Boston, MA -- (ReleaseWire) -- 02/14/2013 -- We believe that the UK economy is treading water rather than heading into a deep and protracted recession. However, combined household deleveraging and the government's ambitious fiscal squeeze have left the export sector and fixed capital investment as the only viable engines of growth. Unlike previous recessions in which a strong rebound in consumer spending restored the economy to its previous growth trajectory, the household sector is not up to the task this time around, with implications for food and grocery spend.
Headline Industry Data (local currency)
- 2013 per capita food consumption growth = +1.3%; five-year forecast to 2017 = +14.7%.
- 2013 alcoholic drinks value sales growth = +1.5%; five-year forecast to 2017 = +10.4%.
- 2013 soft drinks value sales growth = +4.2%; five-year forecast to 2017 = +21.5%.
- 2013 mass grocery retail sales growth = +2.0%; five-year forecast to 2017 = +12.6%.
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Key Company Trends
Premier Foods To Offload Hovis?: In October 2012 it was reported that UK food manufacturer Premier Foods had hired Goldman Sachs to investigate the possibility of selling its low-margin bread unit, indicating that Premier has started to think seriously about offloading one of the major drags on its performance. In our view, the bread business requires far too much time and resources given its measly margins and earnings. The big question is whether Goldman Sachs will be able to rustle up a buyer, with the sector's high level of consolidation meaning that rivals Associated British Foods and Warburtons would be unable to bid on anti-trust grounds.
Britvic and AG Barr Hold Merger Talks: In September 2012, UK-based soft drink producers Britvic and AG Barr revealed that they are holding merger discussions. According to Britvic, the move would create 'one of the leading soft drinks companies in Europe, with a strong portfolio of market-leading brands'. This is a statement that we would concur with, with Britvic's Robinson's brand and PepsiCo bottling franchise nicely complementing AG Barr's Irn-Bru and Rubicon brands. We have long suggested that AG Barr looked like a potential takeover target given its attractive brands and strong growth, but the proposed deal would actually see AG Barr's CEO take the helm of the enlarged company, reflecting AG Barr's strong performance and Britvic's recent weakness.
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