Challenges faced by the food and consumer goods industry

Date : 07 April 2022
Shoppers in the UK are seeing higher prices for food, with food now making a significant contribution to inflation. Shopper confidence is at an all-time low.

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ONS has carried out studies which show how exposed the food and drink industry is to the current strategic environment.

Businesses report a challenging combination of energy price rises, supply chain problems and  labour supply shortages.

Energy prices

60% of businesses across the food and drink sector and 58% of hospitality businesses have been impacted by rising wholesale energy prices.

These figures illustrate the particularly exposed nature of the industry; the average across all sectors of the UK economy is only 38%.

The majority of large businesses across the food and drink sector will have their energy costs fixed and therefore should be broadly insulated from any rise in energy prices.

However, some businesses reported that they are on variable billing rates (13% for gas and 20% for electricity) - these are exposed to the volatility seen across the energy market.

In addition, 7% of industry reported that their fixed electricity costs were due to expire in March 2022. Fixing at current prices, could have severe impacts on operating margins.

Supply chain disruption

Food and drink businesses are more likely to have incurred extra costs due to EU Exit, 47% of businesses across the industry reported additional transportation costs, whilst 34% reported increased costs due to administration.

17% of food and drink businesses, said that EU Exit has forced changes to their supply chains. Businesses were more likely to use UK suppliers, explore different freight options and increase the diversity of their suppliers.

Labour shortages

Labour shortages are impacting the whole UK economy, as shown in the below chart, and the food and drink sector is not shielded from this. 28% of businesses in the food and beverage sector reported labour shortages.

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Shortages remain hard to correct, with 60% of businesses reporting a low number of applicants for roles and 29% paying higher wages for existing employees.

These pressures are combining to cause significant cost increases in businesses across the sector, more than two-thirds of businesses are reporting increased costs.

58% of businesses reported that they are then passing these increased costs onto customers, resulting in unprecedented food price rises.

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