International Markets Bureau

MARKET INDICATOR REPORT | JANUARY 2012

Baby Food Trends in the United Kingdom

Source: Shutterstock.

Source: Shutterstock.

Baby Food Trends in the United Kingdom

EXECUTIVE SUMMARY
According to the latest figures released by the United Kingdom (U.K.) Office for National Statistics (ONS), the U.K. population is predicted to rise by 3.4% between 2011 and 2016, reaching 64.7 million. However, the population of infants aged 0-4 is set to increase just 0.4% to 3.9 million, over this same period. The birth rate in the U.K. has been on a steady decline over the past ten years, falling from 12.76 births per 1000 people in 2000, to 10.65 in 2009. Following a surge to 12.34 in 2010, as of mid-2011 it had resumed a decline, falling slightly to 12.29 (CIA World Factbook, cited by IndexMundi). Even with this falling birth rate, the baby food and milk market continues to grow, increasing by 10.6%, in value terms between 2008 and 2009, and 9.9% between 2009 and 2010. The baby food sector as a whole has actually enjoyed steady growth since 2005, and is forecast to be worth over US$1.16 billion by 2015, which would mark an increase of 79% from the market size in 2005. Increased levels of innovation led by smaller premium players have provided healthy competition in the baby food industry, and forced the big multinational companies to revamp their product offerings. Changing lifestyles, associated with the growing number of women working outside the home and choosing to start a family later in life, are also amongst the factors contributing to how this market is characterized. A number of findings from a recent Mintel report confirm widespread consumer acceptance, from a very early age, of integrating careers and parenthood (compared to the once-prevailing trend of stay-at-home mothers). Product demands and purchase preferences are in line with maintaining such a lifestyle balance. For example, U.K. consumers have an increasing ability and willingness to pay for high-quality products, some of which are sold at a premium. United Kingdom Baby Food Market Year-on-Year % Growth 2005-06 3.8 2006-07 4.5 2007-08 12.3 2008-09 10.6 2009-10 9.9 2011-12 3.9

INSIDE THIS ISSUE

Executive Summary Market Trends Market Sizes Company Shares Brand Shares Distribution Channels New Products 2 3 4 6 8 9 10

Source: Euromonitor, 2011.

Source: Mintel, 2011.

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MARKET TRENDS
Baby foods are subject to the same trends as products consumed by adults. Consumers are seeking premium quality, and convenience-oriented products for their infants. Recent food safety concerns have also accelerated demand for organic baby foods. In February 2010, Heinz recalled thousands of bottles of baby food after discovering they could contain small pieces of plastic. In September 2010, Ellas Kitchen also withdrew some of its baby food pouches following concerns of microbial spoilage in the drinking straws. Having learned of recalls such as these, parents became concerned about the safety of prepared baby food. While such recalls may have encouraged the use of home-made baby food and breast-feeding among some consumers, the British government is also taking steps to increase breast-feeding rates and extend their duration, as a means to potentially combat infant mortality. In November 2010, the government set out proposals encouraging com panies/em plo yers to facilitate breast-feeding at work. Ideas included private areas where women could go to breast-feed or express milk. F o l l o wi n g these r ec om m e n d a t i o ns , manufacturers are developing formulas that are closer in composition to natural breast milk. Heinz added nucleotides (substances that occur naturally in breast milk) to its Farley's Milk formula range, and milk products from Milupa Aptamil have been developed with pre-biotics, which also occur naturally in breast milk and help support natural defences. United Kingdom Infant Feeding Survey Statistics Only 35% of babies were exclusively breast-fed at one-week old, 21% at six-weeks old, 7% at four-months old, and 3% at five-months old. The overall proportion of babies breast-fed at birth was up 7% from the previous survey (conducted in 2000). Just under a quarter of mothers (24%) did not initiate breastfeeding at birth, and used infant formula as the sole source of nutrition. 35% of parents introduced some infant formula on the first day of life. By one week of age, more than half of infants had consumed some infant formula and by six weeks of age, 76% of infants had been given infant formula. By 4-10 weeks, more than half (53%) of infants were entirely fed on infant formula. By 4-6 months, 83% of infants had been given some infant formula, and 68% were entirely fed on infant formula. By 8-10 months, 91% of infants had had some infant milk, and 83% of infants were fed entirely on infant milk. Among mothers who used both breast-feeding and infant milk, the majority (64%) said that infant milk was the predominant method of feeding.

Sources: National Health Service (NHS) Infant Feeding Survey2005 (published in 2007), as cited by Crawley and Westland, Infant Milks in the U.K. (2011). Note: 2007 is the latest year for which finalized survey data is available.

With unemployment rising and some household incomes threatened, preparing baby food at home would seem to make sense economically. According to a TGI survey, 54% of consumers in the U.K. do make baby food from scratch (as cited by Mintel). However, most parents still prefer or revert to prepared baby foods for the sake of convenience and added nutritional benefits. Mintel has found that parents are willing to pay up to 30% more for baby food than other items, even in times of reduced disposable income. According to a Mintel survey, about 80% of mothers with children aged three and under reported using baby formula either exclusively or in combination with breast-feeding. After the first child, the method of combining formula and breast-feeding becomes less prevalent, and the frequency of formula-only feeding increases. It was found that as families get larger, they move towards a preference for formula and baby-food, likely due in part to the parents experience with the product, as well as its convenience and time-saving properties. Compared to other markets, consumers in the U.K. tend to use prepared baby foods longer into a childs life. Danone Baby Nutrition U.K. reports that 1% of British infants are still on baby foods at two years of age, compared, for example, with just 0.1% of French infants. Although global manufacturers dominate the British baby food industry, the market has evolved. Several organic baby-food suppliers are gaining a niche market share.
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MARKET SIZES
Consumers in the U.K. are increasingly discerning when it comes to food products for their young children. British parents tend to have children later in life, which generally means they have more income, and are thus more confident in the product attributes they demand for their infants. Even in recessionary times, U.K. parents are often unwilling to compromise on what they feed their children, and expect manufacturers to meet their needs, especially as their finances tighten. Even with busier lifestyles, quality takes precedence over convenience. Parents in the U.K. feel that keeping a child healthy and ensuring good nutrition are two of their most important responsibilities. There is also a growing concern that the wrong food may actually hinder an infants intellectual development. It is from these concerns that many parents are moving towards packaged baby food, for its convenience and nutritional value. More specifically, health and wellness baby food products have become even more mainstream. Opportunities for premiumization abound, and are reflected in many high-quality health and wellness product innovations. One example is the increased use of omega-3 fatty acids, said to help brain development. Naturalness is a key feature in the baby food market, along with products that are free from additives, preservatives and allergens. Products claiming to be organic or all natural are perceived as healthier, as British consumers believe that processed foods can contain too many chemicals. Despite the higher prices of organic baby foods, they continue to perform extremely well in this market, as their provenance is seen as a guarantee of product quality. U.K. Baby Food Market Sizes by Category - Retail Sales in US$ million and % Growth Categories Baby Food (BF) Health and Wellness BF Fortified/Functional BF Gluten-Free BF Lactose-Free BF Organic BF Other Special Milk Formula 2005 647.7 478.7 286.5 13.1 16.2 161.3 1.6 2006 672.6 515.5 296.0 15.0 17.0 186.2 1.3 2007 702.7 557.6 308.3 17.1 17.8 212.7 1.9 2008 788.8 626.7 350.1 18.9 18.4 236.6 2.8 2009 872.3 697.7 391.9 20.6 19.1 262.8 3.3 2010 948.6 774.1 439.8 22.1 19.7 288.9 3.7 05-10 05-10 % Total % CAGR 46.5 61.7 53.5 69 21.5 79.1 124.8 7.9 10.1 8.9 11.1 4 12.4 17.6

U.K. Baby Food Market Sizes by Category - Forecast Retail Sales in US$ million and % Growth Categories Baby Food (BF) Health and Wellness BF Fortified/Functional BF Gluten-Free BF Lactose-Free BF Organic BF Other Special Milk Formula
Source for both: Euromonitor, 2011.

2011 1,004.9 828.0 469.2 23.2 20.1 311.4 4.1

2012 1,044.0 872.5 491.5 24.1 20.8 332.0 4.2

2013 1,083.4 907.5 507.3 24.6 21.7 349.9 3.9

2014 1,123.6 933.6 518.9 25.0 23.2 363.7 2.8

2015 1,162.4 954.2 528.3 25.1 24.5 374.4 1.8

10-15 % Total 22.5 23.3 20.1 13.9 24.2 29.6 -50.7

10-15 % CAGR 4.1 4.3 3.7 2.6 4.4 5.3 -13.2

Note: CAGR = compound annual growth rate.

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MARKET SIZES (continued)

Follow-on milk is helped by legislation in the European Union* prohibiting the promotion of stage-one formula (intended for infants under 6 months of age), as it may undermine breast-feeding, something that the Directive and associated international recommendations seek to encourage. The Directive states that stage-two and stage-three formula, which may be advertised, should only be given to a child from the ages of six and ten months respectively (Crawley and Westland, 2011). U.K. Baby Food Market Sizes by Type - Retail Sales in US$ million and % Growth Type Dried Baby Food Milk Formula (MF) Standard MF Follow-On MF Toddler MF Special Baby MF Prepared Baby Food Other Baby Food 2005 46.0 325.3 203.9 92.8 10.9 17.8 185.5 63.4 2006 45.4 338.7 210.0 98.6 11.8 18.3 190.3 69.7 2007 44.5 354.6 218.0 104.3 12.8 19.6 197.8 75.9 2008 46.1 401.0 247.4 117.8 14.7 21.1 226.2 81.9 2009 48.7 447.8 270.0 126.4 29.1 22.3 247.1 91.6 2010 51.0 500.4 289.3 134.1 53.7 23.3 267.6 99.2 05-10 05-10 % Total % CAGR 8.2 9.0 7.3 7.6 37.5 5.5 7.6 9.4 48.0 53.8 41.9 44.6 392.3 30.9 44.2 56.4

U.K. Baby Food Market Sizes by Type - Forecast Retail Sales in US$ million and % Growth Type Dried Baby Food Milk Formula (MF) Standard MF Follow-On MF Toddler MF Special Baby MF Prepared Baby Food Other Baby Food
Source for both: Euromonitor, 2011.

2011 52.3 525.7 302.0 139.4 60.5 23.8 281.3 103.6

2012 53.1 541.0 308.4 142.4 66.1 24.0 287.4 105.7

2013 53.3 548.2 311.0 143.3 69.7 24.2 289.1 106.2

2014 53.1 550.5 312.2 143.0 71.2 24.0 289.5 105.8

2015 52.6 549.8 312.1 142.2 71.7 23.8 289.8 104.9

10-15 % Total 1.7 1.9 1.5 1.2 5.9 0.5 1.6 1.1

10-15 % CAGR 8.6 9.9 7.9 6.0 33.4 2.4 8.3 5.8

Note: CAGR = compound annual growth rate.

Source: Shutterstock.

*Directive 2006/141/EC - Infant Formulae and Follow-On Formulae: http://www.fsai.ie/uploadedFiles/Dir2006_141.pdf.

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COMPANY SHARES
Retail Sales Value % Breakdown 2005 BABY FOOD Groupe Danone Pfizer Inc Heinz Co, HJ Hipp GmbH & Co Vertrieb KG Organix Brands Plc Ella's Kitchen Ltd Healthy Kids Ltd Plum Baby Ltd Royal Numico NV Alliance Boots Plc Annabel Karmel Group Holdings Ltd Mead Johnson Nutrition Co Vitacare Ltd Bentom Foods Ltd Wyeth Bristol-Myers Squibb Co Boots Co Plc, The American Home Products Corp Private Label Others DRIED BABY FOOD Heinz Co, HJ Groupe Danone Hipp GmbH & Co Vertrieb KG Organix Brands Plc Alliance Boots Plc Royal Numico NV Boots Co Plc, The Private Label Others MILK FORMULA Groupe Danone Pfizer Inc Hipp GmbH & Co Vertrieb KG Heinz Co, HJ Royal Numico NV Mead Johnson Nutrition Co Vitacare Ltd Wyeth Bristol-Myers Squibb Co American Home Products Corp Private Label Others
Source: Euromonitor, 2011.

Company

2006 19.7 11.0 4.0 0.7 31.5 1.3 0.2 0.1 22.5 0.5 1.0 7.6 52.4 8.0 6.0 2.0 24.4 1.6 5.6 5.0 5.4 41.6 0.3 42.9 0.9 0.3 3.5

2007 30.8 17.0 12.8 4.4 0.4 1.1 0.9 1.0 0.6 0.2 0.2 22.1 0.5 0.7 7.4 50.8 24.2 10.7 6.5 2.0 1.8 4.0 41.7 4.9 4.3 1.7 0.3 41.8 0.9 0.2 4.0

2008 32.7 15.1 13.1 4.7 1.0 0.7 1.2 0.9 0.9 0.7 0.2 0.2 21.2 0.5 0.6 6.5 49.5 22.0 11.7 7.1 2.0 1.8 5.8 45.5 5.3 2.6 1.8 0.3 39.9 0.9 0.1 3.6

2009 35.0 19.0 13.9 12.6 5.0 1.9 1.7 1.2 1.0 1.0 0.9 0.4 0.2 0.1 0.5 5.5 46.5 22.6 11.4 8.6 2.1 1.9 6.9 49.2 35.4 5.1 2.2 1.9 0.8 0.3 0.1 5.0

20.2 10.2 3.7 0.2 30.7 0.2 0.1 23.0 0.5 1.9 1.2 8.0 52.0 4.1 4.2 30.7 2.7 1.7 4.6 5.1 5.5 40.0 0.3 43.9 1.0 0.3 3.9

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COMPANY SHARES (continued)

Retail Sales Value % Breakdown 2005 PREPARED BABY FOOD Hipp GmbH & Co Vertrieb KG Heinz Co, HJ Groupe Danone Organix Brands Plc Ella's Kitchen Ltd Healthy Kids Ltd Plum Baby Ltd Annabel Karmel Group Holdings Ltd Alliance Boots Plc Royal Numico NV Boots Co Plc, The Private Label Others OTHER BABY FOOD Heinz Co, HJ Organix Brands Plc Groupe Danone Hipp GmbH & Co Vertrieb KG Alliance Boots Plc Bentom Foods Ltd Royal Numico NV Boots Co Plc, The Private Label Others HEALTH AND WELLNESS BABY FOOD Hipp GmbH & Co Vertrieb KG Organix Brands Plc Ella's Kitchen Ltd Heinz Co, HJ Pfizer Inc Plum Baby Ltd Boots Co Plc, The Vitagermine SA Mead Johnson Nutrition Co Groupe Danone Vitacare Ltd Wyeth Bristol-Myers Squibb Co Royal Numico NV Others 22.0 30.9 5.1 0.7 17.4 4.7 1.4 17.8 41.4 18.0 6.8 0.9 21.7 3.2 4.8 3.3 2006 23.6 29.2 5.2 2.3 3.1 18.7 1.0 16.9 41.7 18.6 7.7 2.0 1.0 22.3 3.8 3.0 2007 27.3 23.5 17.3 5.7 1.4 3.7 1.9 2.2 0.7 16.4 39.8 20.0 19.2 13.1 1.7 1.7 2.8 1.6 2008 26.8 21.5 17.1 6.7 3.2 2.2 3.9 2.3 2.0 0.6 13.7 39.6 20.6 18.9 14.5 1.6 1.6 2.3 0.9 2009 26.1 20.1 17.9 6.4 6.3 5.8 4.0 2.9 2.5 0.5 7.6 37.5 24.0 18.4 13.3 1.7 1.3 2.0 1.8 2010* 13.7 4.8 1.8 1.8 0.6 0.2 2.0 0.5 0.3 74.2 14.3 5.0 0.2 1.9 0.3 1.1 0.6 0.2 1.8 0.5 0.3 73.8 16.0 5.3 0.4 1.8 0.6 0.8 0.6 0.3 0.2 1.9 0.5 71.6 16.3 5.5 0.9 1.8 0.8 0.7 0.6 0.3 0.2 1.7 0.5 70.8 15.6 5.5 2.2 1.7 1.6 0.9 0.8 0.5 0.4 0.3 0.2 70.3 14.5 5.8 3.5 1.6 1.5 1.1 0.9 0.5 0.4 0.3 0.1 69.9

Company

Source: Euromonitor, 2011. *Note: 2010 company share data is not yet available for other baby food categories.

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BRAND SHARES

Brand Cow & Gate SMA Hipp Aptamil Heinz Farley's Organix Ella's Kitchen Little Dish Plum Baby Nurture Aptamil Boots Annabel Karmel's Eat Fussy Enfamil Milupa Nanny Goat Milk Mums 4 SMA Enfamil Private label Others
Source: Euromonitor, 2011.

Company Groupe Danone Pfizer Inc Hipp GmbH & Co Vertrieb KG Groupe Danone Heinz Co, HJ Heinz Co, HJ Organix Brands Plc Ella's Kitchen Ltd Healthy Kids Ltd Plum Baby Ltd Heinz Co, HJ Royal Numico NV Alliance Boots Plc Annabel Karmel Group Holdings Ltd Mead Johnson Nutrition Co Groupe Danone Vitacare Ltd Bentom Foods Ltd Wyeth Bristol-Myers Squibb Co Private Label Others

Retail Sales Value % Breakdown 2005 10.2 10.7 9.5 3.7 0.2 0.9 0.2 0.1 23.0 0.4 1.2 8.1 2006 11.0 10.1 9.6 4.0 0.7 0.9 1.3 0.2 0.1 22.5 0.4 1.0 7.6 2007 22.3 12.8 8.1 8.4 8.7 4.4 0.4 1.1 0.9 1.0 0.6 0.4 0.2 0.2 22.1 0.4 0.7 7.5 2008 22.2 13.1 10.3 7.9 5.8 4.7 1.0 0.7 1.2 1.4 0.9 0.9 0.7 0.2 0.2 0.2 21.2 0.4 0.6 6.6 2009 23.0 19.0 12.6 11.8 7.6 5.2 5.0 1.9 1.7 1.2 1.2 1.0 1.0 0.9 0.3 0.2 0.2 0.1 0.5 5.6

Two of the leading companies in the United Kingdoms baby food sector are Groupe Danone and the H.J. Heinz Company. Groupe Danone operates through four business divisions: fresh dairy products, waters, baby nutrition, and medical nutrition. The baby nutrition division covers two distinct segments: infant formulas and solid food. The infant formula market has been driven by the emergence of stage-two (for children aged 6-12 months) and stage-three products (12-18 months). In the solid food segment, the group offers cereals and prepared foods for toddlers aged 18-36 months. H.J. Heinz Company (Heinz) is a producer and marketer of branded processed food products like ketchup, condiments, sauces, meals, soups, snacks and infant foods. The company's major brands include Heinz, Ore-Ida, Boston Market, and Plasmon.

Source: Mintel, 2011.

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DISTRIBUTION CHANNELS
The United Kingdom grocery market is highly diverse with a wide range of formats including convenience stores, hypermarkets, warehouse clubs and virtual stores. Planning restrictions, which have impeded the development of large, out-of-town stores, have prompted retailers to rethink their centre-town store strategies, resulting in a multitude of supermarket and convenience store formats. The development of hypermarkets and superstores has largely been driven by the country's leading multinationals, namely Tesco, Sainsbury's, Wal-Mart and Morrisons. The British grocery market is becoming increasingly concentrated, with the top five grocers accounting for around 60% of total consumer spending on groceries. Tesco is by far the dominant player.

Top Five Grocery Retailers in the United Kingdom Company Tesco Morrisons Sainsbury Wal-Mart Co-operative Group
Source: Planet Retail, 2011.

Number of Outlets, 2010 2,715 439 934 380 3,657

Source: Mintel, 2011

United Kingdom Retail Baby Food Sales by Distribution Format: % Analysis Format Store-Based Retailing Grocery Retailers Supermarkets/Hypermarkets Discounters Small Grocery Retailers Convenience Stores Independent Small Grocers Non-Grocery Retailers Health and Beauty Retailers Non-Store Retailing Internet Retailing Total
Source: Euromonitor, 2011.

2005 96.5 75.9 74.5 0.3 1.1 0.6 0.5 20.6 20.6 3.5 3.5 100.0

2006 96.2 75.7 74.2 0.3 1.2 0.7 0.5 20.5 20.5 3.8 3.8 100.0

2007 95.5 75.15 73.6 0.3 1.25 0.75 0.5 20.35 20.35 4.5 4.5 100.0

2008 94.9 74.7 73.1 0.3 1.3 0.8 0.5 20.2 20.2 5.1 5.1 100.0

2009 95.1 74.9 73.4 0.2 1.3 0.8 0.5 20.2 20.2 4.9 4.9 100.0

2010 94.9 75.05 73.7 0.2 1.15 0.7 0.45 19.85 19.85 5.1 5.1 100.0

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NEW PRODUCTS
In contrast to the wider organic market, which has been negatively affected by budgetary restraint following the economic recession, organic baby food is enjoying strong sales value growth in the United Kingdom. According to data from the U.K. Soil Association, the organic baby food sector actually grew by 10.3% in 2010. Organic products accounted for just over a quarter (25.3%) of all new baby food product introductions in 2010 according to Mintel, which is dramatically larger than the organic share of new dairy products (3%), fruit, vegetables and salads (2.3%), and beverages (0.4%) launched on the British market in the same year. This seems to indicate that British parents are more inclined to spend more on high-quality products for their infants than on products for themselves. The bulk of new baby food product introductions came from smaller players in 2010, as consumers continued to demand more innovative, premium offerings. The smaller brands, including Ellas Kitchen, Plum Baby, and Peter Rabbit Organics, are also more likely to commit to exclusively using organic ingredients, which is an advantage considering the demand for organic baby food. Major brands, including Danone and Heinz, released revamped package designs and new launches to regain momentum. New Baby Food Product Launches in the United Kingdom by Company, 2010 Company Organix Brands Plum Baby Heinz Ella's Kitchen (Brands) Limited Cow & Gate Hipp Peter Rabbit Organics Lightbody Ventures Little Dish Annabel Karmel Total Sample # of New Products 20 17 16 15 12 8 6 6 6 3 117 New Baby Food Product Launches in the United Kingdom by Sub-Category, 2010 Sub-Category Baby Savoury Meals & Dishes Baby Fruit Products, Desserts and Yogurts Baby Biscuits & Rusks Other Baby Food Baby Snacks Baby Juices & Drinks Baby Cereals Growing Up Milk (1-4 years) Baby Formula (0-6 months) Total Sample # of New Products 36 29 18 11 8 5 5 3 2 117

New Baby Food Product Launches in the United Kingdom by Claim, 2010 Claim Babies & Toddlers (0-4) No Additives/Preservatives Organic Low/No/Reduced Sugar Low/No/Reduced Allergen Gluten-Free Low/No/Reduced Sodium Vegetarian Ethical - Environmentally Friendly Package Ease of Use Other Total Sample # of Variants 115 91 66 55 52 45 42 36 29 21 84 117

Number of New Baby Food Products in the United Kingdom by Launch Type, 2010
New Formulation (3) New Packaging (19) New Product (48) New Variety / Range Extension (47)

Source for all: Mintel Global New Products Database, 2011. PAGE 10

The Government of Canada has prepared this report based on primary and secondary sources of information. Although every effort has been made to ensure that the information is accurate, Agriculture and Agri-Food Canada assumes no liability for any actions taken based on the information contained herein.

Baby Food Trends in the United Kingdom Her Majesty the Queen in Right of Canada, represented by the Minister of Agriculture and Agri-Food Canada (2012). ISSN 1920-6615 AAFC No. 11678E Photo Credits All photographs reproduced in this publication are used by permission of the rights holders. All images, unless otherwise noted, are copyright Her Majesty the Queen in Right of Canada. For additional copies of this publication or to request an alternate format, please contact: Agriculture and Agri-Food Canada 1341 Baseline Road, Tower 5, 4th floor Ottawa, ON Canada K1A 0C5 E-mail: infoservice@agr.gc.ca Aussi disponible en franais sous le titre : Tendances de consommation des aliments pour bb au Royaume-Uni