The UK Sandwich Market

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The UK Sandwich Market
10am

• Presentation by
• JEFFREY YOUNG
• Allegra Strategies

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Trends in the UK Sandwich Market Presentation at
The Taste Experience British Sandwich
Association Jeffrey Young, Managing Director,
Allegra Strategies Ltd 1 November 2007
Allegra Strategies Limited No 1 Northumberland
Avenue, Trafalgar Square, London WC2N 5BW,
UK Tel [phone] Fax [phone]
8810 Email info_at_allegra.co.uk
www.allegra.co.uk
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• Background on Allegra Strategies
• Consumer Food Mega-Trends
• Market Landscape
• Case Study Branded Coffee Chain Segment
• Future Sandwich Market Developments
• QA

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ABOUT ALLEGRA STRATEGIES

• Leading UK research and strategy consulting firm
  focusing on Coffee and Foodservice, Retail and
  Consumer Lifestyle
• Mission to deliver outstanding quality
  information, assisting clients to better
  understand their competitive environment and to
  focus on customers, markets and innovation
• Publish Project Café series since August 1999,
  recognised as the definitive report on the UK and
  European branded coffee and sandwich chain
  markets
• Research projects qualitative and quantitative
  customer insight programmes, competitive
  analysis, best practices and commercial due
  diligence for leading UK and global clients
• Project Café7 release May 2007. European Coffee
  Shop Market 2007 released October 2007
• In addition to bespoke research and strategy
  consulting to the coffee sector, Allegra also
  pioneers a series of definitive retail
  publications including
• How Women Shop! 2007
• Ethical Consumer Trends UK Clean Energy and
  Energy Efficiency 2007
• Ethical Brands Implications for the Food sector
• In 2007, Allegra established an industry Think
  Tank - The Food Strategy Forum
• Senior Food Beverage Executive Top of Mind
  Survey completed 30 October 2007
• Currently working on a new report Food on the
  Move

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CLIENTS

• Allegra Strategies provides research and
  consulting products and services to a wide
  variety of leading UK and global corporations.
  Our recent client list includes

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• Background on Allegra Strategies
• Consumer Food Mega-Trends
• Market Landscape
• Case Study Branded Coffee Chain Segment
• Future Sandwich Market Developments
• QA

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• Allegras research and analysis over the past
  decade identifies 7 Mega-trends driving
  developments across the global food sector, with
  important consequences for the UK sandwich market.

• Healthy Eating
• Food-on-the-Move
• Premiumisation / Culture of Food
• Greater Variety and Choice
• Expansion of Branded Chain Concepts
• Growing Importance of Experience
• Ethical Consumerism

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GLOBAL FOOD MEGA-TREND - HEALTHY EATING

• Societal concern with obesity in the UK
• Press and government programmes have stimulated a
  growing focus on healthy eating
• Greater awareness of nutrition
• Proactive efforts by leading supermarkets and
  foodservice chains
• Trends towards simpler, more natural, fresh foods
  and organic produce
• Dramatic reduction in trans fats
• Reduced additives and preservatives

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Allegras national food buying behaviour consumer
research identified a major trend towards healthy
eating. Nearly three-quarters of UK consumers
interviewed stated that they are more concerned
with healthy eating than they were five years
ago. 55 believe that they should be eating
healthier still.
CONSUMERS INCREASED CONCERNS ABOUT HEALTHY
EATING NATIONAL FOOD BUYING RESEARCH Response
to Prompt Im more concerned with healthy eating
than I was 5 years ago. Percentage
Source Allegra Strategies National Food Buying
Behaviour Interviews and Analysis, 2006
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GLOBAL FOOD MEGA-TREND FOOD-ON-THE-MOVE

• Also known as Convenience-led consumption,
  Dash-board Dining or GrabGo
• Busier and more mobile lifestyles
• Consumers are eating more meals out-of-the- home
• Increasing snacking and grazing
• Three meals a day is now an out-dated
  stereotype in much of Britain
• Takeaway food and beverages have risen
  substantially in the past decade and is now
  widespread
• Retailers, foodservice operators and food
  manufacturers have responded with a wide variety
  of convenience offers

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Nearly two-thirds of UK consumers eat
out-of-the-home at least once per week or
approximately two meals per week on
average. This trend has grown substantially over
the past decade with the introduction of more
convenience offers and more mobile consumption
habits.
EATING OUT-OF-THE-HOME NATIONAL FOOD BUYING
RESEARCH How many times per week on average
would you eat meals out-of-home? Percentage
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Source Allegra Strategies National Food Buying
Behaviour Interviews and Analysis, 2006
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A quarter of UK consumers under 35 stated that
they eat many meals on-the-move, an important
current and future market for sandwich players.
Allegras national food sample reveals that
younger consumers are more likely to eat
unstructured meals.
EATING ON-THE-MOVE NATIONAL FOOD BUYING
RESEARCH Response to Prompt I eat many of my
meals on-the-move. Percentage
Source Allegra Strategies National Food Buying
Behaviour Interviews and Analysis, 2006
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GLOBAL FOOD MEGA-TREND - PREMIUMISATION /
CULTURE OF FOOD

• Historically high relative wealth has increased
  discretionary income
• Growing demand for higher quality products and
  luxury treats, provides food players with
  opportunities to increase revenue
• A few examples
• Growing popularity of deli concepts
• Rise of farmers markets
• Premium supermarket own-label
• Shift from instant to roast ground coffee
• Premium niche brands, e.g. Kettle Crisps
• Rise of celebrity chefs and TV programmes e.g.
  Master Chef, Hells Kitchen, Jamie Oliver

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GLOBAL FOOD MEGA-TREND - GREATER VARIETY AND
CHOICE

• Increased travel and exposure to different
  cultures is driving more open-mindedness
• Increased acceptance and enjoyment of a wider
  variety of food types and multi-cultural cuisines
• More demanding consumers expect a higher degree
  of choice and quality
• Wide variety of product formats and channels to
  market
• Variety in tastes is particularly evident from
  the diversity of supermarket shelves and
  restaurant menus of today
• 24-hour access to food purchases is potentially a
  contributor to obesity

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GLOBAL FOOD MEGA-TREND EXPANSION OF BRANDED
CONCEPTS

• A global trend to consolidation in retail and
  foodservice
• Branded chain foodservice concepts, e.g. Costa,
  Starbucks, Pret, Carluccios, Subway, La Tasca,
  Pizza Express have proliferated at the expense of
  independent operators
• Significant growth in the quality mid-market
• Consumers shunning greasy spoon outlets
• Despite a stated emotional link to independent
  operators, UK consumers are gravitating to brands
  that they trust, associate with and aspire to
• Brands create a sense of fashion and excitement
• Financial strength and operational excellence of
  branded operators provide distinct advantage

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• Growing brand awareness is evident as consumers
  increasingly use foodservice chain concepts.
  Vibrant brands that connect to a broad but
  well-defined target audience are those that gain
  most customer recognition.

AVERAGE NUMBER OF MAJOR BRANDS RECOGNISED UK
BRANDED COFFEE SHOP VISITORS, 1999 - 2007 COFFEE
SHOP INTERVIEWS Response to Question Which of
the following coffee/sandwich shops brand do you
know? Number of Brands
Source Allegra Strategies Coffee Shop Interviews
Analysis, April 2007
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GLOBAL FOOD MEGA-TREND IMPORTANCE OF CUSTOMER
EXPERIENCE

• High quality, themed store environments have
  become important tools to unlocking consumer
  spend
• Rise of 3rd space as a social venue
  importance of a my time space is not to be
  underestimated
• Sense of urban casualness is encapsulated in
  the successful Starbucks, including the use of
  sofas, hand-written menu boards and themed
  graphics
• New McDonalds stores now feature vibrant,
  café-like environments
• Supermarkets such as MS and Waitrose are
  food-shopping
• Tastings, customer education and events

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GLOBAL FOOD MEGA-TREND ETHICAL CONSUMERISM

• Ethical dimensions are increasing in consumer
  purchase decisions. Key areas include
• Environmental impact / Food miles
• Fairtrade
• Local sourcing
• Organics
• Social responsibility
• Impetus has been driven by corporate activities
  and widespread media coverage
• Growing concern with climate change but also an
  important focus on food provenance, localness and
  reduced packaging
• Ethical positioning is a business imperative

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• While, 9 of visitors expressed strong opinions
  in favour of Fairtrade coffee, a high 57 of
  visitors remain passively indifferent to ethical
  coffee purchases.

IMPORTANCE OF FAIRTRADE COFFEE SHOP
INTERVIEWS Response to Prompt It is important
to me to order Fairtrade coffee whenever I
can. Percentage of Respondents
Note Scale 1 to 5 where 1 Agree Strongly 2
Agree 3 Neither 4 Disagree 5 Disagree
Strongly Source Allegra Strategies Coffee Shop
Interviews Analysis, April 2007
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• Background on Allegra Strategies
• Consumer Food Mega-Trends
• Market Landscape
• Case Study Branded Coffee Chain Segment
• Future Sandwich Market Developments
• QA

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• With its highly concentrated population of 60
  million and increasingly brand-led,
  food-conscious consumers, the UK provides a
  fertile market for quality sandwich providers.

• The UK is a hybrid between the US and Europe,
  combining a strong chain presence and
  convenience-driven behaviour, with the food and
  café culture of Europe
• Growing consumer food culture has emerged over
  the past 5 years, e.g the success of Waitrose,
  MS food, Taste the Difference, Finest and
  branded food chains such as Pret, EAT and
  Carluccios
• Café culture has risen exponentially over the
  past decade, with 47 of consumers visiting a
  coffee venue at least once per month. 67 of
  adult consumers eat out-of-the-home at least once
  per week
• UK out-of home Food Beverage market is
  estimated at 37 billion
• Estimated 228 million daily meal occasions in the
  UK
• UK day-time convenience FB market is estimated
  at 14bn and 3.3bn in London
• Sandwich market estimated at 3.5 - 3.7 billion
• Significant growth of the branded coffee/sandwich
  chain market, currently at 1.3bn. Forecast to
  reach a market size in excess of 6,500 units with
  total sales of 2.5bn within a decade
• Pret leads the branded food-focused coffee
  segment in sales and outlets, followed by EAT
• MS, Sainsburys Local, Tesco Express, Boots and
  Greggs provide strong competition within the
  lunch time/sandwich market, as does fast-growing
  chain Subway, with 986 stores currently

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• The UK out-of-home food and beverage market is
  estimated at 37 billion and is expected to grow
  at 1.6 per annum to 2010. Allegra estimates
  that the daytime on-the-move market at
  approximately 14 billion.

ESTIMATED ANNUAL TURNOVER UK OUT-OF-HOME FOOD
BEVERAGE MARKET Billions
Compound Annual Growth Rate 2006 - 2010F
1.6
Source ONS, Defra, Allegra Strategies Analysis,
2007
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• The UK comprises approximately 130,000 Vat
  registered foodservice businesses with the total
  number of outlets estimated around 170,000.
• Restaurants and cafés account for a growing 50
  share.

Compound Annual Growth Rate 1996 2007E
TOTAL NUMBER OF UK FOODSERVICE ENTERPRISES, 1996
2007E No. of Businesses
Total Market 2.0 Canteens Catering
3.6 Hotels -1.5 Bars Pubs
1.4 Restaurants Cafes 3.2
130,825
128,315
124,080
121,030
117,385
114,795
111,920
109,270
107,460
106,440
105,315
105,345
Note Figures are for VAT registered businesses
ONLY and numbers are start of year
figures Source ONS Business Activity, Allegra
Analysis, 2007
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• McDonalds remains the largest foodservice chain
  in terms of number of outlets. However, this gap
  is narrowing with Subway soon to reach 1,000 UK
  outlets.

SELECTED UK SANDWICH/FOOD-TO-GO OPERATORS STORE
NUMBERS, MAY 2007 Number of Outlets
Source Allegra Strategies Analysis, 2007
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A variety of players are present in the market,
each targeting a specific niche. Allegra expects
the main value growth for sandwich players to
occur in the upper right-hand quartile.
UK SANDWICH/FOOD-TO-GO OPERATOR POSITIONING MAP
Source Allegra Strategies Analysis 2007
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Recent Allegra industry research identified
Rising food costs as the single biggest challenge
for UK food beverage players and is currently a
major concern for sandwich manufacturers and
sandwich retailers. Given intensifying
competition and the need to differentiate means
that Innovation/New Product Development is the
second most important challenge currently.
TOP 5 CHALLENGES MENTIONED BY UK FOOD BEVERAGE
EXECUTIVES, OCT. 2007
-
Source Allegra Strategies Analysis Food
Strategies Forum Top of Mind Survey, Preliminary
Data, October 2007
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• Background on Allegra Strategies
• Consumer Food Mega-Trends
• Market Landscape
• Case Study Branded Coffee Chain Segment
• Future Sandwich Market Developments
• QA

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MARKET OVERVIEW

• Branded coffee shop market now totals 3,000
  units, set to nearly double over the next decade
• Regional growth will account for the lions share
  of growth in outlets at circa 10 per annum
• London is still growing, forecast at 6-7 per
  annum for the next 3-4 years
• Branded segment turnover is valued at 1.3
  billion in 2007 and to exceed 2.5 billion by
  2017
• Top 3 coffee-focused players Starbucks, Costa
  Coffee and Caffè Nero accounted for 1,400 units
  and each adding 40-60 outlets per year
• Branded food-focused players Pret A Manger and
  EAT have accelerated growth plans
• UK café culture is here to stay. The popularity
  of coffee bars continues to grow as a significant
  proportion of UK consumers make coffee shops part
  of their daily lives
• Coffee shops have become important venues not
  only to drink coffee and other beverages, but
  also to eat, relax, socialise and conduct
  business meetings
• Major branded chains Starbucks, Costa Coffee,
  Caffè Nero, Pret A Manger and MS Cafés have set
  strong benchmarks on product variety, coffee
  quality and store environments
• Consumers now expect these features across a
  growing set of UK foodservice, leisure and
  shopping venues
• An increasingly important channel for sandwich
  manufacturers

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• The UK branded coffee market has quadrupled since
  1999 to reach an estimated 3,000 outlets a and
  accounting for 30 of the defined coffee shop
  market in 2007. Allegra predicts the branded
  market to grow by more than 8 to 2010 and
  ultimately to double within 10 years.

Compound Annual Growth Rate Dec 2006 - Dec 2010F
TOTAL NUMBER OF UK COFFEE SHOP OUTLETS, BY TYPE,
DEC 1997 - DEC 2010F No. of Outlets
10,795

• Total Market 4.2
• Non-specialists 5.5 -Hotels
• -Supermarkets
• -Department/Book stores
• -Service Stations
• Independent Operators 0.9

10,443
10,077
9,651
9,285
9,171
8,746
8,322
7,674
7,305
6,843
6,160
5,400
5,093
4,756
Note Non-specialist segment excludes branded
chains who have partnered with non-specialist
players Source Allegra Strategies Industry
Interviews and Analysis, 2007
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• Coffee-focused segment, e.g. Starbucks, Costa
  Coffee and Caffè Nero is set to grow at 9 to
  2010 vs. 8 for the food-focused segment, e.g.
  Pret and Eat.

TOTAL NUMBER OF UK BRANDED COFFEE SHOP OUTLETS,
BY SEGMENT, DEC. 2000 DEC. 2010F No. of Outlets
3,985
3,752
3,502
3,205
2,869
2,624
2,424
2,190
2,030
1,784
1,382
Source Allegra Strategies Industry Interviews
and Analysis, 2007
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COFFEE SHOP CONSUMER RESEARCH OVERVIEW

• 24 of the UK adult population or approximately
  11 million consumers visit coffee shop at least
  once per week. 47 of UK adults 20 million
  individuals visit at least once per month
• 76 tend to visit their favourite coffee shop vs.
  74 in 2005, strengthening brand loyalty
• Location is the main factor influencing a
  consumers choice of a given coffee shop/sandwich
  shop, at 63 in 2007 vs. 67 in 2005
• Atmosphere has grown in importance as a key
  influencing factor for UK coffee shop visitors
• Sandwiches are purchased on a regular basis by
  50 of coffee shop visitors
• Take-away is more important than in the past
  12-18 months according to 38 of visitors
• Brand awareness of coffee and sandwich bar brands
  is high and growing
• Allegras national telephone sample indicated
  brand awareness of 10.9 brands on average across
  the UK, revealing how far branded chains have
  penetrated the UK consumer mindset
• Only 12 of adults UK rank an independent coffee
  shop as their favourite
• Pret A Manger leads in the food-focused segment
  with leadership in food quality and service
• Caffè Nero ranks highest among high street chains
  on overall key success factors

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• According to Allegras national telephone sample,
  24 of the UK adult population, approximately 11
  million individuals, visit coffee shops at least
  once per week.
• 47 of the adult population, more than 20 million
  consumers, visit coffee shops at least once per
  month.

FREQUENCY OF VISITS CONSUMER TELEPHONE
INTERVIEWS Response to Question In general, how
often do you visit coffee shops? Percentage of
Respondents
Source Allegra Strategies Household Telephone
Interviews and Analysis, April 2007
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Source Allegra Strategies Household Telephone
Interviews Analysis, April 2007
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• 25 of coffee shop visitors frequently purchase
  food items within coffee bars.
• A further 47 of customers occasionally make food
  purchases in coffee shops.
• Only 16.5 of customers never buy food in coffee
  shops.

FREQUENCY OF FOOD PURCHASED IN COFFEE SHOPS
COFFEE SHOP INTERVIEWS Response to Question Do
you normally purchase food with your drink in
coffee shops? Percentage of Respondents
Source Allegra Strategies Coffee Shop Interviews
Analysis, April 2007
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• Background on Allegra Strategies
• Consumer Food Mega-Trends
• Market Landscape
• Case Study Branded Coffee Chain Segment
• Future Sandwich Market Developments
• QA

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Allegras national research highlights themes of
healthy eating, local origin of products and
exploring new tastes to be important on-going and
future trends. Despite trends to premiumisation,
value-for-money will continue to be important.
UK CONSUMERS EXPECTED FUTURE CONCERNS AND
INTERESTS NATIONAL FOOD BUYING RESEARCH In the
years to come, what will you be generally more
focused on? Percentage
Note Multiple responses answers were prompted
and randomised when asked Source Allegra
Strategies National Food Buying Behaviour
Interviews and Analysis, 2006
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Allegras Food Strategy Forum has examined the
corporate competencies required to lead in the
rapidly evolving Food Beverage sector.
EMERGING FRONTIER OF CRITICAL CORPORATE
COMPETENCIES
ILLUSTRATIVE
High Importance
COMPETITIVE FRONTIER
Price Competitiveness
Service Excellence
Brand Authenticity
Cost-efficiency
Production Volumes
Capacity to Innovate
Flexible Operations
Pre-defined Production Runs
Multi-reach
Talent Management
Product Freshness
Customised Choice
Ethical Values
Traditional Working Practices
Premium Provenance
Collaborative Mindset
Customer Experience
Declining Importance
Rising Importance
Low Importance
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FUTURE CONSUMER BEHAVIOUR

• Eating out more
• More informed
• More aware of food culture
• More demanding in terms of quality and service
• Busier and more mobile
• More informal
• More adventurous
• Variety-driven
• Complex set of value expectations

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FUTURE PRODUCT DEVELOPMENTS

• Healthier
• Tasty and flavoursome
• Fresh and Natural
• Wider variety and more exotic fillings (incl.
  Ethnic)
• Artisanal breads
• Local provenance
• Premium
• Convenience
• Organics
• Smaller portions
• Priced to reflect segmentation

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FUTURE ROUTES TO MARKET

• More diverse
• Foodservice
• Traditional Retail and Convenience formats
• Widening set of non-food players
• Independent sandwich bars
• Workplace
• More sophisticated, more segmented
• Great emphasis on branded chain concepts
• Increased competition
• Sandwiches increasingly competing against other
  products for shelf space
• In the short-term, more cost-driven due to food
  price rises

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FUTURE WINNING BRAND CREDENTIALS

• Innovative packaging
• Authentic
• Ethical
• Informative
• Honest
• Convenient
• Communicate a compelling story
• Deliver consumer 'Experience'

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• Background on Allegra Strategies
• Consumer Food Mega-Trends
• Market Landscape
• Case Study Branded Coffee Chain Segment
• Future Sandwich Market Developments
• QA

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