According to our Industry Forecast Model, confectionery, ready meals, sweet and savoury snacks and baby food are expected to be the most-affected packaged food categories in the UK in a Brexit scenario.Confectionery sales are forecast to decline by an additional 0.2% in retail volume growth terms, translating into an additional loss of 8,200 tonnes, or US$190 million by 2020. Similarly, sweet and savoury snacks sales are set to dip by an additional 5,000 tonnes or US$94 million by 2020 as a result of the Brexit scenario.
In addition to ready meals and sweet and savoury snacks, breakfast cereals and biscuits and snack bars are forecast to be among the top most affected product categories in the EU following the Brexit scenario. These categories are the most income and/or price elastic in the EU, and will thus be hurt more by lower consumer incomes and slightly higher retail prices resulting from Brexit.
Why does the Brexit scenario impact those categories specifically?
The most immediate and direct impact that Brexit will have on the UK (and the EU) is a potential slowdown in real GDP growth, with Euromonitor's forecast model indicating a 2% decline over the next five years. This will in turn hit consumer incomes, and it is exactly those categories with the highest income elasticity that stand to bear the brunt of Brexit. Foods as a staple is perhaps less exposed than other categories, but GDP per capita remains to be one of the main drivers of our forecast growth estimates.
Care must also be taken with retail prices given falling incomes and a weakened Pound. The industry may need to absorb some of the additional costs of currency devaluation and slow premiumisation efforts to maintain consumption. This is especially true for more price elastic categories such as breakfast cereals, processed fruit and, vegetables, processed meat and seafood, and confectionery.
Which companies are likely to be impacted the most by Brexit?
Quantifying the impact of a Brexit is highly speculative due to the many political variables involved. However, the reliance on the UK as a single market by food category does show which companies are more prone to feel the effects of a Brexit.
In sweet and savoury snacks, Unilever generates two thirds of its global sales in the UK and is therefore likely to be more impacted by Brexit than Nestlé in the same category. The UK is also an important market for Mondelez with its Dairylea Lunchables ready meal brand worth US$32 million in 2015. Much the same can be said for several of Mondelez's confectionery brands, such as Green & Black's and Maynard's, for which the UK is a core market.
PepsiCo on the other hand generates most of its global baby food, confectionery and ready meals sales outside of the EU and the UK, therefore these categories are less exposed to the effects of Brexit.
Kellogg might need to reconsider its savoury snack expansion plans in Europe following the Brexit as it remains relatively dependent on the UK market. The need for a diverse portfolio with a global presence becomes ever more important to minimise the effects of geopolitical events of which Brexit is the latest.