What a year 2018 was. There were spectacular fails, but also some spectacular triumphs. There were mergers so seismic in scale they could change grocery for good, and new arrivals that went out with a whimper. There were big winners, big losers and big confusion as, through it all, Brexit loomed large. Here are all the milestones…
Bombshell of the year: Asda and Sainsbury’s merger
Just as the market was beginning to come to terms with the shellshock of the Tesco-Booker merger, its two biggest rivals dropped this bombshell. Not that Sainsbury’s and Asda intended for the news to come out quite as it did, with the story leaked a week ahead of the planned announcement.
It wouldn’t have lessened the shock by much though, as the grocers confirmed they would be teaming up in a deal giving them a combined £51bn in sales, and serious additional buying power – a power they quickly announced would be used to lower prices by 10%.
Not that this was about money. Or power. No, not at all. That Mike Coupe happened to be caught humming ‘We’re in the money’ as he sat through a day of press interviews was sheer coincidence. The keen guitarist had enjoyed a rendition of the musical 42nd Street the year before and the tune got caught in his head, he insisted. Still, those that stood to lose jobs or space on shelf, or face down the combined force of two major supermarkets over the negotiating table, didn’t see the funny side.
Nor did MPs in June, when Coupe and Roger Burnley endured a savage grilling by the Efra committee. Arguably, Burnley caught the brunt, committee chair Neil Parish accusing the Asda boss of talking “a load of baloney” and making up figures about the deal’s impact on competition in the market. Both faced allegations of secretly planning swingeing management cuts and merging buying operations too.
In truth, for all their ferocity, MPs were merely reflecting fear among suppliers that the deal would “inflict pain” up and down the supply chain to deliver on its cost savings. Those same fears were revealed by the CMA after it launched its own formal investigation into the deal in August. In documents published by the competition watchdog, suppliers spoke of innovation being “sucked” from the industry if the deal went ahead, with the duopoly of such scale that it would likely “cause a fundamental change to the structure of the grocery -sector, to the detriment of consumers”.
Perhaps unsurprisingly, retail rivals have added their own concerns to the mix. Aldi urged the CMA to put a stop to the deal, arguing the discounters were not in the same league as the big four, after its influence alongside Lidl was officially -recognised. Tesco focused on the lack of customer or supplier benefits. Morrisons said own label quality would suffer. Waitrose feared homogeneity. Faced with opposition on so many fronts, Sainsbury’s and Asda lodged a successful judicial review in the final weeks of 2018 to give them more time to respond to issues raised. The provisional findings are now not likely until early February.
Loser of the year: the UK high street
Few deaths have been more frequently predicted than the UK high street’s. It was way back in 2011 after all that retail guru Mary Portas was commissioned to dive into the dismal state of town centres. Research had revealed that a third were ‘degenerating or failing’ in the face of e-commerce, red tape and an outdated model. Seven years later though and her grand plans for a big revival, spurred by affordable parking, relaxed licensing laws and national market days either haven’t happened, or haven’t worked.
If anything, 2018 saw high streets take a turn for the worse. Toys R Us, electronics retailer Maplin, Poundworld and HMV collapsed, while New Look, Mothercare, House of Fraser, Evans Cycles, Carpetright and Homebase were all ‘saved’ but with the help of extensive store closures, new owners and controversial rent cuts based on CVAs.
Already in retrenchment, M&S also announced plans to close a further 100 branches by 2022.
As for casual restaurant chains, a deadly mix of increasing wages, greater competition, inflation and Brexit-related uncertainty caused all sorts of headaches. Even for Jamie Oliver. In early 2018 he watched his two Barbecoa branches sink into administration, confirmed the closure of 12 Jamie’s Italian branches and ploughed £13m of his own cash into saving the rest. Gourmet Burger Kitchen, Byron, Carluccio’s and Prezzo also underwent emergency surgery.
On the flipside, Wagamama was sold to Restaurant Group for almost £600m. And, as we reveal in our Predictions for 2019 experts predict we’ll see a slew of experiential, experimental retail formats in the coming months as bricks and mortar businesses look to tempt us back. Predictions of its death have, once again, been greatly exaggerated, they insist. loser of the year.
Legal shake-up of the year: sugar reformulations
In April came the moment the soft drinks industry had been dreading (and lobbying against) for years. The introduction of the soft drinks levy, or ‘sugar tax’, slapped an extra cost on all drinks with more than 5g of sugar per 100ml, capturing some of the biggest names in the category under its criteria.
Political murmurings of a tax had been rumbling on for years, of course, with 45 million kg of sugar already removed from soft drinks via reformulation as brands sought to convince government they could do it off their own backs. Those efforts mightn’t have been quite persuasive enough to avoid the levy, but they did leave many already under the threshold once the law came into force.
Not that that prevented a sizeable price hike of 5.4% after the levy, as some of the sweetest -suppliers decided reformulation wasn’t worth the risk and looked to pass on more than a spoonful to consumers. The silver lining? Sales (and availability) of low-sugar, healthy soft drinks have surged, creating a more diverse, colourful soft drinks aisle.
With sugary soft drinks now firmly in the legislative grip, bets are on as to what could be next. Two frontrunners must surely be a ‘pizza tax’, after PHE unveiled in March its friendly industry ‘challenge’ to cut 20% calories on high-calorie ‘family products’ by 2024, and the introduction of a DRS scheme, which Michael Gove has insisted is “absolutely vital” to reduce the scourge of waste plastic.
Stock of the year: Ocado
This was the year Ocado broke America. A November 2017 partnership with France’s Casino had finally fulfilled its promise of an international deal, and it was soon followed by 2018 tie-ups with Canada’s Sobeys and Sweden’s ICA. But the crowning achievement was its transformational deal with US grocery giant Kroger in May for up to 20 CFCs, which sent shares surging past 1,000p. They have eased back to 800p, but that is still up 125% year on year, making Ocado not only the best performing stock in our grocery tracker in 2018 but across the FTSE 350 index. It also meant Ocado entered the FTSE 100 for the first time, and with a valuation greater than Marks & Spencer and Morrisons, among others.
These international deals have confirmed Ocado’s metamorphosis from an innovative but landlocked UK grocer to an technology licensing and solutions provider spanning the globe. The original analogy was with Amazon, which though it was highly valued from the outset, took years to make a profit from its impressive technology. But it’s been dubbed “the Microsoft of retail” by Peel Hunt for its licensing business model, and the brokerage argues that its expertise could yet be applied far more widely in e-commerce than grocery.
Trend of the year: fermentation
The health of our gut has become a matter of national interest.
From kefir smoothies to kombucha tea (backed by none other than rugby hero Jonny Wilkinson); from apple cider vinegar to coconut cream mixed with sauerkraut, we were fascinated by all things fermented and gut-friendly in 2018.
Boring, bland high-fibre foods also made a comeback as a result, with extra helpings piled into yoghurts, cereal bars and snacks – along with a gut load of health promises.
And for the more adventurous there was charcoal, the activated ingredient lifted from emergency rooms, which is being used in smoothies, supplements, pies and croissants.
Curse of the year: CO2
A severe shortage of CO2 in the midst of a heatwave AND the World Cup. You couldn’t make it up.
And if the impact on the soft drinks industry was obvious, it was The Grocer that exclusively revealed the implications in other sectors, notably poultry and pork processing plants that had to either switch to electric stunning or close altogether. Crumpet production at Warburtons was also affected.
Blessing of the year: the summer heatwave
The hottest summer since 1976 (and a successful World Cup for England) was a huge fillip for the industry. Consumers spent almost £500m more in the 12 weeks to 9 September, including £228m more on alcohol, £178m more on soft drinks and £74m more on ice cream, with burgers, bangers, sushi, prepared salads, as well as suncream and hay fever tablets also experiencing a huge lift in sales.
Dampener of the year: vegetable crops
As we were all basking in this year’s tropical summer, UK growers were cursing it. Coming off the back of the Beast from the East, which had frozen soil solid during planting season, the baking hot sun spelled disaster for some crops. Carrots, broccoli and onions were just a few of the fresh produce varieties that suffered in the heat, resulting in shortages and price rises long after temperatures cooled.
Word of the year: ‘single-use plastic’
Single-use plastic first pierced the public consciousness (and vocabulary) in late 2017, with dire warnings from David Attenborough, but gained real force in 2018 as awareness, and anger against its ubiquity, grew.
Inevitably food and drink became a major target for that anger, and recent months have all been about scrutinising the efforts of companies to do their bit. Iceland led the way in January with its plan to eliminate single-use plastic from all own label products. In the months since, Tesco has said it will ban all non-recyclable packaging as of this year, Morrisons expects to do the same by 2025, and Asda has committed to removing 6,500 tonnes.
Seismic targets like those can’t be achieved in isolation though, with supermarkets teaming up with suppliers via initiatives such as the UK Plastics Pact, and a coalition that brings together industry heavyweights Coca-Cola and Tesco too.
Government hasn’t left industry to it though. Far from it. In October it announced plans to ban the sale of plastic straws, drinks stirrers and cotton buds, as part of Theresa May’s vow to eliminate plastic waste by 2042. Meanwhile Gove has given the green light to a Deposit Return Scheme, with trials already underway.
Victory of the year: Waste Not Want Not milestone
In a huge coup for The Grocer’s Waste Not Want Not campaign, and all those fighting to stop surplus food ending up in a bin, Defra minister Michael Gove committed to a £15m pot of cash in October that will see more surplus food go to UK charities.
His announcement followed two years of campaigning for extra government funds by both The Grocer and FareShare UK, after research repeatedly demonstrated that the sheer cost of doing the right thing was standing in the way of progress.
There is still plenty of work to do. Not least thrashing out the detail of exactly how to put that £15m to best use – and with only a limited time window in which to prove it can work. But as we pointed out, and as 16,000 people agreed in a petition sent to parliament in May, the government subsidy is a small price to pay (and a risk-free one) versus the 100,000 tonnes of food waste redistribution it could achieve.
It wasn’t the only major milestone in our fight against food waste, either. After Tesco talked some of its biggest suppliers into revealing their food waste data for the first time in September, hundreds more suppliers followed suit via a collective IGD/Wrap announcement – another triumph for the transparency our campaign called for.
Spat of the year: Hotel Chocolat Vs. Waitrose
Heck and The Collective both spoke out against shameless copycatting from Aldi, but who would have predicted dear old Waitrose would stand accused of the practice? Hotel Chocolat boss Angus Thirlwell took to Twitter to vent his spleen when Waitrose unveiled a range of posh chocolate slabs that looked suspiciously like its own.
The spat saw the chocolate brand offer swaps of the £2 Waitrose bar for its own £3.95 slab to avoid reputational damage, as well as urging the supermarket to ‘do the right thing’ and withdraw the range. Waitrose did. And Thirlwell even sat down with Waitrose boss Rob Collins over a cup of cocoa (what else?) to clear the air.
M&A deal of the year: Coca-Cola acquires Costa Coffee
The global coffee wars went into overdrive this year as the fmcg giants set their sights on the booming sector both in and out of home.
The year’s most eye-catching deal was Coca-Cola’s first move into retail, with the £3.9bn acquisition of Costa Coffee in August. The deal diversifies Coke away from fizzy drinks, but also gives it a serious foothold in the global hot drinks market and particularly the OOH coffee space.
The competition in coffee retail space is intense and was ratcheted up another notch this year with Nestlé’s $7.1bn (£5.5bn) deal to acquire the perpetual global licence to produce Starbucks-branded products across the world in May. The global market is dominated by two players: Nestlé and JAB Holdings, which itself boosted its coffee footprint by snapping up Pret a Manger for £1.5bn as well as shelling out a cool $18.7bn in January for Dr Pepper Snapple.
The market was a little quieter for UK retail assets, with deals including Nomad’s £210m buyout of Aunt Bessie’s and Intersnack’s buyout of Tyrrells. Other notable activity in the UK food and drink space included the yet-to-be-completed Samworth Brothers acquisition of 2 Sisters’ Manton Wood sandwich business and Arla’s February deal to buy Yeo Valley Dairies.
Crowdfunder of the year: BrewDog
Craft brew darling BrewDog was once again the toast of the crowdfunding market in 2018 after getting through its largest fundraiser yet – though there are signs the crowd’s thirst for the brand is beginning to wane.
In October, BrewDog closed a £23m ‘Equity for Punks V’ crowdfunding round, beating its previous record of £19m. However, the campaign fell well short of its stretch target of £50m.
Idea of the year: incubator schemes
Startups, with their challenger brands and craft-based zeitgeist, have run rings round slow-moving fmcg ‘corporates’. The answer, if you can’t beat them at the innovation game, has always been to buy them, but in 2018 a new idea took hold: to help them. Sainsbury’s, PepsiCo, Kraft Heinz and Diageo were among several to launch in-house incubator schemes in 2018.
Stock market entrant of the year: Cake Box
We’ve seen IPOs of off-licences (Conviviality), CTNs (McColl’s) and cake shops (Patisserie Valerie) in recent years. And now this: the £43m float of 100-strong franchise player Cake Box in June on London’s AIM.
This isn’t just another cake shop. It’s a franchise for egg-free cakes. And it’s doing well. Sales and profits have continued to rise along with its share: up from an initial 108p to 177p.
Collapse of the year: Conviviality
It was a startling reversal of fortunes. In late 2017 drinks giant Conviviality was riding high on its transformation from bog-standard offie into authoritative drinks wholesaler. CEO Diana Hunter was lavished with praise.
But success story quickly turned into horror story. Cracks first appeared in January with a profit warning. Then in March a ‘surprise’ £30m tax bill emerged. A week later, with shares suspended and £350m wiped off the company’s value, Hunter was forced to step down and PwC was called in. Desperate attempts to raise fresh capital came close to the £125m target, and some say that was more than enough, but it was not to be: its various bits were sold at ‘bargain’ prices in a humiliating fire sale.
It’s a stark example of how quickly shareholder value can be destroyed. And Patisserie Valerie came perilously close to suffering the same fate, with a £40m black hole exposed in its accounts in October, amid allegations of fraud, but it was saved by chair Luke Johnson. And McColl’s CEO Jonathan Miller won’t be sleeping easy: shares have fallen 73% after a second profit warning in December, after citing supply issues first from the collapse of Palmer & Harvey and then from the new arrangement with Morrisons.
Cock-up of the year: KFC chicken shortage
There was poultry pandemonium at KFC in February as the fast food chain found itself in the midst of a severe chicken shortage.
Left without its main ingredient, several of its restaurants temporarily closed down, staff were sent home and Colonel Sanders was even forced to issue a full-page apology in newspapers after it became clear new logistics partner DHL had failed to get its chicken across the road.
Within a fortnight the chain was back with old partner Bidvest Logistics. ‘As the UK’s leading foodservice logistics specialist, we understand the complexities of delivering fresh chicken,’ pointed out a smug Bidvest. Ouch.
Biggest anti-climax of the year: Jack’s
It’s “what Jack would have wanted”, Tesco CEO Dave Lewis insisted at the launch of its Jack’s discount chain in September: that it was to celebrate the 100th anniversary of the brand Jack Cohen founded back in 1918 – and was absolutely nothing to do with competing against discount chains Aldi and Lidl.
The launch received acres of media coverage but would Cohen have been delighted at the bolt-on to his business legacy? Analysts weren’t so sure. Some lauded the stripped-back format as the “perfect solution” to the threat from discount models, and saw it as a real estate play. But others feared the chain would simply end up cannibalising its own sales, and would never challenge Aldi and Lidl as there wasn’t the scale to make a meaningful difference. Indeed, some experts have argued that the execution – despite such a close resemblance – was inherently unprofitable.
The size of the challenge became clear only three weeks in, when the long queues out the door at the launch of the first store in Chatteris had whittled away and the car park was three-quarters empty. No wonder Lewis is opting for caution, with plans to open just 15 stores in the next six months.
Exposé of the year: Red Tractor
Red Tractor left with a red faceIt could’ve been the final nail in the coffin for Red Tractor in July. The scheme found itself in the spotlight, yet again, after The Times exposed examples of poor animal welfare at members’ far ms. Critics called for an end to the scheme. But in September it returned with a suite of new toughened standards which, it said, would enable it to become ‘the flagship for British farming’ once again.
PR stunt of the year: Iceland’s palm oil ad
Iceland’s Christmas ad cost next to nothing. Better still,since it was ‘banned’ the animation has been watched over 30 million times, supported by its ‘release’ of an animatronic orangutan in London, giving Iceland’s anti-palm oil cause huge exposure without spending a penny on media. Kudos to Heinz too for its Salad Cream stunt: turning “plans” to ditch its name into marketing gold.
Tie-up of the year: Tesco-Carrefour alliance
Another day, another bolt from the blue, with news in July that Tesco and Carrefour would form a ‘strategic alliance’. The relationship means greater purchasing power and opportunities to cut costs and save tax. Just outside the purview of competition watchdogs, it still provides some of the benefits of a fully fledged merger. No doubt Mike Coupe and Roger Burnley went a sickly shade of green.
Scandal of the year: allergy labelling
That it took the tragic death of a 15-year-old girl to force Pret to overhaul its approach toallergens labelling was truly shocking.
In July 2016, teenager Natasha Ednan-Laperouse collapsed on a London to Nice flight after eating one of the chain’s artichoke, olive & tapenade baguettes, bought at Heathrow Airport. The baguette contained sesame seeds, to which Natasha was fatally allergic, and which weren’t listed on the label. As these details emerged, two years later, at the inquest into Ednan-Laperouse’s death, it sparked a national outcry that the likes of Pret, and other high street chains preparing food fresh on their own premises, could legally avoid flagging up allergens on labels. That Pret seemed to be shrugging off responsibility by pointing out it was sticking to the letter of the law only made matters worse. Thankfully, by October it had recognised its error, promising to list all allergens on packs.
Efforts to close the legal loophole have continued though, with campaigners insisting a change in the law is required. Because along with more harrowing stories of preventable deaths making it into mainstream media, investigations are still exposing frightening gaps in the policies of major high street names.
Jammy dodger of the year: Amazon
Amazon might be one of the biggest disruptive forces in UK grocery, its steady encroachment into food and drink striking fear in the hearts of supermarket CEOs everywhere, but it still doesn’t warrant scrutiny by the GCA – or so the CMA concluded in November.
Despite the online giant being one of the most common names mentioned to Adjudicator Christine Tacon by aggrieved suppliers, its grocery sales were not large enough to be brought under her remit, the watchdog decided. UK boss Doug Gurr must have been delighted, as he can now focus on how to minimise the impact of the digital services tax introduced by chancellor Philip Hammond in his October Budget.
Cliffhanger of the year: Brexit
We might be mere weeks away from the 29 March deadline but we ended 2018 none the wiser on what Brexit will look like, whether the deal on the table will survive a Commons vote, or whether there’ll be a Brexit at all. In other words, business was left perched precariously on a cliff edge, staring into the abyss of no-deal.
Which isn’t exactly surprising given the political chaos of the past year. We’ve watched ministers resign left, right and centre, hardline Brexiteers corral 48 letters to unseat May – and then fail. There’s been debate upon debate over Irish backstops, customs unions and the ‘Norway model’. Tony Blair has wormed his way back into public life, EU leaders have made snide comments across the international press and Matt Damon even played David Cameron on Saturday Night Live in the US. It’s been at turns surreal and scary.
Crucially, of course, it has left food and drink businesses facing an unknown future, stockpiling supplies in crowded warehouses to avoid running short come March, and warning urgently about the risks of inflation and pile-ups at ports.
Come next week we should have a better idea of where we stand as MPs vote on the ‘divorce deal’. But with the army being readied for mobilisation, nothing is certain.
Soap Opera of the year: Beyond Burger
All good soap operas need a star, and in the life of plant-based news, that’s been Beyond Burger. Backed by Bill Gates and Leonardo DiCaprio, hype surrounding the plant-based burger – which so closely resembles the look, taste and texture of a beefburger that it is stocked right next to them in some US grocers – was only heightened by its anxiously awaited launch in the UK. It’s been a real cliffhanger. One minute we were set to be the second country after the US to welcome it. Then its arrival was postponed indefinitely due to supply issues. But in November the brand was spotted on the All Bar One menu – before finally, two weeks later, going on sale in UK Tesco stores. Or some of them. It capped the year off by announcing it was going public. But when? And will it?
Of course, there were other characters too and the volume of debate on the ethics and environmental impact of meat was only matched by the number of new vegan products appearing on supermarket shelves.
It got nasty at times, with meat-eaters turning on vegans and vice versa. Nobody lost their life, but some did lose their jobs…
Comeback of the year: Milkmen
Who wouldn’t want this oh so British service to make a comeback? Well, until recently, most of us, with only 3% of consumers paying extra for a milkman, compared with 99% in the 1970s. But concern about the scourge of plastic, new and improved milk floats, wider selection and new direct to consumer business models like the Dutch Picnic have tipped the service back into growth.