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Pricing Pressures in Food and Beverage Manufacture

Pricing Pressures in Food and Beverage Manufacture
16/02/2018

Pressure on Profit Levels for the Food and Beverage Industry According to the latest CBI Quarterly Trends Report of 2017, despite UK manufacturing reaching its highest levels in nearly 30 years, the food and beverage industry is still experiencing shrinking profit levels.

The UK food and drink industry represents 15% of the UK’s total manufacturing sector and contributes £28.2bn to the economy annually. Despite this, the sector continues to face a wide array of challenges.

This blog article looks at some of the challenges that food and drink manufacturers and processors must contend with, and how product recovery (pigging) can help.

Profit Margins at Record Low Levels Many of the big players in the food and drink industry in the UK have seen their margins increasingly under threat and reach record low levels for the past two years, according to the Food & Drink 150 Index.

The annual report, published by OC&C Strategy Consultants and the Grocer, reveals that margins currently stand at 5.3%, falling from a long-term average of 6.3%.

So why is this happening, and what are food and drinks companies doing about it?

Highly Competitive Food and Drink Industry Competition in the food and drink industry is getting tougher with pressure on prices and margins continuing downward and raw material prices fluctuating.

At the same time, there has been a rising demand for products that are minimally processed, made with natural ingredients and contain no artificial flavours and ingredients. As these consumer preferences have pivoted towards health food, it’s forced manufacturers to reformulate their product portfolio as well as introduce new products to meet the demand.

While this offers many opportunities, it can also pose a serious risk for companies in the food and drink sector.

Food and Drink Companies and Cost-Cutting Measures As profits have flatlined in recent years across much of the food and drink industry, a route that many companies have taken is to adopt cost-cutting initiatives. More and more companies are trying to reduce costs to not only make up for the slowdown in sales but to also find the cash flow they need for other initiatives that could increase revenue.

However, this doesn’t come without complications. In fact, in a recent survey carried out by insurance broker Lockton, it was claimed that because companies were suffering from pricing pressures, this has resulted in some manufacturers cutting corners and looking at cheaper ways to produce their products.

The research also suggests that this has resulted in a rise in product contamination recalls over the past six years.

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