UK Food & Drink Sector Outlook 2020

Signs of Vigor Return to UK Food & Drink Sectors in 2020

Delay and uncertainty were the main themes of 2019 for the UK food and drink sectors. In our previous article published at the end of 2018, we covered how the high levels of planned capex were being increasingly delayed by uncertainty flowing from the UK political situation

That is not to say that 2019 wasn’t a busy year for capex planning, but the implementation of larger new build project schemes were shelved or delayed en-masse, with a focus by manufacturers toward rationalisation and consolidation. Longer term plans became abandoned in favour of smaller, quicker modifications schemes to existing plants to better respond to short-term developments in the food and drink sectors

There was a focus on feasibility and front end work. Projects were much slower to reach sanction, with implementation levels sluggish across 2019.

As we move into 2020, the start of the year has already seen a dramatic shift in sentiment and confidence across the sectors for the period ahead. It is beyond the scope of this article to cover the political reasons that may precipitate this development, but it is clear to us so far that the outlook for 2020 is very different to what we saw in 2019 for the UK food and drink sectors.

The environment remains, in the short-term, extremely competitive for suppliers, as fewer projects reach sanction and price pressure can be levied by end users. However, our data suggests that later in 2020 this may shift slightly, as a glut of projects reaching implementation means that price pressure is lessened.

While the level of investment was enough to keep some organisations busy in 2019, this wasn’t always the case and last year proved difficult for many due to market conditions. We saw some site closures as the post-Brexit vote saw revised masterplans and consolidation of existing plant being implemented, after an initial shelving of larger capex plans at the start of 2019.

So far in 2020 we are seeing more of a sense of momentum behind previously delayed larger projects, and already lots of new large-scale investment plans are coming into view for 2020.

With a sense of momentum comes a need for large manufacturers to return to 5-10 year capex strategies, where previously we saw this dwindle in 2018-2019 in favour of ‘making do’ with existing plant for the short-term. Medium-sized and domestic producers may fare well post-Brexit, as uncertainty will persist around the UK’s future trading relationship with the European market which may still impact larger multinationals.

The possible exception to this is those larger players looking to implement greater vertical integration in an attempt to future-proof supply lines in an uncertain few years to come.

Mergers & Acquisitions

Merger and acquisition activity in the UK food and drink sectors has remained strong through 2019. Companies have been seeking to manoeuvre themselves into a position of robustness for an uncertain future, to capitalise on emerging food and drink sector trends or diversify product portfolios. This activity is expected to continue into 2020, with resulting impacts on capex plans being tracked on our online project search engine, MyProtel. Test our platform for yourself.

Some examples of relevant M&A activity are below:

• Greencore => Freshtime
• Valeo => Kettle Foods
• Valeo => Matthew Walker
• AAK => Soya International
• Saputo => DairyCrest UK
• Pilgrim’s Pride => Tulip
• Samworth Brothers => 2Sisters Sandwiches
• Meadow Foods => Nimbus Foods
• Cranswick => Katsouris Brothers
• Bakkafrost => The Scottish Salmon Company
• ABP (Advanced Proteins) => John Pointon and Sons

Trends

In 2020 capex in the UK food and drink sectors is likely to be influenced by an abundance of established or emerging trends. Free-from has proved to be a consistent growth area for several years now, as consumers take a greater interest in health, nutrition and their impact on the environment. In addition to this, we have seen more and more capex plans to offer plant-based alternatives. Consumers in general are expected to alter their dietary choices in an effort to reduce their environmental impact by selecting more sustainable protein sources. As a result, seafood and poultry are expected to remain strong investment areas in 2020.

Further, consumers taking greater control of their health and wellbeing are driving innovation and growth in cannabis derived products, argan oil products, condition specific meal products (e.g. diabetes control, cardiac disease).

Organisations are expected to continue to focus on energy efficiency and waste reduction. The emphasis on plastic reduction is also expected to continue to drive manufacturers to invest in sustainable or recyclable food and drink packaging alternatives. A focus on vertical farming and automated warehousing also represents innovative growth areas with lots of potential for suppliers.

We previously covered the boom in micro distilling, with the trend then impacting on major beverage capex plans. This is set to continue as producers pivot toward rum production.

Our food and drink project coverage

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On our MyProtel project search engine we are currently tracking:

Since the start of 2020, we’ve seen over £180m 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.

Selected major investors being tracked over the last year include:
• Mowi Scotland – £80m
• 2 Agriculture Ltd – £60m
• Ocado plc – £60m
• Samworth Brothers Ltd – £50m
• The Co-operative Group – £45m
• McCormick Europe Ltd – £40m
• MEG Weissenfels GmbH – £30m
• Chivas Brothers Ltd – £30m
• Nestle UK Ltd – £30m
• Princes Soft Drinks Ltd – £25m
• Apetito Ltd– £20m

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