Tough trading conditions and a drop in confidence in the food industry

Confidence is down and concerns are mounting within the food and drink sector, the largest manufacturing sector in the UK, accounting for 16 per cent of total manufacturing by turnover and contributing £21.5 billion of gross value added to the British economy each year.

According to a survey of Food and Drink Federation (FDF) members (1), confidence in the UK business environment has dropped 69.5 per cent as a result of the UK's vote to leave the European Union (EU), with the majority of food and drink companies reporting increases in ingredient prices, largely as a result of the weak pound, a drop in product margins, and concerns about the future being raised by their EU workforce.

The FDF is calling for an industrial strategy partnership with the Government to support the development of food and drink manufacturing, which provides 3.9 million jobs across the £108 billion UK food chain and employs 400,000 people directly, almost a third of which are non-UK EU nationals. FDF is calling for urgent assurances for the industry's workforce from the EU that they will have leave to remain in the UK.

Commenting on the survey findings, which reflect the sentiment of one third of its full membership including micro, small, medium and large food and drink manufacturers, Ian Wright CBE, Director General of the Food and Drink Federation, said: “We share Government's view that we need to make the best of Brexit. Food and drink industry confidence is low. Slower revenue growth, coupled with prolonged business uncertainty, is affecting the industry's ability to invest.

“The assurances we heard from Government last week must be underpinned by credible plans for restoring confidence and negotiating a workable future relationship with the EU. Working with Government through an industrial strategy partnership, we believe we can counterbalance uncertainty arising from the EU exit process and secure world-class status for the sector.”

The survey coincides with quarterly figures from UK retailers (2) showing food sales at their highest levels since 2013, suggesting a disparity between business and consumer confidence levels.

At this time of economic uncertainly, it is essential that business owners of UK small and medium sized enterprises (SMEs) maintain effective management of their company’s working capital. This will not only help to ensure you have the cashflow needed to survive and thrive, it will also expose any pressure points within the cash cycles, helping to boost efficiency and even save costs – all vital elements to survive and thrive in challenging times.

Contact our specialist advisers to the manufacturing sector for guidance and strategic advice to help in formulating plans for your business in order to strengthen its prospects of success, achieve growth and maximise wealth.

Our partner business, BM Structured Finance, is also available to help with sourcing and restructuring debt finance for SME businesses.

For further information, contact Steve Govey or your usual Beavis Morgan Partner.

(1) FDS Post-Referendum Business Confidence Survey – 12 October 2016

(2) The British Retail Consortium's Retail Monitor, published 11 October 2016, reveals that on a total basis, sales rose 1.3 per cent, against a 3.9 per cent increase in September 2015, which had been the best month of 2015, excluding Easter distortions.

Further reading:

Consumer spending increases, driven by online transactions
UK Manufacturing PMI reaches highest level since 2014
Manufacturing growth accelerates