Amongst new free trade agreements, a recovering economy and a growth in omnichannel retailing, opportunities for Australian businesses to export to the UK are only growing!

A Close-Knit Relationship with Australia

The UK is a generally open economy with a business environment conducive to trade, scoring 8th globally on the Ease of Doing Business Index and maintaining 28 free trade agreements alongside 100 bilateral investment treaties. As a former British colony, the trading relationship between Australia and the UK dates back many centuries. And it’s still strong today, with the UK maintaining its position as Australia’s fifth largest two-way trading partner.

This relationship has only been strengthened in recent months, with the two countries embarking upon a new era of free trade. With the Australia-UK Free Trade Agreement (A-UKFTA) signed in December 2021, there’s never been a better time to export! This agreement has eliminated tariffs on over 99% of Australian exports to the UK, maximising potential profits for exporters. 

So, what does this agreement mean for food and agribusinesses? Since the UK joined the European Union in the 1970s, the UK market has been largely closed off for Australian agribusinesses. The A-UKFTA reverses this trend, providing market access not seen in decades. Notable outcomes include the elimination of tariffs on Australian wine, food supplements, honey, olive oil and most seafoods, fresh produce and processed foods. Strong results have also been achieved with duty-free transitional quotas for beef, lamb and dairy products, and eventual removal of tariffs on these products. The A-UKFTA will also see streamlined customs processes to further minimise costs and enhance clearance efficiency for exporters, thereby providing more certainty within supply chains.

COVID-19 Recovery on the Rise

Diving into the UK’s economic performance, we can see a steady GDP of US$2.64 trillion, broken down per capita to US$39,229. This translates into relatively high income levels, indicating that the UK will remain an attractive consumer market up to at least 2040. 

When discussing Britain’s economy, the impacts of COVID-19 can’t be ignored. COVID-19 hit the UK economy hard as GDP declined by 9.9% in 2020, dropping below levels experienced during the Depression. In the short-term, this led to reduced discretionary spending and tightened budgets. However, consumer sentiment and intent to spend are gradually rising as the UK’s GDP now sits 0.8% above pre-pandemic levels.

Key Purchasing Factors

With a population of over 68 million, the UK’s consumer base is of considerable size, especially when compared to Australia. And it’s only set to grow, with 6.7% growth projected to 2040. Among this consumer base, COVID-19 saw a considerable shift in priorities. 65% of shoppers reduced their spending on non-essential goods, while 37% have sought lower priced alternatives. Brand loyalty is also dipping below historical levels, with 72% of consumers choosing to switch brands in pursuit of better value. 

Other key purchasing factors include product and brand availability as well as convenience, which is a key driver behind online shopping purchases. Consumers also value personalisation, so brands that go above and beyond to make consumers feel ‘special’ will feature heavily in their consideration set, and will likely be recommended to others. An important note for exporters to consider is the increased nationalistic sentiments brought about by Brexit, leading British consumers to place greater emphasis on supporting local businesses.

Health & Sustainability as Top Concerns

The health and sustainability trend has rapidly swept across the UK in recent years, considerably changing consumer behaviour. In 2020 alone, UK shoppers spent an extra 1.4 million pounds a week on organic produce, enabling the organic market to see its highest growth rate in 15 years. The health trend is especially pronounced among health-conscious younger generations, who are also driving increasing demand for meat-free and other free-from products. Within these categories, Australian-made foods are favoured and considered to be of high quality.

As British consumers become more aware of the social and environmental consequences of their purchasing decisions, responsible consumption has risen. Consumers tend to seek out products and brands that resonate with their personal values, leading to increased purchases of eco-friendly and sustainable products, such as those packaged in biodegradable materials. This is especially true when purchasing food and beverages, as British consumers are most likely to shop sustainably for categories they deem essential.

Alcohol and Convenience Foods Set for Growth

With a combined value of US$218 billion, the UK’s food and beverage industry is no small market. And it’s only growing, with the industry set to reach a US$261 billion value by 2026. When we zoom in on the fastest growing categories, we can see that beer and cider, wine, spirits and meat substitutes are poised for significant growth to 2026, with annual growth rates exceeding 4% in these categories. Other notable growth categories include canned food, frozen food and savoury snacks, indicating a wider shift towards more convenient food options.

Growth in Omnichannel Retailing

COVID-19 dramatically changed the UK’s retail landscape. Grocery stores saw record sales hikes, and convenience stores also experienced accelerated growth as consumers sought to shop close to home. Part of this change also saw a growth in omnichannel retailing among supermarkets, a change which is expected to remain after COVID-19. This came in the form of major outlets like Tesco and Asda optimising their own ecommerce platforms, while also partnering with e-commerce retailers, such as the collaboration between Amazon Prime and Morrisons. Discount stores including Aldi and Lidl are also ramping up the pressure on traditional supermarkets by offering superior value to consumers.

Innovation was also evident on the foodservice side, with restaurants adapting business models to embrace home delivery through UberEats and Deliveroo, and offering new products such as Dishoom’s DIY cocktail kits. Moving away from COVID-19, major trends into the future will include a shift towards using local produce as Brexit sees tariffs for certain exporters rise, while menus will provide a greater variety of vegan, vegetarian, gluten-free and organic items in line with consumer trends. International cuisines are also set to spike in popularity, with most British consumers rating international foods as their go-to cuisine.

Potential Roadblocks on the Path to Export Success

Despite the new opportunities emerging for Australian exporters to the UK, some challenges remain. The UK is already a highly consolidated market where locally produced products can dominate. In fact, food and soft drink manufacturing is the UK’s largest manufacturing sector. Due to the vastness of the sector, key supply chain partners including producers, wholesalers and supermarkets have already developed strong established relationships, which creates difficulty for exporters seeking to disrupt the supply chain by introducing their own new offerings. 

Plus, consumers may be weary of imported food due to the environmental impacts created throughout the export process, with a recent Deloitte survey revealing that 45% of UK consumers have intentionally purchased more locally produced goods for sustainability reasons. These factors may not provide much growing room for exporters in certain categories, and while these roadblocks shouldn’t overshadow the opportunities available, they are important for any potential exporter to consider.

Wrap Up

The new Australia-United Kingdom Free Trade Agreement has certainly breathed new life into Australia’s trading relationship with the UK. When observing the elimination of tariffs for dozens of food and beverage categories, an increasingly optimistic consumer base and a largely positive perception of Australian-made products, it’s not hard to see why there’s never been a better time to start your export journey to the UK!