UK’s largest food & beverage companies see performance dip
UK’s largest food and beverage companies have seen their performance dip last year, amid an increasingly uncertain economic landscape and lower levels of consumer confidence.
The analysis, conducted by strategic consulting firm OC&C Strategy Consultants, found that revenue growth for UK’s 150 biggest food and drink producers fell by 3.2%, from 7.5% in 2017 to 4.3% in 2018, well below the long-term industry average of 4.9%. Similarly, profit margins fell for a second consecutive year to 5.8% in 2018 from 6.2% in 2017 and 6.7% in the year previous.
Having explored a range of financial developments including turnover, operating margins and return on capital employed (ROCE) and spoken with several executives in the industry, the researchers point at sliding macroeconomic factors as the main driver behind the deteriorated performance.
With consumer more critical on their spending patterns, the industry also struggled to pass on commodity input inflation and rising labour costs, in turn impacting bottom-line results.
Looking ahead, the researchers warn that Brexit will have major implications for the operations of food and drink players. As many raw materials are sourced from mainland Europe, the lower Sterling due to Brexit is set to make imports relatively more expensive, further adding pressure on producers.
Talent management is another area of impact. The sector is heavily dependent on EU workers for a range of processes within the value chain, spanning production through to supply chain. Such workers are already migrating to the UK at a slowing rate following the Brexit vote, with scarcity set to further squeeze the industry’s margins.
“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,” said Will Hayllar, a London-based partner at OC&C Strategy Consultants.
Accelerating growth
In a bid to ramp up financial performance, brands can according to OC&C turn to a number of strategies. One obvious avenue is optimising strategic positioning in the marktplace, for instance either moving towards the premium segment or into a niche such as healthier food & beverages. They can also turn to international expansion in an attempt to weather Brexit uncertainty surrounding the domestic market – an analysis of the top 150 players reveals that international sales grew at 5.6% again ahead of domestic sales growth of 3.6%.
Investing and innovating where growth is strongest through the launches of new products, and focusing investments on improving automation, in an effort to improve productivity and reduce heavy reliance on labour, are two other approaches that can help UK’s leading food and beverage companies.
