Yesterday, in partnership with Santander, we published the third instalment in our series of sector bulletin reports. This time, following our in depth look into the automotive and aerospace sectors, we have turned our attention to the complex and trickier defined food & drink sector.
We have picked out our 7 key highlights from the report:
1) Food & drink is the largest manufacturing sector in UK
The food & drink sector is the largest manufacturing sector in the UK by some distance. It accounted for 16% of total manufacturing output and generated £27 billion in Gross Value Added in 2016. What’s more, it is the largest manufacturing employer, with 418,000 people working in the industry in 2015.
2) The sector has a complex structure
The food & drink industry is characterised by a complex value chain with manufacturing at its core. Over the past few years, the line between agriculture, manufacturing and retail has become increasingly blurred. Broadly speaking however, food & drink manufacturers source their raw materials from the agricultural sector. Once the agricultural products are manufactured they are either exported to overseas markets or sold to consumers via retailers, wholesalers or caterers.
We've created a handy little flow chart to help explain...
3) We import a lot… (of food anyway…)
Simply put, the UK does not produce enough food and drink to cover the needs of its population, importing 48% of total food consumed. As a result the UK has been running a trade deficit in food & drink products for every year since records began in 1996. However if we split up food and drink products, despite running a deficit in every food category, we actually run a surplus in drink products.
4) There are plenty of opportunities to export
Despite being one of the least export-intensive manufacturing sectors, the industry yields significant value from exports on an annual basis, with overseas sales of food & drink products reaching £20 billion in 2016. There is plenty of scope to build on this performance too, as currently only 1 in 5 manufacturers export. Notable opportunities remain in Europe despite the uncertain trade outlook, as well as in emerging markets.
5) Rise of discount retailers are affecting manufacturers
Changing consumer preferences, notably the demand for cheaper products, has seen the emergence of discount and own label retailers such as Aldi and Lidl, who have persistently increased their market share at the expense of the Big 4 in recent years. As the Big 4 increasingly look to lower their own prices in response, manufacturers’ margins are coming under pressure and our having to find other ways to lower prices.
6) Healthy eating is here to stay
The rise in the healthy food agenda shows no signs of abating in the coming years. The growing popularity and the consumer desire to lead healthier and cleaner lives has resulted in manufacturers looking to reduce sugar, salt and artificial trans fats content in their products, as well as launching designated healthy food lines. The industry has also seen a significant move towards plant based diets, with vegetarian and vegan claims growing by 25% and 257% since 2010 respectively.
7) There are risks on the menu
Yep you guessed it, Brexit is at the heart of these challenges. The food and drink sector is one of the most exposed sectors to Brexit outcomes, given that 60% of trade is with the EU and a 1/3 of the workforce is made up of non-UK EU nationals. Securing a favourable deal is of paramount importance for manufacturers in the sector.
You can read the full report here.