Survey points to optimism despite challenging economic environment
A new survey from BDO shows a high degree of optimism among food and drink manufacturers, despite the challenges of rising input prices, geopolitical instability and the lingering impacts of Brexit and COVID-19.
More than half of those responding (53%) expect to see an increase in orders over the next 12 months. And despite difficult economic conditions, one third of companies are planning capital expenditure in production this year.
The survey of 101 food and drink manufacturing companies was conducted in April 2022 and replies have suggested that almost eight out of ten leaders in the UK food and drink sector feel positive about the prospects for their business over the coming year. However, rapidly deteriorating economic conditions will test their resilience, the accountancy and business advisory firm BDO LLP has warned. The full effects and longer term outlook of the war in Ukraine was probably also not fully realised at the time the survey took place.
Geographical expansion features in the growth plans of many businesses however. Almost a third (31%) anticipate growth in non-European markets such as the Middle East and North and South America, while 29% expect growth to come from the UK and 28% from new markets in the EU.
The survey also highlighted the increasingly complex risk environment in which food and drink manufacturers are operating. At the time of the survey, the ongoing impact of COVID-19 continued to be the biggest worry, cited by 28% of BDO’s survey sample. Meanwhile increased competition, the effects of cheap imports, cyber security and wage inflation were all seen as threats for between 16% and 18% of those surveyed.
There is also evident unease around rising levels of inflation. In response to rising prices, around a third (32%) said they were seeking additional finance, 23% were reducing profit expectations and almost one in five (19%) said they would be prepared to take on higher levels of debt.
Staffing, which was already a problem pre-Brexit, continues to be a challenge. Despite around two fifths of companies saying they expect to increase headcount over the next year, 61% reported that they were having difficulty recruiting the people they need, with IT and software roles the hardest to fill.
Cindy Hrkalovic, head of food and drink at BDO said: “Over the last few years, food and drink manufacturers have proved themselves to be very resilient in responding to Brexit and COVID-19 lockdowns. Many have acted swiftly by choosing to in-shore or near-shore supplies and strengthen operations.
“Despite rapidly deteriorating economic conditions and new disruptions in global supply chains, this proven resilience is why food and drink manufacturers remain remarkably upbeat about their prospects for the coming year.
“However, with inflation continuing to rise at its fastest rate in 40 years, margins are suffering and this could derail the industry’s investment and growth plans. The industry will need to be more innovative and resilient than ever to work through these headwinds and this will only be possible with the right Government support.”