UK finance advisor Oghma Partners has released its 2024 outlook and considerations for the food and beverage sector, which highlighted that the “pressure will mount on consumers” as costs rise.
The outlook, created by company partner Mark Lynch, highlighted five considerations for the food and beverage sector in 2024, focusing on the effect of inflation on spending, EU trading and the decline of plant-based foods.
Lynch commented on the reported improved earnings of food and drink companies in 2023 on the back of a “tough comparison” in 2022. The report said that looking to 2024, it was expected that the pressure would “mount on consumers” as costs rise elsewhere.
It stated that this could be seen in the de-stocking of premium items and reduced volume of consumption across a range of products, as well as the observed switch from branded to own-label products. Consumers also appeared to move away from less “cost-focused” retailers and towards more “value-focused” offerings and product ranges.
Wage/cost growth
In 2024, Oghma expects wage growth to be a further challenge, with the minimum wage increasing in April by 9.8% – it is predicted that this will put upward pressure across the food sector where a lot of wage costs “move in tandem” with the minimum wage figure.
As it stands, it predicts that raw material costs are forecast to be broadly stable or declining with one or two exceptions, but overall Oghma expects a “relatively neutral” commodity input costs environment in 2024.
The company stated that management attention would likely be focused on wage costs and combined with issues around labour availability, potentially creating a “renewed focus” on capital investment to reduce labour usage across the manufacturing estate which it said may, in turn, drive productivity gains across the sector.
Funding costs may remain high
Considering funding costs, Oghma highlighted that central bankers appear to be taking a cautious view of inflation, and that while there may be signs of easing interest costs in 2024, these cuts may be “relatively modest” and “back end weighted”.
As a result, Oghma said it will therefore be unlikely to materially impact the cost of funding in the year, as high rates feed through to equity market ratings for quoted food companies and exit prices for businesses being sold. The advisor said it does not expect any significant increase in the multiples paid for businesses being exited in 2024 compared to 2023 or 2022.
“Fractious trading” with the EU
According to the outlook, export friction with the EU is likely to continue. However, it said that the Government has “finally committed” to introducing reciprocal checks covering health certification and sanitary and phytosanitary (SPS) checks on all agri-food products from the EU, which will be introduced on a phased basis.
It said that the introduction of the checks has the potential to increase cost and disrupt supply chains, and that it thinks a “new Labour Government will seek to resolve the issue by rejoining the EU Phytosanitary regime”. The outlook maintained that re-joining the regime would be “highly unlikely” to affect any pro-Brexit voters.
A decline in plant-based consumption
Oghma observed a “significant upheaval” in the 2023 plant-based food market, with reduced ranges, falling consumption and businesses going bust in the sector. It predicted that 2024 will likely see the “fall-out” continue, allowing category and sector leaders to reposition themselves for growth going forward.
Ahead of 2024, Oghma recommended plant-based businesses focus on marketing, consumer messaging, pricing and product quality should help realign the sector with consumer expectations and demands.
