How Yorkshire food and drink businesses can respond to inflationary pressures: Jason Whitworth

The food and drink industry has faced a flurry of challenges in the last three years, with one following the other in quick succession. Whether it’s Brexit, Covid-19, the war in Ukraine, poor global harvests, rising energy costs, or avian flu, all have tested food and drink businesses in the region.

A recent industry event of Yorkshire food and drink business leaders, held in conjunction with BDO, Mills & Reeve, and Barclays Corporate Banking, focused on ways to adapt in the face of these headwinds, bringing to life the challenges currently facing the sector. A poll of attendees showed the wide range of challenges, including supply chain disruption, workforce pressures, such as skills gaps and shortages, as well as rising business costs – all prominent and enduring themes.

However, there are two issues that particularly stood out – changes in customer behaviour, which remains a pressing problem for regional businesses, as well as inflationary pressures weighing down on the cost of living, creating significant complexities for retailers, suppliers and manufacturers alike.

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Consumers are clearly still feeling the pinch. Food inflation continues to run at a much higher rate than overall inflation, with the ONS putting it at 18.4 per cent in May. Over the 12 months to March 2023, the price of food and non-alcoholic drinks has risen at the fastest rate in more than 45 years.

Jason Whitworth shares his expert insight. Picture: Jay CainJason Whitworth shares his expert insight. Picture: Jay Cain
Jason Whitworth shares his expert insight. Picture: Jay Cain

This rate of increase is expected to ease, which it has started to do when compared to the high of 19.1 per cent in April 2023.

Production and ingredient costs are falling from their peak in October 2022 and this will undoubtedly filter through to products on the shelves, even if it’s not consistent across the board.

However, in the world of food retail there is a myriad of issues linked to high inflation, as cost of living pressures are affecting consumer choices and behaviours.

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Shifts from red meat to poultry, fresh to frozen, and lower overall FMCG brand loyalty, combined with higher price sensitivity, are all examples of changing consumer preference in the current economic environment.

Richard McGinn, Group Financial Controller and Head of Investor Relations at Asda, talked at the event about the necessity of anticipating and responding to ever changing customer needs, particularly at a time where customers themselves are finding household budgets under acute pressure and changing their purchasing behaviours accordingly.

Food businesses in Yorkshire are reacting to rising costs in a range of different ways.

Depending on the dynamics of the market the business is operating in, companies can typically adopt one or more of the following five strategies:

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  • Carefully managing how inflation gets passed on through to retail prices
  • Adding value or differentiating products to validate increased prices
  • Substituting the product but maintaining the price point
  • Focusing on efficiency savings in the business
  • Maximising available cash support by applying for R&D relief and grants where possible.

In an era of rising prices and severe pressure on profit margins, the pursuit of a well-conceived has become even more fundamental to Yorkshire companies wishing to grow and prosper.

Jason Whitworth is an M&A Partner at BDO LLP in Leeds.