‘Premiumisation’ grows among food & drink manufacturers

For many, success has been achieved through the creation of niche products, differentiation and taking their products up-market through premium brands, according to a new report by Barclays and the Institution of Mechanical Engineers (IMechE).

‘Niche’ areas such as health foods and ‘free-from’ items, as well as products with a proprietary recipe, have seen significant growth over recent years and now account for about 10% of the overall food market in the UK.

Increasing fragmentation within the food retail sector, with the rise of smaller shops and specialist outlets, can give manufacturers greater opportunities to develop their specialist niche products further.

These foods can also give manufacturers the valuable position of being seen to support the major supermarkets with growth into new and developing markets.

Additionally, some niche products can carry a unique formulation, which reduces the ability of retailers to seek readily alternative suppliers.

As the UK’s largest manufacturing sector, the food & drink industry is a £95bn business, accounting for almost one-fifth of manufacturing output and employing 400,000 people directly, with a further 1.2m people in sector-related jobs.

The good news from the report, given the importance of this sector to the UK economy, is that more than three-quarters (76%) of food and drink manufacturers are optimistic about growth prospects for the coming year, 77% predict long-term growth in the next five years and 63% expect to increase their profits this year.

Confidence is also reflected in investment levels with 82% of respondents saying that investment has been maintained or has risen in the past two years, and 79% expect it to rise or stay the same over the next two years.

For many manufacturers’ established food & drink brands, competition from a retailers’ own label goods sit in direct competition. In order to maintain customer loyalty and grow their brands, they are starting to emphasise difference and superiority over the ‘white label’ goods as customers will pay more for food if it offers consistently better quality, health benefits, or other perceived advantages.

For the food & drink manufacturers surveyed in the report, ‘premiumisation’ is not just about differentiating products from those carrying the supermarkets’ own labels but also it is about the brand of the manufacturer as a whole where their reputation acts as a guarantee of quality and performance.

Head of Manufacturing at Barclays, Mike Rigby commented :  “The development of niche products and a move towards premiumisation offers manufacturers alternative routes to growth and profitability in both domestic and export markets.

“UK manufacturers have long seen the benefits of long-term planning and investment strategies to meet changing market needs and new opportunities.  It is encouraging to see that changes within the structure of the UK food retail sector are contributing to strong levels of optimism among manufacturers.”