SPONSORED FEATURE
How can F&D Manufacturers manage uncertainty and
future-proof their businesses? By Roy Green, Managing Director, Harford Control
D
uring the last few months, the food and drink manufacturing industry has been under huge
pressure from the weaker pound, increasing energy costs and rising raw materials prices. Factories have also been impacted massively by external factors such as the war in Ukraine. Manufacturers are stuck within a vicious cycle between retailers, suppliers and consumers. Being able to adapt to the new business uncertainty and building resilience is more essential than ever.
So, what exactly are manufacturers facing? Why is this cycle so vicious?
Stalemate for retailers and suppliers Retailers are facing huge challenges between rising food prices and household budgets. Food prices have soared by 10.9% over the past 12 months to July. Some retailers are unwilling to pass these price increases onto consumers, so they have to negotiate with their suppliers in order to reach a compromise. For example, Tesco was in a stalemate with Unilever over price increases on Marmite and several other food items. Tesco didn’t want its customers to pay the price even though Unilever and other food suppliers were experiencing higher costs. It took several months to end the stalemate.
How easy is it to achieve this ‘common’ ground? How long can a factory afford to spend on negotiation? At the end of the day, manufacturers need to put their products on retailers’ shelves and, unfortunately, this means many of them having to absorb rising costs internally.
26 October 2022 | Automation
Raw material prices are way too high
For UK manufacturers the situation could become a lot worse due to the devalued pound. Raw materials are more expensive due to the pound crashing against the dollar and the euro. The British pound has fallen to its lowest level against the dollar since 1985, following new Chancellor Kwasi Kwarteng’s ‘mini-budget’. One pound sterling would buy $1.37 on 26 September 2021, but would buy just $1.05 on the same day in 2022. According to the British Retail Consortium, the UK imports about 40% of the food it consumes. The US and Europe are major exporters of food to the UK. In 2020, the UK imported £1.3 billion worth of food from the US. However, it would cost around an extra £200 million to purchase the same amount of food in September 2022, even without price increases from the producer.
Putting these numbers into individual businesses has an even bigger impact. Oakham Ales, a craft brewer based in Peterborough, imports hops from the US. The raw materials have become even more expensive as the company must buy in dollars, and it therefore takes a big hit from the sterling’s weakness.
Manufacturers will need to either absorb the cost or pass it onto retailers. Given just one example of Unilever and Tesco as discussed earlier, how much more cost can manufacturers continue to absorb? “We’ve absorbed the costs and the point might be coming where we can’t absorb any more,” said Nick Jones, Oakham (The Guardian, 2022)
Factories’ internal challenges From goods-in to goods-out, manufacturers are stuck in the middle, absorbing the increasing costs, while at the same time suffering from internal
automationmagazine.co.uk
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