If there's one key message to take from this year's Food Manufacture 'state-of-the-industry' survey, it's that things seem to be looking up for manufacturers.
Last year we reported signs of improving optimism following the uncertainties associated with 2008. However, this year optimism is riding even higher, with over three-quarters of respondents more positive about the future for their companies (76%) compared with (cf) 56% in 2009.
This finding is supported by the increased number expecting profit margins to improve (65%) compared with 41% last year. And a very impressive 91% see a long-term future for the sector as a whole (up on 85% last year).
To some extent, these responses may reflect greater recognition of the importance of the UK food chain; having been put centre stage in the previous government's strategy document Food 2030, published in January. Many industry commentators expect the new coalition government to embrace the same strategy, despite the huge fiscal pressures facing the nation. The reason is that there are even bigger threats facing our economy: climate change; rising pressure on limited resources as the world population rises; and food security.
The survey shows there is pent up demand within the sector for capital investment, with half of the respondents planning to spend more this year after putting off essential work during the recession.
And while there is a slight increase in the number of firms planning to take on more staff, it appears that training is going to receive a big boost this year (59% cf 37% last year). But this must be viewed against a background of increasing vacancies in key roles (36% cf 22%). However, some respondents' plans to employ more overseas nationals in their businesses (20% cf 12%) need to be treated with some caution; a poor exchange rate and government plans to restrict non-EU nationals working in the UK would point otherwise.
Which isn't to infer that everything in the garden is rosy: far from it. Fluctuating input costs, such as raw ingredients; costs of meeting regulatory burdens; and rising minimum pay rates, were cited by some respondents as particular burdens.
Supermarket screw turns
And the perennial cost pressures from powerful retail customers never cease to diminish. Damage to the quality of own-label products through cost engineering is reportedly still a significant issue in fact even more so than last year (81% cf 71%).
Meanwhile, promotional activities continue to cause damage to branded products (78% cf 66%). Which might explain why more respondents expect to increase business with caterers this year (50% cf 27%). The decline in number of those expecting to do more business with the hard discounters probably reflects their stalled advance in the UK.
Inevitably, though, it will be business through traditional supermarkets that will matter most. And concerns about the way suppliers are treated by their major multiple customers continues to provoke considerable ire. One manager at a dairy foods business remarked: "The continued drive by supermarkets to have cheap food is having a detrimental effect on the quality of food we now eat."
Another operations director said: "Despite the findings of inquiries into supermarket abuse of power, we continue to suffer day-to-day arrogance from buyers in their approach to honouring commitments." He cited examples of products suddenly de-listed or packs changed without giving the agreed notice; depots refusing to take deliveries for goods ordered; and "fines for minor non-compliances".
Where are the 'green' labels?
One of the more interesting findings is that while the environmental impact of processing continues to be an issue, aspects such as carbon labelling of products and assessing the amount of water used to make products haven't really taken off as widely as had been predicted. Perhaps manufacturers are waiting for retailers to take the lead.
Certainly if the large number of high quality submissions to this year's Food and Drink Federation's Community Partnership Awards (I'm on the judging panel) in the Environment category is anything to go by, the UK's food and drink manufacturing sector is taking environmental issues very seriously indeed.
However, Mark Dudley, md of food consultancy Coriolis, which works with many UK food companies, told Food Manufacture that, from the discussions he had held recently, there was not a lot of interest from companies in energy efficiency and environmental investments for cost cutting reasons. "We often find we can save people a damn sight more money in other areas," he said. Which seems to be at odds with our survey's findings.
While 60% of companies are exploring alternatives to landfill for waste products, over three-quarters (77%) see improving energy efficiency as a key priority for the coming year.
Whether this is related to fuel price rises over the past few years, or expectations of further rises ahead and tighter fiscal instruments from the government as it attempts to move us to a lower carbon economy, is not clear. But one thing is certain: reducing operational costs continues to be the name of the game for most companies.
So, while the survey's findings indicate that expectations about the sector's future are generally much brighter than they were 12 months ago, this does hide the fact that parts of it such as meat processing continue to face major difficulties. If it's not competition from low-cost overseas operators and issues of consolidation, it's the public's concern about their health in relation to the consumption of meat and bad press about the welfare of animals used to produce it.
The situation was summed up by one poultry processor, who said: "British food is manufactured to the highest level of quality in the world, but it comes at a price. The general public and the major retailers need to acknowledge that and be prepared to support British industry."
With a new coalition government hoping to resolve the problem of a £156bn fiscal deficit, the next 12 months will prove interesting.
FM 2010 SURVEY: THE RESULTS IN FULL:
MARKET CONDITIONS
1. I am more positive about the future of my company now than a year ago.
• Agree 76%
• Disagree 21%
• Don’t know 3%
2. I expect my company's profit margins to improve over the next year.
• Agree 65%
• Disagree 28%
• Don’t know 7%
3. Lack of access to finance has had a detrimental effect on my business this year.
• Agree 37%
• Disagree 54%
• Don’t know 9%
4. I see a long-term future for the UK food manufacturing industry.
• Agree 91%
• Disagree 5%
• Don’t know 4%
INVESTMENT AND EMPLOYMENT:
1. My company is planning more capital investment this year than last year.
• Agree 50%
• Disagree 37%
• Don’t know 13%
2. My company will take on more staff this year than last year.
• Agree 26%;
• Disagree 47%
• Don’t know 17%
3. My company currently has vacancies in key roles.
• Agree 36%
• Disagree 59%
• Don’t know 5%
4. My company plans to employ more overseas nationals this year.
• Agree 20%;
• Disagree 56%
• Don’t know 24%
5. My company plans to devote more resources to training this year than last year.
• Agree 59%
• Disagree 30%
• Don’t know 11%
TRADING RELATIONSHIPS
1. Pricing pressure from retailers is threatening the quality of own-label products through excessive value engineering.
• Agree 81%
• Disagree 13%
• Don’t know 6%
Pricing pressure from retailers is threatening to cut into resources devoted to new product development and innovation.
• Agree 73%
• Disagree 19%
• Don’t know 8%
Pricing pressure from retailers is threatening to commoditise branded products through excessive promotional activity.
• Agree 78%
• Disagree 10%
• Don’t know 12%
2. My company aims to do more business with the discounters this year.
• Agree 25%
• Disagree 47%
• Don’t know 28%
3. My customers are taking longer to pay bills this year than last year.
• Agree 55%
• Disagree 26%
• Don’t know 19%
4. My company will invest more into improving the quality of product data shared with customers this year.
• Agree 58%
• Disagree 23%
• Don’t know 19%
5. The withdrawal of credit insurance is still causing problems for my company.
• Agree 29%
• Disagree 42%
• Don’t know 29%
6. I expect my company to do more business with caterers this year.
• Agree 50%
• Disagree 31%
• Don’t know 19%
7. My business has been able to pass on cost increases to customers this year.
• Agree 38%
• Disagree 46%
• Don’t know 16%
NEW PRODUCT DEVELOPMENT:
1. My company plans to invest more in NPD this year than last year.
• Agree 57%
• Disagree 28%
• Don’t know 15%
2. My customers are more focused on price than groundbreaking NPD.
• Agree 68%
• Disagree 22%
• Don’t know 10%
3. Consumers' spending habits have permanently changed during the recession.
• Agree 40%
• Disagree 45%
• Don’t know 15%
4. Reducing saturated fat, salt and sugar is a key part of my firm's NPD strategy.
• Agree 58%
• Disagree 29%
• Don’t know 13%
5. The uncertainty over health claims legislation has put my company off using some health ingredients.
• Agree 23%
• Disagree 51%
• Don’t know 26%
ENVIRONMENTAL MANAGEMENT
1 - Exploring alternatives to landfill for waste products is a key priority for my company this year.
• Agree 60%
• Disagree 31%
• Don’t know 9%
2 - Improving energy efficiency is one of the top priorities for my company this year.
• Agree 77%
• Disagree 18%
• Don’t know 5%
3 - My company is considering implementing carbon footprint labelling on products this year.
• Agree 15%
• Disagree 59%
• Don’t know 26%
4 – My company plans to determine the water footprint of its products.
• Agree 19%
• Disagree 57%
• Don’t know 24%