Alcoholic drink manufacturers face profit decline
UK small and mid-sized food and drink manufacturers are grappling with a stark profitability drop, with the alcohol sector experiencing the most significant hit.
Recent figures show that alcoholic and non-alcoholic beverage manufacturers saw their profitability plummet by nearly 30% this fiscal year, the steepest decline across all sectors. This comes despite a notable 43% increase in revenue, the highest growth among all manufacturing categories analysed.
Food manufacturers also struggled, with a 27% reduction in profitability despite a modest 4% revenue increase. On average, profitability across the manufacturing industry declined by 9.18%, even as sales rose by a similar margin of 9.16%.
The data, published in the latest Manufacturers’ Health Index by inventory management firm Unleashed, highlights the ongoing challenges UK manufacturers face. These figures are based on quarterly data drawn from purchases, sales and stock movements among SME manufacturers in the UK, Australia and New Zealand.
According to Josh Mordecai, director of operations and business development at Good & Proper Tea, the past two years have been particularly tough from a margin perspective.
“The last two years have been really challenging from a margin perspective. We've seen price increases across the board, as have our suppliers, and sea freight has gone up. We want to make sure that our teas remain accessibly-priced for the quality, and the level of service that we provide, but at the same time, we need to maintain our margin and hopefully in time improve it,” Mordecai said.
Meanwhile, a report from the Food and Drink Federation (FDF) has found that UK food and drink manufacturers are contending with a 9.2% rise in production costs, exacerbated by a global skills shortage and limited investment.
Despite these difficulties, some sectors are faring better. Energy and chemical manufacturers saw a 31.37% increase in profitability, with furniture manufacturers following at 21.89%. The personal care sector also showed signs of improvement, with a 95.63% increase in profitability from Q1 to Q2.
However, not all sectors are thriving. The latest quarter saw a sharp 22% decline in overall UK manufacturing revenue, with electrical and electronic component manufacturers experiencing the largest drop at 44%, followed closely by the building and construction sector with a 43% decrease. Clothing and footwear manufacturers were the only industries to buck the trend, with a 5% revenue increase in Q2 2024.
Despite these challenges, the industry has reduced lead times to an average of 23.5 days, the lowest on record, suggesting some resilience amid ongoing pressures.
Joe Llewellyn, general manager of Cloud ERP at The Access Group, Unleashed’s parent company, remains optimistic. He emphasised that the culture of innovation in manufacturing is strong, and he expects the most resilient, creative and agile firms to emerge stronger from the current challenges.
“Conditions are tough – but the culture of innovation in the manufacturing sector has never been stronger. As manufacturers navigate the next 12 months I’m confident the firms that survive and thrive will be more resilient, more creative and more agile than any previous era has seen,” Llewellyn concluded.
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