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The new year began precariously for UK Food & Drink manufacturing; as with the global economy many companies are teetering between signs of recovery and omens of collapse!
Being so risk adverse can create paralysis, but others are maintaining or even increasing profit through consolidation and cost management. This sheds light on a market that surely does not represent true sustainable growth. Now more than ever is the time for fresh ideas, invention and innovation - we must tackle austerity with audacious ideas that represent real business opportunities and tackle fundamental problems in the market!
Tesco alluded to this with the announcement on Friday that festive cheer ran out, with results taking a tumble following their lacklustre review of Christmas trade. Chief Executive Philip Clarke admitted Tesco was “disappointed” with its domestic performance over the seasonal period:
“There is much more we can do to further improve our shopping trip for customers and we are determined to move faster.”
For most people the new year is a time for reflection, prediction and action and the same is true of major multiples such as Tesco. The recession has had an impact on UK consumers’ shopping budget which – now seriously pinched – has become more discerning. Traditionally the retailer response has been to pass on the pain and squeeze manufacturers’ margins.
However, is Phillip Clarke’s statement a nod to change in 2012? Will manufacturers this year have a chance to change the balance of power?
If so, how ?
In the last few year retailers – by squeezing margins – have forced manufacturers to focus on good cost management and supply chain efficiencies to recover bottom line margin. Market consolidation was another approach – buying up market share and creating stronger leverage with retailers.
However, does this represent true market growth in the same way as organic growth or innovation or new product launches? Perhaps the retailers’ continuous downward pressure has sent manufacturers into a New Product Development black hole or has it had the opposite effect?
I believe the winners of 2012 will be those businesses that can invent, innovate and launch effectively. As we can see with Philip Clarke’s statement retailers want to embrace change and improve the shopper trip experience, so not only is it about new product – the focus will also be on innovative in-store activation!
The key trends of 2011 will continue in 2012, with three areas of business activity in Food & Drink:
1. Consolidation will continue as businesses build market share and power to battle the retailers on price and distribution.
2. Cost Management – on-going review of cost and efficiencies to recover margin erosion. Looking at the total value chain as a response to increasing raw material costs and decreasing margins with the retailers. Businesses will also be looking at how they can re-engineer processes/product to innovate in the market, so a combination of cost management and NPD will support a more strategic approach and joint planning with the retailer.
3. Innovation – my call to action for 2012. We must have fresh ideas, new ways of working and new products if, as a market, we are going to truly grow.
So how as an industry can we bend the boundaries, change the way we work and launch new and exciting products, gain power back from the retailers and connect with the consumers????
Manufacturers need to be more daring and as they say; ‘out of adversity comes opportunity’ !!
Jo Sands is Head of Food & Drink at Interim Partners
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January 17th, 2012 at 11:50 am
Fair comment Jo, But as an “inbetweener company” those words are not to encouraging. Although a little more comforting is the words out of adversity comes opportunity as that is exactly what we having to do, looking for alternatives to doing business with the Manufacturers and the retailers. It is going to be a tough year and retailers will get stronger as margains are already being squeezed again to fuel there so called price matches.