pricing pressure in food and beverage industry

Pressure on Profit Levels for the Food and Beverage Industry

According to the latest CBI Quarterly Trends Report of 2017, despite UK manufacturing reaching its highest levels in nearly 30 years, the food and beverage industry is still experiencing shrinking profit levels.

The UK food and drink industry represents 15% of the UK’s total manufacturing sector and contributes £28.2bn to the economy annually. Despite this, the sector continues to face a wide array of and beverage industry and pigging

This blog article looks at some of the challenges that food and drink manufacturers and processors must contend with, and how product recovery (pigging) can help.

Profit Margins at Record Low Levels

Many of the big players in the food and drink industry in the UK have seen their margins increasingly under threat and reach record low levels for the past two years, according to the Food & Drink 150 Index.

The annual report, published by OC&C Strategy Consultants and the Grocer, reveals that margins currently stand at 5.3%, falling from a long-term average of 6.3%.

So why is this happening, and what are food and drinks companies doing about it?

Highly Competitive Food and Drink Industry

Competition in the food and drink industry is getting tougher with pressure on prices and margins continuing downward and raw material prices fluctuating.

At the same time, there has been a rising demand for products that are minimally processed, made with natural ingredients and contain no artificial flavours and ingredients. As these consumer preferences have pivoted towards health food, it’s forced manufacturers to reformulate their product portfolio as well as introduce new products to meet the demand.

While this offers many opportunities, it can also pose a serious risk for companies in the food and drink sector.

Food and Drink Companies and Cost-Cutting Measures

As profits have flatlined in recent years across much of the food and drink industry, a route that many companies have taken is to adopt cost-cutting initiatives. More and more companies are trying to reduce costs to not only make up for the slowdown in sales but to also find the cash flow they need for other initiatives that could increase revenue.

However, this doesn’t come without complications. In fact, in a recent survey carried out by insurance broker Lockton, it was claimed that because companies were suffering from pricing pressures, this has resulted in some manufacturers cutting corners and looking at cheaper ways to produce their products.

The research also suggests that this has resulted in a rise in product contamination recalls over the past six years.

Shift Towards Cheaper Raw Materials

According to Lockton, because of the increasing demand for reduced costs, many manufacturers have turned to using cheaper raw materials. However, the shift towards cheaper raw materials in the food and drink production process is setting an alarming precedent and puts companies at risk of a costly recall.

While cheap doesn’t always mean bad, cheaper ingredients are commonly associated with being sub-standard, having lower safety standards and are the prime target of food fraud. Contamination and food fraud scandals that are often behind product recalls can have serious detrimental effects on any manufacturer and its brands.

That’s because they can have a negative impact on a brand’s reputation and are extremely expensive. For instancefood and beverage industry pressure on margins, some of the costs incurred from a product recall include transport and logistics, communications, product destruction as well as the reimbursement to the customers and retailers and the potential legal fees.  Here’s a blog article that we recently wrote about how food fraud poses a severe risk to the food industry.

Remaining Profitable in a Competitive Market

The reality is that it’s a challenging time for the food and drink industry. Competition is high. Prices and margins have been driven down. The average household in the UK and the US spends less of their income on food than they did than two decades ago.

At the same time, food and drink manufacturers are expected to source all of their requirements (food and ingredients) in a responsible and sustainable way. Yet, it’s frowned upon to pass these additional costs on to the customer.

So, one question remains, how can food and drink manufacturers remain profitable in a highly competitive market that offers limited growth, without negatively affecting the quality of their food and drink products?

Implementing Technologies Such as Pigging

The challenge of maintaining high product quality and at the same time minimising costs in the production process can often be met by optimising production and through investments in new technologies.

Many food and drink manufacturers are implementing technologies such as pigging to improve efficiency, productivity and profitability.

In the food and drink industry alone, pigging is used with an extensive variety of products including sauces, soft drinks, sugar solutions, butter, chocolate, bakery, wines, spirits, juices plus many more.

Recovering Product, Increasing Yield and Reducing Wastepricing pressure in food and beverage industry

Pigging technology offers many benefits to food and drink manufacturers. As well as recovering valuable product, HPS pigging systems are one of the most effective ways to increase product yields, cut waste processing and reduce changeover and cleaning times. As an example, HPS implemented a pigging system for a butter manufacturer who is now recovering approximately 200 kgs of product after each changeover that would otherwise be wasted. Similarly, an HPS pigging system is increasing product yield of a soft drinks company by approximately 48,000 extra cans per week.

Because pigging recovers significant amounts of product from processes (which is perfectly useable), there’s more product to sell. It also means less is required to achieve the same output.

As well as increasing profits, pigging systems are also advantageous to food and drink companies as they streamline processing, save time and speed up various operations.

Pigging Massively Helps Sustainability

There’s increasing emphasis being placed on environmental sustainability in the food and drink industry. As such, many of these companies have an environmental strategy embedded throughout their business.

Because pigging saves large proportions of energy, water, and resources, it can help food and drink businesses improve their sustainability.

For instance, the resources saved by lessening cleaning times and reducing waste processing are often significant. Pigging indirectly reduces the number of trucks required for the removal of waste or delivery of waste treatment chemicals. And because there are fewer trucks on the road, this will have a positive impact on things like road degradation, traffic congestion and air pollution. Here’s an infographic on the environmental benefits of pigging.

Find Out More

Does your company process food or drink products and are looking for a way to optimise your production process, increase efficiency and produce more for less and faster?

HPS Product Recovery Solutions have been providing proven and cost-effective pigging and product recovery solutions for the process industries since 1995. For more information or to speak to one of our technical experts about your requirements, then please contact HPS!

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