December 7, 2021

UK’s largest food and drink suppliers facing key decisions to secure futures after withstanding Covid-19

The UK’s largest food and drink producers saw a dip in revenue growth but largely weathered the storm of Covid-19 in 2020, OC&C Strategy Consultants’ latest Food and Drink Top 150 shows. Overall revenue growth among the UK’s largest 150 food and drink producers fell to 1.1%, down from 1.9% in 2019, however profit margins among this year’s Top 150 remained robust, rising to 5.8%, up from 5.5% in 2019. Associated British Foods topped the ranking as the UK’s highest grossing food and drink producer for the second successive year. 

These relatively stable figures mask significant volatility in both profits and revenues among the Top 150. Revenue for 26 of the Top 150 grew by over 10%, while 20 saw declines of over 10%. Larger brands were able to better manage Covid-related disruption and as a result were able to cash in on other industries, such as hospitality and events, that fell foul to Covid restrictions. Birds Eye, Weetabix and Valeo Foods were among those who saw the most improved margins.  

Despite a challenging backdrop, there was an above average level of deal-making in the sector, illustrating an attractive space for investment going into 2022. There were 13 deals completed in 2020 among the Top 150, most notably Bain Capital’s acquisition of Valeo Foods and Mondelez’s acquisition of Grenade. This is a trend that has continued into 2021, with 15 deals completed already, with a minimum of 9 more expected before the year is out. 

Nilpesh Patel, Partner at OC&C Strategy Consultants, comments: “The fortunes for the food and drink sector during 2020 can truly be classed as mixed. Scale allowed larger brands to better absorb the shockwaves of Covid, with smaller players and those more reliant on international sales struggling. However, the industry has bounced back well in 2021 with M&A activity buoyant and the sector clearly benefitting from private equity interest. This is despite labour shortages, increasing input costs and rising global inflation painting an uncertain picture.”  

Among the businesses that enjoyed a strong 12 monthswere the Eight Fifty Food Group, who after acquiring seafood producer Youngs in 2019 and expanding their product offer have seen positive results with turnover up 14.7%. The business, which rose from 18th to 16th in the rankings this year, have since been acquired by Canadian player Sofina Group.  

Premier Foods, meanwhile, capitalised on consumers’ growing preference to stick with trusted brands, seeing margins increase by 16.4% and rising to 21st in the Top 150. Warburtons, Tilda and Albert Bartlett also enjoyed strong years thanks to product expansion and prioritising innovation.  

The Index also uncovered the extent to which consumers are now looking for convenience in their grocery shopping, a trend that the pandemic has brought into even keener focus. Year-on-year online channel sales rocketed from £11.6bn in 2019 to £18bn in 2020, with sales forecast to reach £22.6bn in 2022 amid the new wave of rapid grocery delivery services such as Gorillas and Getir.  

The Top 150 are also having to pay increasing attention to their sustainability footprint, mirroring trends seen across other FMCG sectors. An OC&C survey conducted as part of the report found that over 50% of UK consumers are now making decisions entirely or partially influenced by sustainability. As a result, the Top 150 are placing greater emphasis on their ESG work in their external communications – three fifths (58%) of the Top 150 included a mention of ESG in their yearly reports.  

Nilpesh Patel comments: “Convenience has taken on a new meaning, with consumer expectations in this area higher than ever. For legacy businesses, the next growth opportunity and challenge will be how effectively they can pivot to these more practical options for consumers. When it comes to sustainability, consumers are also voting with their feet. This trend is here to stay, and businesses must continue to enact changes within their governance structures and supply chains, otherwise, they risk being left behind.  

“There are significant investments in these areas from the Top 150 and the level of M&A activity shows an industry-wide willingness to enact change. As a result, senior executives are increasingly considering a combination of financial and reputational factors when deciding how to adjust their business models.”