North East Food and Drink Sector Optimistic Despite Rising Costs
Almost seven in 10 (68%) of UK food and drink businesses are optimistic about future growth despite costs continuing to be a significant challenge, according to a new survey of the sector.
The research was carried out by leading UK independent accountancy and business advisory firm Johnston Carmichael, which has an office in Newcastle and is a member of Food and Drink North East (FADNE).
FADNE said the findings, which demonstrate the resilience of the sector amid the cost of living crisis, echoed what they have been hearing from businesses across the region.
Almost all those who took part in the Johnston Carmichael survey experienced a rise in costs over the last 12 months. Respondents said the top source of increased costs was energy bills (30%), followed by labour costs (25%) and raw materials (23%).
To mitigate against their increased cost base, respondents said they were seeking operational efficiencies including supply chain review, but the vast majority said they have had to increase the price to consumers. Of those who increased their prices, more than half (52%) sought increases of 5-10%. While 16% increased prices by more than 10% this was a reduction compared with 2022, when 27% increased their prices by more than 10%.
Despite the pressures, and a continuing global backdrop of uncertainty, 70% of respondents said they were optimistic, or very optimistic, about future growth of their business – up from 60% a year ago.
Paul Shields, Newcastle partner and manufacturing specialist, Johnston Carmichael, said:
“In the last 12 months, businesses have struggled with unprecedented cost increases. Raw material costs, availability and increasing costs of labour, as well as global instability as the war in Europe continues to cast its shadow on trade. The sector has been disproportionately hit by energy costs, and although reduced, are still significantly higher than the recent past. The new living wage will also affect all employers.
“That said, the industry continues to be innovative, remain in robust health and we all need to eat.
“The good news for the North East is that seven in 10 food and drink businesses are optimistic about future growth, and there is a great opportunity around export. We would welcome greater public sector investment to help support the sector’s growth ambitions, while measures to simplify international trade post-Brexit could help to boost export.”
Many of the businesses surveyed have strong intentions to export. While the majority of respondents cited the UK as their main market, 56% of businesses identified Europe as a key region, 46% said they are targeting Asia Pacific and 40% are targeting North America.
When expanding internationally, most businesses preferred doing so via a local distributor (39%). However, 35% of businesses said that they were not operating globally, suggesting a substantial growth opportunity for the UK’s food and drink sector.
With Brexit, half of businesses felt the same as they did 12 months ago, but a quarter of respondents are feeling less positive than they did last year and some commented that they have given up entirely on trying to export into the EU due to the costs and challenges of complying with regulations.
Ian Pilkington, Commercial Director, FADNE, said the feedback received by Johnston Carmichael was similar to that gathered by its 2023 Energy Crisis and Boiling Point surveys.
“Our surveys demonstrated both the vulnerability and also the resilience of businesses in the sector.
“The Covid pandemic, and this cost of living crisis has impacted supply chains, consumer spending patterns, but the sector has proved to be both responsive and agile in adapting to the economic environment. Opportunities are arising through regional and local networking and working together on collaboration to build efficient and effective regional supply chains.
“This is where organisations like FADNE and Johnston Carmichael can assist in enabling connectivity and opportunities in the region’s food and drink ecosystem.”
