Competitive advantage
The UK food and soft drink manufacturing industry (FDM) needs to exploit its competitive advantages, minimise its weaknesses and overcome a range of barriers in order to remain competitive in the world FDM market.
Some of these issues remain the responsibility of businesses, but in many cases
they will require the Government to provide a positive regulatory environment
which optimises their growth.
The food and soft drink manufacturers that participated in this study regard
product quality,
branding and new product development (NPD) as the industry's main competitive
advantages.
Other areas of distinction for the UK FDM industry, according to the executives
interviewed,
are efficient supply chains, low waste and high levels of regulatory compliance.
These characteristics were considered to contribute towards the industry's
competitiveness, allowing it to maintain margins and present itself as a
reliable
partner when conducting business abroad.
The analysis conducted based on desktop research supports the FDM executives'
views.
According to Mintel's NPD Database, the UK food and drink industry has the
highest number
of new product variant launches outside the US. Between 2005-2011 (up to
October), UK
manufacturers launched 49,995 product variants compared to 47,677 in Germany,
41,005
in France, 36,652 in Brazil, 32,019 in Japan, 24,209 in Spain and 13,868 in
Canada.
The businesses surveyed credit the UK FDM with equally developed R&D and
technology capabilities when compared to Western counterparts. This is
consistent with
the R&D investment data available from the Organisation for Economic
Co-Operation and Development (OECD) which indicates that among comparison
markets, the UK
food, beverage and tobacco companies invest the highest percentage of revenue
in
R&D (0.48% of turnover). However, the UK FDM is lagging behind Japan and
Switzerland both of which, when expressed as a percentage of turnover, invest
almost
double in R&D.
The FDM executives interviewed stated that productivity improvement is a
constant priority for
their businesses, although they believe that the UK FDM industry has many
legacy
assets and is
characterised by overcapacity. Although utilisation rates were not tested,
international productivity
comparisons indicate that the UK food and beverages industry has consistently
improved productivity when measured as gross value added per employee.
UK's FDM productivity has been steadily growing at an annual rate of 4.7% during
the 2003-2008 period. If compared in Sterling terms, UK ranks above Germany and
Japan, both of which have substantial manufacturing sectors and are
traditionally considered to invest heavily in technology as a means of
improving
their
productivity.
Areas for improvement
The businesses surveyed rated the UK FDM's competitiveness low in terms of
labour cost.
An international comparison proves that not only are UK labour costs above
other
countries',
but, unlike most countries analysed, the growth in labour costs outpaced
productivity growth
(between 2003-2007).
Businesses also stated that they operate in a highly regulated environment and
Government does not adequately support them in areas such as taxation, advice
provision and cutting 'red tape'. Therefore, they ranked the UK FDM's
competitiveness low in areas such as the ability to operate in a positive
regulatory
environment, indicating that this is an area where the sector may have a
competitive
disadvantage.
Gross Value Added (GVA) per employee for manufacturing sector vs. food &
beverage, 2008
Notes: a. Japan's figures are in 1,000's Yen
Sources: 1. OECD (2011). OECD Structural Analysis Statistics (STAN); 2. ONS
(2011), Annual Business Survey
Case study: Investing in healthy innovation - McCain Foods
As a manufacturer of staple family foods McCain has long recognised its
responsibility
to make its products as healthy as they can be and develop meal solutions for
consumers
that are healthier, while still providing the taste and convenience they expect.
Over the last ten years McCain has implemented a major reformulation programme
across its
existing retail and foodservice portfolio with an emphasis on reducing
saturated
fat and salt,
adapting recipes and production processes to achieve this. In 2006, as part of
a
strategic
repositioning of its product range, McCain took the decision to switch to
sunflower oil for
cooking all of its potato products resulting in a significant reduction in
saturated fat levels.
This change represented a multimillion pound investment as well as a major
production and
logistical challenge requiring over 300 new product specifications and a
complete packaging overhaul. Further recipe changes to reduce salt were made at
the
same time, and over thirty artificial ingredients replaced with natural,
healthier
alternatives.
Since reformulation work first began in 2001 McCain has reduced saturated fats
by over 70%
so that typical levels in its potato products are now less than 1% when oven
cooked. Over the same period the company has also reduced salt levels by 22%,
and
are on track to meet 2012 Responsibility Deal targets ahead of schedule. McCain
products contain no artificial colours, flavours or trans fats.
Healthier innovation is also a key priority, resulting over the last four years
in two very successful product launches – McCain Rustic Chips have only 3% fat
when baked and achieve four green traffic lights under the FSA guidelines, and
its Purely Potato range of steam blanched products use no oil in preparation
and
contain no added salt, making them a popular menu choice for school caterers.
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More Information
A Grant Thornton report commissioned by Food and Drink Federation. Note that the
case studies in the executive summary were written by the Food and Drink
Federation.