Food and drink producers’ revenue falls to 15-year low

Revenue growth of the UK’s top 150 food and drink producers declined by 0.1% in 2015, the report revealed. It also showed profit margins for the top 150 – including Associated British Foods, Unilever UK and Coca-Cola Enterprises – at 5.3%, 1.1% below the 20-year average.

The firm behind the research blamed deflation for the drop in sales and a decrease in investor confidence in the build-up to June 2016’s EU referendum. Deflation was compounded by a drop in the number of merger and acquisition deals last year.

Author of the report, and partner at OC&C Strategy Consultants, Will Hayllar said: “For years, the top 150 food and grocery companies in the UK have enjoyed revenue growth that has far out-paced overall grocery spending, driven by merger and acquisition activity and a focus on leading brands. ​

‘The dawn of a new era’​

“That has now been turned on its head, and we’re facing the dawn of a new era for the industry. Small branded businesses are coming to the fore, boosted by the appetite for niche food and drink brands in the UK and are presenting the biggest source of revenue growth for the sector.”​

Small branded businesses posted a continued revenue growth of 1.2% in 2015, the OC&C Strategy Consultant’s 28^th​ Annual Food and Drink 150​ report revealed. It said the growth could be due to the UK public’s excitement for new and innovative brands. Smaller brands could become more attractive to investors as the sterling weakens, in the wake of the Brexit vote, the report revealed.

Hayllar said: “Brexit uncertainty can be turned into opportunity, but producers must be proactive if they are to do this. With sterling at historic lows, there’s no longer such a price premium for buying British and this opens up a market that had previously been facing stiff competition from cheaper overseas suppliers. ​

‘Recent sector performance cannot continue’​

“Along with aggressively pursuing these growth opportunities, the time has come to kick-start merger and acquisition strategies to capture growth. Recent sector performance cannot continue, and the time has come for food and drink companies to reverse their recent fortunes.”​

The annual Food and Drink 150 ​report was produced in association with FoodManufacture.co.uk’s sister title The Grocer.​

Meanwhile, some large companies have bucked the trend of falling sales. Finsbury Foods​ posted a 25% rise in sales on September 19. Irish dairy group Glanbia​ posted a 2% rise in revenues for the first half of 2016 in August. Earnings before interest, tax and amortisation (EBITA) was €157.4M, up 13.7% on the prior half­-year.