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Food manufacturers’ revenues decreased by 6% since last quarter

UK food manufacturers have seen their revenues drop by 9% in the first quarter of the year due to the cost of living crisis and supply chain turbulence, according to new figures.

Small and medium-sized businesses suffered a sales decline compared to the first three months of 2023, the latest Manufacturing Health Index by supply chain company Unleashed showed.

Food manufacturers’ quarterly performance also declined, with revenue down by 6% compared to the period ending in December last year.

This was still better than the overall figures for the country’s manufacturing sector, which recorded a quarterly revenue drop of 10%.

Joe Llewellyn, head of cloud software at The Access Group, Unleashed’s parent company, said inflation had “battered the manufacturing industry”.

“It’s disappointing to see the drop in revenue for the food industry in Q1 2024, but there are a number of factors why, including the rising cost of living which is out of their hands,” he said.

This is against a backdrop of significantly low levels of investment in food and drink manufacturing, which is the UK’s largest manufacturing sector, a report by the Food & Drink Federation warned last month.

Why have food manufacture revenues dropped? 

A series of shocks to the industry – including Brexit, geopolitical turmoil, extreme weather conditions and inflationary and labour pressures – have led to a 30% drop in investment in food and drink manufacturing since 2019.

This was in sharp contrast with the rest of manufacturing, which saw investment grow by 5% in the same period.

With costly regulatory burdens increasing, such as plans for the extended producer responsibility scheme as well as new ‘not for EU’ labelling rules across the UK, half of food and drink businesses planned to maintain low levels of investment this coming year, the FDF said.

“If we are to build a sustainable and resilient food supply chain which supports the economy and feeds the nation, we need government to work with us to help foster a climate which encourages greater capital expenditure and investment in innovation,” said Bal Dhoot, the FDF’s director for sustainability and growth.

“Our members, particularly the mid-sized businesses, continue to face some market uncertainty caused by labour shortages, and the impact of poorly designed and implemented regulations. This is having dire unintended consequences for businesses by adding costly and unnecessary burdens to supply chains.”

Meanwhile, drink manufacturers outperformed the sector with a 121% year-on-year increase in Q1 2024. Sales also grew 63% from the last quarter. 

“It’s absolutely mind-blowing and surprising to see the increase in beverage revenue vs. food revenue,” said Dan Pope, host of the food and drinks industry podcast Hungry.

“My gut instinct is that drinks are having their moment right now. First, pretty much every trend under the sun is filtering into the drinks market; from CBD brands like TRIP and GoodRays, functional gut health drinks like Fix8 and Living Things, protein drinks like Fiesty, nootropic drinks like Nuetonic and Brite, and of course, alcohol-free brands like Lucky Saint.

Online platforms like Amazon are growing popularity

“Second, supermarket shelves aren’t expanding, buyers are under more pressure and brands are under more pressure to prove rate of sale - usually six months tops”, he added.

”Challenger drink brands are having to find ‘other ways’ versus traditional bricks and mortar stores to reach their consumer. Canned drinks are perfect for D2C in comparison to a food product; they’re less likely to break, you can usually sell in bulk i.e. 12 cans, meaning your average order value and gross margin increases.

”It feels like drinks are having their moment”, Pope said.

Unleashed’s index, which assesses SME manufacturer performance by analysing purchase, sale and stock movement data from over 1,700 businesses, also revealed that those who’d invested in e-commerce were reporting strong returns.

New waves of investment in stock management technology as well as manufacturers’ willingness to diversify their sales channels – with online platforms like Amazon and Shopify growing ever more popular amongst brands – were “starting to bear fruit”, Llewellyn added.

“The short lead times we see today are a small reprieve and a sign that they’re in control of one of their biggest costs, their inventory. This will help them to remain resilient and take advantage of more favourable economic conditions in the future.”

Across every manufacturing category analysed, businesses only saw an average 2% year-on-year sales rise, reflecting the Bank of England’s assessment of weak growth in the manufacturing sector.