From crippling energy costs to distribution shortages and a dearth of available staff to manage the new post-Brexit trade barriers into key markets, who would be a food manufacturer in 2022?
With 1 in 3 companies rated as either ‘Caution’ or ‘Danger’, Plimsoll’s latest analysis of the UK food manufacturing industry highlights why those calls for intervention are being raised.
The end of freedom of movement, caused by the UK’s EU exit, has exacerbated a skills shortage across the sector. Coupled with double-digit inflation leading to soaring wage demands, the HR costs of producing food are, in some cases, becoming untenable. There is optimism around announced schemes such as the Food & Drink Careers Passport and the Skilled Worker Visa Scheme but senior figures across the sector are demanding urgency be injected into these plans before it’s too late.
The supply chain is another major cause for concern; concerns that have led to some raising the prospect of food shortages in the winter months. War in Ukraine, new regulatory complexities from Brexit, post-Covid demand explosions, fuel and transport costs, climate-affected harvests and a long list of other factors are combining to increase both scarcity and cost of maintaining supply chains in the food sector.
So, how are all of these disruptions and challenges affecting company performance and business values of the UK’s leading food manufacturing businesses? In the first period after the pandemic years, values recovered strongly, growing around 6% after a 1% fall in the previous year. This compares to a UK-wide average increase of 2% growth.
The top-level average masks some serious fragmentation in business value by size of company. In total, over a quarter of the UK’s leading food manufacturers saw their value fall in the latest year despite strong average growth. Only 206 firms have seen their value rise in each of the previous three years.
Within the industry, there is a growing divide in valuation performance based on size. The 10 largest and the bulk of newer smaller companies have maintained healthy growth in average valuations. Those manufacturers in the middle bracket, between £5m to £150m turnover, have seen values fall around 3% in the latest period.
According to the latest Plimsoll Analysis, average company values across the food manufacturing sector have risen in the latest year by around 6%. That’s a sharp recovery from the 1% falls we saw in the previous, pandemic-ravaged year and beats the all-industry UK average, of just 2%. However, we are only this financial year seeing soaring inflation and the impact of geopolitical crises so how long will that recovery last?
The final area worth mentioning is the comparisons across the food sector and the large contrast in fortunes depending on the type of food being produced. Baby Food Manufacturers saw the largest average value growth with a 24% rise in the latest year. However, despite increasing prominence and popularity, Vegan Food Producer saw a 1% fall in values – perhaps a sign of oversaturation.
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