Simon Young of Montpelier accountants says rising food commodity prices and increased taxes on consumers could leave a sour taste in the mouths of UK food manufacturers this year.
As the cost of putting food on the table rises faster in the UK than in most of Europe – figures from the OECD put UK food inflation at 6.3 per cent, compared with 0.1 per cent in France and 0.3 per cent in Ireland – the agility of food manufacturers to adapt to the vagaries of consumer demands have never been more essential to their survival.
The UK’s food manufacturers have proved their resilience so far during the recession: the sector slowed in growth the least out of all manufacturing industries, and it retains the permanent safety net of the simple fact that everyone has to eat. Nevertheless, the industry’s future depends on its ability to adapt to a number of drivers that will undoubtedly have an impact on its future.
Globalisation and market power are driving some production overseas with the aim of reducing costs – you only have to look at what happened to UK chocolate production after Kraft’s takeover of Cadbury for a notable blue-chip example.
Regulation, which already pulls few punches in food manufacturing, looks set to escalate as the threat of climate change intensifies. Manufacturers whose processing techniques are heavy on the environment might do well to start thinking seriously about ways of reducing emissions.
As an industry led almost completely by consumer demand, food manufacturers should be alert to retail trends in tough economic times. Feeling the pinch and budgeting where they can is likely to increase customer demand for ‘basics’ ranges, eating in rather than out and a rise in sales of modest luxuries.
As people inevitably tighten their belts many will forgo splashing out on big-ticket products in favour of inexpensive ‘treats’. One market likely to continue to reap the benefits of this trend is the chocolate market, where innovations will be focused on high-end premium products aimed at tempting hard-pressed consumers into forking out for a taste of luxury they can still afford.
Montpelier Chartered Accountants has 12 offices across the UK and specialises in advising and supporting the food sector.