High

Food & Drink

Covid-19 has created new pressures across the sector, particularly for those companies exposed to the food service industry.

Sector trends & challenges

  • Supply chain issues

    Supply chain disruption is a risk, with labour restrictions, logistical challenges and greater administrative requirements potentially increasing production costs. Supply chain failure risk requires businesses to build resilience.

  • Uncertain outlook & liquidity

    The short-term outlook, especially for those in the food service sector, remains challenging with ongoing restrictions and the risk of new COVID-19 variants. Tight cost control is vital in order to manage liquidity and margins.

  • Changing consumer landscape

    The increasing importance of ethical, social and environmental considerations and the impact of COVID-19 are likely to lead to lasting shifts in consumer behaviour. Many will need to amend their business model in order to grow.

Sector rating profile

Even prior to arrival of COVID-19 disruption Food & Drink Manufacturers (FDM) were under mounting pressure to adapt to Brexit-driven complexity in the supply chain and we had been tracking a moderate level of restructuring activity across the board. Through the course of 2020 and now 2021 the impact of the pandemic has raised the intensity of the challenge quite significantly for those supplying a greater balance of their output to the food service industry.

Food & Drink

COVID-19 has created operational and financial pressures across the sector, although many Food & Drink Manufacturers (FDM) serving the retail sector have fared well during the pandemic.  Conversely, those FDM primarily focused on the food service industry have faced immense challenges with the government support packages being paramount to the survival of many. 

For retail sector facing FDM, the pandemic has put a spotlight on the need for supply chain resilience to avoid production line interruption, and there is potential for some supply chains to shorten and the on-shoring of food production in order to improve output reliability.  This may lead to an increase in costs. In addition, whilst the Brexit trade deal was generally viewed as a positive outcome, the potential for ongoing disruption remains with the risk that FDM margins are squeezed due to rising production costs.  Given the above, strict control of the cost base is fundamental to future profitability.

The short-term outlook for food service sector FDM remains uncertain and is largely dependent upon the success of the vaccine roll-out and the time it takes for business segments such as leisure, travel and hospitality to get back to near normal levels of trade.  Some market segments are also likely to experience permanent change, for instance, the move toward hybrid working is likely to impact ‘food-to-go’ especially in the main commercial conurbations which has consequences for FDM allied to the segment.

Longer term changes to the business models of many FDM are considered likely as a direct result of shifts in consumer behaviour and preferences.  Ethical and traceable supply chains, healthy eating and environmental concerns are all topics that FDM will have to continue to address in order to remain relevant in their market.

Find Your Expert

Dom Carter is Interpath Lead for Consumer Markets, which includes Food & Drink as one of three core segments. Steve Elsigood leads our approach to Food & Drink nationally. For a full list of our senior people with experience in the sector use the button below.

Our senior team