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

GVA per employee  for manufacturing sector

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.


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.