Tough conditions squeeze Yorkshire food and drinks sector
Food and drinks companies in Yorkshire are under significant amounts of pressure after a tough year for harvests and consumer spending.
A report from business advisory firm BDO’s Leeds office described the sector as being the “squeezed middle”, as operating margins fell to a 14-year low.
Conditions for food producers have been described as “incredibly tough”, as a result of rising input costs and increasing competition between supermarkets to drive down costs.
The recent Tesco scandal surrounding horse DNA found in their burger meat has also reportedly had an affect on the food and drinks sector by putting increased scrutiny on supply chains and regulation checks.
Paul Davies, BDO partner in Leeds and head of food and drink, said: “The recent scandal of horse meat in Tesco burgers highlights the complexity of security in the supply chain.
“The sector can expect to be under the spotlight for some time, with regulatory pressure and supply-chain scrutiny ahead.
“In addition, the auto-enrolment pension scheme that is currently underway will add additional costs and demands in an already difficult trading environment.”
Despite difficulties in the sector, merger and acquisition activity is on the up, and BDO said growth potential is building momentum.
Across the UK, the sector accounts for 15% of the economy and employs more than 400,000, and merger and acquisition activity recently met a three-year record worth more than £1bn.
In Yorkshire, significant deals included the buyout of food manufacturer, Symingtons, R&R Ice Cream’s acquisition of Eskigel and the sale of Phoenix Foods to Speciality Powders.
BDO’s report highlighted the efforts made by the food industry to lower operating costs through sustainability projects, a well as waste reduction and recycling schemes.
Mr Davies added: “Innovation and investment are key. There is real momentum building for mergers & acquisitions, as food and drink companies fight to increase efficiencies and market share.
“With operating margins in the largest 150 food and drink processors having fallen to a 14 year low, it is evident that organic growth is an uphill battle. The market lends itself incredibly well for consolidation and acquisitive growth.”
BDO said the market will remain uncertain in the near future for suppliers, farmers, retailers, manufacturers and processors alike.