Forces for Change
The data presented and discussed above have shown
the food industry to be a
pillar of strength and stability
in the British manufacturing sector, growing
steadily
while much else is in decline, employing a substantial
share of the
workforce, increasing productivity and
resisting cyclical movements in the
economy.
It
also
provides a vital outlet for UK agricultural produce.
But over an extended period of time the industry has
changed dramatically,
restructuring and introducing
new products at an unprecedented pace to meet the
demands of an ever-more powerful retail sector intent
simultaneously on low
prices
and product
differentiation; only the fittest manufacturers have
survived,
though fitness in this context is not
necessarily synonymous with size.
Over the past two decades the main driving forces
for changes in consumer
demand have been growth
in spending power and changes in demographics and
lifestyle
which have fuelled the demand for
convenience foods, value added
products and
eating outside the home. As indicated by box 1 (download full report to view box 1 [pdf, 2.92Mb]).
this has
meant that overall consumer expenditure on food
(and drink) has
continued to grow even though calorie
intake has stagnated. The various changes
imply not
only more products and a faster turnover, but that
markets have
segmented more finely.
Recent trends in the competitive environment facing
the food industry include[16]:
- a continuing focus on health (obesity, functional
foods, replacement of
'unhealthy' ingredients such
as trans fats) and the need to respond to new
legislation
such as the EU Nutrition and Health
Claims Regulation, initiatives on
advertising to
children and nutrition labelling initiatives
- the continuing need for convenience
- the continuing need for value
- the continuing demand for premium and indulgence
- fossil fuel and agricultural raw material price
increases
- increasing consumer concern about various
environmental issues, enhancing
growth in organic
and fair trade products but also leading to concerns
about
food
miles and the broader carbon
footprint. Some companies are already
responding
with proposed labelling initiatives; and
- continuing growth in retailer power.
However, these 'mega-trends' which have been well
documented hide a variety of
sub-trends and countertrends
that companies must respond to, as identified
for
example, in figure 15 (download full report to view figures) from Improve.
Large manufacturers have made a number of strategic
responses[17/18]: to these various developments which
involve a mixture of efficiency seeking
(cost
minimisation) and product differentiation. They include
measures to
make
their plants flexible enough to
support a wide product range to serve
fragmenting
markets; reorganising production into large plants
capable of
supplying
foreign
markets; and developing
new products based on new
technologies.
Medium-large companies are particularly well suited
to meeting the growing
demands of retailers for own
label products. They are able to take advantage of
economies of scale in production, can be flexible and
rapid in response to
retailers' needs, and are able to
avoid the costs of creating and maintaining
brands.
Medium to large companies whose success depends
on secondary brands have found
themselves squeezed
between private label and major brands.
Broadly speaking there are four ways in which small
companies compete within
the food industry[18]: on the
basis of cost in cases where small scale production
is most
efficient
(perhaps to supply local markets); on
the basis of producing a highly
specialised product
for a particular niche market, which may be considered
insufficiently
profitable for larger enterprises; in
developing products in new
areas of
the
market (which
if successful can be vulnerable to take-over by
larger
enterprises); and through their ability, sometimes, to
respond more
quickly and
flexibly
than larger firms.
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16 ACNielsen (2006). What's Hot Around the Globe: Insights on Growth in Food and
Beverages. Demand for Skills in the UK Food and Drink Manufacturing Sector:
Stage
1 of the Sector Skills
Agreement, Demand Drivers, Improve Ltd, July 2006
Sector Futures: the future of the food and drink sector, European Foundation
for the Improvement of Living and Working Conditions, 2004 Emerging Food
Industry
Responsibilities, Ruth
Huxley, A Review of the UK Food Market, 2006M
Back to the future: Tomorrow's food sector will remain vibrant, but will have
accommodated new priorities, John Dunn, February 2007.
17 McGee J and Segal-Horn S 'Will there be a European Food Processing Industry?'
in Young S and Hamill J, Europe and the Multinationals (1993).
18 Traill, WB (2000). Strategic Groups in the EU Food Industry, Journal of
Agricultural Economics 51(1), 45-60.
19 Cumbers A, Smallbone D, Syrett S, Leigh R (1994), The Implications of the
Single European Market for SMEs in the Food Sector, Centre for Enterprise and
Economic Development Research
Publication No 2.
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More Information
The information in this section is taken from Working for the UK: our contribution to the economy (pdf, 2.92Mb) full report, published by FDF in October 2007. The report includes over 20 tables of
statisitcs.
Last reviewed: 15 Feb 2008