Food and drink firms’ margins hit in 2013

83% of UK food and drink manufacturers experienced similar or worsening operating margins, according to a new survey.

The survey, by accountancy and advisory firm BDO, of food and drink businesses found that 39% of respondents considered pricing pressure from customers as the key challenge for the year ahead.

Price volatility in raw materials was identified as the most worrying concern among 26% of businesses surveyed.

Paul Davies, head of food & drink manufacturing at BDO, said: “Food and drink companies are being hit from all sides in the UK. Customers expect constant product innovation while also demanding that prices are kept low and all of this within an environment of close scrutiny on quality brought about by recent food scandals. ​

“The horsemeat scandal hit early in 2013 and whilst the initial consumer reaction may have settled down, the longer term implications for processors will remain.” ​

Key areas for growth ​

Looking at the year ahead, exports and new product development were highlighted as the two key areas for growth among respondents in the survey.

Over half (58%) of respondents identified that new product development presented the best opportunity for growth in 2014.

With pressures existing in the domestic market, a growing trend for exports was identified in the survey.

Only a third (32%) of respondents export more than 20% of their total sales, but the expectation is for a significant upward shift in the figure over the next three years’, claimed Davies.

Over half (61%) of respondents forecasted they would export more than 20% of their total sales.

“It’s no surprise that manufacturers and producers are looking beyond the UK’s shores to seek growth opportunities,” ​said Davies.

“As consumer confidence lifts and economic growth takes hold it will be interesting to see if margin pressures ease as food and drink companies exploit new growth opportunities,”​ he added.  “In the meantime, any help that the government can give to support a drive in exports is warmly welcomed.”​

£1 trillion ​

In October, the UK government announced an ambition to raise UK exports​ to £1 trillion and get 100,000 more UK companies exporting.

Meanwhile, healthy eating was also estimated to become a driver for change among food manufacturers in the survey.

Davies said the issue was “gathering pace”​ and that 42% of respondents now saw it as an area of focus for their business.

Fat tax and education were most likely to be the way that healthy eating was promoted, according to Davies.

Although, he said that the argument for a fat tax in the UK was “hardly compelling”​ following the failure of the fat tax​ in Denmark.