UK’s Biggest Food Companies Suffer First Fall in Sales in 15 Years

26 Sep 2016 --- The UK's biggest food and drink companies suffered a fall in sales last year for the first time in 15 years while a significant slowdown in M&A activity has also negatively impacted the sector's growth, according to a new report.

The report, published by the global consulting firm OC&C Consultants, reveals that the UK's biggest 150 food and drink companies ranked by sales-which includes Arla Foods, Associated British Foods and Unilever UK- suffered a 0.1 percent drop in sales in 2015, compared to the year previous.

The first fall in sales since 2001 has been caused by a number of factors, such as investor uncertainty, supermarket prices wars, and consumers preferring to opt for niche brands.

According to Will Hayllar, partner at OC&C Strategy Consultants, the industry is facing "the dawn of a new era" and that the industry is being "turned on its head" by smaller players, who are tapping into consumer demand for niche food and drinks brands.

Hayllar said: “For years, the top 150 food and grocery companies in the UK have enjoyed revenue growth that has far out-paced overall grocery spending, driven by M&A activity and a focus on leading brands. That has now been turned on its head, and we’re facing the dawn of a new era for the industry.”

“Small branded businesses are coming to the fore, boosted by the appetite for niche food and drink brands in the UK, and presenting the biggest source of revenue growth for the sector. A devalued currency makes these small and innovative new businesses an attractive prospect for overseas investors, whilst big producers must redouble their efforts to restore growth or acquire it.”

While the biggest companies have been hit by a fall in sales, small branded products and large own label producers grew sales by 1.2 percent and 0.4 percent respectively last year.

According to the report, the growth of small brands is helped by the particular UK environment, which helps such brand flourish.

The report says: “London is a well-known incubator for start-ups, and British consumers are particularly receptive to exciting and engaging new brands, which marries well with the disruptive, digital tactics they are employing. This, along with sterling’s Brexit-driven devaluation, makes them even more attractive to foreign investors.”

M&A deals hit £3.9bn ($5.05bn) in 2015 but the report says that investor confidence dropped "significantly" in light of Brexit uncertainty, as big business failed to make a "compelling" case for further consolidation.

The report says M&A activity amounted to just £0.8bn ($1.03bn) across five deals in 2016, which is less than aa quarter of the level seen in 2015.

However, the report says that the plunge in value of sterling is likely to boost M&A activity out of its recent lull.

Hayllar added: “Brexit uncertainty can be turned into an opportunity, but producers must be proactive if they are to do this. With sterling at historic lows, there’s no longer such a price premium for buying British and this opens up a market that had previously been facing stiff competition from cheaper overseas suppliers.”

“Along with aggressively pursuing these growth opportunities, the time has come to kick-start M&A strategies to capture growth. Recent sector performance cannot continue, and the time has come for food and drink companies to reverse their recent fortunes.”