The last few years have seen their fair share of challenges for the food manufacturing and wider hospitality industry: Brexit, Covid and, latterly, geopolitical instability. And yet, despite all this, British firms have proved resilient and look to be rebounding despite adverse conditions. A recent report from BDO, an accountancy and business advisory firm, delves into the issue in greater detail – so we thought we’d produce a handy summary of its findings here.
Those working within the UK’s food manufacturing industry certainly have cause to be optimistic. Food and drink represent the UK’s largest manufacturing industry, with a turnover of £112bn in 2021 and a total export value of £20bn in the same year. Further to this, nearly half a million people are employed directly by food manufactures and a further 4.2m are employed elsewhere in the supply chain.
Alongside this, the industry continues to focus on automation, digitalisation, and new product development, driving innovation and jobs in the sector. Due to its forward-looking nature, the food manufacturing industry was – by and large – able to cope with the pressures caused by the Covid-19 pandemic.
Indeed, some manufacturers actually benefitted from the disruption, as consumers’ habits changed and more people allocated more of their time and budget to food and home cooking. The BDO report states that the post-Covid-19-rebound period actually boosted profits for 49% of those surveyed – a figure backed up by our own experience of working with food manufactures during the same period.
Covid-19 – due to lockdown measures, increased risk of contamination, and illness among workers – lead to a myriad of supply-chain issues for every sector, but especially the food and drink industry. Perishable goods mixed with uncertainty of delivery does not make for a favourable equation. Because of the perishable nature of many food and drink goods, however, it could be argued that the industry was in a better position to adapt to the challenges caused by Covid-disrupted supply chains than most.
Brexit has once again reared its ugly head and presents the more nuanced challenge of staffing issues. A large proportion of the supply chain workers came from EU backgrounds, meaning they no longer have the same rights to work here as they previously did. This, coupled with adverse Covid conditions, has led many lorry drivers, factory workers, and shopping pickers to simply move back home to be with their families – it just isn’t worth it to work here anymore.
The BDO survey backs this up – although from a different angle – with 61% of respondents saying they had difficulties in recruitment, mainly within software and IT, however.
And, as if things weren’t already hard enough, Putin commenced his invasion of Ukraine in late February 2022. Both Russia and Ukraine are major suppliers of various cooking oils, and Ukraine itself is a key supplier of grain and wheat to the rest of the world. Because of this ongoing conflict, supplies of all of these products will become harder to source, driving up prices for manufacturers and consumers alike.
Despite the conditions seemingly set against them, the overwhelming majority (78%) of UK food manufacturers involved in the BDO survey state they are positive about their business’ prospects over the coming year.
Further to this, 55% have seen orders increase in the post-Covid period, 50% have seen profit margins increase, and 51% say they expect to see a profitability increase over the next 12 months.
Geographical expansion features as a key part of the growth plan for many of the businesses surveyed; 31% expect growth in non-EU markets, while 29% expect domestic growth, and another 28% expect growth from new markets within the EU.
Although the majority feel positive about the future of their business, around 32% of respondents reported seeking additional finance, while 23% were reducing their profit expectations.
Rising rates of inflation are the chief concern for many of these businesses, with the Bank of England predicting rates of up to 11% by the end of the year – some of the worst in Europe.
Yet, during the Covid-19 pandemic, many consumers experienced huge contractions in their incomes either due to lost shifts, furlough, or losing their jobs entirely. And despite this, over 50% of food manufacturers still saw positive gains either from a revenue, orders, or profitability standpoint.
The UK food manufacturing industry has proven its grit over the last three years, despite all the world has had to throw at it. Pre-Covid spending habits seem – for now – to have returned with zeal, and many food manufactures seem confident this trend will continue.
Although being realistic about the state of the world is necessary – a healthy dose of optimism also goes a long way. The fundamentals of the industry remain – now we’ll see if the players can keep the ball rolling.
Seven out of ten leaders polled in our April survey for this report felt
positive about the industry. As of June, the reality is companies continue
to face economic headwinds after surviving Brexit and COVID-19. It
has been a tough few years for Food and Drink — and things are just as
challenging, but businesses remain resilient in the face of adversity.
