Food and drink manufacturers are expecting revenue growth despite the threat of substantial change and uncertainty, according to a new report published today by business advisory firm BDO.
Strong business confidence, product innovation and export potential were keeping the industry afloat, even as Brexit negotiations drag on.
BDO’s Food and Drink Report 2017 found that 73% of manufacturers surveyed are positive about the future of the industry, with 81% of firms expecting revenue growth of up to 20% in the next year.
But challenges still remain, as operating margins continue to be squeezed and inflation in the price of raw materials impacts on companies’ bottom lines. For the second year in a row, the BDO survey found that the volatility of raw material prices is the key challenge for food and drink manufacturers – exasperated further by the UK’s departure from the European Union.
This is followed by foreign exchange rates, which was not a major concern for manufacturers last year and seen as a direct result of Brexit uncertainty.
Despite the challenges, firms are proving resilient in their growth ambitions. Just over half of those surveyed said that new product development and investment in production/capex would be a major source of growth, with 49% and 46% saying access to new UK markets and export markets respectively will be an increasingly important part of their growth plans.
Paul Davies, head of food and drink for BDO, said: “The industry continues to be faced by challenges predominantly related to price and margins, and Brexit brings with it new challenges. But it is promising to see high levels of positivity in the industry, with firms pushing forward and adjusting their business plans to make the most of the opportunities available.
“Food and drink businesses are a driving force of growth, contributing jobs and revenue to the UK economy. Yet they are at risk of being overlooked as the UK prepares to leave the European Union. The government needs to draw on the natural energy, ambition and entrepreneurial spirit of food and drink businesses and help them succeed post-Brexit.
BDO found that the appetite for acquisitions was higher this year – 27% compared to 15% in 2016 – as companies increasingly turn to M&As to unlock growth.
Through product innovation and increasing investment in automation, the industry continues to become increasingly efficient and smart in dealing with market pressures. Two-thirds of food and drink firms say they are increasing investment in this area, 15% higher than 2016.
According to the report, the food and drink industry is a prime candidate for greater process automation due to the benefits it brings through increased production output and flexibility, improvements in product quality and reduction in waste.
Attracting and retaining skilled labour was named the eighth biggest challenge – falling from second place in 2016. But nearly 60% of those surveyed still said that they were experiencing difficulties in recruiting the skilled people they require.
Paul Davies called on the UK’s government to act, with 57% of respondents saying they were worried about access to labour and skills in a post-Brexit environment.
He said: “We believe the government can do more to support the industry by ensuring they have open and simple access to world markets to successfully continue trading and deliver growth through new export opportunities. With a workforce where about one in four employees are non-UK EU nationals, the government needs to deliver simple access to global talent to help secure the industry’s future.”
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