Martin Gill, Lead Partner for BDO in Scotland
Martin Gill, Lead Partner for BDO in Scotland

Confidence takes a knock as Brexit jitters take their toll on UK food and drink industry

UK food and drink manufacturers are feeling the pinch of Brexit uncertainty but are striding ahead with investment plans to boost productivity, automation and new product development, according to new research published today by accountancy and business advisory firm BDO LLP.

BDO’s Food and Drink Report 2018, published today, found that 60% of manufacturers surveyed are generally positive about the future of the industry, with three quarters (76%) expecting revenue growth and 67% believing order levels will increase in the next year.

However, looking back over the last three years, confidence among UK food and drink manufacturers has fallen 20% and it is Brexit uncertainty which is posing the biggest threat to businesses for the year ahead.

According to the BDO report, concerns over skills gaps and labour are still a major concern to the industry and the UK’s relationship with the EU is only adding to the worry for business leaders.

Less than a quarter (24%) of respondents believe the Government can negotiate a favourable post-Brexit environment for the industry and only 2% think Brexit will have a positive impact on their business in the next year.

Martin Gill, Lead Partner for BDO LLP in Scotland explains: “Food and drink businesses are heavily reliant on overseas labour, with one in three workers being from the EU. The majority of firms we’ve spoken to believe that Brexit is likely to have a negative impact on attracting labour and skills in the future, and naturally that’s becoming a growing concern for them.

“It is crucial the government provides some clarity over our EU exit quickly and further supports an industry that is a huge driving force for our economy.”

Despite the challenges, firms still see a future worth investing in. For almost 90% of food and drink manufacturers, productivity is a major focus area. Two thirds (63%) are looking to make better use of staffing resources and half (54%) are aiming to improve materials utilisation and reduce waste.

This is also driving investment in automation. According to BDO’s report, the objective for almost 50% of all automation projects currently underway by manufacturers is to boost productivity.

3V Natural Foods, which owns the Rocks Drinks and Meridian Foods brands, is a good example.

The group of companies has grown from £7m to £29m in the five years to 2017. Neil Butler, finance and operations director at 3V Natural Foods, credits their wide product ranges and ability to be flexible in production to that financial success. However, that has meant that operations are relatively labour intensive.

Butler says: “If Brexit results in a restricted labour supply, this could result in upward cost pressure and so we are proactively seeking to increase automation in our processes over the next two to three years.”

Looking at where future growth opportunities will come from, more than half are turning to new product development to boost sales.

The two second biggest drivers of growth were refreshing existing product ranges and expansion into new domestic markets. Only 19% see expansion into new export markets outside the EU as a priority.

Martin Gill adds: “The focus on new product development highlights the value of innovation within the industry.

“The government has committed to boost spending on R&D incentives, however there is still a relatively low awareness around the range of activities that might qualify. I would urge that R&D tax reliefs should be high on the agenda for innovative food and drink businesses.”