Resilient food and drink manufacturers in South West remain confident despite mounting challenges - BDO

Eight in 10 leaders in the UK food and drink sector feel positive about the prospects of the industry over the coming year, but mounting pressures including the twin threats of higher energy costs and constraints on consumer spending will continue to test businesses’ resilience, accountancy and business advisory firm BDO LLP has warned.

BDO’s annual Food & Drink Report, which surveys manufacturers in the sector, reports a high degree of optimism among food and drink manufacturers.

Although down slightly on last year (78 per cent), 70 per cent of respondents are feeling positive about the future of their own business in the next 12 months.

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This is buoyed by the big jump in optimism for the sector overall which has increased from 69 per cent in 2022 to 81 per cent.

Over a third (40 per cent) expect an increase in their gross profit margins over the coming year and, as the buoyant mood continues, a further quarter (24 per cent) are planning acquisitive purchases.

Almost a third (30 per cent) say new product development will be a key driver for growth across the next 12 months, whilst 29 per cent say expanding in non-European Union (EU) markets is a key focus.

Despite the confident outlook, BDO’s survey highlights the myriad of challenges businesses in the sector are facing.

Half (50 per cent) of the respondents reported difficulties in recruiting the people they need, with engineering and project management or production-related roles the hardest to fill. Almost two fifths (39 per cent) of those experiencing recruitment challenges believe skills shortages are worse now than before Brexit and Covid-19.

Digital transformation remains a key area of investment to boost productivity and gain competitive advantage.

The majority of respondents state their executive teams recognised the importance of this, however 60 per cent aired concern that they were falling behind on their digital transformation journeys as firms grapple with unswerving economic headwinds. In addition, 28 per cent say they are taking on higher levels of debt to counteract inflation.

The Ukraine conflict continues to affect 65 per cent of businesses in the survey. According to the BDO report, overly complicated import-export rules cited as reasons for hampering trade.

Almost two thirds (63 per cent) are finding it hard to trade with Northern Ireland via the Trader Support Service, with a further 69 per cent struggling to use preferential origin under the UK's Free Trade Agreements.

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Matthew Sewell, head of manufacturing at BDO in the South West, said: “After enduring Brexit, Covid-19, supply chain disruption and a cost-of-living crisis brought on by a war in Ukraine, food and drink businesses should be applauded for the resilience and adaptability they have demonstrated.

“However, the long-term nature of many of the threats facing UK food and drink companies suggests that leaders will need to stay flexible and think strategically about the future of their businesses. Sticking-plaster measures from businesses or government will not suffice in an environment where a return to normality - whatever that is - remains elusive.”

Food and drink is the biggest manufacturing industry in the UK with a turnover of £128 billion and exports worth £25 billion. The sector employs 456,000 people in the UK, with its supply chain employing a further 4.3m people.