The increasingly uncertain economic landscape and the looming threat of Brexit is continues to take its toll on the food and drink industry, with the UK’s biggest 150 suppliers’ profit margins fell for a second consecutive year to 5.8% in 2018 from 6.2% in 2017 and 6.7% in 2016, according to the 2019 OC&C Top 150.
Revenues also struggled to match previous years of growth, slowing down to 4.3% in 2018 compared to 7.5% in 2017 and were well below the long-term industry average of 4.9%. Amid lower consumer confidence, the industry continues to struggle to pass on commodity input inflation and rising labour costs, which is directly impacting profits and sales growth.
The food and drink industry is especially vulnerable to Brexit implications as it is heavily dependent on EU workers, who are migrating to the UK at a slowing rate following the Brexit vote. Lower migration from the EU combined with the steady rise in the National Living Wage has been squeezing the industry’s margins.
Looking ahead, the threat of another round of price inflation driven by lower Sterling due to Brexit would add further pressure on UK food and drink producers. With margins already compressed, the industry is certainly not in a strong position to weather this, particularly in the short-term, said Will Hayllar, UK Managing Partner at OC&C Strategy Consultants: “As we continue to head into an uncertain Brexit, food and drink companies are finding it increasingly hard to make dynamic business decisions and implement the necessary changes required to restore the industry to its former glory.
“However, it is not all doom and gloom in the sector and there are signs that the industry is fighting back. Our research shows food and drink brands increased capital expenditure, up 16.3% from 2017 to £1.8bn in 2018, equivalent to 3.4% of total revenues. Brands have focused their investments on improving automation, in an effort to improve productivity and reduce heavy reliance on labour. Brands, especially larger ones, are also digging into their deeper pockets to fund their efforts to adapt their products and portfolios to changing consumer tastes.”