The External Business Environment (Edexcel A Level Business): Revision Note

Political and legal environment

The political environment

• Government policy has had a significant indirect impact on the UK confectionery and biscuits markets over the last decade

The legal environment

• Over the last decade, there has been a tightening of food labelling and consumer protection laws

• Confectionery and biscuit businesses must now:

  • clearly display allergen information

  • comply with stricter food safety regulations

  • ensure marketing claims are accurate and not misleading

• Confectionery and biscuits that can be reformulated to fall outside HFSS rules have gained a legal advantage

  • Examples include lower-sugar or higher-fibre biscuits,

• Legal changes following Brexit have also increased regulatory complexity, as UK businesses must now comply with UK-specific rules rather than EU-wide systems

Impact on small businesses

• Political and legal changes tend to have a greater impact on small businesses than on large multinationals.

• For small confectionery and biscuit businesses:

  • Compliance costs are proportionally higher

  • Reformulating products is more expensive and risky

  • Legal advice and expertise are harder to afford

• Brexit-related paperwork and rising compliance costs have been especially challenging for small firms that:

  • rely on imported ingredients

  • export small volumes to the EU

  • operate with tight profit margins

• However, there are also opportunities for small businesses:

  • Premium and artisanal products are less reliant on price promotions

  • Ethical and transparent labelling can build trust

  • Small firms can adapt recipes and messaging more quickly than large firms

Economic environment

• The confectionery market has been strongly influenced by changes in the UK economic environment, particularly since 2020

  • Key economic factors include high inflation, falling real incomes and rising production costs

• Inflation peaked in 2022–2023, increasing the cost of essential ingredients such as cocoa, sugar, milk and energy

  • Cocoa prices rose especially sharply due to poor harvests and supply shortages, pushing up production costs for chocolate manufacturers

• Biscuits, which are often bought as part of regular household shopping, have been more directly affected by economic pressure

  • This has led to a greater focus on value for money, increased demand for own-label biscuits, and falling sales volumes, even where total spending has risen

• Despite these pressures, demand for confectionery and biscuits has remained relatively resilient

  • Rather than stopping purchases altogether, consumers increasingly see them as affordable treats

  • Many have responded by

    • buying smaller pack sizes or multipacks

    • switching brands

    • waiting for promotions

    • reducing how often they buy

  • Premium biscuits have continued to grow, mainly among higher-income consumers who are less affected by rising living costs

Impact on small businesses

• Economic changes tend to affect small confectionery and biscuit businesses more severely than large multinationals

  • Rising ingredient and energy costs are harder to absorb

  • They have less bargaining power with suppliers

  • Cash flow becomes more unpredictable during periods of economic instability

• Unlike large firms, small businesses often cannot:

  • negotiate long-term fixed-price contracts

  • spread cost increases across a wide product range

  • rely on international sales to offset UK downturns

• As a result, small businesses may be forced to:

  • increase prices more sharply

  • reduce product ranges

  • limit growth plans or investment

• However, there are also opportunities for small businesses in difficult economic conditions

  • Some consumers reduce spending on eating out and choose premium treats at home instead

    • This can benefit artisan confectionery and biscuit producers

  • Small firms that clearly communicate quality, ethics or local production may continue to attract customers despite higher prices

Social, ethical and environmental environment

The social environment

• Social changes over the last decade have had a strong influence on the UK confectionery market, particularly changes in consumer attitudes to health, lifestyle and consumption habits

The ethical and environmental environment and the confectionery market

• Ethical and environmental concerns have become increasingly important in the confectionery market, particularly around cocoa sourcing and labour practices

  • Over the last decade, awareness has grown of child labour, low farmer incomes and deforestation linked to cocoa production

  • As a result, consumers are more interested in chocolate that is ethically sourced, traceable and backed by clear sustainability commitments

• Large brands have responded through ethical sub-brands and public sustainability pledges

  • However, challenger brands such as Tony’s Chocolonely have gained attention by making ethics central to their identity rather than an add-on

• In the biscuit market, ethical and environmental concerns focus more on ingredients and packaging than global supply chains

  • Key issues include the use of palm oil, the sustainability of wheat and sugar production, and excessive packaging and food waste

  • Consumers are increasingly attracted to biscuits made with sustainably sourced ingredients and recyclable or minimal packaging

• Across both markets, environmental pressure has increased costs, as businesses invest in recyclable packaging, improved energy efficiency and reduced food waste.

Impact on small businesses

• Social, ethical and environmental changes create both challenges and opportunities for small confectionery and biscuit businesses

  • Ethical sourcing and sustainable packaging often involve higher costs

  • Meeting consumer expectations can be expensive and complex

  • Certification schemes (e.g. Fairtrade) can be costly and time-consuming

• However, small businesses often benefit because:

  • Ethical and environmental values can be built into the brand from the start

  • Consumers may trust small, transparent businesses more

  • Differentiation through ethics can justify premium pricing

• Small businesses that clearly communicate social and environmental values are often better placed to attract loyal customers, even if their products are more expensive

Technological environment

• Advances in manufacturing and processing technology have allowed large confectionery and biscuit producers to automate production

  • This helps them reduce unit costs, maintain consistent quality, and launch new products more quickly

  • Large firms; competitive positions have strengthened, especially in mass market chocolate and biscuits

• Developments in food science have supported product innovation

  • Examples include new flavours and textures, improved shelf life, and the creation of smaller or portion-controlled products

• Digital technology has transformed marketing and consumer insight

  • Social media platforms such as TikTok, Instagram and YouTube are now key tools for product launches and brand building, particularly among younger consumers

  • Businesses increasingly use influencer marketing, short-form video and targeted online advertising, as well as sales data and social media trends, to identify changing tastes and refine products

• E-commerce has grown alongside online grocery shopping

  • Brands now compete digitally as well as on shelves, and packaging must be suitable for delivery

• Technology has also improved logistics, making it easier to manage stock, forecast demand and respond quickly to changes in consumer behaviour.

Impact on small businesses

• Challenges for small businesses include:

  • high costs of investing in new machinery or automation

  • limited access to advanced food technology

  • difficulty matching the production efficiency of large firms

  • As a result, small businesses often have higher unit costs, making it harder to compete on price

• However, technology also creates important opportunities for small businesses to

  • sell directly to consumers through websites and online marketplaces

  • market products cheaply through social media

  • build strong brand identities without large advertising budgets

• Small firms can also use technology to:

  • manage orders and stock more efficiently

  • test new products in small batches

  • reach national or international customers without physical stores