The multiple retailers are continuing to hold their vice-like grip on food and drink manufacturers, according to the results of our 2012 state of the industry survey.
Given that business life remains tough with the nation now officially in recession it probably shouldn't come as too much of a surprise that the big squeeze continues.
High input costs, eroded margins and big retail customers wielding excessive power continue to be the norm.
Yet, despite relentless pressure on businesses and consolidation within the sector, most respondents remain pretty positive. Optimism about the future of the sector is little diminished from last year 65.5% compared with 68%. And many believe things will get better over the coming year. About 66% of respondents expected their companies' profit margins to improve, compared with 60% last year.
Relationships with the big retailers remain difficult. We received a number of complaints about the bullying behaviour of the multiples. By their refusal to accept rising input cost increases, big retailers are inhibiting manufacturers from innovating and for some small firms, threatening their survival, respondents claimed.
Other complaints included the pressure on suppliers to re-engineer products to take out costs and excessive retailer-led promotions. So, clearly, not everything in the garden is rosy!
The general consensus is that raw materials and other input costs continue to cause pain although slightly less than they did a few years back. While still high, the number of respondents expecting raw material prices to remain a problem over the coming year has dropped a little: 85% compared with 94% last year.
"Rising commodity costs are putting pressure on every aspect of the industry and squeezing margins for all," said one business manager. "Some companies fighting for survival are forced to take a low- or no-profit option." He added: Developing a branded strategy will prove extremely difficult without major investment."
Another respondent remarked: "Being a baker and a large user of sesame seed, sugar, flour and yeast, these key ingredients have seen a massive increase that we are currently struggling not to pass on to the customer."
However, some individuals recognised this situation was unlikely to change. "As more and more people find it difficult to make ends meet, the food industry and supermarkets in general have to be offering the best quality at lower prices in order to gain customers and then keep them," he said. "It will be another tough year."
One respondent reflected that it was even more imperative against this backdrop to cut costs. "Operational efficiency is key to the success of manufacturing businesses during this financial climate," he said. "Lean tools and strategies were the best way to improve profit margins."
Clearly, concern about the industry's impact on the environment hasn't gone away either.
With worries about the economy, increasing competition and consumers having less money in their purses, one might expect the sector's focus on environmental matters to have fallen down the list of priorities. It appears not.
More respondents 43% (34% last year) expect to meet 2015 zero waste to landfill targets and, despite Tesco's abandonment of carbon footprint labelling, 25% of our respondents are considering introducing carbon labels on their products compared with 14% last year.
Surprisingly, however, the numbers of those seeking to become more energy efficient have fallen slightly 69% (74%). Given that many environmental initiatives can be justified on cost-cutting grounds, this is hard to explain. One can only assume that, having identified the 'easy wins' as far as energy efficiency measures are concerned, some firms are unconvinced about the return on investment of going further.
However, awareness about 'embedded water' (that needed to grow ingredients used to make products) is evidently rising. The proportion of manufacturers planning to measure the water footprint of their products has risen from 23% last year to 30% this year.
Skills shortages
With shortages in key skills such as food science and engineering, and the sector skills council Improve predicting that the UK's food and drink sector will need to recruit 137,000 people over the coming five years to replace those retiring, it's not surprising that staffing issues are a big concern for the industry.
More than half (54%) of respondents reported difficulties in recruiting people with the appropriate skills. This supports the need for initiatives, such as those launched this year by the Food and Drink Federation, to raise the profile of careers in the sector.
However, some people questioned whether apprentices or graduates provided best value for money. One respondent referred to the inflated expectations of some graduates who were not prepared to get their hands dirty while expecting early elevation to management level.
This individual's comments echoed those made at a recent IGD, grocery think tank conference on skills. One human resources manager remarked that while apprentices stayed with the business, graduates tended to leave after just a couple of years.
Another survey respondent lamented the lack of basic skills held by the school leavers joining his firm. "The standard of education, literacy, numeracy, work ethic and communication skills of school leavers is appalling," he said.
On the health and wellbeing front, the government should be disturbed by the survey's findings regarding healthy reformulation. Activities appear to be waning, despite health secretary Andrew Lansley's efforts to encourage manufacturers to make their products healthier via the Public Health Responsibility Deal.
Although most companies are still working on making their products healthier, the number has fallen from 66% last year to 59% this year. Whether this is a temporary blip, or sign of a more permanent move, we won't know until we repeat our survey next year.
It does appear, however, that manufacturers are starting to give up on the prospects of incorporating functionally healthy ingredients into their products. Of those surveyed, 36% claimed that uncertainty surrounding health claims legislation had deterred them from incorporating healthy ingredients in to their products compared with 32% last year.
Whether the blame for this can be laid squarely at the feet of the European Food Safety Authority for only approving 222 general health claims from the 44,000 originally submitted, it's difficult to say. But even if it's not the sole reason, it certainly won't have helped.