Tuesday, August 9, 2022

Midlands food manufacturers battle Covid-Brexit double whammy but look ahead to growth

Food and drink manufacturers have endured the twin challenges of COVID-19 and Brexit with resilience and strength, and are ploughing ahead with growth, according to new research published by accountancy and business advisory firm BDO.

Despite a year of substantial change and uncertainty, BDO’s Food & Drink Report 2021 shows that more than three quarters (78%) of businesses are feeling positive about their future prospects, with 68% expecting profitability to increase in the next 12 months.

Looking ahead, new product development, expansion into new UK markets and investment in production are the top three areas of growth identified. Business leaders also see sustainability as a key focus, particularly in reducing waste, plastics and emissions.

However, challenges remain for the sector which employs 93,000 people across the Midlands and contributes £5.57bn to the regional economy. Almost a third (31%) of the businesses questioned experienced a decrease in margins last year and, with rising inflation on the horizon, increased pricing pressures are expected.

Cindy Hrkalovic, audit director at BDO in the Midlands, said: “Across the region, sectors from aerospace to the arts have taken body blows from COVID-19 that will require a long period of recovery. Fortunately, food and drink has proved more resilient to the impact of the pandemic, which has been positive for the region as a whole.

“The East Midlands employs the highest number of people in the industry (61,000) in the UK and another 32,000 people work in food and drink manufacturing in the West Midlands. While there are clearly still many challenges ahead, food and drink manufacturing has held up remarkably well.

“Business leaders have been quick to react to the challenging and ever-changing trading environment. We’ve seen a continued focus on innovation with local initiatives such as The Food Innovation Centre based at the University of Nottingham helping to support this.”

COVID-19 impacts

The ongoing impact of COVID-19 is the largest challenge by some margin, cited by 67% as the biggest threat to their business.

An overwhelming majority (85%) said they had been forced to reassess their business strategies as a result of COVID-19.

In a show of the sector’s resilience, less than half (42%) had utilised the Government’s job retention scheme. Supply chains were also able to hold up well in the face of COVID-19-related lockdowns and other restrictions; while three quarters of businesses experienced delays, they did not stop production.

New UK markets open up

One of the biggest shifts in focus for food and drink manufacturers over the last few years – albeit not surprising given the twin challenges of Brexit and COVID-19 – is an increased emphasis on new UK markets for business growth.

According to the BDO report, expansion into new UK markets (56%) is now in joint first place with new product development as a business growth priority – a huge jump from 34% three years ago.

Almost two thirds of respondents cite customs procedures as the biggest Brexit challenge they have experienced to date.

A call to government

The BDO report states that food and drink manufacturers are calling for improved support for exporting and clear, relevant tax incentives to encourage investment.

Cindy adds: “The industry is a huge employer and accounts for 20% of total UK manufacturing. It is an industry with ambitious – yet sensible – growth targets.

“With the right support in place, not only could these businesses thrive post-pandemic, but they could also play an important role in creating a green economy, driving digital innovation and productivity, and levelling up the regional economic divide.”

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