Very few would have predicted the implausible combination of Brexit and COVID, and the momentous impact they would have in recent years. Since March 2020, food and drink manufacturers, producers and distributors have been forced to continually adapt to the ever-changing landscape. That remains true to this day, especially surrounding sustainability.
Remaining both resilient and adaptive continues to be crucial for the survival and success of businesses. We look at the challenges that lie ahead for the food and beverage industry, and what key risks UK-based food and drink manufacturers have identified for 2024.
What are the key risks facing the food and drinks industry in 2024?
Economic uncertainty and inflation
The food and drinks industry face significant risks from rising costs of raw materials, energy, and transportation. These inflationary pressures threaten profit margins and complicate pricing strategies.
With the added threat of economic uncertainty and a possible recession, reduced consumer spending on non-essential food and drink items could impact sales and profitability.
Together, these factors present a substantial challenge for businesses, requiring the industry to adapt to find ways to maintain consumer demand.
Compliance and changes to regulations
Regulatory compliance is a critical aspect of a business strategy. Evolving post-Brexit regulations combined with stricter environmental and sustainability regulations remain a risk threat to the food and drinks sector.
Changes in trade agreements, tariffs, and customs procedures can disrupt supply chains. This can increase operational costs, requiring companies to stay agile and adapt to ensure compliance.
Simultaneously, the industry must invest substantially in sustainable practices to meet stringent environmental regulations, which pose a financial risk for businesses. Failure to address compliance and regulatory challenges can lead to penalties and damage to brand reputation.
Supply chain disruptions
Global supply chain instability remains a critical risk due to ongoing geopolitical tensions and natural disasters, leading to raw material shortages and delays.
Additionally, logistics and transportation challenges, including port congestion, fleet management, and rising fuel costs, can impede the timely and cost-effective movement of goods. These disruptions require robust contingency planning and strategies to maintain supply chain resilience and minimise operational impacts.
Shifts in consumer behaviour
With the continuing rise and popularity of health and wellness trends, food and drinks manufacturers are constantly having to adapt to consumer behaviour and trends which can involve sizable investment in research and development, and marketing.
Maintaining brand loyalty and consumer trust is difficult and poses a great risk to businesses amidst increased competition and intense scrutiny over food safety, quality, and sustainability.
New technology and skills shortages
Skills shortages and rising labour costs are a constant threat to the food and drinks industry. Factors, such as increasing wages and benefits, place a heavy burden on businesses attracting and retaining staff. This also impacts operational efficiency within the industry.
At the same time, the food and drinks industry’s increasing reliance on digital technologies and data management heightens its vulnerability to cyber threats. Data breaches and cyber attacks can disrupt operations and result in major financial losses.
Although there are significant benefits to be had from implementing new technology for automation and stock management, technology does come at a cost as well as overcoming integration challenges.
How can businesses protect themselves from external risks?
There are a number of strategic initiatives, technological investments, and operational adjustments that can help businesses within the food and drinks industry cope with external risks. Here’s a rundown of some of those measures:
Diversifying supply chains
- Sourcing raw materials from multiple suppliers and regions rather than one
- Increasing the use of locally sourced ingredients to minimise the reliance on international supply chains and being exposed to trade and logistical barriers
Better risk management and contingency planning
- Conduct regular risk assessments and develop robust business continuity plans which are crucial for the food and drinks industry to manage potential threats and ensure swift recovery from any disruptions
Technology and automation
- Tech and automation can be significantly beneficial for the food and drinks industry to eliminate human error, reduce reliance on manual labour, and enhancing production efficiency and scalability
Improved workforce strategies
- Labour shortages can be improved by developing improved recruitment and retention strategies, offering training programs and better career development opportunities
- Invest in upskilling workforces to coincide with technological updates and evolving industry demands
Industry collaboration and support
- Collaborate with industry associations and networks to share best practices, gain insights, and address common challenges
- Leverage government support programs and grants designed to improve the resilience of
Focus on sustainability
- To meet regulatory requirements and consumer expectations, businesses should adopt sustainable practices across the supply chain, from sourcing to production
- Strategies that focus on recycling and reusing materials, and utilising eco-friendly packaging reduces the dependence on new raw materials, reduces the carbon footprint and the impact on the environment businesses within the food and drinks sector
Key challenges and strategies for sustainability in the food and drinks industry
There’s no escaping the environmental challenges that the industry is facing in 2024. Issues concerning greenhouse gas emissions, packaging and food waste, climate change’s impact on agricultural productions and supply chains, are all amongst the challenges businesses within the food and drinks industry will be faced with. What’s more, consumers will be demanding greater transparency on the industry’s sustainability efforts, despite greenwashing and complex supply chains.
How can businesses improve their sustainability efforts to overcome some of the key issues that they will face in 2024?
Supply chain improvements:
- Prioritise sourcing local and seasonal produce to reduce emissions and support local farmers
- Collaborate with suppliers to improve sustainability practices
- Invest in tracking systems to monitor supply chains and ensure that they are following ethical and sustainable practices
Resource efficiency:
- Implement reduce, reuse, and recycle strategies to reduce waste
- Switching to renewable energy sources like solar and wind, reducing carbon footprint in the process
- Use recycled or compostable packaging materials to minimise the impact on the environment
Innovation and adaptation:
- Research and development in climate-resilient crops
- Reduce food waste through better forecasting and portion control, including partnering with food banks and other waste reduction initiatives
- Create closed-loop systems for waste reuse, such as composting and biofuel production
Whilst the significant challenges across the food and drinks sector are widely recognised, there are ways to both mitigate these risks and to focus on available opportunities.
At Menzies, we provide advisory support combined with challenging our clients on their business strategy and decision making. We are able to review systems, data, key operational processes, and evaluate finance function controls and reporting, to identify opportunities and make recommendations to maximise profits whilst becoming more sustainable.
We are also part of the international network HLB, so are well placed to make introductions into relevant territories. We work with a number UK and international food and drink manufacturers, producers and distributors so have first-hand experience of the most effective ways to navigate through these challenging times.
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