Reasons to be Cheerful.
The United Kingdom has been through the mill since early 2020, a time remember when there was relief that the country had a Government with a majority to govern after chronic paralysis and procrastination since the EU-UK referendum.
The Wuhan bug ruined Boris’ honeymoon
However, there was no real honeymoon period as Government became consumed not by Brexit but the pandemic that made its way by aeroplane from Wuhan to these shores. The death toll from Coronavirus, which now exceeds one eighth of a million Britons, is a national tragedy of such deep magnitude. The wider fall out has also been immense for the wheels of both commerce and Government.
The British Government was subsumed by the pandemic and clear deficiencies in policy making and culture within the state, including the Civil Service, became apparent; deficiencies that will be the focus of future investigation, no doubt, and on which necessary change should ensue. Whilst so, the cavalry emerged, thankfully, in the form of Kate Bingham who delivered a world class vaccination programme that has provided an avenue for recovery in more ways than one.
The pandemic shadow for the British food system
For the British food system the pandemic has been immense, driving retail as the Food & Beverage channel was considerably impeded, structurally changing online grocery retail participation and determining a major contraction of the casual dining sector. Within the food system, key workers across the piece became national heroes, unlike teaching unions and can’t do, won’t do bodies like the General Practitioners trade association too. And so hygiene, bio-security, rose up the priority list and is likely to be a key legacy for the industry at all interfaces, so likely to drive further automation.
Heroine Kate Bingham
The aforementioned vaccination programme is allowing the British food system to emerge from the crisis mentality. Commencing with the necessary return to schools, mobility levels started to rise, so reducing the amount of time many folks were spending at home and increasing demand for Food-to-Go lines (e.g., sandwiches and snacks). The re-opening of non-essential retailing and the outdoor F&B channel further raises mobility, so reducing home meal occasions too. Hence, the F&B channel is starting to crank up its engine and accompanying supply chain whilst the supermarkets face into tough pandemic elevated comparatives.
Fragility and positivity
Looking ahead, there remain considerable uncertainty and fragility around the pandemic; mutations, the vaccines’ robustness and scope for a fourth wave. Whilst this is so, the appliance of science continues, for example oral pills to combat Coronavirus, and the domestic vaccine production capacity also builds, so reducing dependence upon a nasty European Commission. Hence, new resources and learnings provide a little bit more confidence that full lockdowns can perhaps be avoided; in this respect the right to a foreign holiday versus the responsibility to protect our kin could be a live summer debating matter over a glass of Rose in the UK for sure, maybe further afield too.
“…there are grounds to look forward with strong optimism for those that have survived, lower capacity helping pricing power. The supermarkets will experience lower like-for-like sales volumes until spring 2022, but also much lower Covid operating costs…. an improved mix as we consume fewer staples and the benefit of a profitable online channel”
Surging activity
For the UK economy the mood music has brightened enormously in just a matter of weeks. From the depth of January, when chins were on the floor, April sees virtually all economic indicators improving and very strongly so. Business confidence is rising, aided by the Chancellor’s capital investment tax breaks, all sectors are seeing rising activity levels albeit from low bases, whilst the housing market is now booming. All this is starting to feed into consumer confidence and so household expenditure, noting that there is c£150-200bn of cash sitting earning nothing in bank accounts, some of which will be spent.
Strong economic growth is ahead
The Governor of the Bank of England told me this month that he now expects the UK economy to reach pre-pandemic levels of activity before Christmas 2021 if there are no more major shocks. That is an amazing expectation, suggesting exceptionally strong summer economic growth with more to come in 2022. Indeed, such are the growth expectations in the USA, where Biden has printed money like there is no tomorrow, that bond markets are flashing about rising inflation, which leads to chatter about the ending of quantitative easing and even the possibility of rising interest rates.
F&B to enjoy the summer at the top-line, supermarkets at the bottom-line
What times eh! For the food system, particularly F&B, there are grounds to look forward with strong optimism for those that have survived, lower capacity helping pricing power. The supermarkets will experience lower like-for-like sales volumes until spring 2022, but also much lower Covid operating costs (c700m for Tesco UK), an improved mix as we consume fewer staples and the benefit of a profitable online channel. The two-year sales stack for UK grocery is also notably higher than it would have been without Covid.
So, without tempting fate, let us all hope that the vaccine derived improvements lead to a more prosperous, healthier and happier summer for us all.
In managing these evolving market conditions, in Coriolis there is an agile, experienced and adaptable team to deliver operational and financial improvement.
Dr Clive Black
Senior Advisor, Coriolis Consulting
April 2021
