How Will Brexit Impact Packaged Food Sales?

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Markets around the world are now asking how the UK’s historical vote last Thursday to leave the European Union will impact them. Market researcher Euromonitor International took a look at how “Brexit” could negatively affect the consumer packaged foods industry.

The UK is the EU’s second largest economy behind Germany and is the EU’s largest consumer market. Following a departure from the EU, the UK would likely face price pressures from higher import prices and trade barriers, not to mention wavering consumer expenditure in the face of economic uncertainty, Euromonitor stated in its May 9^th report, “Brexit and the Implications for the Consumer Goods Industry.” Euromonitor predicted real GDP growth in the UK to sink 2% over five years, with the greatest impact felt in 2017 and with real GDP predicted not to return to growth until 2023.

Within the EU’s packaged foods industry, the UK is the second largest consumer of biscuits, snack bars, chocolate confections, and crisps, Euromonitor stated in a June 16^th article, “Brexit from Good Nutrition."

According to Euromonitor, declining sales would first affect “discretionary” purchases most tied to income. “According to our Industry Forecast Model, looking at forecast volume growth, in a Brexit scenario, confectionery, ready meals, and sweet and savoury snacks would be the most-affected packaged food sectors in the UK. Within this, volume sales of chilled lunch kits, gum, and chocolate are most influenced,” Euromonitor stated in its May 9^th report. By contrast, sectors least impacted are likely to be staples like rice, pasta, and noodles, the report stated. Euromonitor also added, “There are some exceptions-sugar confectionery and dinner mixes should show more resilience to economic trends.”

Brexit would also impact soft drink sales, Euromonitor predicted. “Overall, the sector would see cumulative growth of 1.4 percentage points less in a Brexit scenario between 2015 and 2020. This corresponds with ‘lost’ sales of 475 million litres over this period.” It added, “The variation across product categories is also relatively stark, from bottled water, RTD tea, and sports and energy drinks being the most affected, through to juice and Asian specialty drinks, which, according to our model, will be least affected. Again, this is driven by these sectors’ reliance on income growth.”

In the hot-drinks sector, the Brexit impact will be “broad-based,” Euromonitor said. “In volume terms in a Brexit scenario, we expect period growth of the sector to be 9.8% to 2020, compared to 10.5% without Brexit.” Part of this decline may stem from the fact that the UK hot-drinks market relies heavily on imports of key ingredients.

Still, Euromonitor predicts Brexit's impact to most global markets to be “broad but short-lived." With the exception of EU countries, China, Saudi Arabia, and Egypt, the market researcher expects for the most part that “the depth of the impact will not be significant” to other global markets.

Jennifer Grebow
Editor-in-Chief
Nutritional Outlook magazine
jennifer.grebow@ubm.com