Why this is important to Wisconsin businesses: The UK is highly depending on food from EU sources, which would be subject to tariffs in the event of a no-deal Brexit.

The United Kingdom is the fourth-largest retail grocery market in Europe, valued at £179.1 billion.  The sector comprises more than 17,000 businesses and employs just over 1 million people.

Throughout the last decade, this market has been dominated by the “big four” supermarket chains: Tesco, Asda (owned by Walmart), Sainsbury’s and Morrisons, with a combined market share of 64%. However, in the wake of continued economic uncertainty, rising food prices and tightened belts, the market structure is undergoing unprecedented transformation, further fueled by changes in shopping habits as British consumers search for value, and by the increased penetration of discount supermarkets, in particular Aldi and Lidl.

Foregoing the big “weekly shop,” British consumers are now inclined to buy food in smaller quantities and shop more often, and from a wider variety of outlets. Busier lifestyles and the popularity of “en-route home” shopping have seen a move away from supermarkets to local convenience stores, which are being fitted out as “mini-supermarkets” and now play a large role in the market. To counter this, the leading supermarket chains are opening their own local stores, and now 22% of British shoppers report visiting their local convenience store every day.

While the hugely price-competitive discounters are changing the brick-and-mortar grocery trade, online grocery shopping is further revolutionizing the market as e-commerce gains popularity among shoppers, particularly the 25- to 34-year-old demographic. Currently, the UK market accounts for 6.9% of global online grocery sales, and is the most mature and largest online grocery market in Europe.

In 2017, the UK imported £48 billion worth of food and drink, approximately 40% of its overall grocery market. Of these imports, 71% originated from the European Union, thus entering the UK free of customs duties and import tax. North America supplies 4% of the food and drink consumed in the UK.

The UK’s reliance on EU foodstuffs is at significant risk as a result of the vote to leave the European Union. In the event of a no-deal Brexit, the UK would be required under World Trade Organization rules to impose average food import tariffs of 22% and to conduct product inspections, leading to delays and shortening the shelf life of products. Based on import statistics in the 12 months leading up to May 2018, this would amount to new tariffs of £9.3 billion per year on food and drink imports from the EU. Tariff rates on food from existing most-favored-nation suppliers, including the U.S., are unlikely to change, leading to an increase in competitive advantage.

The UK is the fifth-largest economy in the world.  Its grocery retail market is highly concentrated, and for food and beverage manufacturers, successful UK market entry and growth will depend upon an understanding of market dynamics. The current Brexit uncertainty and predicted challenges of importing European foodstuffs creates an opportunity for Wisconsin producers.