Rising business confidence, product innovation and investment in automation is boosting the profile of the UK’s food & drink sector, according to a new report published this week by accountancy and business advisory firm, BDO LLP.
BDO’s Food & Drink Report 2016, in association with the Institution of Mechanical Engineers, found that 79% of those surveyed are positive about the future of the industry, with 86% of firms expecting revenue growth of up to 20% in the next year.
Pricing pressures, the volatility of raw materials costs, and skills shortages are major challenges for manufacturers.
However through product innovation and investment, and with 70% of surveyed firms having arranged fixed price agreements with energy suppliers, the sector has become increasingly efficient and smart in dealing with market pressures.
Nearly two thirds of firms surveyed said that new product development would be a major source of growth, with 60% and 43% saying access to new UK markets and export markets respectively will be increasingly important part of their growth strategies.
Organic growth is the priority as, for a sector that is usually a vibrant source of mergers and acquisitions, only 15% expect growth to come from transactional activity.
Automation has become an important issue on the boardroom agenda, with more than half of the food and drink firms questioned by BDO and IMechE saying they are increasing investment in this area.
According to the report, some companies have been slow to adopt automation on production lines, due to the downtime and disruption it could cause in a busy factory.
However, the realities of a modern business needing to compete on quality and cost, combined with the impact of the introduction of the National Living Wage on many manufacturers, is prompting more automation investment for the year ahead.
Operating margins continue to be squeezed, according to 82% of companies, and pricing pressures remain the top challenge for food manufacturers and processers.
Interestingly, attracting and retaining skilled labour was named the second biggest challenge, on a par with the volatility of raw materials.
Nearly three quarters (70%) of those surveyed said they were experiencing difficulties in recruiting the skilled people they require, which has been historically blamed in part by engineers’ desire to work in more attractive sectors such as aerospace and automotive.
Head of Food & Drink manufacturing at BDO LLP, Paul Davies commented: “Pressures on pricing and margins remain hugely challenging, but the overall sentiment of the sector is a positive one.
“It’s been a tough few years for food and drink companies, but it seems they are finally stepping out of the shadows and focusing on future growth.
Davies continued: “We all know that the manufacturing sector plays a critical role in rebalancing our economy and driving long-term sustainable growth for the UK, yet little action is being taken to support the food and drink industry, the single largest manufacturing sector in the UK.
“The proposed tax on sugar will have a huge impact on food and drink manufacturers and could set many firms back. We would urge the Chancellor support the sector in his Budget next month.
“Increasing the Annual Investment Allowance to £5m for five years in support of automation investment, and introducing a temporary reduction in Employers’ National insurance for manufacturers to recruit the talent they need, would be a great step in the right direction.”
Chair of the Institution of Mechanical Engineers’ Food & Drink Engineering Committee, Dr Tim Fox said: “Food and drink manufacturing plays a hugely important role in the UK and it is encouraging that the manufacturers surveyed as part of this report are so optimistic about the sector’s future.
“However, this report highlights the critical skills shortage the UK is facing. About 70% of the food and drink manufacturers surveyed said they were struggling to recruit people with the right skills.
“We need to encourage more people to pursue engineering careers and to champion the diverse and exciting career prospects for engineers and technicians working in food and drink manufacturing.”