-April 2011
                                                            • Figure 17: CPI detailed figures for 15 March 2011
                                                        • Factors Causing Food Price Inflation

                                                          • Key points
                                                            • Key drivers of domestic food prices are commodity prices, energy costs and the dollar-sterling exchange rate
                                                              • Figure 18: Monthly food prices, US $ per tonne, Jun 2006-Dec 2010
                                                            • Latest figures reveal that the upward pressure on prices is not abating
                                                              • Figure 19: Indexed inflation trends, Jan 2010-April 2011
                                                              • Figure 20: UK food price rises, February 2010 to February 2011
                                                            • Reasons for commodity increases
                                                              • The cheap food crisis
                                                                • Figure 21: Chart listing some of the primary factors in international trade which contribute to local food price inflation
                                                              • Focus on coffee – rising global demand means importing cheap coffee beans is now over
                                                                  • Figure 22: Annual percentage change in RPI (Retail Price Index) for coffee and other hot drinks, 2000-10
                                                                • Focus on bakery – global wheat shortages have pushed up the average price per tonne
                                                                  • Figure 23: UK commodity price of cereals, January 2004-November 2010
                                                                • Focus on chocolate – cocoa prices continue to rise
                                                                    • Figure 24: Monthly averages of daily prices per tonne, cocoa, January 2005-January 2011
                                                                  • Focus on meat – red meat comes under pressure from inflation
                                                                      • Figure 25: Retail Price Index of red meat and competing food items, 2005-09
                                                                    • Focus on olive oil – olive oil enjoys a period of stability
                                                                      • Precarious outlook for the year ahead
                                                                      • Brand Response to Heightened Price Sensitivity

                                                                        • Key points
                                                                          • Global fmcg companies warn of price increases to come
                                                                            • It’s crunch time – brand pricing strategies
                                                                              • Passing on prices
                                                                                • Reduced pack size
                                                                                  • Sharing packs
                                                                                    • ‘Round pound’
                                                                                      • Price-marked packs
                                                                                        • ‘Extra free’ packs
                                                                                          • Brands show they can compete in the economy drive
                                                                                            • Figure 26: Five-year trends in premium and economy product claims – UK food and drink, 2006-11*
                                                                                            • Figure 27: Recent examples of ‘economy’ claims on packaging, by brands, 2011
                                                                                        • Retailer Strategies

                                                                                          • Key points
                                                                                            • Intensely competitive grocery arena
                                                                                              • Figure 28: Examples of selected major retailers’ competitive strategies during 2010-11
                                                                                            • Discount strategies resonate with consumers
                                                                                                • Figure 29: Preference for price promotions, September, 2010
                                                                                              • VAT increase inspires ‘buy now, save later’ campaigns
                                                                                                • ATL activity stepped up in 2007/08 and again in 2010
                                                                                                  • Figure 30: Adspend by top ten supermarkets in the UK food and non-alcoholic drinks market, 2006-10
                                                                                                  • Figure 31: Adspend by top four supermarkets in the UK food and non-alcoholic drinks market, by category, 2010
                                                                                                • Private-label development is another cornerstone of retailers’ growth strategy
                                                                                                  • Figure 32: Trends in premium and economy claims as a proportion of total new product launches, private-label and branded, January 2007-May 2011
                                                                                                  • Figure 33: Examples of economy launches, by private-label brands, 2011
                                                                                                  • Figure 34: Examples of premium launches by private-label brands, 2011
                                                                                                • Growth categories for private-label
                                                                                                  • Figure 35: Change in share of private-label in new product launches, by product category, 2007-10
                                                                                                • Enthusiasm for private-label expected to persevere
                                                                                                  • Figure 36: Expected changes in purchase patterns of food and non-alcoholic drinks in the next 12 months, January 2011
                                                                                                • Usage of hard discounters has stabilised over the last couple of years
                                                                                                  • Figure 37: Hard discounter usage, 2003-10
                                                                                              • Consumer Changes in Shopping Habits

                                                                                                • Key points
                                                                                                    • Figure 38: Ways in which shopping habits have changed in the last 12 months, March 2011
                                                                                                  • The 80:20 rule
                                                                                                    • Feeding a family is a strong incentive to economise
                                                                                                      • Bargain hunt
                                                                                                        • Changing multiples, changing attitudes
                                                                                                          • Private-label comes into its own
                                                                                                            • Convenience and luxury falls to frugality
                                                                                                              • Good housekeeping
                                                                                                                • ABC1s are also cutting back
                                                                                                                • Consumer Financial Concerns in 2011

                                                                                                                  • Key points
                                                                                                                      • Figure 39: Level of concern regarding the impact of selected issues on my finances in the coming year, March 2011
                                                                                                                    • Fuelling concerns
                                                                                                                        • Figure 40: Repertoire of concerns regarding the impact of selected issues on my finances in the coming year, March 2011
                                                                                                                      • 35-44 – a threshold of anxiety
                                                                                                                        • Women feel the weight of responsibility on their shoulders
                                                                                                                          • Security breeds content
                                                                                                                            • London the transport hub
                                                                                                                              • Mood of austerity is taking its toll
                                                                                                                                • Figure 41: Repertoire of level of concern regarding the impact of selected issues on my finances in the coming year, March 2011
                                                                                                                            • Consumer Perceptions of Rising Food Prices

                                                                                                                              • Key points
                                                                                                                                  • Figure 42: Perception and level of concern regarding changing food prices, over the last year, March 2011
                                                                                                                                • The only way is up
                                                                                                                                  • Smart shoppers or secure shoppers?
                                                                                                                                    • Families follow the promotions
                                                                                                                                    • Consumer Reactions to Price Increases

                                                                                                                                      • Key points
                                                                                                                                          • Figure 43: Reactions to a rise in the cost of the weekly shop, March 2011
                                                                                                                                        • A resistant few
                                                                                                                                          • Brand sacrifice
                                                                                                                                            • Cut backs
                                                                                                                                              • Food on the cheap
                                                                                                                                                • Families prepared to vote with their feet
                                                                                                                                                • Targeting Opportunities

                                                                                                                                                  • Key points
                                                                                                                                                      • Figure 44: Target groups, March 2011
                                                                                                                                                    • Bargain Hunters (31%)
                                                                                                                                                      • Who are they more likely to be?
                                                                                                                                                        • Changes to grocery shopping habits
                                                                                                                                                          • Financial outlook
                                                                                                                                                            • Planned cost-cutting strategies
                                                                                                                                                              • Stockpilers (10%)
                                                                                                                                                                • Who are they more likely to be?
                                                                                                                                                                  • Changes to grocery shopping habits
                                                                                                                                                                    • Financial outlook
                                                                                                                                                                      • Planned cost-cutting strategies
                                                                                                                                                                        • Doom and Gloom (21%)
                                                                                                                                                                          • Who are they more likely to be?
                                                                                                                                                                            • Changes to grocery shopping habits
                                                                                                                                                                              • Financial outlook
                                                                                                                                                                                • Planned cost-cutting strategies
                                                                                                                                                                                  • Don’t Worry Be Happy (37%)
                                                                                                                                                                                    • Who are they more likely to be?
                                                                                                                                                                                      • Changes to grocery shopping habits
                                                                                                                                                                                        • Financial outlook
                                                                                                                                                                                          • Planned cost-cutting strategies
                                                                                                                                                                                          • Appendix – Food Inflation in Context

                                                                                                                                                                                              • Figure 45: Household expenditure, per week on food and drinks in the UK, 2005-09
                                                                                                                                                                                              • Figure 46: Household expenditure, per week on food and drinks in the UK, 2009
                                                                                                                                                                                          • Appendix – Retailer Strategies

                                                                                                                                                                                              • Figure 47: Adspend by major supermarkets in the UK food and non-alcoholic drinks market, 2006-10
                                                                                                                                                                                          • Appendix – Consumer Changes in Shopping Habits

                                                                                                                                                                                              • Figure 48: Most popular ways in which shopping habits have changed in the last 12 months, by demographics, March 2011
                                                                                                                                                                                              • Figure 49: Next most popular ways in which shopping habits have changed in the last 12 months, by demographics, March 2011
                                                                                                                                                                                              • Figure 50: Other ways in which shopping habits have changed in the last 12 months, by demographics, March 2011
                                                                                                                                                                                          • Appendix – Consumer Financial Concerns in 2011

                                                                                                                                                                                              • Figure 51: Level of concern regarding the impact of selected issues on my finances in the coming year, March 2011
                                                                                                                                                                                              • Figure 52: Level of concern regarding the impact of selected issues on petrol/diesel prices in the coming year, by demographics, March 2011
                                                                                                                                                                                              • Figure 53: Level of concern regarding the impact of selected issues on home energy bills/costs in the coming year, by demographics, March 2011
                                                                                                                                                                                              • Figure 54: Level of concern regarding the impact of selected issues on food prices in the coming year, by demographics, March 2011
                                                                                                                                                                                              • Figure 55: Level of concern regarding the impact of selected issues on other utilities in the coming year, by demographics, March 2011
                                                                                                                                                                                              • Figure 56: Level of concern regarding the impact of selected issues on mortgage costs in the coming year, by demographics, March 2011
                                                                                                                                                                                              • Figure 57: Level of concern regarding the impact of selected issues on job security in the coming year, by demographics, March 2011
                                                                                                                                                                                              • Figure 58: Level of concern regarding the impact of selected issues on my health in the coming year, by demographics, March 2011
                                                                                                                                                                                              • Figure 59: Level of concern regarding the impact of selected issues on ‘Commuting costs (excluding petrol, diesel but including public transport)’ in the coming year, by demographics, March 2011
                                                                                                                                                                                              • Figure 60: Level of concern regarding the impact of selected issues on personal debt in the coming year, by demographics, March 2011
                                                                                                                                                                                              • Figure 61: Level of concern regarding the impact of selected issues on inflation in the coming year, by demographics, March 2011
                                                                                                                                                                                              • Figure 62: Level of concern regarding the impact of selected issues on interest rates in the coming year, by demographics, March 2011
                                                                                                                                                                                              • Figure 63: Repertoire of level of concern regarding the impact of selected issues on my finances in the coming year, by demographics, March 2011
                                                                                                                                                                                          • Appendix – Consumer Perceptions of Rising Food Prices

                                                                                                                                                                                              • Figure 64: Perception of changing food prices, over the last year, by demographics, March 2011
                                                                                                                                                                                              • Figure 65: Level of concern regarding rising food prices compared to one year ago, by demographics, March 2011
                                                                                                                                                                                          • Appendix – Consumer Reactions to Price Increases

                                                                                                                                                                                              • Figure 66: Reactions to a rise in the cost of the weekly shop, by demographics, March 2011
                                                                                                                                                                                              • Figure 67: Reactions to a rise in the cost of the weekly shop, by level of concern regarding rising food prices compared to one year ago, March 2011
                                                                                                                                                                                          • Appendix – Targeting Opportunities

                                                                                                                                                                                              • Figure 68: Ways in which shopping habits have changed in the last 12 months, by target groups, March 2011
                                                                                                                                                                                              • Figure 69: Level of concern regarding the impact of selected issues on my finances in the coming year, by target groups, March 2011
                                                                                                                                                                                              • Figure 70: Perception of changing food prices, over the last year, by target groups, March 2011
                                                                                                                                                                                              • Figure 71: Level of concern regarding rising food prices compared to one year ago. by target groups, March 2011
                                                                                                                                                                                              • Figure 72: Reactions to a rise in the cost of the weekly shop, by target groups, March 2011
                                                                                                                                                                                              • Figure 73: Target groups, by demographics, March 2011

                                                                                                                                                                                          Companies Covered

                                                                                                                                                                                          • Asda Group Ltd
                                                                                                                                                                                          • Automobile Association (AA)
                                                                                                                                                                                          • Ben & Jerry's (UK)
                                                                                                                                                                                          • British Market Research Bureau (BMRB)
                                                                                                                                                                                          • British Retail Consortium
                                                                                                                                                                                          • Co-operative Group
                                                                                                                                                                                          • Duchy Originals
                                                                                                                                                                                          • Farmfoods Ltd
                                                                                                                                                                                          • HJ Heinz Company UK
                                                                                                                                                                                          • Iceland Foods Ltd
                                                                                                                                                                                          • J. Sainsbury
                                                                                                                                                                                          • Kellogg Company
                                                                                                                                                                                          • Kraft Foods Inc.
                                                                                                                                                                                          • Marks & Spencer
                                                                                                                                                                                          • McCain Foods Limited
                                                                                                                                                                                          • Nestlé UK Ltd
                                                                                                                                                                                          • Premier Foods plc
                                                                                                                                                                                          • Soil Association
                                                                                                                                                                                          • Tesco Plc
                                                                                                                                                                                          • The Fairtrade Foundation
                                                                                                                                                                                          • Unilever Bestfoods UK Ltd
                                                                                                                                                                                          • Waitrose
                                                                                                                                                                                          • Wm Morrison Supermarkets
                                                                                                                                                                                          • Yoplait Dairy Crest

                                                                                                                                                                                          Pricing and Promotions in Food - UK - May 2011

                                                                                                                                                                                          £1,995.00 (Excl.Tax)