The UK Manufacturing Sector.......change is nothing new!
Over a corporate finance career spanning more years than I care to remember I have been involved in well over 30 merger, acquisition and disposal transactions within the food and beverage sector in both the UK and Continental Europe, advising a range of companies including United Biscuits, RHM (now a part of Premier Foods) and Greencore as well as a host of privately owned companies. Having worked with and continuing to work with such a galaxy of companies across a great many food categories I have developed an expertise based on a deep understanding of what drives this industry as a whole and its various categories in particular.
If today you took a snapshot of the issues facing the industry you would perhaps come up with the trading performances of Morrisons and Tesco, the impact of the increasing market penetration of Aldi and Lidl, the suppliers “pay to stay” scheme which engulfed Premier Foods, the industry’s response to consumer issues such as an increasingly obese population and consumer confidence in the source of produce, coupled with changing shopping patterns. You could be mistaken for believing that the industry is going through an unprecedented period of upheaval. This is true to a certain extent but the reality is that the food industry has always had to face up to change – the specific issues/ trends may vary but change is the norm!
Why is change the norm? In simple terms food intake (calories x population) is relatively stable but consumer behaviour and demands change. This necessitates change from producers and retailers as they compete for a larger slice of the market.
Consumer trends don’t change overnight they evolve. One of my favourite statistics concerns the amount of time spent preparing the evening meal: in 1960, 1980 and today time spent was 100 minutes. 60 minutes and 38 minutes respectively. This could lead me onto discussions about cooking skills becoming a lost art, and research suggesting a correlation between increased cooking time at home and an increase in healthy diets, but that is for another day…………
Drivers of consumer trends come in all directions; from tightened family budgets, increased eating out, and increasing internationalisation of trends. Just take a look at how M&S have expanded their offering of international ready meals. There is also an increased awareness of where food comes from and a desire to support local producers.
Back in the dotcom era the future of the major retailers and how they would respond to the age of online consumerism was an area of much interest. How would they avoid ending up with white elephant property portfolios? Still sound familiar? It would appear that the days of a monthly or weekly huge shop are over and that we are seeing more complex shopping behaviour; online home delivery combined with increased frequency of convenience shopping along with the regular monthly or weekly supermarket run. Before the advent of the out of town supermarkets home delivery, albeit via the telephone rather than the internet, and local shopping was the norm. Yes, the way we shop is changing but this is nothing new.
From a corporate finance perspective the constant changes faced by the food and beverage industry drive mergers and acquisitions. Back in 2000 the number of reported deals in this industry was 96. This year, to date, there are 93! As I say change but nothing new!