UK Food & Drink Industry Outlook 2019

Protel tracks capex project activity across the main process sectors to help suppliers win new business. In this article we aim to present a quick and easy to digest run-down of the main trends and developments in the main process manufacturing sectors in one of our covered regions – UK food & drink industry outlook. For more information on the areas we cover, click here.

UK Food & Drink Sectors Show Strong Outlook for 2019

In our 2018 article covering the UK food and drink sectors we suggested that the outlook was improving after Brexit referendum uncertainty which had started to filter through and impact the capex picture.

However, this uncertainty actually ended up continuing well into Q1 and Q2 of 2018. We saw major players pausing investment plans, with project schemes largely being shelved while manufacturers awaited a clearer picture.

As we move toward 2019, things are not much clearer politically. Indeed, uncertainty is still very much extant in the food and drink sectors as we move closer to March 2019. However, we are now seeing a mostly consistent investment picture emerging after a period of ‘wait and see’.

The story for 2019 seems to be one of heightened positivity. Feedback from sources previously suggested that the start of 2018 was particularly challenging. Project plans were being placed on hold or review while decisions around major new investment schemes were dwindling in favour of consolidation or rationalisation.

As such, while smaller manufacturers are still in a state of uncertainty and flux, we’re seeing investment from the larger organisations start to flow through again in earnest. The levels of planned capex we are tracking on our MyProtel system moving through to 2019-2020 attest to this and seem to be contrary to a negative press narrative.

However, while overall investment levels for the year ahead and beyond are extremely buoyant in terms of quantity of planned projects and potential combined capex investment value, projects are generally much slower to receive final sanction. Further, the type of project has swung more toward 5-10 year strategic plans, consolidation schemes and rationalisation rather than new build schemes.

One reason for this is the impact of retailers, with a number of major players all re-evaluating their supply chain in areas such as meat, sandwiches, fresh produce and fish – this has led to significant amounts of capex schemes to service future retailer-led demands. Concerns include efficiency due to rising overhead costs in terms of ingredients and automation to combat a potential reduction in available labour resource.

Engineering house activity is generally extremely buoyant, with sources suggesting that workload is at very high levels. This is across the spectrum of feasibility and implementation, with many firms choosing to be very selective with which projects they take on due to capacity concerns in 2019.

Projects are generally extremely competitive, so timing of approach is key (contact us to learn how we can help with this). The number of companies tendering for a given food or drink project is very high, with a resulting downward pressure on margins. However, due to the buoyancy of project quantities, there is expected to still be plenty of work to go around.

We are seeing a lower probability for the year ahead that projects will be placed on-hold compared to the previous year (approx 20% vs. 40%).

Mergers & Acquisitions

The last 12-18 months were very active for mergers and acquisitions, which had a large impact on capex plans. This activity is expected to continue and potentially increase into 2019 amid further uncertainty for manufacturers.

Barry Callebaut has agreed a long-term supply agreement with Burton’s Biscuit Company, the UK’s second largest biscuit manufacturer. This includes the chocolate manufacturing facilities at Burton’s factory in Morton, through precise financial details are not yet known.

Banham Poultry has been sold out of administration by Duff & Phelps to Chesterfield Poultry. Unilever have abandoned planned HQ move to Rotterdam. Nestle are continuing to transfer Blue Riband to Poland.

Some examples of relevant M&A activity are below:

• Calbee ↔ Seabrook Crisps
• CocaCola ↔ Costa Coffee
• Bakkavor ↔ Haydens Bakery
• AgrialGroup ↔ Aston Manor Cider
• Finsbury ↔ Ultrafarm (gluten free business)
• Whitworths ↔ Hovis Mills
• Valeo Foods ↔ Tangerine Confectionary
• Kepak ↔ 2 Sisters Food Group(red meat)
• KP Snacks ↔ Pop Chips & Tyrells Crisps
• Arla ↔ Yeo Valley Dairies
• ADM ↔ Probiotics International
• nomad Foods ↔ Aunt Bessies & Goodfellas Pizza
• Nestle Waters ↔ Princes Gate
• Bright Blue Foods ↔ Greencore (cakes)
• Heineken invest £40m into Beavertown Brewery
• Signature Flatbreads ↔ Aryzta

Trends

A major area of growth into 2019 is expected to be pet foods and pet nutrition products, a strong area of demand in the UK. Powders, ingredients, fresh produce, dairy, proteins & nutrition, brewing & distilling are all expected to remain areas of high demand. Within brewing particularly there is a major focus on craft brewery expansions, with some major schemes already on the radar (full details will be available to subscribers).

Automation remains a strong area of growth due to labour and resource concerns for the UK in future. Manufacturers are looking to move away from any manual labour wherever feasible.

This extends to warehousing where previously it was primarily in manufacturing. Automated and high bay warehousing is proving a major trend in the food and drink sectors.

Our Coverage

UK Food & Drink

On our MyProtel project search engine we are currently tracking:

486 active food & drink capex projects;

with a combined potential investment value of £5.3bn;

an average project value of over £11m.

Since the start of the year, we’ve seen over £1.5bn of new capex entering the pipeline. Full details of which are available to subscribers, find out how to get ahead of the competition with our capex project database.

Major investors so far this year include:

• Unilever – £20m
• Associated British Foods – £39.5m
• Butchers Pet Care – £20m
• DairyCrest – £70m
• Muller – £52m
• Cargill – £17m
• CocaCola – £30m
• Glanbia – £34m
• Diageo – £70m
• Tulip – £100m
• SHS International – £33m
• Cranswick Foods – £99m
• 2 Sisters Food Group – £39m
• Britvic – £22.5m
• Refresco – £27m

For more information on any of the organisations, projects or trends covered, including key information required to target specific projects, please contact us.