Managing through uncertainty – UK food & beverage in transition

The UK food and beverage industry suffered during the recession and the global malaise that followed. And while measured growth again appears to be the norm in many markets, challenges persist. High commodity prices continue to impact profitability. Consumer spending remains sluggish and limits the ability of food and beverage (F&B) companies to raise their prices.

Not surprisingly, privately-held businesses in the F&B sector are less confident than those in other sectors about their economic prospects. But there is good news: optimism is increasing. Emerging consumer trends offer new revenue opportunities, and a large balance of F&B companies anticipate revenue growth and improved profits over the coming year.

Top issues in the coming 12 months

Growing globally: Globalisation presents enormous opportunities for the F&B sector. An increasing number of UK-centric companies are seeking to invest in their export capacity taking advantage of growth opportunities by expanding into markets such as South Asia.

Mergers, acquisitions and divestitures: F&B companies are once again looking to grow through acquisition. Coming out of the economic downturn, they have seen a number of attractive acquisition opportunities, creating a sharp upswing in M&A activity.

Productivity improvement and operating – cost reductions: Rising commodity costs – coupled with customer resistance to price increases make productivity improvements and cost control vital to success. The ability to pass on cost increases to retailers is still a major issue for many producers and manufacturers, the UK’s labour costs are above other countries and businesses operate in a highly-regulated environment eg increase in minimum wage, constraints imposed by EU regulations such as the Agency Workers Directive. The UK is forecast to recruit high-skill level roles to approximately 50% of current levels, which is an issue for the industry in terms of being able to afford talent. To address these issues the Food and Drink Skills Council has launched a skills action plan with the aim of creating 50,000 apprenticeship training opportunities in companies within agriculture and primary production, food and drink manufacturing and processing, food retail and hospitality and catering.

Innovation and quality: Consumers want innovation, improved quality, and lower prices – a trio of demands that small, midmarket, and even larger F&B companies often find difficult to address.

Size matters more than ever in the F&B sector; small and midmarket companies are increasingly dependent on suppliers and channel partners for innovation, while larger companies enjoy the financial scale necessary for new product development and technology investments.

Working capital management: The cost increases facing the sector mean that even if everything else remained the same, the working capital bill that requires funding has grown. However the reality is that in the F&B sector, the pressure continues; flexibility around payments has decreased as cash becomes as critical for suppliers and producers alike. Retailers aren’t keen to pay any earlier so the importance of being efficient and effective across logistics, production, supply chain and finance operations is paramount.

Regulatory compliance: F&B companies face an increasingly complex set of regulations around the world, along with emerging sustainability standards.

Ones to watch – there are a number of success stories within the F&B sectors in the Solent region

Natures Way Foods (No. 22)

Established in 1994 near Chichester, Natures Way Foods is a leading distributor of bagged salads and fruit products to major retail and food services clients throughout the UK. The company which has a turnover of over £112 million and employs over 480 people, has recently invested in a new factory spanning 7,500 sq m of production space on the former site of RAF Merston.

Natures Way website

J Chandler & Co (Buckfast) (No. 70)

With a healthy turnover of over £37m Buckfast Tonic wine, which was first made by the Benedictine Monks at Buckfast Abbey in the 1890s is still manufactured by using many of the same ingredients, based on a traditional recipe from France. Whilst the monks continue to make the Tonic wine, the distribution is carried out by “Buckfast“ who adopted a reserved promotional approach resulting in the widespread appreciation of the product nationally and internationally.

Buckfast website

Coastline Produce (No. 147)

Formed in 2001, Coastline stock and distribute fresh fruit and vegetables, dry, chilled, frozen, exotic foods and non-foods providing a one-stop solution to the catering industry stretching throughout the south of England. The company which has headquarters in Christchurch has a turnover close to £20m and employs over 140 staff.

Coastline Produce website

For more information on the F&B industry in this region and throughout the UK, contact:

Amanda James

023-8038-1168

amanda.j.james@uk.gt.com

Grant Thornton website