In this article we aim to present a quick and easy to digest run-down of the main trends and developments in a highlighted sector of the process manufacturing industries in one of our covered regions. For more information on the areas we cover, click here.
In our previous industry outlook article we reported that confidence was returning to the UK food and drink sectors after a reduction in new build, larger scale investment projects. This emerging confidence was relatively fragile following on from shock-waves caused by the global financial crisis of 2009. The 2016 European referendum result was feared to have an immediate and significant impact for manufacturing growth and investment, with UK food & drink no exception.
The biggest change therefore to the UK food sector and drink sector is the country’s decision to leave the European Union. At the time of writing we are yet to see any significant impacts of the result – as nothing material has yet changed. However, the main impact we are seeing on capex stems from organisations taking a ‘wait and see’ approach due to the uncertainty surrounding the UK’s future relationship with Europe.
Feedback from key players in the industry coupled with statistics from our project database indicate that project investment levels are growing overall, with a greater proportion of planned project schemes coming to fruition. A reported 19% growth is expected for the industry over the next 5 years, suggesting this trend will continue. However, regional differences are emerging; Scotland stands out here with a 24% growth expected.
On average project investment values are on the up; with a greater spend on capital equipment and services across the food and beverage sectors. This is the case both when measured in total investment and average project size. Tendering levels are very high, with many of the major engineering houses & consultants remaining very selective with work due to resource constraints. Fewer projects are being placed on hold compared to the year before.
We are seeing a greater number of longer-term master planning and strategic overview projects, as organisations seek to build in contingencies around the current economic & political uncertainty. These result in many single site/multi-phased projects. This has resulted in many Protel project bulletins being issued very early in the project lifecycle as companies consider their options, often following M&A activity, which is up 11% this year compared to last.
Some UK food sector/drink sector examples include:
(↣ acquisition, ↔ merger)
Due to the prevalence of M&As, there are often commercial or resource implications for sites as rationalisation options are considered. These factors impact on the sensitivity around project details, which is expected to remain higher than usual in the food & drink sectors. Suppliers must therefore utilise all available intelligence to time their approaches correctly.
The rise of Aldi and Lidl mentioned in our last article continues apace, with talk of ‘The Big 6’ replacing the traditional ‘Big 4’ being a distinct possibility. Huge warehouse projects are planned or underway to service the discounter’s growing market share.
Due to currency fluctuations, exports over the next 12 months are expected to increase, however, the costs of raw materials and ingredients are expected to increase in turn – with end users having to pass costs onto consumers. In turn, this may have an impact on suppliers of equipment and services as end users become more cost conscious.
Many organisations are reconsidering or renegotiating contracts in the supply chain, as seen in the recent dispute between Unilever and Tesco, which is indicative of wider pressure to come as importers are hit with increased costs.
Craft brewing & distilling is still a strong growth area, other areas of growth include bakeries, poultry, sandwiches/food-to-go, ‘free-from’ foods and sugar free drinks (legislation coming in to force in 2018).
Some of the larger UK food sector and drink sector investment currently being tracked by Protel (data taken from our MyProtel project search engine):
For more information on any of the organisations, projects or trends covered, including key information required to target specific projects, please contact us.