According to a new study by Lloyds Bank Commercial Banking, found that confidence is strong across Britain’s biggest manufacturing sector, with firms planning to develop innovative new products and increase export activity.
The second annual study, which surveyed English and Welsh producers of alcohol, fresh produce and food and drink products, examines the opportunities for – and challenges faced by – the industry over the short to medium-term.
The forecast for job creation in this year’s report is strong, with firms planning to create more than 73,000 new jobs over the next five years. Against this backdrop, just over a third plan to drive business growth through job creation.
However, with the sector facing the retirement of hundreds of thousands of workers by 2020, over a quarter of survey respondents cited a lack of skilled labour as one of the biggest challenges facing the food and drink industry today.
Optimism in the sector is universal, with 100 per cent of firms expecting to grow over the next five years, up from 98 per cent from last year. More than four in five firms forecast up to 25 per cent growth over the next five years. Mergers and acquisitions highlighted as key growth driver by the largest operators (those above £750m annual turnover).
The majority of firms are focused on both entering new markets in the UK and developing new products, as a way of achieving their growth ambitions.
The cautious approach to spending and investment adopted by many companies post-recession is evident in this research. The majority of respondents will fund growth using cash reserves, followed closely by cash flow finance at 45 per cent.
The majority of producers plan to enter new international markets in the next five years, up from 63 per cent in 2014, while Western Europe remains the most popular export market, the number of businesses targeting this territory is 16 per cent down on last year.
The second most popular target market is North America, followed by the Far East and Asia, which is also down on last year, as 54 per cent of businesses were planning to target this market in 2014). 88 per cent believe English/Welsh produce has a good reputation overseas
While Western Europe remains the most popular target export market amongst respondents, cited by 60 per cent of businesses, North America has overtaken the Far East and Asia since last year to become the second most attractive export destination, driven by significant demand for dairy products – in particular cheese – from the United States.
With 88 per cent believing English/Welsh produce has an excellent reputation internationally, the same number is activity capitalising on the heritage of their produce overseas.
Firms plan to invest on average a quarter (25 per cent) of current turnover into R&D over the next five years. Half of firms (50 per cent) plan to form partnerships with other organisations in their supply chain to develop new products, streamline manufacturing processes and boost productivity
Innovation is a vital spur for long term growth within the industry. Indeed, more than half of producers plan to develop new products as part of their strategy for growth.
Andrew Connors, head of mid-sized business at Lloyds Bank Commercial Banking, said: “The contrast between the 2014 report and our latest research is really positive, with significant job creation and investment figures revealed.
“Productivity presents an ongoing challenge for the UK economy. Against this backdrop, the continued commitment from food and drink manufacturers to drive productivity and innovation through R&D is a clear indication of the crucial role this sector plays in the broader economy.
“Lloyds Bank supports producers, from start-ups to multinational brands, and will continue to help industry operators achieve their ambitions with bespoke finance and specialist knowledge. Food and drink is without doubt a sector that will help Britain prosper.”