The North-east is a growing food and drink powerhouse with firms exporting to 100 plus countries worldwide and forecasting a 15% growth in turnover from 2016 figures by the end of 2018. Headwinds however, including Brexit, talent attraction, rising business costs and shrinking profit margins could impede future growth, according to a new industry report released today (Thursday, January 18th).
Conducted by Aberdeen & Grampian Chamber of Commerce in partnership with Aberdeenshire Council; Anderson, Anderson & Brown; Dentons; Opportunity North East and Royal Bank of Scotland, the survey found that 64% of firms have invested in equipment to improve their productivity within the last two years. With almost half (47%) of ingredients locally sourced, the quality of North-east produce is recognised and currently exported to 101 countries around the world by survey respondents.
Family-run organisations continue to have a strong presence in the sector (seven in 10) and there is good news on the employment front with the majority of all respondents (57%) anticipating an increase in their workforce over the next two years. Recruitment though continues to pose a challenge with difficulty experienced in securing chefs, production staff, sales staff, engineers and butchers.
Overall three quarters (75%) of companies are planning to grow over the next two years, with the majority of these planning on doing so through expansion into new markets. Domestic growth both in the region and across the UK is seen as offering most opportunity by just over half (51%) of businesses, with the EU and ‘beyond the EU’ favoured by 26% and 32% respectively.
For businesses who are currently exporting outside the UK, the survey found the largest export market was Germany, followed by France, the Netherlands and Belgium. While the top four countries are within Europe, Hong Kong and the USA also featured in the top 10. When asked to name the markets outside the UK which businesses feel represent future export growth opportunities, the USA, China and Germany were most popular.
The sector is not without its challenges however. Business costs are expected to increase, with net profits anticipated to decrease for 42% of businesses. The cost of raw materials (57%), the living wage (43%) and business rates (42%) were cited as the top factors impacting on businesses in the next two years; with the need for improved transport and infrastructure, greater availability of business support and improved regional marketing identified as target areas which would improve business conditions.
James Bream, research and policy director at Aberdeen & Grampian Chamber of Commerce, said: “The North-east food and drink sector has received increased recognition in recent years for its potential to drive economic growth and the results of this new survey show clear signs of positivity with businesses reporting confidence and forecasting turnover growth.
“We still find that at 26% perhaps too few are exporting but overall the sector is growing and not only are organisations currently delivering against their plans but they have confidence in their ability to grow both their turnover and workforce in the short to medium term.
“There are some significant risks to our growth however. While 64% of companies have invested in productivity gaining equipment, the ability to continue investment looks weaker. Companies are reporting significant increases to the cost of doing business and while turnover forecasts are bullish, the cost impacts are about to squeeze already tight margins and potentially constrain investment appetite and ability just when we need it most.
“In the context of Brexit and labour challenges, investment in automation, innovation and technology looks vital in even the short term but the ability to deliver that is in question and that may impact on our competitiveness.”
Click here to download the report.